Level II

A Study of Production Management

(Manufacture)
By
Angela Lee
University of Salford
Research Unit
January 1999
Process Protocol II Angela Lee, January 1999.
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1. Introduction.
The economic success of a manufacturing firm depends upon their ability to identify
the needs of its customers, to quickly create the subsequent products and to produce
them at a low cost. Achieving these goals is not solely a marketing, a design or a
manufacturing problem, but rather a management problem involving all of these
functions.
Production Management involves the planning, organising and controlling of the
whole production process. The interrelation of these activities and operations involved
in producing the goods and the services is called a production system. Figure 1
illustrates a schematic diagram of a production system with its six principal
components, and success is a direct result of the efficient control of these components
[Evans, 1993].
Figure 1: Model of a production system [Evans, 1993]:
This study aims to explain the principles behind current manufacturing philosophies,
in particular Materials Requirement Planning (MRP), Just-In-Time (JIT) and
Optimised Production Technology (OPT). These philosophies aim to improve the
production system in distinctive ways, each placing an emphasis upon different
components.
2. Materials Requirements Planning (MRP).
In manufacturing situations, the demand for raw materials, components,
subassemblies etc is dependent upon the production plan for the final product. It is
therefore possible to determine how many parts or components will be needed in each
time period once the production requirements for the final product is established.
MRP is a computerised system that exploits this information of the dependence on
demand, by managing inventories and controlling the production lot-sizes of the
numerous parts that go into the making of the final product.
MRP is the most widely used production management system in the UK [Sapoutzis,
1995], and is more commonly regarded as a push system. It is simply a method of
projecting the requirements of the individual components of a product to determine
Inputs:
- Materials.
- Capital.
- Equipment.
- Personnel.
- Information.
- Energy.
Conversion/creation
processes:
- Manufacturing
operations.
- Service
operations.
Outputs:
- Finished
goods and
services. Suppliers
Managers
Customers
Decisions.
Feedback.
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three major functions: control of inventory levels, assignment of priorities for
components and the determination of capacity requirements [Buffa et al, 1987].
Therefore, the calculations performed by MRP, plan order releases for purchased
parts and manufactured components. In this fashion, MRP assists operation managers
in planning and controlling inventories by answering the basic questions of what to
order, how much to order, when to order and when the delivery should be scheduled.
This is achieved by looking at future requirements for the finished products and it
uses this, and other information, to produce statements on sub-assemblies,
components and raw materials necessary to complete the end products. In short, the
system determines the requirements and schedule for (1) manufacturing the
components and subassemblies and or, (2) purchasing the materials needed for
meeting the requirements of the master production schedule. The term push
describes the fact that the statements of requirements are made according with the
agreed delivery dates and these are set at the start of the process, as to meet relevant
schedules [Hill, 1991]. In this way, the appropriate components are pushed into the
process as to produce the right quantities, and more importantly, at the right time.
2.1 Aims.
Delmar [1985] describes that there are three main goals in MRP as:
1) Minimise inventory investment.
2) Maximise the efficiency of the production system.
3) Improve customer service.
In order to minimise the investment in inventories (an idle resource that is waiting to
be used) the correct resources should be ordered as and when required by the product
specification. Furthermore, the right quantities must be ordered, to meet the
production schedules, taking into account trade-offs between the order of quantity and
total unit costs. This will result in a reduction of holding costs and so the efficiency of
the production system will improve, and hence, customer satisfaction will flourish too
because time and cost will be greatly reduced.
The above should be carried out by the production planning department. Careful
planning of the production system is required to improve efficiency. Such planning
should first look at the available resources and capacity to determine the production
schedules. The overall managerial objective in using MRP is to avoid inventory stock-
outs so that production runs smoothly, according to plans, and to reduce investment in
raw materials [Buffa & Sarin, 1987].
