FdA Business and Management Bournemouth University Partner Colleges University Centre Yeovil

Beverley Cox Managing Business Operations B & D Patterns Ltd

Unit Leader: Dave Howell

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Contents Page No. 3. 4. 5. 8. 12. 14. 15. Description Figure Table Introduction Material Requirements Planning (MRP) Quality Control Forrester Effect/Bullwhip Effect Conclusion Bibliography

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Figure Table Figure 1. Description Table of Push/Pull systems (SMThacker.co.uk, 2010)

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B & D Patterns Ltd 1. Introduction

B & D Patterns Ltd is the largest supplier of fabricated pipe assemblies to Rolls Royce (RR) Aerospace. Having decided to change their manual systems to a computerised MRP system for their manufacturing facility, this report discusses how MRP works together with its advantages and disadvantages.

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2.

Material Requirements Planning (MRP)

Material Requirements Planning (MRP) is a planning tool designed for assembly operations specifically. It aims to advise the supplier when and what part is required for a unit. Introduced by Joseph Orlicky, an American engineer, MRP links product demand to raw material supply by buying only what was required enabling inventories or bills of materials to be reduced dramatically (Bbc.co.uk, 2005). B & D Patterns needed to maintain a large number of bills of materials (BOMs) due to their manufacturing processes requiring ten components on average to assemble each unit. An integrated system was needed that could handle complex BOMs, purchase ordering and production procedures including the flow of information. Manufacturing encompasses a flow of materials from suppliers, through plants, to customers together with information to all intermediaries involved regarding what is planned, what has been completed and what should happen next. Orlicky (1995) concluded in his theory that any As material and information flow benefits gained to planning will be directly proportional to the speed of flow of materials and information. speeds up, any difficulties involved in controlling the manufacturing process will decrease making planning more effective. An MRP system needs to accomplish three goals:1. 2. 3. To ensure that materials are available for production and that products are available for consumers when required. To keep inventory levels as low as possible. To plan manufacturing and purchasing activities. (James, T, 2010)

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MRP is a push system that is triggered by the interpretation of demand that is expected and scheduling of the supply to meet that demand thereby receiving the push from the demand (SMThacker.co.uk, 2010). It is designed with quality control integrated into processes and aims to define and measure specifications for quality at critical steps in the process. 2009). Although B & D Patterns Ltd saw great benefit with MRP, some manufacturing companies have little to gain from MRP such as Toyota whose focus is on identifying and eliminating time and material waste rather than tracking every activity and every piece of material within the manufacturing plant. John Krafcik of Toyota found lean manufacturing improved the flow of work and reduced cost and production time (Kochan et al, 1997). Research found the system of replenishing stock triggered by the usage or depletion of stock makes lean manufacturing a pull system whereby they react rather than plan like MRP and are pulled by the demand. In this case, MRP would not be of benefit Toyota due to the amount of time needed to provide the MRP system with all information needed as they would see this time as a waste and could be put to use by using it for manufacturing. MRP and lean manufacturing are techniques of supply chain management whereby they control and minimise the consequences of demand fluctuations as a small change in demand can have a large effect on the supply chain. MRP and Lean manufacturing demonstrate both push and pull systems. However, there are several types of push/pull systems:By maintaining the quality of the processes, delays and costs can be minimised ultimately satisfying the customer (Alpha-erp.com,

Push Systems (plan) All Time Buy Project Manufacturing Period Batch Control Materials Requirements

