105 PMM Group12

International Journal of Physical Distribution & Materials
Management
Trends in Materials Management
Amrik Sohal, Keith Howard,
Article information:
To cite this document:
Amrik Sohal, Keith Howard, (1987) "Trends in Materials Management", International Journal of
Physical Distribution & Materials Management, Vol. 17 Issue: 5, pp.3-41, https://doi.org/10.1108/
eb014662
Permanent link to this document:
https://doi.org/10.1108/eb014662
Downloaded on: 06 April 2018, At: 19:45 (PT)
References: this document contains references to 0 other documents.
Downloaded by INSEAD At 19:45 06 April 2018 (PT)
To copy this document: permissions@emeraldinsight.com

The fulltext of this document has been downloaded 165 times since 2006*
Users who downloaded this article also downloaded:
(2002),"Improving materials management effectiveness: A step towards agile enterprise", International
Journal of Physical Distribution & Logistics Management, Vol. 32 Iss 7 pp. 556-576 <a
href="https://doi.org/10.1108/09600030210442586">https://doi.org/10.1108/09600030210442586</a>
(1989),"Integrated Materials Management: A Conceptual Approach", International Journal of Physical
Distribution & Materials Management, Vol. 19 Iss 8 pp. 9-17 <a href="https://doi.org/10.1108/
EUM0000000000330">https://doi.org/10.1108/EUM0000000000330</a>
Access to this document was granted through an Emerald subscription provided by emerald-
srm:532906 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald
for Authors service information about how to choose which publication to write for and submission
guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well
as providing an extensive range of online products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the
Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for
digital archive preservation.
*Related content and download information correct at time of download.

3
Trends i n M a t e r i a l s Management
by Amrik Sohal and Keith Howard
Introduction
This monograph will review recent thinking as applied to the management of materials
within organisations. In considering the type of organisation to which the comments
will apply, it is of use to recognise the following sectors:
• primary (e.g. mining and agriculture),
• manufacturing,
• service.
The primary and manufacturing sectors are concerned with the production of goods
and hence "materials management" may be viewed as an important element of
"production management", whereas the control of materials in service industry will
be part of the more broadly defined "operations management". Though efficient
management of materials is an important objective in service industry the emphasis
here will be on manufacturing operations.
Two important organisational developments during recent years which are pertinent
to this monograph are:
(i) the trend towards customer orientation brought about by increased national
and international competition and customer awareness.
(ii) The trend towards the integration of functions within organisations, made
desirable by the problems created by poor functional interfacing, and facilitated
by improving management information systems.
Recognition of these developments is having a profound effect on the manner in which
many organisations are approaching the task of managing materials. In consequence
this monograph is structured as follows:
Section I Delivery performance.
Section II The planning and control of materials in the production
function.
Section III Materials acquisition.
4 IJPD & MM 17,5
Materials management is thus seen as a response to customer requirements (either

actual or predicted). Furthermore, materials management is not viewed as the sole
prerogative of the production manager, but is an activity with which the distribution
and procurement functions are much concerned. As long ago as 1968 Magee[l] defined
"the movement of materials and products from source to user" as "logistics" and
La Londe and Grabner[2] some three years later suggested that "business logistics"
could be used to describe the combination of materials management and physical
distribution management. Thus, it might be argued, by being customer oriented, and
managing materials flow within the organisation as one system, corporate performance
should improve.
I DELIVERY PERFORMANCE
The degree to which an organisation is customer oriented can be assessed through
consideration of the various elements of "customer service". Christopher[3] identified

23 customer service elements, and cited Levy[4] who was able to generate 66 elements
through group discussion. Naturally, the elements have different importance and range
from the readily measurable, such as frequency of delivery, to qualitative activities,
for example consultation on new product development. Definitions of customer
service[5] include those which focus on physical aspects e.g.:
"Timeliness and reliability of getting materials to customers in accordance with
the customer's expectations",
and those which are of a more general nature e.g.:
"A complex of activities involving all areas of the business which combine to deliver
and invoice the company's products in a fashion that is perceived as satisfactory
by the customer and which advances our company's objectives".
Delivery is the final activity in the channel which extends from supplier to customer.
Consistent with the first of the two definitions is the proposition made by New and
Sweeney[6] that delivery performance embraces two factors:
• product availability,
• delivery reliability.
New and Sweeney suggest that the function of product availability is to achieve short-
term market share through offering the shortest possible lead-time. Product availability
is determined primarily by capacity and stocks, which in turn should take account
of market forecasts, and can only be increased by adding to capacity. They conclude
that the aim of delivery reliability is long-term market share through customer
satisfaction, and that it is achieved through the avoidance of lateness (compliance
with scheduled delivery date would be preferable). Delivery reliability is influenced
by quoted delivery date which, in turn, requires knowledge of capacity, work content,
and manufacturing lead times. It is adjusted by changes to schedule.
By emphasising the desirability of customer orientation and high levels of customer
service it becomes realistic to view materials management as a reactive activity (as
opposed to manufacturing strategy which, through recent technological developments
Trends in Materials Management 8
is becoming an increasingly proactive factor in the determination of corporate strategy).

Considering material flow specifically, the two following activities have evolved during
the last twenty years or so:
• Distribution Requirements Planning (DRP),
• Materials Requirement Planning (MRP).
Distribution Requirements Planning will be described briefly in this section and MRP
in Section II. Though each activity is concerned with the management of materials,
and MRP leads directly into DRP, the separate development of the two activities has
arisen, largely, because of the large span of control implied by business logistics and
the often sharp divide between the production and distribution functions.
The 1980s has, in many organisations, witnessed the integration of functions (due
largely to the development of computerised technical control and management
information systems) leading to computer integrated manufacturing and MRP II
(Manufacturing Resources Planning). Not be be outdone the distribution function

has responded with Distribution Resources Planning, despite the claim that MRP II
now subsumes distribution activities.
At the most basic level both MRP and DRP are a set of decision rules in which
works orders and delivery orders derive respectively, from a master schedule and
forecast requirements. MRP II seeks to balance demand by the use of advanced
integrated systems throughout the manufacturing and logistics channel, and
Distribution Resources Planning is concerned with replenishing distribution points
from the centre through the utilisation of all resources within the distribution function,
at the same time taking account of the implications for customer service.
Whatever systems are in operation planning in most organisations will conform with
the hierarchial logic of Figure 1. Also depicted loosely in Figure 1 is the link between
DRP, MRP and procurement.
Distribution Requirements/Resource Planning
For brevity both versions of this planning activity will be referred to as DRP.
DRP is the response to aggregated forecast market demand on depots and is
concerned with the replenishment of depots from central manufacturing sources.
Crabtree[7] describes two distinct methods which have evolved for this purpose; one
due to Brown, and one due to Martin. Both methods start with the product forecast
and take account of stock on hand; thereafter:
"With Brown, the gross requirements used in the netting logic are the sources of the
replenishment quantities needed by the distribution points expressed for each day (or week)
in net quantities. With Martin, the gross requirements are the individual replenishment
quantities expressed as an agreed schedule of required deliveries in computed lot quantities".
Crabtree makes the point that Brown's method produces replenishment needs which
are smoother than would result from Martin's method and that, as a result,
stockholding is somewhat greater in the latter case. Crabtree describes the quite
substantial differences between the two methods and their consequences, and stressed
that organisations should understand the implications of both. He suggests that stable
conditions favour Martin's method but that Brown's method is more appropriate in
other circumstances.
6 IJPD & MM 17,5
Figure 1. Hierarchy of Information and Material Flow

In his article Crabtree makes several observations on certain conditions to be satisfied

if DRP is to be successful:
• an integrated view is taken of stockholding throughout the manufacturing and
distribution channel,
• accurate forecast data are available,
• there must be an efficient and robust communication system between the depots
and the centre,
• central management must ensure unity of the systems (though local
management autonomy may be desirable in certain matters).
The formulation of a plan does not of course ensure its execution. The achievement
of a high level of delivery reliability will depend on many factors, some of which are
out of the control of management e.g. bad weather conditions and road accidents.
Greater control can be applied to product availability, but here a trade-off is often
involved between the cost of stockholding and the benefits of delivery performance.
Inventory in General
A tangible consequence of the control of materials is the occurrence of stock at various
stages in the procurement, production and distribution channel. Very much in fashion
at the present time are materials management philosophies which seek the virtual
elimination of inventories. Methodologies such as "just-in-time" are favoured not
simply because a reduction in inventory leads directly to a reduction in costs but because
toleration of high inventories can conceal poor managerial planning and control.
Although the ideal of material arriving at the next stage "just-in-time" for the adding
of value through a process of transformation or transfer is in prospect in a limited
number of organisations, this ideal may be unachievable for one or more of the
following reasons:
• available capacity is insufficient to satisfy cyclical demand,
• lot sizes (e.g. supplies and batch production) cannot realistically be avoided,
• suppliers or customers cannot be prevailed upon to provide or take goods to

a particular schedule,
• demand forecasts may prove to be too optimistic,
• stocks may be deliberately built up in advance of anticipated price rises or
shortages,
• stocks may be held for promotional purposes at retail outlets and, of course,
stocks in transit cannot be avoided.
Within the constraints of special factors such as capacity, shortages etc., the general
aim of management is to reduce inventories. Care must, however, be taken to ensure
that control systems implemented do not lead to sub-optimality. As inventory is a
consequence of whichever material management policy is operative, localised decisions
on stock levels should not be made without investigating the full implications of action
to be taken.
Consideration of inventory policies operating within organisations has led to the
content of Figure 2. Although each stock unit has to be controlled, individual details
are not the normal concern of senior managers. From time to time, however, aggregate
levels of inventory may be an item on the Board agenda leading to the type of inventory
policy described in Figure 2.
Figure 2. Corporate Policies Towards Inventory
Type of Corporate Policy
1. High stocks to support high customer services levels.

