BMT 6181

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Module 1:
Introduction
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Material Management

 The concept of having one department responsible for the flow of

materials, from supplier through production to consumer, thereby
minimizing total costs and providing a better level of customer service,
is known as materials management.

Materials management is a coordinating function responsible for planning

and controlling materials flow. Its objectives are as follows:

 Maximize the use of the firm’s resources.

 Provide the required level of customer service.

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Production Planning and Control

 Production planning
 Forecasting.

 Master planning.

 Material requirements planning.

 Capacity planning.

 Implementation and control

 Inventory management
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Priority–capacity relationship
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Production Planning and Control System

 PRODUCTION: that creation of goods and services

 PLANNING: looks ahead, anticipates possible difficulties and

decides in advance as to how the production, best, be carried out.

 CONTROL: phase makes sure that the programmed production

is constantly maintained.
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Production Planning and Control System

 production planning and control can be defined as the “direction

and coordination of firms’ resources towards attaining the
prefixed goals.”

 Production planning and control helps to achieve uninterrupted

flow of materials through production line by making available
the materials at right time and required quantity.
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Need for Production Planning and
Control
 Effective utilization of firms’ resources.

 To achieve the production objectives with respect to quality, quantity,

cost and timeliness of delivery.

 To obtain the uninterrupted production flow in order to meet customers

varied demand with respect to quality and committed delivery
schedule.

 To help the organization to supply good quality products to the

customer on the continuous basis at competitive rates.
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 Production Long Term Capacity
Process Design Planning

Aggregate
Planning
Forecast
Master Production
Schedule
Demand
Material
Requirements
Planning

Individual Order
Scheduling
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Sales and operations planning (S&OP)

 Sales and operations planning (S&OP): A process of balancing resources

and forecasted demand, aligning an organization’s competing demands
from supply chain to final customer, while linking strategic planning with
operations over all planning horizons.

 The output of S&OP is called an aggregate plan.

 Aggregate plan: A plan that includes forecast levels for families of

products of finished goods, inventory, shortages, and changes in the
workforce.

 The aggregate plan is concerned with determining the quantity and timing
of production for the intermediate future, often from 3 to 18 months ahead.
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Aggregate Planning Strategies

When generating an aggregate plan, the operations manager must answer several
questions:

1. Should inventories be used to absorb changes in demand during the planning

period?

2. Should changes be accommodated by varying the size of the workforce?

3. Should part-timers be used, or should overtime and idle time absorb fluctuations?

4. Should subcontractors be used on fluctuating orders so a stable workforce can be

maintained?

5. Should prices or other factors be changed to influence demand?

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Capacity Options

A firm can choose from the following basic capacity (production) options:

 Changing inventory levels

 Varying workforce size by hiring or layoffs

 Varying production rates through overtime or idle time

 Subcontracting

 Using part-time workers

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Demand Options

 Influencing demand

 Back ordering during high-demand periods

 Counter seasonal product and service mixing

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Mixed Option to Develop a Plan

 Chase Strategy : A chase strategy typically attempts to achieve output

rates for each period that match the demand forecast for that period.

 Level Strategy : A level strategy (or level scheduling) is an aggregate

plan in which production is uniform from period to period. Firms like
Toyota and Nissan attempt to keep production at uniform levels.

 For most firms, neither a chase strategy nor a level strategy is likely to
prove ideal, so a combination of the eight options (called a mixed
strategy) must be investigated to achieve minimum cost. However,
because there are a huge number of possible mixed strategies,
managers find that aggregate planning can be a challenging task.
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Graphical Methods
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Level Output Strategy
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Use of Subcontracting

 To produce 38 units per day (800/21) in-house, 7.6 workers are

needed. (You can think of this as 7 full-time workers and 1 part-
timer.) All other demand is met by subcontracting.
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Chase Plan
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Comparison of the Three Plans
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Master Production Scheduling
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Aggregate Plan to Master Schedule

Aggregate For a short planning range 2-4 months:

Planning
Master schedule:
The result of disaggregating an aggregate plan;
shows quantity and timing of specific end items
for a scheduled horizon.
Disaggregation
Rough-cut capacity planning:
Approximate balancing of capacity and demand to
test the feasibility of a master schedule.
Master
Schedule
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RELATIONSHIP TO PRODUCTION PLAN
The next step is to forecast demand for each item in
the product family
 With these data, the master scheduler must now devise a plan to fit the
constraints. The following illustrates a possible solution.

MPS
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 Inventory
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MPS

 A master production schedule (MPS) specifies what is to be made (e.g.,

the number of finished products or items) and when.

 The schedule must be in accordance with an aggregate plan.

 It forms the link between production planning and what manufacturing

will actually build.

 It forms the basis for calculating the capacity and resources needed.

 The MPS drives the material requirements plan. As a schedule of items

to be built, the MPS and bills of material determine what components
are needed from manufacturing and purchasing.
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Master Schedule Decisions

 In a make-to-stock company, the MPS is a statement of how much of

each end item to be produced and when it will be available

 In a make-to-order (or engineer-to-order) firm, In this environment,

many different end items are made from a small number of
components. Custom-tailored clothes are an example. The MPS is
usually a schedule of the actual customer orders.