2.2 Benefits.
The benefits of an MRP system are obvious. The only feasible option is to have a
computerised system in play when dealing with large numbers such as in a
manufacturing industry [Buffa & Sarin, 1987]. This is clearly evident if the schedule
changes due to market shifts. A computerised MRP system can immediately reflect
the effects of changed order quantities, cancellations, delayed material deliveries and
so on. In addition, a manager can change the master schedule and quickly see the
effects on capacity, inventory status, or the ability of the system to meet the promise
to their customers.
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Details of inputs and outputs of an MRP system [Hill, 1991]:
2.2 Manufacture Resource Planning (MRP II).
After the development of the MRP system, it became evident that its concept had far
more potential than merely for the planning of materials. As such, managers began to
expand the concept to include other manufacturing resources allocated to production,
particularly financial resources.
MRP II adopts similar procedures as MRP. It is an integrated software tool for
managing, predicting and controlling a companys resources and investments [Evans,
1993]. Since materials and production requirements can be determined by MRP, these
requirements can in turn be converted to pounds. In this way, inventory, labour,
materials etc can be costed, this standpoint is typical and favoured in the
manufacturing industry. Consequently, the production and finance teams should work
together to ensure that the desired resources are made available to meet the production
MRP SYSTEM.
Explodes BOM per MPS to give
gross inventory requirements, nets
out inventory levels and issues the
outputs below;
Master Production Schedule
(MPS)
Details, quantities and product
types to be provided in each time
period in the future.
Forecasts Known orders
Production capacity manpower and
equipment availability.
Inventory status records.
Contains inventory balances, free-
stock positions, on-order details,
lot-sizes, lead-times and safety
stocks.
Product structure records.
Contains bills of materials (BOM)
and how each product is produced
(the routing file).
Input
Input Input
Materials and capacity plans.
Planning adequate capacity and
materials in line with
requirements while responding to
under and over provision.
Planned order releases.
For purchasing and shop
scheduling giving quantity of
items that must be available in
each time period.
Purchase orders.
Quantity and time period for
orders to be placed with suppliers.
Work orders.
Quantity and time periods for
work orders to be released to the
shop.
Reschedule notices.
Details of any replanning and
rescheduling due to unforeseen
problems.
Outputs
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requirements for the final products. MRP II also facilitates co-ordination with
marketing, which is usually lacking in other systems. The production planner and the
marketing product manager can liase to determine the effect of the changing market
demand on production, and can include expediting or the postponement of some
orders.
MRP II, therefore, provides a convenient vehicle for co-ordinating the efforts of the
manufacturing, finance, marketing, engineering and personnel departments. It
converts a marketing statement of demand into a workable production plan. Since it is
too computerised, mangers can predict the implications of changes. For example, if
the sales forecasts provided by marketing cannot be met with existing capacities, the
financial and other implications, can be evaluated using the stimulation capabilities of
the system.
Structure of MRP computer programs [Browne et al, 1988]:
3. Just-In-Time (JIT).
Efficiency, in manufacturing terms, is the ratio of output to input. The output of
product per hour of production is production efficiency, or productivity. Anything that
delays production, interrupts material flow or does not contribute to production,
lowers efficiency. Anything that lowers efficiency is waste.
JIT is a philosophy. A philosophy that is considered as a pull system, whose main
objective is to eliminate waste in all possible forms including unnecessary inventory,
scrap in production and any wasteful activities in order to reduce costs and improve
quality. It is important here to note that outside Japan JIT is also known as lean
production [Anderson, 1994]. Since its success in helping Japan become a major
manufacturing power [Plossl, 1987; Evans, 1993; Buffa & Sarin, 1987], it has become
Master production
scheduling.
Rough cut capacity
planning.
Materials requirements
planning.
Capacity requirements
planning.
Production planning. Resource requirements
planning.
Production activity control
Dispatching. Input/output
control.
Inventory control.
Purchasing.
BOM control.
Demand
management.
Forecasts.
Customer orders.
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the aim of many western manufacturing companies and has been implemented by
many but with varying degrees of success.