2. Low stocks to minimise holding costs.
3. Interventionalist.
4. None.
5. "Rational": designed to achieve the corporate optimum.
6. Special types: e.g. degree of control related to importance of stock category; purchase against
forecast, manufacture against order.
8 IJPD & M M 1 7 , 5
Most of the corporate policy types are self-explanatory. "Interventionalist" implies

that efficient control systems are not in place and that, periodically, efforts are made
to achieve more appropriate levels; once controls weaken the inventory position
deteriorates again. Many organisations have no corporate policy towards inventory
though, of course, individual items may be controlled routinely. "Rational" in the
corporate sense implies systems such as JIT, MRP II and OPT (see Section II) where
inventory which may arise is viewed as a by-product of an efficient process.
In the specific matter of delivery performance this will be enhanced through policy
types 1, 5 and 6 (more important items only), and affected adversely through policy
types 2, 3 (most of the time), 4 and 6 (less important items).
Because of the unfavourable impact of high stocks on financial performance some
organisations confer line status on the inventory controller. Whilst there may be
justification for giving direct authority to a controller in situations where inventory
levels have got out of hand, this can only be on a short-term project basis. The longer-
term aim must be to adopt efficient materials management procedures and to tolerate
whatever stock levels arise.
Naturally there remain many areas where the inventory specialist can contribute
to the improvement of systems, e.g. determining optimal batch sizes within imposed
constraints, stock allocation policies in depots, ABC analysis and the specification
of appropriate control systems for each category, and the estimation of stock levels
needed for a given level of product availability (customer service).
Inventory and Delivery Performance

From comments made above it is evident that some materials management policies
will be detrimental to delivery performance on the grounds that stocks will not be
available when despatch to a customer is indicated. This can be overcome by increased
investment in stocks, but the trade-off between holding and shortage costs will be
apparent.
Particularly if manufacturing lead times are lengthy there is little alternative for
an organisation but to attempt to forecast demand accurately. "Accuracy of forecast
cannot be guaranteed and hence the concept of safety or buffer stocks is suggested
(stocks in excess of forecast demand during delivery lead time). The determination
of the size of safety stocks requires either:
1. the adoption of a quantified service level (e.g. 98 per cent of demand satisfied
within 3 days),
or 2. estimation of the cost of being unable to meet customer demand.
These matters are discussed at some length in[8].
Forecasting is the starting point of DRP (see Figure 1) and routinely generated
estimates of demand variability enter into safety stock calculations directly according
to the extent to which protection against stockout is sought. It is usually the case that
only demand variability is taken into account in the computation of finished goods
safety stocks, it being assumed that delivery lead times can be guaranteed. The latter
is not, however, always the view of the customer, nor is it borne out by the New and
Sweeney study[6]. Greatest exposure to stockouts arises when above average demand
occurs during longer than expected delivery lead times. It is, therefore, the case that,
unless the cost of shortage is very high, some stockouts will be tolerated; though it
is important to recognise that their expected frequency should be established through
objective analysis.
Broad Organisational Implications
From what has been written it is clear that to be fully effective materials management
must embrace the flow of goods right to the customer. This does not mean that 100
per cent customer service (at least insofar as delivery performance is concerned) will
be achieved, but what can be concluded is that in the absence of customer orientation
either:
1. Service levels achieved will be lower,
or 2. The cost of maintaining high levels of service will increase significantly.

Though the need for organisations to budget and set production targets is appreciated
this should not lead to materials management ceasing to apply beyond the factory
finished goods store.
Traditionally the production function has tended to dominate the distribution
function and hence some organisational restructuring with repositioning of managerial
authority is unavoidable if full advantage is to be taken of the new integrated materials
management thinking.
II THE PLANNING AND CONTROL OF MATERIALS IN THE PRODUCTION
FUNCTION
As mentioned at the beginning of Section I the emphasis in this monograph will be
on manufacturing operations. For any manufacturing organisation, the first step in
the planning and control of materials is the determination of an accurate forecast
of demand for the products to be produced. These demand forecasts can then be used
as a basis for controlling stocks, scheduling, capacity planning, etc. There is a range
of forecasting techniques, both quantitative and qualitative, which can be used to
provide demand data for better control, but it is not intended to examine these in
detail here. Reference can be made to[9] where some of these techniques are examined.
The point which must be made is that many organisations are still unsure of the
techniques available for forecasting or do not know how to incorporate the forecasts
into the decision processes. All organisations collect data on customer orders for
products but these data are often recorded in such a manner that they can not be
readily used for forecasting. Adequate data recording procedures are, therefore, essential
if accurate forecasts are to be made.
Independent and Dependent Demand

It is common to view demand for a product as being either independent or dependent.
Possibly, more appropriate terminology could be employed, as virtually all demand
is dependent upon something. What is implied is that one category of demand is
determined outside the organisation (i.e. is independent of it), whereas other demand
is demand in response to some internal requirement i.e. is dependent upon a
10 I J P D & MM 17,5
requirement for afinishedproduct. Perhaps the terms often encountered in economics,

exogenous and endogenous would be more appropriate.
The majority of models encountered in the literature, which are intended to assist
in the planning and control of material levels, assume independent demand and,
particularly, demand which is "statistically stable" (varies randomly about a constant
average). This enables economic batch and order quantities to be determined and stock
control systems of the analytically based periodic review or reorder level types to be
designed. It should be noted that if raw material stocks can be "decoupled" from
manufacturing, demand for this type of item can be treated as if it were independent
(this could arise when a particular raw material is used in the manufacture of several
products).
Circumstances within manufacturing industry dictate that demand for using
components and raw materials is dependent. Although demand for the end products
needs to be forecast, demand for dependent items can be derived more sensibly from
the demand for the end product. Dependent demand items can be defined as those
items for which demand is a direct result of the demand for a "higher level" item
or end product[10]. An example of an end product or higher level item is a car and
a dependent item the fuel pump. It would be unrealistic to forecast demand for the
pump when a schedule for car production has been established.
The forecast of demand for finished products can be used to plan production levels
and dependent items will then be required in the right quantities, at the right time
and at the right place. "Time phase" planning, which is the basis of materials
requirements planning (MRP) is used to achieve this.
Materials Requirements Planning (MRP)

Over the past decade much has been written about materials requirements planning
both by academics and practitioners. Described have been experiences of
implementation, associated problems and advantages of the system. Different MRP
models have been suggested by researchers to deal with varying demand rates, stochastic
lead times, uncertain demand timing, and multi-period, multi-product, multi-level lot
sizing problems. The overall sucess rate of organisations attempting to implement MRP
has not been high. Failure rates of up to 50 per cent have been reported in the United
States[ll]. A recent survey of the utilisation of production techniques in the UK found
that MRP was being used by only a third of the responding companies and "no
knowledge" was given most frequently as the reason for non-usage[12].
The Basic MRP System

MRP is a computer-based push system of manufacturing planning and control, and
is based on the preparation of a multi-period schedule of future demands for products.
"Push" implies that the schedules cause work to enter the production process to meet
previously agreed dates for product delivery. The required parts are processed and
moved to the next stage until they reach final assembly.
The inputs to an MRP system are the Master Production Schedule, the Bill-of-
Materials File and the Inventory Status File (Figure 3).
Master Production Schedule (MPS)

This is the overall plan of production and drives the MRP. It contains the details of
the end items to be produced during specific time periods. The demand for the end
items may be derived from forecasts or from actual customer orders. The output from
the MPS is in the form: "Require 100 of Product A in week 15".
Bill-of-Materials File (BOMF)
The concept of dependent demand mentioned earlier is built into the Bill-of-Materials.
This file contains specific descriptions of the component parts which are required
to make up the end item including quantities used per unit of end item and their
relationship to the end item. Final products are broken down into a series of dependent
levels:
Level 0 —Final Product
" 1 —Main Subassembly

" 2 —Minor Subassembly
" 3 —Components
" 4 —Raw Materials
Figure 3. Elements of an MRP System
12 I J P D & M M 17,5
Relationships between the different levels may be represented by a Gozinto Chart

(Figure 4) which demonstrates the bill-of-material structure for a product.
Figure 4. Gozinto Chart for a Simple Product
End product demand from the master production schedule can be converted to
individual requirements for raw materials, components and assemblies through
summing requirements at each level.
Inventory Status File

This contains a record of all the items in the BOMF and MPS that are in stock, on
order (not yet released to production) and work-in-progress. The inventory status file
also contains information on lead times, safety stocks and service levels.
Using the information from the master production schedule, bill-of-materials file,
and the inventory status file, it is possible to calculate the net requirements from the
gross requirements at each level. From the gross requirements of the end products
held in the MPS, available inventory, work-in-progress, and orders not yet released
are subtracted to give net requirements of each end item. Time phasing of input at
the next level is then established by taking account of manufacturing lead times. The
process is repeated for all items working down the Gozinto Chart from the end product
to raw materials.
The output from the MRP system is the detailed schedule with planned order releases
for all component parts either to be manufactured in-house or purchased from outside
so that the correct quantities arrive at the appropriate place in time for assembly or
processing.
This is only a brief description of how the basic MRP system works. For a detailed
discussion of the system see Orlicky[10].
Calculations of the quantities and timing of requirements of all raw materials and
component parts is undertaken by a computer, using an MRP programme. Many MRP
software packages are commercially available.
MRP programmes allow for a number of different batch-sizing rules including:
• Fixed order quantity.
• Economic order quantity.
• Lot for Lot.