 In an assemble-to-order firm, the large number of possible product

combinations is represented with a planning bill of materials
Final assembly
schedule
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Master Scheduling Process

Inputs Outputs

Beginning inventory Projected inventory

Forecast Master Master production schedule

Scheduling

Committed ATP: Uncommitted inventory

Customer orders
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Preliminary Master Production Schedule

 To show the process of developing an MPS, an example is used

that assumes the product is made to stock, an inventory is kept,
and the product is made in lots.
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Problem 1

 Amalgamated Nut Crackers, Inc., makes a family of nut crackers. The most popular model is
the walnut, and the sales department has prepared a 6-week forecast. The opening inventory
is 50 dozen (dozen is the unit used for planning). As master planner, you must prepare an
MPS. The nutcrackers are made in lots of 100 dozen.

Week 1 2 3 4 5 6
Forecast sales
75 50 30 40 70 20

Project
Available 50

MPS
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The MPS and Delivery Promises

 In a make-to-stock environment, customer orders are satisfied from

inventory.

 However, in make-to-order or assemble-to-order environments,

demand is satisfied from production capacity.

 Using the MPS, sales and distribution can determine the available to
promise (ATP). Available to promise is that portion of a firm’s
inventory and planned production that is not already committed and is
available to the customer. This allows delivery promises to be made
and customer orders and deliveries to be scheduled accurately.
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Problem (Contd.)
 Sometimes, customer orders are greater than the scheduled receipts. In this
example can the master planner accept an order for another 20 for delivery in
week 3?
 Calculate the available to promise for the following example. Can an order for 30
more be accepted for delivery in week 5? What will be the ATP if the order is
accepted?
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Projected Available Balance

 The projected available balance (PAB) is calculated in one of two ways,

depending on whether the period is before or after the demand time fence.

 The demand time fence is the number of periods, beginning with period
1, in which changes are not excepted due to excessive cost caused by
schedule disruption.

 For periods before the demand time fence it is calculated as:

PAB = prior period PAB or on-hand balance + MPS - customer orders

 For periods after the demand time fence

PAB = prior period PAB + MPS - greater of customer orders or forecast

 Problem1(Contd.): The demand time fence is at the end of 3 weeks.
 The Wicked Witch Whisk Company manufactures a line of broomsticks. The most
popular is the 36-inch model, and the sales department has prepared a forecast for 6
weeks. The opening inventory is 30. As master scheduler, you must prepare an MPS.
The brooms are manufactured in lots of 100.
 Amalgamated Mailbox Company manufactures a family of two mailboxes. The
production plan and the MPS are developed on a quarterly basis. The forecast
for the product group follows. The opening inventory is 270 units. Develop a
level production plan. (lot size is 200)
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 Calculate the available to promise using the following data. There are 100 units on hand.
 Given the following data, calculate how many units are available to promise. There are
40 units on hand.
 Given the following data, calculate the projected available balance and the planned
MPS receipts. The lot size is 200. The time fence is 2 weeks.
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Product structure
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Bill of Materials

 A listing of the components, their description, and the quantity of each

required to make one unit of a product.

 One way a bill of material defines a product is by providing a product

structure.
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Question??

 Speaker Kits, Inc., packages high-fidelity components for mail order.

Components for the top-of-the line speaker kit, “Awesome” (A),
include 2 Bs and 3 Cs. Each B consists of 2 Ds and 2 Es. Each of the
Cs has 2 Fs and 2 Es. Each F includes 2 Ds and 1 G. It is an awesome
sound system. As we can see, the demand for B, C, D, E, F, and G is
completely dependent on the master production schedule for A—the
Awesome speaker kits.

 Determine the number of units of each item required to satisfy demand

for a new order of 50 Awesome speaker kits.
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Lead time

In purchasing systems, the time between

recognition of the need for an order and
receiving it; in production systems, it is the
order, wait, move, queue, setup, and run
times for each component.
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Time-Phased Product Structure
Determine the low-level coding and the quantity of each component necessary to
produce 10 units of an assembly we will call Alpha. The product structure and
quantities of each component needed for each assembly are noted in parentheses.
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Material Requirement Planning
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MRP
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Gross material requirements plan

A schedule that shows the total demand for an item (prior to subtraction of
on-hand inventory and scheduled receipts) and (1) when it must be ordered
from suppliers, or (2) when production must be started to meet its demand
by a particular date.
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Net Requirements

 So far, we have considered gross material requirements, which assumes that

there is no inventory on hand.

 The result of adjusting gross requirements for inventory on hand and scheduled
receipts.

 Gross requirement = 50

Inventory available = 20

Net requirements = 50 - 20 = 30 units

 Net requirements = gross requirements - scheduled receipts - available

inventory
 Speaker Kits, Inc., developed a product structure from a bill of material. Given the
following on-hand inventory, Speaker Kits, Inc., now wants to construct a net
requirements plan. The gross requirement remains 50 units in week 8, and component
requirements.
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