The philosophy aims to continuously improve all areas of the manufacturing process,
from design to production, and from supplier related aspects to customer related
aspects [Buffa & Sarin, 1987]. Moreover, to satisfy the customer by supplying what
they need and when they need it, hence remaining competitive and thus profitable, to
produce the right product or part, at the right quantity and the right time [McMahon &
Browne, 1993]. To achieve this ultimate target of excellence in all areas, the
following principles should be religiously adhered to [Browne et al, 1988]:
Zero defects: Under the JIT philosophy mistakes are not inevitable and such
mistakes are recognised under its principles. However, every mistake and
defective product is a reason to look at the whole production process more closely
to find out why it is not foolproof. By investigating every defect and its cause, the
process can gradually be improved, and hence get closer to being perfect.
Zero set-up times: The reduction of set-up times will lead to significant reductions
in the level of inventory. This in turn improves the production process for two
reasons; 1) inventory need not accumulate at work stations into huge lots only to
be transferred later onto other work stations and; 2) with quick changeovers
production becomes flexible, it can be scheduled to match varying demand for
different product mix. Therefore, long and expensive set-ups will not dictate the
production runs.
Zero inventories: By reducing inventory, production is able to respond effectively
to short term variations in market demands. Consequently, highly competent JIT
plants are able to assemble in a ratio of 1:1, or rather if two different models of a
product are being made then they can be assembled alternating from one to the
other. The main advantage with a mixed-modelled assembly is that each day the
amount of products made is close to the amount of products sold that day. This in
turn avoids the usual cycle of a build-up in inventory of a given model, followed
by depletion to the point of lost sales when the next model builds up. Also, by
reducing the inventory investment, lower expenditures for facilities, equipment
and labour is also realised. Therefore, leading to a better quality product, less
wasted material, fewer labour hours on rework, and hence higher productivity.
Zero handling: The layout of the production process is laid out in an economical
manner, a product-based layout, as to introduce a reduction in queue time.
Zero breakdowns: Machine maintenance is taken very seriously in JIT.
Preventative maintenance is the key to make sure that machines do not break
down. Machines are consequently programmed to operate below their full
capacity so that there is time to maintain the equipment and more importantly, and
to reduce the unnecessary wear and tear that is more common to machines that
continuously run at full speed. What the companies loose in production time, they
more than make up in reduced machine breakdowns, lower yields and less re-
work.
Zero lead-time (the time between the placing of an order and its receipt in the
inventory system): To achieve very low inventories and very small batch sizes, the
lead-time for the manufacture of a product has to be greatly reduced. Long
planning lead times which are characteristics of traditional planning systems
(MRP) are based on the longest cumulative lead-time. These long lead times force
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the manufacturing system to rely on forecasts and to commit to manufacture a
product before the, and in anticipation, of customer order.
With JIT, items are delivered or produced only when they are required, to produce a
smooth and rapid flow of products from the time the materials are purchased and
received, until the time the final product is shipped to the customer. Therefore,
inventories are minimised. Ideally, the number of parts produced in a plant or
purchased from outside suppliers at any one time should be just enough to produce
one unit of the final product. This procedure is supported by means of a kanban
system.
3.1 Kanban:
The way that materials and products are moving from workstation to workstation
within a JIT environment is governed by the kanban system of shop floor control. The
kanban (Japanese for record card) looks at the manufacturing process from the
perspective of the finished item. The technique controls the initiation of production
and the flow of material with the aim of getting the right quantity of the right items
where they are needed at the time they are needed. JIT is described as a pull system,
or a demand feeding process, in the sense that the material is being pulled through the
system, starting from the last operation on the line demanding something from the
preceding operation, and so on until the supplier is reached. Such a supplier is
expected to be able to supply in small batches several times a day as and when
material is required.