• Period order quantity.
• Least total cost or least unit cost.
• Minimum or maximum adjustments to existing set-ups.
Reports generated by a typical MRP system may include:
• Gross and net requirements reports.
• Capacity versus load reports.
• Shop floor planning reports.
• Production order status and exceptions reports.
The capacity versus load report indicates whether sufficient resources are available
at the work centres to produce the net requirements needed to satisfy the master
production schedule. High accuracy of the data is therefore critical if an MRP system
is to be successful.
Benefits and Shortcomings of MRP

Manufacturing organisations can derive considerable benefits from the implementation
of an MRP system. Typical benefits reported in the literature are reduction in inventory,
increased inventory turnover, improved customer service levels, and enhanced quality
of life. The total inventory needed for production can be significantly reduced by
accurately planning the release of orders so that component parts arrive in the right
quantities at the time they are needed for assembly. All organisations have now realised
the importance of keeping stocks to a minimum and increasing their inventory turnover
ratio, and the successful implementation of an MRP system can help to realise these
aims. Figure 5 taken from Callerman and Heyl[13] shows the benefits to be derived
and the expected changes resulting from the successful implementation of an MRP
system. The + and - symbols shown in the figure indicate the hypothetical direction
of change in a successful implementation.
The most common problems with MRP implementation identified by both
academics and practitioners are those related to people. Technical problems have not
14 IJPD & MM 17,5
Figure 5. Outcome Variables of an MRP Implementation

been too difficult to identify and solve. The most important change needed for
successful MRP implementation is the manner in which organisations view their
processes, responsibilities, employees, and their relationships with the external
environment. Callerman and Heyl's model for implementation[13] places emphasis on:
• support of management,
• involvement of the users,
• education of users, management and MIS staff,
• detailed planning and control,
• sound design.
The model is shown in Figure 6. Callerman and Heyl suggest that, with modifications,
it could be applied to other company-wide systems such as Just-in-Time manufacturing.
Figure 6. A Model for MRP Implementation
16 I J P D & MM 17,5
The shortcomings of the MRP software are many. Swann[14] refers to the following:
• rigid batch-sizing rules,
• rigid "average" queue times,
• inability to split batches or send ahead partial batches,
• sequential date setting and capacity requirement calculations (as opposed to
simultaneous calculation),
• iterative "load balancing" to eliminate overloads,
• lack of finite scheduling logic.
Most of the batch-sizing rules which MRP packages use ignore ordering and inventory
carrying costs. The optimal batch sizes computed are derived by using fixed set-up
and carrying costs, whereas in a dynamic manufacturing organisation the ordering
and carrying costs can vary considerably due to layout, machine configuration, and
many other practical considerations on the factory floor and in the warehouse[14].
The materials handling system currently in use is another important factor to be taken
into account.
One drawback of the MRP system is its assumption that a part is passed through
all the manufacturing stages in a fixed-size batch. In the real world batch sizes can
vary for a number of reasons. The effect of economic batch quantity formulae is to
favour large batch sizes to offset high set-up costs.
The MRP system was originally designed to "plan" the movement of materials
through production and it does this very well. However, it is expensive to implement,
can take a long time to install, and requires considerable computing power and technical
skills to operate. Because of these drawbacks many manufacturers do not favour its
adoption. The creation of data bases can take a long time and MRP software packages
usually have to be "tailored" to match the particular manufacturing company resulting
in the installation process taking up to two years to complete. Returns on investment
can be longer.
Materials requirements planning has been extended to "manufacturing resources
planning" (MRP II) during recent years. A brief discussion of this follows.
Manufacturing Resources Planning (MRP II)

A considerable amount of time and money has been invested in developing MRP.
However, the system has a number of limitations. One is the assumption that the
resources are unlimited. This means that planned schedules cannot be achieved.
Another assumption is that lead times are fixed and can only be changed manually
and thus cannot be adjusted to maintain flow. This can lead to unacceptable delivery
lead times and high inventory[15]. Manufacturing resources planning (MRP II) is a
more comprehensive system of planning and control that takes into account available
capacities early in the calculations.
In outline a rough estimate of capacity requirements is made as part of the master
scheduling process to ensure that they are broadly in line with requirements. In order
to achieve the specified delivery dates for the end products, the MRP II programme
uses information from the MPS and BOMF to determine the order and manufacturing
Figure 7. Manufacturing Planning and Control System

18 IJPD & MM 17,5
quantities and priority planning by the setting of order placement and due dates[16].
This is done for each item from the end product down to the raw materials. Vollman
et al [17] have provided an example of an MRP II model shown in Figure 7, they call
a manufacturing planning and control system. The control system is divided into three
sections which are labelled "front end", "engine", and "back end". This is done on the
basis of the general functions they encompass. The front end section produces the master
production schedule, the engine includes "little" MRP and capacity planning, and the
back end deals with detailed scheduling of the factory and also with managing materials
coming from the vendors. Several other activities are shown in the front end and the
back end of the system and these must be performed and co-ordinated accurately and
evaluated on an ongoing basis. A detailed analysis of manufacturing planning and
control systems is provided in[17].
Just-In-Time (JIT) Production — The Kanban System
MRP, discussed earlier, is usually seen as a computer based push system of production
planning and control. Kanban is a non-computer based system of controlling production
which also derives from a master schedule. More importantly Kanban is a pull system
which seeks to achieve both high control and low inventories. The JIT philosophy is
to make only the minimum necessary parts in the smallest possible qunatities at the
latest possible time.
The Kanban system of production was developed in Japan by the Takahama plant
of the Toyota Motor Company and takes its name from the use of two cards (Kanbans).
The requisition Kanban, which authorises the movement of standard containers between
work centres, and the production Kanban, which authorises the production of a standard
container of parts at a work centre. These Kanbans are attached to the containers in
which the parts are carried.
The Kanban system keeps work-in-process to a minimum by linking the demand at
each work station directly to the demand for the finished product. Each work centre
produces the required items as and when demanded in relatively small batch sizes, keeping
load time to a minimum.
Figure 8 taken from Ebrahimpour & Schonberger[18] shows how a number of
important elements are combined to form the JIT production system. These include
production smoothing, multifunctional workers, standardisation of jobs and the Kanban
system. Without these elements a JIT system cannot be implemented successfully.
Reduction in set-up times and, as a result, reduction in batch sizes, helps to achieve
smooth production. "Multi-functional workers" implies that every worker on the shop
floor can carry out more than one operation and can thus undertake different work
when required, i.e.: move from one work station to another. This leads to an increase
in overall productivity through improved teamwork. Standardisation of cycle time,
routing, containers and work-in-process quantities can all lead to a more uniform and
invariable output rate. The operation of the Kanban system of production is illustrated
in Figure 9. Each work centre has an inbound and outbound inventory point. Standard
containers full of parts produced at a work centre are held at the outbound inventory
point. The production Kanbans are attached to these containers which are ready to
be withdrawn, when required, by the downstream "using" work centre or final assembly
work station. The inbound inventory point holds the standard containers of parts
produced by the upstream "supplying" work centre and to these are attached the
requisition Kanbans.
Figure 8. Components of JIT Production System

To fulfill a particular day's production, the final assembly work station withdraws
standard containers of parts from its inbound inventory point. The requisition Kanbans
attached to these containers are removed and taken (with empty containers) to the
outbound inventory point of the upstream supplying work centres. Here standard
containers of parts (with production Kanbans attached), produced by the work centre,
will be waiting. Two events now take place:
1. The standard containers full of parts production Kanbans removed are taken
to the inbound inventory point of the final assembly together with the original
requisition Kanbans. The containers arrive in time to meet the next requirement.
2. The production Kanbans are removed from the standard containers and these
become the authorisation to the work centre to replenish as quickly as possible
the containers of parts just removed from its outbound inventory point. The
original production Kanbans are attached to the empty containers that were
sent from the final assembly inbound inventory point.
20 IJPD & MM 17,5
Figure 9. A Schematic Illustration of the Kanban System

This procedure is repetitive and identical for each work station. The requisition
Kanbans initiate and control the production of parts at each work station successively
in turn from the assembly stage to the raw materials. The parts are pulled through
the system as and when needed. Each work centre requires authorisation (production
Kanban) before it can start to produce work.
Production of parts at work centres is usually on a first-come-first-served basis.
Conflicts can arise here and management judgement may be needed to overcome
loading problems. The Kanban system requires some repetition in product manufacture.
Set-up times must be short and batch sizes small. A more detailed discussion including
the determination of the number of Kanbans required is given in[16].
The supply of component parts and raw materials from vendors can also be
controlled by the Kanban system. At Toyota, vendors are encouraged to adopt the
Kanban system and to improve their own control of production.
In summary, the Kanban system works from the master production schedule, as
does MRP. The control of production is decentralised whereas it is centralised with

MRP. Manufacturing activity is regulated by the use of Kanban cards both to
requisition lower-level items and to initiate production.
Benefits and shortcomings of Kanban

Many large manufacturing companies have adopted the Kanban system in recent years.
In Japan, apart from the Toyota Motor Company, Mazda is another major car
manufacturer using the system. In Europe experience of implementing and using
Kanban has been gained at Cummins Engines, Nissan (UK), Massey-Ferguson, IBM,
Lucas and Beaver Machine Tools. American and Australian experience has included
Xerox Computer Services, Hewlett-Packard, and the Repco Clutch Company of
Melbourne[19,20,21].
At a recently held conference in London, contributions were specially commissioned
from companies engaged in JIT, or JIT inspired, projects[22]. Horst Wildemann from
West Germany reported that over 80 companies were ready to discuss the impact of
JIT on their performance. The provisional assessment by Wildemann suggests the
following benefits[19]:
• An average reduction in inventory of around 50 per cent.
• A reduction in throughput time of 50-70 per cent, leading to a decrease in the
stock of finished goods of about eight per cent.
• Reduction in set up times of up to 50 per cent, "without substantial changes
to the production facilities and equipment".
• An increase in productivity of between 20 and 50 per cent.
In addition to the above, internal handling and material movement is considerably
reduced, particularly if the suppliers are integrated with the JIT system.
Cummins, one of the world's leading designers and producers of diesel engines,
reported the following results from a JIT cell set up in their Darlington (UK)
factory [20]:
• Work-in-progress reduced from a thousand pieces to 134.
22 IJPD & MM 17,5
• Product lead-time reduced from 15 days to two days.

• Issued batch sizes down from 500 to 40.
• Changeover time, previously as long as 18 hours almost eliminated.
• A saving of 31 per cent in floor space used in the machining operations, with
the product being moved only five yards against 150 yards formerly.
• Product cost reduced by 26.1 per cent.
The Kanban system has enabled the Repco Clutch Company of Melbourne, Australia
to rationalise its product base — reducing the variety of clutch plates manufactured
by 58 per cent and the variety of diaphragms by 43 per cent. Before implementing
JIT, Repco manufactured no fewer than 720 different types of clutch plate and 110
different designs of diaphragm[23].
Figure 10. JIT, Its Components and Potential Benefits

Figure 10, taken from Lee and Ebrahimpour[24], summarises the important
components of JIT and the potential benefits.
Activities associated with setting up JIT include:
1. Flow analysis to match capacities with production need;
2. Selection of products convenient for material flow control in the JIT mode;
3. Redesign of the manufacturing area to accommodate new transportation
requirements, location of buffer stocks, and the decentralisation of the existing
stock organisation.
Wildemann's study of 80 companies showed that on average the payback time for
investment in JIT was less than nine months.
JIT has been widely reported upon during recent years. Its great strength is its
simplicity. However it is not the answer to all manufacturing problems as might be
suggested by the benefits claimed. One of the changes necessary for the success of
JIT is the involvement of all operatives in decision making. A change in attitudes
is important if JIT is to succeed. As there are no buffer stocks at each work centre
in the Kanban system, if local disruption does occur then the whole manufacturing
activity will come to a standstill. The number one priority in this case is to solve the
particular problem, and every operator on the shop floor is fully involved in this task.
Another major requirement in JIT production is preventative maintenance to guard
against possible breakdowns in plant and machinery during manufacturing.
At the conference referred to above, contributors pointed to the complete co-
operation, and involvement of each member of the work force if successful
implementation of JIT is to be achieved. Total commitment of the operatives is most
important. They have the right to stop a work centre if problems arise, and are also
given the opportunity to apply their skills and judgement as appropriate Shop floor
personnel must be encouraged to lead the process of change necessary for JIT and
respect for individual employees' opinion must be shown.
Table I. Implementation Problems
Was a Still a Now Under

Problem Problem Control
Problem Area % % %
Customer Schedule Changes 62.0 57.4 4.6
Poor Supplier Quality 59.3 49.1 10.2
Poor Production Quality (Internal) 57.4 43.5 13.9
Inability to Change Paperwork Systems 57.4 46.3 11.1
Shortage of Critical Parts 57.4 44.4 13.0
Supplier Inability to Deliver JIT 56.5 49.1 7.4
Lack of Employee Commitment 49.0 30.5 18.5
Inability to Reduce Setup Time 48.1 36.1 12.0
Inadequate Equipment & Tooling 45.4 30.6 14.8
Surplus of Non-Critical Parts 43.5 33.3 10.2
Lack of Top Management Commitment 42.6 27.8 14.8
Labour Contract Problems 35.2 25.9 9.3
Source: Celley et. al. Journal of Purchasing and Materials Management , Winter 1986.
24 I J P D & M M 17,5
Celley et. al. [25] recently carried out a survey in the United States to investigate
JIT implementation problems in which they used companies from the Automative
Industry Action Group. Table I shows the implementation problems identified by the
respondents. The first column shows the percentage of companies implementing JIT
that have encountered each problem; the second shows the percentage of the firms
that have been unable to solve the problem, and the last column shows the percentage
of firms that now have the problem under control. Major difficulties encountered
in JIT implementation are customer schedule changes, poor supplier quality, and poor
internal production quality. The authors of the study suggest a number of approaches
to overcome these problems. These include improvements in communications, use of
statistical process control techniques and the preparation of an implementation plan.
The training of shop floor personnel has been highlighted as an important factor
in JIT success[23]. At one of IBM's factories in the UK, senior management used
videos to show the 2000 employees exactly what was expected of them. A pilot scheme
was demonstrated to the work force "to stop them being cynical" about whether the
plans would work. Posters were displayed on the shop floor and seminars held to create
the impression that JIT was not just another "flavour of the month".
Figure 11. JIT, Some Requirements for Implementation
Figure II indicates the important factors that must be considered in detail if successful
implementation of a JIT production system is to be achieved. These factors are
discussed in detail in[24] from which this figure is taken.
Toyota's success with JIT has been impressive as shown by the figures presented
in Tables 2 to 4[19]. The tables compare and contrast a number of key indices of
efficiency with Western manufacturing performance.
Table II. Man-hours for completion of a vehicle in automotive

assembly plants of major countries
Takaoka
plant of
Toyota A (USA) B(Sweden) C(W.Germany)
Number of employees 4,300 3,800 4,700 9,200

Number of outputs a day 2,700 1,000 1,000 3,400
Man-hours for completion
of vehicle 1.6 3.8 4.7 2.7
Table III. Press plant productivity characteristics

Toyota A(USA) B(Sweden) C(W.Germany)
Set up time (hour) 0.2 6 4 4

Number of setups a day 3 1 — 0.5
Lot size 1 day-use* 10 days-use 1 month-use —
Strokes per hour 500-550 300 — —
*For less demanded products (below 7,000 units per month) as large as 7 days-use.
Table IV. Turnover ratio of working assets in automotive companies of major countries
Toyota A (USA) B(Sweden) C(W.Germany)
1960 41 13 7 8
1965 66 13 5 5
1970 63 13 6 6
Optimised Production Technology (OPT)

Optimised production technology is the most recently developed system for controlling
production and inventory. It claims to draw upon the best of MRP and JIT systems.
There has been growing interest in OPT in recent years and in its short history,
substantial benefits have been claimed by various users.
OPT was first developed in Israel in the early 1970s by Goldratt, a former physicist.
Goldratt applied a technique for predicting the behaviour of a heated crystalline atom
to optimise the large number of variables of a work schedule. A computer program
for the purpose was developed and a small business, Creative Output Limited, was
established in Israel to market the software[26]. It was in the United States that OPT
received most of its early recognition. Creative Output Inc. (COI) was formed in the
USA in 1979 and since then companies of the highest international standing have
26 I J P D & M M 17,5
purchased and used the OPT package. At the end of 1986, 22 of the 100 largest US
companies in the Fortune 500 list had installed OPT-based manufacturing systems.
These included General Electric (with two plants on OPT), General Motors (many
plants on OPT), Caterpillar Tractors, Arrowhead Metals, Xerox, ITT, Eastman Kodak,
Westinghouse, M&M/Mars and Bendix. British companies that have installed OPT
include Lucas, STC and Perkins Engines [27].
OPT offers a completely new approach to addressing problems such as[27]:
• How to measure manufacturing efficiency.
• How to focus investment in new plant and equipment.
• What is the proper return on assets.
• How can manufacturing improve marketing competitiveness.
OPT looks at manufacturing in a similar way to the Japanese just-in-time system,

by attacking waste on the shop floor, but in a more efficient manner. It focuses on
the most critical resources, i.e.: those that control the overall output from the factory.
OPT was developed around a completely new operating philosophy and all prospective
clients of OPT are expected to accept that philosophy. Creative Output claim that
they will not sell OPT to a company that does not also implement the philosophy
behind it. The Ford Motor Company and Creative Output parted company over
this[28].
The philosophy is based on the following[28]:
A. The Goal — Creative Output argues that the only goal of a manufacturing
company is "to make money" and to do this the company must simultaneously
increase throughput, reduce inventory and cut operating expenses. Progress towards
achieving these are measured by net profit, return on total assets and cash flow.
OPT describes throughput as money earned from sales, which it says is not the
same as output, which may not be sold.
B. Balance — Goldratt claims that there is no such thing as a balanced factory[23].
The OPT software is developed to categorise all manufacturing operations into
bottlenecks (operations which limit throughput and are few in number) and non-
bottlenecks (the many operations that will have some excess capacity). Imbalance
of manufacturing operations is quite acceptable in OPT philosophy.
C. Cost Accounting is Number One Enemy — Cost accounting encourages all
resources to be run at full capacity. This can, however, result in high work-in-progress
and long cycle times, with no increase in throughput from the bottlenecks which
continue to constrain output. In OPT philosophy only the direct material costs
and global operating costs are taken into consideration. Many other techniques
used in manufacturing companies are rejected by Goldratt. These include linear
programming, network techniques (CPM and PERT), economic batch theory and
line balancing.
The foundations of OPT are based on nine rules[15,28]:

1. Balance the flow, not capacity
Typically manufacturing attempts to balance capacity (reducing men and machines
to a minimum) and then tries to maintain flow by working the remaining men and
machines to full capacity. In other words "making work for work's sake", resulting
in high inventories which cannot be sold. In OPT (and JIT) only those parts are
manufactured that are needed to fulfill the immediate production schedule.
2. Constraints determine non-bottleneck utilisation
Critical resources (bottlenecks) determine the pace of a production system. The
level of utilisation of a non-critical resource (non-bottleneck) must be determined
by the needs of the bottlenecks. The only place to keep machines running at 100
per cent of capacity is at bottlenecks, since these govern what goes out of the door
and brings in revenue.

3. Activation is not always equal to utilisation
Utilisation is defined as the level to which the resource should be used, whereas
activation is defined as the level to which the resource could be employed. To activate
a resource when the resulting output cannot get through a bottleneck is producing
waste in the form of excessive inventory.
4. An hour lost at a bottleneck is an hour lost for the entire system
Bottlenecks are 100 per cent utilised, and an hour lost at a bottleneck can never
be made up. Thus the entire output of the system is lost during any bottleneck
delay period.
5. An hour saved at a non-bottleneck is a mirage
By definition, a non-bottleneck resource is made up of three elements: run time,
set-up time, and idle time. Saving an hour of set-up time and converting it to process
time at a non-bottleneck resource will cost the company money because it can only
produce parts that the bottleneck cannot process. Converting an hour of set-up
time to an hour of idle time at a non-bottleneck will also not increase the throughput
of the system.
6. Bottlenecks govern both throughput and inventory
Inventories exist in the form of work-in-progress, and only in front of the bottleneck,
whilst the non-bottlenecks run with little or no queues. Non-bottlenecks can only
use parts as fast as they are produced by the bottlenecks.
7. A transfer batch should not always equal a process batch.
Batch splitting and overlapping are acceptable practices in OPT. As soon as an
acceptable quantity from a batch has been completed, it is passed on to the next
stage whilst the previous operation continues.
8. Process batches should be variable, not fixed
Creative Output has evolved a method for setting batch sizes which takes into
consideration the need to keep set-up times low at bottlenecks. Management
coefficients are also used which help to resolve minimum acceptable quantities.
88 IJPD & MM 17,5
Figure 12. OPT Flowchart

Source: Melerton, Jr, M.P., Production and Inventory Management[26]

9. Set the schedule by examining all the constraints simultaneously

Predetermined batch sizes (as in MRP) give fixed lead times and sets schedules
according to these. Capacity constraints are only recognised when the schedule is
worked upon. OPT considers all the constraints simultaneously and a nine
dimensional graph is plotted to yield a near optimum solution.
How OPT Works

A more detailed description of how OPT works is given in[26] from which Figure
12 is taken. Building and maintaining the data required for OPT is just as important
as in MRP; however, data accuracy is only critical in the bottleneck and in its feeder
areas. As with MRP, OPT requires a sophisticated computer system to generate
production schedules. OPT combines the bill of materials, ratings, demand data and
capacity data into a consolidated network for each product. The BUILDNET module
links this data together and checks for errors as it processes the data. OPT is run
as an interative process, generating new product networks and modifying old ones.
The managerial modules include[15]:
SERVE Module — This is OPT's scheduling module and is similar to the MRP
scheduling module. It has been called "a smart MRP" because it can split and
overlap orders. SERVE permits on-line control of dates, transfer batch sizes, reports
and program options.
SPLIT Module — This specifies parameters such as security delays (time buffers)
and identifies bottlenecks and non-bottlenecks.
OPT Module — This specifies the managerial parameters which reflect managerial
policies on such things as minimising machine time, flow factors, maximum batch
limitations, desired buffer sizes, time delay, horizon dates and degree of importance
between inventories, setups, and due dates.
The SERVE module generates utilisation reports, identifying the overloaded resources.
Before SPLIT categorises these resources as critical (bottlenecks), the data are verified
for accuracy. Where OPT differs from MRP is in the running of the OPT/SERVE
modules which recognises that any schedule requiring resource utilisation greater than
100 per cent is impracticable. Over-loaded resources are separated from those with
excess capacity and a schedule is generated that recognises this split. The OPT module
forward-schedules that part of the network which requires the utilisation of critical
resources and the SERVE module schedules the non-critical resources in a manner
such that their outputs can be handled by the bottlenecks.
OPT can be used as a simulation tool and various changes can be simulated to
examine their impact on the shop floor before they happen. Anything that can affect
the flow of work can be simulated with OPT to give an accurate picture of the expected
effect on operations. The effect of improving set-ups, changing operation times per
part, adding or subtracting machines and fixtures, stopping for maintenance, labour
disputes, etc. can all be simulated.
30 I J P D & MM 17,5
Benefits and shortcomings of OPT

The OPT package consists of a reel of computer tape and a sealed box of
semiconductor chips. The algorithm used to schedule individual jobs efficiently remains
a highly guarded secret with Creative Output but if the system is implemented and
run as suggested by COI, it can provide many benefits. Most of the success stories
of OPT have been reported by its creators and only very recently have the users of
the system begun to report its successes and failures. The total number of world users
of OPT is increasing rapidly and it has an impressive track record. In major plants
running under OPT, reductions in inventory have been accompanied by increases in
output and order due date performance, as well as reduction in lead time. Table V
shows the inventory reduction claimed by some major manufacturing companies[27].
Table V. Reduction In Inventory Resulting from OPT

Company Inventory Reduction

%
General Motors 75
STC 50
Bendix France 40
Howmet 60
Bendix USA 50
Sikorsky 70
Arrowhead Metals 60
STC is reported to be the first European company to have implemented OPT at two
of its manufacting plants in the UK. In September 1984 the company began an intensive
education programme for the team it formed to introduce OPT, and by the end of
February 1985 both plants had changed over to OPT[27]. A considerable training
investment is necessary for successful OPT implementation. At STC, almost 100 man-
weeks of training at all levels of the workforce was undertaken to explain the new
approach. There was, however, some resistance from within middle management where
the culture shock was felt the most strongly. At one of the STC plants late deliveries
of finished products fell rapidly to only 30 per cent of the pre-OPT levels, and by
the summer of 1985 the company had fully achieved its set targets, with work-in-
progress and lead times at only half the pre-OPT levels.
The French automotive brake manufacturer, Bendix, has been reported as having
reduced its inventory by 40 per cent in only 10 months of operation under OPT,
representing a reduction of about £2m in stocks[28]. Bendix started with a pilot scheme
at one of its plants which included 1800 man-hours of training from top management
through to foremen. The pilot scheme was introduced in seven months and showed
a reduction of 25 per cent in work-in-progress in only three months of operation. Bendix
rapidly extended the OPT system to the other eight manufacturing plants in France.
Bendix has justified the OPT system on a payback period of under one year — financed
from stock reductions.
Other benefits reported by Bendix include more efficient use of resources. The 22
bottleneck resources showed improvements from about 3.7 per cent to 33 per cent,
resulting from 65 per cent reduction in set-up times. The frequency of set-ups was
however, up by 96 per cent. The change to OPT has resulted in increased motivation
at all levels in Bendix. This is achieved by joint decision making by foremen and
operators which the OPT system allows.
Aggarwal and Aggarwal[29] summarise the reported experiences and achievements
of several companies in the United States, all of whom succeeded in cutting their
inventories, increasing overall output, improving due-date performance and eliminating
certain problems at bottlenecks.
Plenert and Best[30] summarise the advantages and disadvantages of OPT as follows:
Advantages of OPT.
(1) A simplified technique for production smoothing. Schedules are not as time
consuming to set-up and do not require as much data as MRP. Only bottleneck
data are critical and data on non-bottleneck processes need not be precise as
these do not affect the output. Less computer processing capability is required
than MRP and also less time is required to analyse the schedule.
(2) Demands on the user are less complex. The user's knowledge requirement is
less as the "algorithm" makes the system user's job much easier.
(3) Rapid projection of schedules. Modifications to schedules can be carried out
quickly and the system allows for simulation to be used in the scheduling process
to test variations in plant output and its effect on the plant load.
(4) Bottlenecks are specifically defined in the production process and these can
be easily improved or eliminated because of their clear definition.
Disadvantages of OPT
(1) Reorganisation of the plant is necessary requiring data processing systems to
be replaced and management style to be changed. Material movement and
equipment changes may be necessary to facilitate using OPT efficiently.
(2) Costing and accounting systems will be disrupted. Under the OPT system
efficiency is no longer calculated and there is no evaluation of performance.
Job cost control data are also restricted in some areas.
(3) Users will require extensive training and new reporting systems will need to
be developed and introduced. New reports will need to be developed for data
processing and accounting to handle the new information base.
There are many other weaknesses and limitations of OPT that are now being
highlighted, and researchers are beginning to question the claimed superiority of OPT
over MRP. None of the companies that have implemented OPT have been using it
for more than a few years and more time is required for these companies to have the
opportunity to observe the weaknesses and limitations of OPT before a true evaluation
of the system can be carried out.
In early 1986, OPT's founder, Goldratt, conducted a seminar in London for some
26 British academics, all from the field of manufacturing technology and management.
32 I J P D & MM 17,5
Goldratt spoke about the theories behind OPT and its remarkable progress in recent
years. Almost all the academics present were influenced by Goldratt and shortly after
the seminar, 22 of them wrote a letter to the British Trade and Industry Secretary
in which they said that the present Government policy of encouraging investment in
high technology equipment was not necessarily the correct way to improve the efficiency
of the industry. The academics wrote that investment in management techniques such
as OPT and group technology (discussed later) might be a more worthwhile means
of helping British industry[23].
In a relatively short period of time, OPT has established itself as a powerful tool
in controlling production and inventory and has proved that it can, in many settings,
make an important contribution to improved performance.
Group Technology and Flexible Manufacturing Systems
Group technology is of particular relevance to materials management within
manufacturing industries. It is concerned with the processing of similar parts (rather