The simple kanban system of inventory control is an integral part of the JIT system of
production. The beauty of it is in its simplicity. A kanban can be a card of two types: a
withdrawal or a production ordering kanban. The withdrawal kanban shows the
quantity of the items that the subsequent process should withdrawal from the
preceding one. The production ordering kanban shows the quantity that the preceding
process should produce. These cards are used within the plant and within suppliers
plants, hence ordering and delivering can be co-ordinated as to reduce inventories.
3.2 Process/teamwork.
The JIT strategy enlists everyone being involved in productivity improvement. It
recognises that maximum productivity depends upon maximising assets, and human
resource is a companys most important asset [Ulrich & Eppinger, 1995]. Therefore,
this strategy attempts to release the latent capacity of each employee to attack
productivity. All personnel are expected to contribute to improving product quality,
reducing lead times and eliminating waste.
Teamwork is the answer. In a manufacturing environment, one persons problem is in
turn everybodys problem. For example, when an operator discovers a problem with
his/her machine, or sees something wrong anywhere in the factory, they have the right
to stop the whole production line if necessary, unlike that of other factories where
only the manager possesses this power. Then everyone will then leave their positions
and try to help solve the problem. As a consequence, each individuals skills are
harnessed to improve the whole production system and so the process is continuously
improved, little by little. Consequently, the emphasis in the entire manufacturing plant
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shifts from detecting problems to solving them. Moreover, finding problems are easy
but it is fixing them that are difficult. Solutions for JIT are solutions that improve the
whole. Problems are not solved in one department only to create new problems
elsewhere. The whole organisation is enlisted on solving problems and it is an
unrelenting situation because new and different problems always occur.
However, not only are the operators involved in the whole production process, the
suppliers and even the customers are included as well. Since customers and suppliers
have great influence on manufacturing flow and productivity, the JIT strategy
develops tactics to enlist them into the job as well. Suppliers are encouraged to deliver
on time, in small quantities and with zero defects. A good partnering relationship is
essential here. In addition, customers are encouraged to order in small quantities to
meet their short-term needs, and in return they will benefit in reducing their inventory
costs too. Therefore, communication with both suppliers and vendors must improve to
encompass short lead times and high service levels as to harness the full benefits of
JIT.
3.3 Implementation.
JIT is a strategy that requires dedication to perfection at all levels in the
manufacturing process. It is difficult to achieve and it takes a long time to reap
significant gains [Evans, 1993]. It must be noted that the philosophy is not a short-
term program or project, but a lifetime avocation; it is not a goal, but a journey. Some
organisations have failed in their attempts to implement JIT, the greatest attribute
being that it was not understood as a philosophy that covers all aspects and
departments in an organisation, as attempts were made to introduce parts of JIT here
and there. Failure is adamant since JIT is a close knitted web of techniques and ideas
that support each other, and all of them play an important role for the systems
success.
The philosophy has been developed to suit perfectly the type of production called
mass production or repetitive manufacturing. It requires a relatively stable pattern of
demand, and is easier to implement in factories that do not produce significantly
different products. Also, such a pull production philosophy requires a high degree of
repetitiveness and fixed routings and therefore, is not universally applicable.
However, nearly all companies have some degree of repetitiveness, and JIT can be
effectively applied to such, while the remaining products or parts can be controlled
using traditional methods.
Effects of JIT production [Schonberger, 1982]:
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4. Optimised Production Technology (OPT).
OPTs objective is to schedule production so that the production output is maximised.
The key distinctive feature is its ability to identify and isolate bottleneck operations,
then to focus on these bottlenecks to determine production plans and schedules for the
entire shop. This simple idea could lead to the better utilisation of manufacturing
resources, resulting in greater productivity and lower costs.
Evans [1993] perceives that OPT can be viewed form several perspectives. These
being: as a philosophy for scheduling, as a language for modelling manufacturing
operations, as a software system for manufacturing resource planning, or as a tool for
co-ordinating the efforts of marketing, engineering and manufacturing to realise the
common goals of the organisation. Moreover, Hill [1991] describes OPT as a sound
aid to achieve the only goal in any manufacturing organisation, and that goal is to
make money.