than products) in order to exploit advantages normally associated with large batch
production. In group technology, components that require, roughly, the utilization
of the same machines and have the same or similar machining routes are separated
out and manufactured in separate "cells". Within the cells, the machines can be
arranged as a flow line to manufacture the particular family of components.
The major benefits of using group technology are significant reduction in set-up
times, high machine utilisation, low work-in-progress and improved job satisfaction.
Materials handling problems are also reduced as transportation of batches between
operations is almost eliminated. Queueing times are reduced, as is production lead
time. Production planning and control are simplified.
Manufacturing under group technology has, however, a number of drawbacks. One
is the loss of flexibility, as the cells are organised around a specific group of components
and, hence, machines are no longer interchangeable. Thus one of the requirements
for group technology manufacturing is a stable demand for the products. The
organisation of the cells, together with the reduction in materials handling through
group technology, has led to automation and the introduction of robots, which are
used to transfer workpieces between machines. These automated manufacturing cells
have been further developed into what are commonly known as flexible manufacturing
systems. For a comprehensive description of the methodology and benefits of group
technology, reference can be made to Gallagher and Knight[31].
The ideas behind flexible manufacturing systems (FMS) date back to the early 1960s,
but, the concept could not be developed at that time because of technological problems
with control systems and associated high costs. FMS is now, however, being recognised
as a most promising means of improving productivity in a batch manufacturing
environment. It is an attempt to apply computer control to production scheduling,
machine control, and the movement of materials. FMS offers considerable
improvements to batch manufacturing organisations in machine utilisation, reductions
in work-in-progress and increases in overall product flexibility. These benefits are made
possible by the use of automatic materials handling systems which transport palletised
components from one work station to another according to the manufacturing routes
under the control of a central computer. Amongst the materials handling systems used
in FMS are roller conveyors, conveyor belts, overhead monorail conveyors, fork-lift
trucks and automatic guided vehicles.
Growth in the use of FMS was slow at first. In 1980 there were fewer than 100 FMS
implementations worldwide, and in the UK there was only one. Since 1984 the growth
in the number of systems has been accelerating rapidly. By 1985 some 550 systems
were reported worldwide, with over 20 in the UK. Bessant and Haywood[32] have
carried out a comprehensive study of UK organisations in which FMS had been
installed or was planned. Detailed data on experience with FMS from a large number
of companies were analysed by Bessant and Haywood, and the conclusions reached
were that FMS has considerable benefits to offer, though a flexible organisation was
necessary.
The flexible manufacturing systems concept is being extended further to the
development of manufacturing cells in which numerically controlled (NC) machines
(typically four or five) are arranged in a circle around a robot (Figure 13). The robots
carry out all the loading and unloading of components on the NC machines. As in
group technology these manufacturing cells are designed to produce a particular group
or family of components.
Figure 13. A Typical Layout of a Flexible Manufacturing Cell

34 I J P D & M M 17,5
The concept of the fully automated factory owes much to the development of flexible
manufacturing systems. In the automated factory, FMS cells are connected to
automated warehouses by automated materials handling systems (including automated
guided vehicles). Fully automated factories offer the opportunity for significant gains
in materials handling efficiency.
Comparing MRP, JIT and OPT

MRP software has been available commercially to manufacturing organisations for
almost two decades, and has been used by a large number of organisations throughout
the world. Since the beginning of the 1980s, JIT and OPT have also become available
to Western companies and many have achieved considerable success in terms of
reducing inventory and throughput time, minimising set-up times and generally raising
productivity. Managers in manufacturing organistions now have a choice when
considering production and inventory control systems.

Materials requirements planning systems are fairly well known among managers
in industry; just-in-time and optimised production technology less so. So which one
of these systems is best, and if an organisation already has MRP, is JIT or OPT to
be preferred? These were the questions examined by Plenert and Best[30] in a study
carried out at California State University, to show which technique showed most
promise for US application. It was appreciated that the majority of organisations do
not have the means to reorganise their facilities at the cost of lost production. The
following comparisons are based on the findings of the Plenert and Best study.
Batch Sizing
Under MRP, batch sizes are normally calculated using some version of the economic
batch quantity model and are usually large due to high costs incurred in set-up.
Increased batch sizes result in increased lead times and this increases overall costs due
to higher interest and storage charges. Both JIT and OPT have overcome the batch
sizing problem. Set-up times are reduced to a minimum in JIT and do not become
a significant factor in determining batch sizes. Under OPT, variable batch sizes are
computed and, additionally, the system suggests the reduction of set-up times at
bottleneck work stations, thereby maximising the throughput at bottlenecks and hence
of the whole manufacturing facility.
Production Loading and Scheduling

MRP assumes that unlimited resources are available and it schedules batches according
to this. Both JIT and OPT schedule production assuming limited capacity, with
capacity being controlled by the use of Kanban cards under JIT. In OPT, capacity
is controlled by the bottlenecks and the system recognises capacities at both the
bottlenecks and the non-bottlenecks before scheduling. It also supplies a more complete
schedule than JIT; though JIT is faster at doing this than OPT.
Production Waves
Production waves are the result of departmental delays which compound themselves
as batches move through the production sequence. Under MRP, production waves
are balanced by the use of safety stocks. In JIT, if there is a delay at one work station
all the work stations are affected proportionately. Production waves are thus not
allowed with JIT as the whole production sequence must be synchronised. Tighter
scheduling and spare capacity are used to prevent production waves in OPT.
Accuracy of Data
MRP requires accurate data for the master production schedule, bill of materials, and
inventory status files. OPT needs less data accuracy for non-bottleneck work centres
and more accurate bottleneck data. Data accuracy becomes almost zero in JIT
production, which does not need the use of a computer system, whereas both MRP
and OPT require sophisticated computer systems to generate production schedules.
Flexibility
Of the three systems, JIT is the most flexible because of low inventory levels and
minimum batch sizes. OPT allows more flexibility than MRP as it also tends to schedule
lower levels of inventory and allows for flexible batch sizes.
JIT requires total reorganisation of the production facilities, whereas OPT (and
MRP) does not; but OPT still offers similar benefits to those derived from JIT. Also
the introduction of OPT does not necessarily affect the whole factory as it can be
phased in slowly.
Cost
In operating terms the most costly of the three systems is MRP because data accuracy
is critical for all parts of the system. JIT is the least costly because of its negligible
data requirements. OPT falls in between MRP and JIT, though it offers many other
benefits such as the facility for simulation.
The Plenert and Best study conclude that both JIT and OPT are more production
oriented than MRP. The OPT system is more complete than the JIT system as it
develops a detailed overall operating philosophy and has many additional features.
Ill MATERIALS ACQUISITION

Whichever system is in operation (MRP, JIT, OPT, GT or FMS), the effectiveness
of the manufacturing operations, and the eventual delivery of the products to the
customers, can be profoundly influenced by the purchasing or procurement function.
Purchasing involves the following activities:
• Agreeing the specification of materials or items required by the user department.
• Determining the purchase lot size.
• Indentifying suitable suppliers.
• Obtaining competitive bids or negotiating prices with a number of the suppliers.
• Analysing the bids — comparing prices, delivery dates, etc.
• Preparing the purchase order.
• Determining and organising the mode of transportation.
36 IJPD & MM 17,5
• Expediting the order to ensure delivery at the correct time.

• Verifying the receipt of the order and checking the invoice for payment.
Other duties may include the processing of claims to suppliers when materials and
items do not conform to specifications, and disposing of excess material and items.
A purchasing group can have several objectives and those listed below have been
identifed by Baily and Farmer[33]:
(1) To maintain a steady flow of materials and services in the organisation to meet
its needs adquately.
(2) To ensure continuity of supply of raw materials and items by maintaining
effective relationships with existing sources and by developing other sources
of supply either as alternatives or to meet emerging or planned needs.
(3) To obtain efficiently, by any ethical means, the best value for every unit of
expenditure.
(4) To manage raw materials and item inventories so as to give the best possible
service to user departments at lowest cost.
(5) To maintain sound co-operative relationships with the other departments,
providing information and advice as necessary to ensure the effective operation
of the organisation as a whole.
(6) To develop staff, policies, procedures and organisation to ensure the achievement
of the foregoing objectives.
The procurement function is a critical one regardless of type and size of manufacturing
organisation since it provides the "input" to the operating system around which all
other activities are planned. The purchasing function must, therefore, be organised
in such a way that raw materials and items are available at the right time, in the right
quantities, of the right specification/quality, from the right supplier, and at the right
price.
Derived from the above objectives of purchasing, Wild[34] suggests that the following
principal benefits may be gained from the effective management of the purchasing
process:
(1) Lower prices for materials and items used.
(2) Faster inventory turnover.
(3) Continuity of supply.
(4) Reduced replenishment lead times.
(5) Reduced transportation cost.
(6) Reduced materials obsolescence.
(7) Improved vendor relationship.
(8) Better control of quality.
(9) Effective administration and immunisation of organisational efforts.
(10) Maintenance of adequate records and provision of information for the
operations managers.
The organisation of the purchasing function can be carried out in two different ways.
It can either be centralised, i.e. the activity is carried out by one department or within
one company of a group, or decentralised, i.e. all subsidiaries or divisions undertake
their own purchasing. Centralised purchasing is often favoured for a number of reasons,
which include:
(1) Individual departmental needs can be pooled together so that advantage may
be taken of quantity discounts.
(2) Variety control of materials, items, supplier and equipment is made possible
by standardising specifications for common departmental needs.
(3) Elimination of duplicate purchasing staff and hence reduction in administrative
costs.
(4) Specialisation of purchasing staff, i.e. increased knowledge of materials, items,
equipment, suppliers, negotiations, etc.

(5) Purchasing information and records can be maintained in more detail and a
more effective system of receipt, inspection and financial control can be
supported.
Although there are many advantages of centralising the purchasing function, it would
be appreciated that there may be communication difficulties between the centralised
purchasing department and the operating (user) departments within the organisation
which will often be at different locations.
Another important consideration is how many different sources of supply should
be maintained. A number of factors are of relevance, and the following are proposed
by Wild[34]:
(1) Effect on price — i.e. single sourcing of high volumes may reduce purchase
price Alternatively, competition for orders amongst multiple sources may also
result in a reduction in price.
(2) Effect on supply security — i.e. whilst supply will be simpler with a single source,
the organisation will be dependent on this source and thus will be at risk as
a result of supply disruption due to strikes, etc.
(3) Effect on supplier motivation — whilst the security resulting from regularly
supplying high volumes to an organisation might increase willingness to improve
specifications etc., increased motivation might also result from a competitive
situation.
(4) Effect on market structure of single sourcing may in the long term result in
the development of a monopolistic situation with the eventual elimination of
alternative sources of supply.
An efficiently organised purchasing function can have a significant impact on the
operation of the organisation as a whole and therefore must be treated with the
importance attached to other functions within the organisation.
As mentioned in Section II, under JIT production, the supply of raw materials and
component parts from vendors can be controlled by the Kanban system. In this case
the suppliers must be selected with extreme care and they must be in a position to
38 IJPD & M M 17,5
make small and frequent deliveries. More importantly they must be willing to sustain
product quality to meet the purchaser's standards.
Manufacturing organised under the JIT system will not tolerate any variations in
the quantities and lateness of delivered items and this requires that buyer and supplier
have a close and special relationship. If there are to be any changes to the delivery
schedule in terms of quantities or timing then the supplier must immediately
communicate with the buyer as to assess the implications and agree necessary
action[24].
Figure 14. Comparative Analysis of JIT Purchasing and
Traditional Purchasing Systems
Purchasing activity JIT purchasing Traditional purchasing
Purchase lot size Purchase in small lots with frequent Purchase in large batch size with less
deliveries frequent deliveries
Selecting supplier Single source of supply for a given Rely on multiple sources of supply
part in nearby geographical area with for a given part and short-term
a long-term contract contracts
Evaluating supplier Emphasis is placed on product Emphasis is placed on product
quality, delivery performance and quality, delivery performance and
price, but no percentage of reject price but about two per cent reject
from supplier is acceptable from supplier is acceptable
Receiving Counting and receiving inspection of Buyer is responsible for receiving,
inspection incoming parts is reduced and counting, and inspecting all
eventually eliminated incoming parts
Negotiating and Primary objective is to achieve Primary objective is to get the lowest
bidding process product quality through a long-term possible price
contract and fair price
Determining mode Concern for both inbound and Concern for outbound freight and
of transportation outbound freight, and on-time lower outbound costs. Delivery
delivery. Delivery schedule left to the schedule left to the supplier
buyer
Product "Loose" specifications. The buyer "Rigid" specifications. The buyer
specification relies more on performance relies more on design specifications
specifications than on product design than on product performance and
and the supplier is encouraged to be suppliers have less freedom in design
more innovative specifications
Paperwork Less formal paperwork. Delivery Requires great deal of time and
time and quantity level can be formal paperwork. Changes in
changed by telephone calls delivery date and quantity require
purchase orders
Packaging Small standard containers used to Regular packaging for every part
hold exact quantity and to specify type and part number with no clear
the precise specifications specifications on product content.
Encouraging suppliers to implement the Kanban system in their own organisations

can result in a number of benefits. Japanese companies manufacturing under the JIT
system also use JIT purchasing, and over recent years many US companies have
switched to JIT purchasing from traditional purchasing practices. The benefits offered
by JIT purchasing can include[35:]
(1) The inventory system as a whole is controlled at an improved level.
(2) Buffer inventories are reduced.
(3) Less space is needed.
(4) Reduced materials handling.
(5) Less waste materials.
Lee and Ansari[35], in a recent study in the United States, collected data through postal
questionnaires, interviews, and from published documents, and made a comparison

between JIT purchasing and traditional purchasing systems. Figure 14 taken from Lee
and Ansari is a summary of comparisons made.
The JIT purchasing concept can offer significant benefits to manufacturing
organisations, not only in planning and controlling the supply of raw materials and
component parts, but it can also lead to improvements in quality and overall
productivity[35.]
SUMMARY AND CONCLUSIONS