4.1 The ten rules of OPT.
To achieve this goal, Hill [1991] goes on to suggest that there are three important
factors that have to be carefully considered. They are throughput (rate at which the
manufacturing system generates money through sales), inventory and the operational
expense (amount in which is spent to turn the inventory into sales). These in turn feed
into the ten rules of its philosophy [Hill, 1991]:
1) Balance flow, not just capacity: Capacity and a smooth flow of materials should
be considered and maintained simultaneously, which is similar to the JIT
approach.
2) The level of utilisation of a non-bottleneck is determined not by its own potential
but by some other constraint in the system: The throughput (rate of which the
manufacturing system generates money through sales) of a system is limited by
Heightened
awareness of
problems and
problem causes.
Less inventory in
the system.
Less indirect cost for:
interest on idle inventory,
space and equipment to
handle inventory,
inventory accounting and
physical inventory
control.
Fewer rework
labour hours.
Less material
waste.
Scrap/quality
control.
Smoother output
rates.
Fast feedbacks on
defects.
Reduced buffer
inventories and/or
workers.
Lot size
reductions
JIT
production.
Ideas for
controlling
defects
Ideas for improving
JIT delivery
performance.
Ideas for cutting
lot sizes.
Less material, labour and indirect inputs for the same or higher output + higher productivity.
Less inventory in the system = faster market response, better forecasting and less administration.
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the bottleneck (a resource whose capacity is equal to or less that the demand
placed upon it). Therefore, it is necessary to control the inputs into the system
since it should be the bottleneck that dictates the throughput of the system. If non-
bottlenecks resources produce more than bottlenecks can absorb, or more than the
demand dictates, then inventory builds up and operating expenses are increased.
3) Utilisation and activation of a resource are not synonymous: This rule defines
utilisation as the degree to which a resource should be used in order to achieve the
strategic goal of profitability, and activation as the degree to which the resource
can be used.
4) An hour lost at a bottleneck is an hour lost for the entire system: Bottleneck
resources should be utilised 100% at all times: breaks should not occur and set-up
times must be reduced.
5) An hour saved at a non-bottleneck is just a mirage: Bottleneck resources limit the
capacity of the system, hence, saving non-bottleneck time does not effect the
efficiency of the system.
6) Bottlenecks govern both the throughput and the inventory in the system:
Inventories can be controlled where the bottlenecks are located, and which
determines the throughput.
7) The transfer batch may not, and many times should not, be equal to the process
batch: The transfer batch is the amount of product transferred from one operation
to another, and the process batch being the amount processed at any operation
between transfers. The numbers should be flexible, since it is essential for the
flow of product from raw material to the finished goods.
8) The process batch should be variable, not fixed: When there is a different number
of parts to an object that are to be manufactured on different equipments, the
process batch needs to be varied in order to maintain a smooth and rapid flow, and
hence reducing inventory.
9) Schedules should be determined by looking at all constraints simultaneously.
Lead-times are the result of a schedule and cannot be predetermined: Lead-times
depends upon the sequencing (the sequence in which different parts, with different
processing times are being loaded), and so cannot be determined in a capacity
bound situation unless the capacity is considered.
10) The sum of the local optima is not equal to the optimum of the whole: OPT seeks
to measure the performance of the plant as a whole based on its raw material input
and the final product output.
4.2 Implementation.
OPT is a two part approach to production planning and scheduling: conceptual and
software based. Furthermore, the implementation of the ten rules theory alone can
bring substantial benefits to an organisation, and the software is used to produce
realistic schedules.
The software package for OPT is similar to an MRP/MRP II system [Muhlemann et
al, 1992]. It can provide a detailed description of the production system in a product
network that reflects the reality of the manufacturing process. Sales forecasts are
taken and, with product routing of bills of materials data, a resource network can be
built up incorporating information relating to the resources. It then takes the
marketing forecasts and uses them to backward schedule these orders from their
required dates (see figure below) and can show exactly how the product is made,
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using information commonly found in a companys bill of materials (BOM). The
system can also carry out a series of checks to determine data accuracy, which is
essential in such an industry.