This monograph reviews recent developments in materials management in
manufacturing organisations. It begins by examining delivery performance, customer
service and distribution requirements planning. Clearly materials management must
embrace the flow of goods right to the customers and this requires much emphasis
to be placed on meeting customer requirements, i.e: timeliness and reliability of delivery
of the right products.
A number of new concepts for the planning and control of materials in the
production processes are examined. These include Materials Requirements Planning
(MRP), Manufacturing Resources Planning (MRP II), the Kanban System (JIT) and
Optimised Production Technology (OPT). Other developments reviewed are Group
Technology and Flexible Manufacturing Systems. These latter systems require complete
reorganisation of the facilities as well as considerable investment in automated plant
and equipment.
Managers now have a choice when considering production and inventory control
systems and this requires a broader knowledge and understanding of the manufacturing
and management activities than hitherto. Whichever system is selected, its
implementation will, almost inevitably, require many changes both in the organisation
of the company and in attitudes at all levels from the managing director to the
shopfloor employees. The benefits achievable and claimed by the users are only possible
through successful implementation of the systems. Each system has specific
requirements and important factors and all these must be recognised and
accommodated by the organisation wanting to implement the system. The time and
40 IJPD & MM 17,5
effort required for implementation will depend on the organisation and its existing
practices. The changeover may take several years and an organisation may not see
the benefits immediately on implementation.
Figure 11 taken from Lee and Ebrahimpour[24]shows the important factors that
must be considered when implementing Just-in-Time The factors mentioned are usually
common to the other systems reviewed in this monograph. The most important being
training, management's understanding and support of the system, and management
and labour responsibilities.
It will be evident that if success is to be achieved through the new methodologies
a "total systems" view must be taken. This will by no means always lead to more
traditional views of materials planning and control being overtaken. The size of the
organisation and the nature of the procurement, production, and distribution processes
may well favour the continuation of roles such as materials controllers, progress chasers,
and stock controllers. And it may well be that suppliers cannot be prevailed upon
to make frequent deliveries of small quantities, or changeover times prior to the
production of a new item may be unavoidably costly. In these circumstances analysis
of the economic order or batch quantity type may be appropriate. But such "local"
planning and control should always be applied with the broader setting in mind.
Possibly the most desirable change in organisational culture is to encourage all
managers to look beyond functional boundaries. This will, in the particular case of
those involved in materials management, require procurement, production and
distribution to be viewed as one process. At the same time there should be an awareness
of the interface between the process and the marketing, sales, finance, and personnel
functions; all activities in effective combination, leading finally to the realisation of
corporate objectives which may be positioned nearer to the optimum than would
otherwise be the case.
References
1. Magee, J.F., Industrial Logistics, McGraw-Hill, 1968.
2. LaLonde, B.J. and Grabner, J.R., "New Dimensions in Integrated Distribution Management", Freight
Management, July 1971, p. 41.
3. Christopher, M.G., "Creating Effective Policies for Customer Service", International Journal of
Physical Distribution and Materials Management, Vol. 13 No. 2, 1983.
4. Levy, M., "Customer Service; A Managerial Approach to Controlling Marketing Channel Conflict",
International Journal of Physical Distribution and Materials Management, Vol. 11 No. 7, 1981.
5. LaLonde, B.J. and Zimszer, P.H., Customer Service: Meaning and Measurement, NCPDM, Chicago,
1976.
6. New, C.C. and Sweeney, MX, "Delivery Performance and Throughput Efficiency in UK
Manufacturing Industry", International Journal of Physical Distribution and Materials
Management, Vol. 14 No. 7, 1984.
7. Crabtree, D, "Distribution Logistics — An Appraisal of Alternative Methods", International Journal
of Operations and Production Management, Vol. 7 No. 3, 1987.
8. Howard, K., "Inventory Management in Practice", The InternationalJournal of Physical Distribution
and Materials Management, Vol. 14 No. 2, 1984.
9. New, C.C. and Sweeney, M.T., "Delivery Performance and Throughput Efficiency in UK
Manufacturing Industry", op. cit.
10. Orlicky, J.A., Materials Requirements Planning, McGraw-Hill, New York, 1976.
11. White, E.M., Anderson, J.C., Schroeder, R.G. and Tupy, S.E., "A Study of the MRP Implementation
Process", Journal of Operations Management, Vol. 2 No. 3, 1982, pp. 145-154.
12. Oakland, J.S., and Sohal, A. "Production Management Techniques in UK Manufacturing Industry:
Usage and Barriers to Acceptance", International Journal of Operations and Production
Management, Vol. 7 No. 1, 1987, pp. 8-37.
13. Callerman, T.E. and Heyl, J.E., "A Model for Material Requirements Planning", International
Journal of Operations and Production Management, Vol. 6 No. 5, 1986, pp. 30-37.
14. Swann, D., "Using MRP for Optimised Schedules (Emulating OPT)" Production and Inventory
15. Lundrigan, R., "What is this Thing Called OPT", Production and Inventory Management, Vol.
27 No. 2, 1986, pp. 2-12.
16. King, J.R., Management of Engineering Production, Frances Pinter, London, 1985.
17. Vollman, T.E., Berry, W.L., and Whybark, C , Manufacturing Planning and Control Systems,
Richard D. Irwin, USA, 1984.
18. Ebrahimpour, M. and Schonberger, R.J., "The Japanese Just-in-Time/Total Quality Control
Production System: Potential for Developing Countries", International Journal of Production
Research, Vol. 22 No. 3, May 1984, pp. 422.
19. Challis, H., "JIT benefits: as much from people as machine", Engineering News, April 1987, p. 3.
20. Mann, E., "JIT: A Better Philosophy for All", Engineering News, September 1986, p. 7.
21. Lee, D., "Set-Up time Reduction: Making JIT Work", Management Services, May 1986, pp. 8-13.
22. Mortimer, J. (Ed.), "Just-In-Time — an IFS Briefing", IFS (Publications) Ltd., Bedford (UK), 1986.
23. Powell, A., "Rationalisation through JIT", Production Engineer, May 1986, pp. 13-15.
24. Lee, S.M. and Ebrahimpour, M., "Just-In-Time Production Systems: Some Requirements for
Implementation", International Journal of Operations and Production Management, Vol. 4 No.
4, 1984, pp. 3-15.
25. Celley, A.F., Clegg, W.H., Smith, A.W. and Vonderembse, M.A., "Implementation of JIT in the
United States", Journal of Purchasing and Materials Management, Winter 1986, pp. 9-15.
26. Melerton, Jr, M.P., "OPT — Fantasy or Breakthrough?", Production and Inventory Management,
Vol. 27 No. 2, 1986, pp. 13-21.
27. Whetley, M., "How to Beat the Bottlenecks", Management Today, October 1986, pp. 84-86.
28. Haylett, R., "OPT — Production Control with a Difference", Production Engineer, May 1986,
pp. 34-41.
29. Aggarwal, S.C. and Aggarwal, S., "The Management of Manufacturing Operations: An Appraisal
of Recent Developments", International Journal of Operations and Production Management, Vol.
5 No. 3, 1985, pp. 21-38.
30. Plenert, G. and Best, T.D., "MRP, JIT and OPT: What's Best", Production and Inventory
31. Gallagher, C.C. and Knight, W.A., "Group Technology Production Methods in Manufacture",
Ellis Horwood, Chichester (UK), 1986.
32. Bessant, J. and Haywood, B., "Experiences with FMS in the UK", International Journal of
Operations and Production Management, Vol. 6 No. 5, 1986, pp. 44-56.
33. Baily, P. and Farmer, D.H., Purchasing Principles and Techniques, 3rd Edition, Pitman, London,
1977.
34. Wild, R. Production and Operations Management: Principles and Techniques, Holt, Rinehart and
Winston, London, 1971.
35. Lee, S.M. and Ansari, A., "Comparative Analysis of Japanese Just-In-Time Purchasing and
Traditional US Purchasing Systems", International Journal of Operations and Production
This article has been cited by:
1. Roberto Panizzolo. Practices and Performance in Constraints Management Production Planning and
Control Systems 153-182. [Crossref]
2. W. Rocky Newman, Mary Jo Maffei. 1999. Managing the job shop: simulating the effects of
flexibility, order release mechanisms and sequencing rules. Integrated Manufacturing Systems 10:5,
266-275. [Abstract] [Full Text] [PDF]
3. Leslie K. Duclos, Michael S. Spencer. 1995. The impact of a constraint buffer in a flow shop.
International Journal of Production Economics 42:2, 175-185. [Crossref]
4. Brian Burrows, K.G.B. Bakewell. 1989. Management Functions and Librarians. Library Management
10:4/5, 2-61. [Abstract] [PDF]
5. V. Sridharan, W.Rocky Newman, Stephen M. Chapman, Raymond A. Jacobs. 1989. Evaluating the
interaction between the manufacturing environment and planning and control systems. Journal of
Manufacturing Systems 8:4, 329-332. [Crossref]

105 PMM Group12

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

105 PMM Group12

Uploaded by

Copyright:

Available Formats

International Journal of Physical Distribution & Materials

To copy this document: permissions@emeraldinsight.com

*Related content and download information correct at time of download.

Materials management is thus seen as a response to customer requirements (either

consideration of the various elements of "customer service". Christopher[3] identified

is becoming an increasingly proactive factor in the determination of corporate strategy).

(Manufacturing Resources Planning). Not be be outdone the distribution function

Figure 1. Hierarchy of Information and Material Flow

In his article Crabtree makes several observations on certain conditions to be satisfied

• suppliers or customers cannot be prevailed upon to provide or take goods to

Type of Corporate Policy

1. High stocks to support high customer services levels.

Most of the corporate policy types are self-explanatory. "Interventionalist" implies

Inventory and Delivery Performance

or 2. The cost of maintaining high levels of service will increase significantly.

Independent and Dependent Demand

requirement for afinishedproduct. Perhaps the terms often encountered in economics,

Materials Requirements Planning (MRP)

The Basic MRP System

Master Production Schedule (MPS)

" 1 —Main Subassembly

Relationships between the different levels may be represented by a Gozinto Chart

Inventory Status File

• Lot for Lot.

Benefits and Shortcomings of MRP

Figure 5. Outcome Variables of an MRP Implementation

Manufacturing Resources Planning (MRP II)

Figure 7. Manufacturing Planning and Control System

Figure 8. Components of JIT Production System

Figure 9. A Schematic Illustration of the Kanban System

does MRP. The control of production is decentralised whereas it is centralised with

Benefits and shortcomings of Kanban

• Product lead-time reduced from 15 days to two days.

Figure 10. JIT, Its Components and Potential Benefits

Was a Still a Now Under

Figure 11. JIT, Some Requirements for Implementation

Table II. Man-hours for completion of a vehicle in automotive

Number of employees 4,300 3,800 4,700 9,200

Table III. Press plant productivity characteristics

Toyota A(USA) B(Sweden) C(W.Germany)

Set up time (hour) 0.2 6 4 4

Toyota A (USA) B(Sweden) C(W.Germany)

Optimised Production Technology (OPT)

OPT looks at manufacturing in a similar way to the Japanese just-in-time system,

The foundations of OPT are based on nine rules[15,28]:

and brings in revenue.

Figure 12. OPT Flowchart

Source: Melerton, Jr, M.P., Production and Inventory Management[26]

9. Set the schedule by examining all the constraints simultaneously

How OPT Works

Benefits and shortcomings of OPT

Table V. Reduction In Inventory Resulting from OPT

Company Inventory Reduction

manufacturing industries. It is concerned with the processing of similar parts (rather

Figure 13. A Typical Layout of a Flexible Manufacturing Cell

Comparing MRP, JIT and OPT

considering production and inventory control systems.

Production Loading and Scheduling

Ill MATERIALS ACQUISITION

• Expediting the order to ensure delivery at the correct time.

equipment, suppliers, negotiations, etc.

Purchasing activity JIT purchasing Traditional purchasing

Encouraging suppliers to implement the Kanban system in their own organisations