Outline of the OPT system [Sapoutzis, 1995]:
4.3 Advantages.
OPT is seen as the wests challenge against Japanese manufacturing. It shares many
of the JIT views on manufacture, and contains much of the insights that underlie the
kanban system [Browne et al, 1988]. Evans [1993] describes its many advantages:
1. A simplified technique for production scheduling:
Schedules are not time-consuming to develop.
Schedules do not require much data.
Less accuracy is required in the data.
Less computer-processing capability is required.
Less personnel time is required to analyse the schedule.
Input data:
- Sales/marketing forecasts.
- Resources (workers, machines).
- Product routings.
- Bills of materials (BOM).
- Work patterns.
Output reports:
- Work dispatch lists.
- Work centre/machine utilisation
statements.
- Material requirement plans.
Split module:
- Divides network into critical and non-critical.
- Critical resources are optimally scheduled.
- Non-critical resources are reverse-scheduled to
serve these, building in some slack.
Serve module:
- Backward schedule to infinite capacity.
- Gives load profile for each work centre.
- Allows identification of critical resources.
Buildnet module:
- Combined BOM, routing and order data to form a
resource network.
OPT system.
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2. Less complex user portion:
The sophistication of the internal mathematical technique makes the system
users job easier.
User knowledge requirement is small.
3. Rapid projection of schedule:
Quick schedules for the quick modification of the schedules and therefore more
flexibility.
Schedule changes can occur in a few hours rather than days.
Quick schedule development allows for simulation capability.
4. Plant production analysis:
Bottlenecks in the production process are specifically defined.
Improvements are easily made on the bottlenecks because their definition is clear.
Simulation can be used to test variations in plant output and their effects on the
plant load.
Capacity changes can be simulated.
5. Other:
Actual manufacturing resources are taken into account.
Production output is maximised and inventory is minimised.
A 10% or greater increase in production output is possible.
A 20% or greater reduction in inventory is possible.
Smaller batch sizes are calculated based on profitability rather than economic
order quantity (EOQ).
4.4 Disadvantages.
Unfortunately, as with any other manufacturing system at present, still entails many
disadvantages [Evans, 1993]:
1. Requires plant reorganisation:
Conceptual organisation is required.
Data processing systems are replaced.
Management style must be changed.
New reporting systems must be learned.
Equipment changes and movement may be necessary in order to use OPT
efficiently.
2. Disruption of costing and accounting systems:
Efficiency can no longer be calculated.
Job cost-control data is restricted in some areas.
Performance evaluations no longer exist.
3. Users disrupted:
Users must be retrained.
New reports must be developed for data processing and accounting to handle the
new information base.
4. Other:
OPT is more complex than other manual methods.
A tighter schedule is produced than with other methods, allowing less ability to
accommodate production errors.
The financial analysis system is changed.
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Production. McGraw-Hill, United States of America.
Anderson, E. J. (1994) Management of Manufacturing, Models and Analysis.
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Browne, J., Harhen, J. & Shivnan, J. (1988) Production Management Systems:
A CIM Perspective. Addison-Wesley Publishing Company, Wokingham.
Buffa, E. S. & Sarin, R. K. (1987) Modern Production/Operations
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Burbidge, J. L. (1996) Period Batch Control. Oxford University Press, Oxford.
Delmar, D. (1985) Operations and Industrial Management: Designing and
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Fogarty, D. W., Hoffmann. T. R. & Stonebraker, P. W. (1989) Production and
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McMahon, C. & Browne, J. (1993) Just-In-Time in CAD CAM from
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Plossl, K. R. (1987) Engineering for the Control of Manufacturing. Prentice-
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Sower, V. E., Motwani, J. & Savoie, M. J. (1997) Classics in Production and
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