Pull Systems (react) Replacement Vendor Managed Inventory Input / Output Control Planning Two Bin
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(MRPI) Manufacturing Resources Planning Three Bin (MRPII) Advanced (APS) Reorder Point (ROP) (Fig.1) All these systems provide benefits dependant upon the demand of the manufacturer and what the needs of their manufacturing environment are. For example, with MRP, a goods receipt would automatically update outstanding purchase orders, update the stock balance, create a creditor in the purchase ledger and eventually update the general ledger with the end result. When there a large number of bills of materials (BOMs) and demand fluctuates this system would be the most effective as it controls inventories (Louis, R, 2006). However, for a manufacturer where demand is steady, using again Toyota as an example, the components for their vehicles have to be manufactured for a vehicle regardless of demand and so Kanbans which align to lean manufacturing provide a way of scheduling what to produce, when to produce it, and how much to produce rather than what is needed to produce by using the rate of demand to control the rate of production (Ono, T, 1988). Bin systems work in a similar way to Kanbans but with stock being reordered once a pre-determined level has been reached. That level would be determined by the manufacture. B & D Patterns could make use of the bin systems with their sales forecast figures, however research shows that the overall administration needed for bin systems far outweighs the initial administration needed for MRP. That said, Kanbans and bin systems could reduce the buildup of stock because the systems provide the customer what they want when they want it unlike MRP which works to forecasted Planning & Scheduling Kanban

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figures rather than actual figures and has the ability to build up large amounts of stock which needs to be stored (Gross, J, 2003).

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3.

Quality Control

Research shows that poor quality is generally related to product failure or rejection and by improving quality failure or rejection should be eliminated by prevention. B & D Patterns should base quality on how well their finished products fit their original design specification (Schaffer, R, 2008). W E Deming, an American statistician was a pioneer in quality control theory. He used statistics to examine production processes and believed that product quality improvement depended upon increased cooperation between management and labour as well as improved production and design processes (Aguayo, R, 1991). Demings work planted the seed behind many quality control and efficiency improvement methods including:Other such quality and efficiency improvement methods include:3.1 Just in Time Just in time seeks to reduce process inventory and all related costs and research shows that Just in time is a capability arising from improvements within a business operation, rather than a cause of improvement itself. Kanbans, as discussed earlier, are the drivers in Just in time production as they decide when it is necessary to make the next part in the production line. Ford Motor Company was the first organisation to employ the Just in time method of managing the supply chain. With their dock to factory floor concept, materials are not even kept in storage but go directly into production. A dominant feature of JIT manufacturing is the emphasis on quality. This emphasis on quality was also a central feature of Ford's MTPS.
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Ford recognized that high volume production was dependent on having component parts which were truly interchangeable which B & D Patterns should consider if they were seeking to use Just in time manufacturing processes as, without having interchangeable parts, mass production would be both difficult and costly. Since Just in time seeks to reduce stock levels to zero this leaves no room for error and research shows that commitment to quality and efficiency from an organisation is needed otherwise the costs and implications will outweigh the savings made by reduction in excess stock. Although some organisations like to hold a lot of stock to act as a safety net, Just in time does not allow for this (Cheng et al, 1996). That said there are numerous advantages of using Just in time including waste reduction and high competitive advantage due to having the ability to produce at a higher quality (Wilson, J 1995).

3.2

Enterprise Resource Planning (ERP) ERP focuses on the entire organisation being connected together rather than materials or processes and requires that organisation to sacrifice most of what it once knew and implement software that covers all aspects of its business (Adam et al, 2004). Caruso (2011) found through his research for Microsoft that ERP systems can provide a powerful opportunity for many manufacturers to gain competitive advantage by taking them beyond simply managing internal business processes and managing the entire supply chain. ERP is much like MRP used by B & D Patterns MRP. However the functions of MRP are incorporated within ERP which centralises the operational processes, ie. production, sales, HR, finance and materials. Its advantage is its ability to gather data from all areas of

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a business and apply it to analyse trends, predict future orders, discover problem areas, and improve completion times. As the key issue for B & D Patterns was the maintenance of a large number of bills of materials, MRP is better suited as it was designed for that focus (Proud, J, 2007). 3.3 TQM TQM seeks to manage people and business processes to ensure complete customer satisfaction at every stage, internally and externally by continuous improvement. It uses a wide range of tools and techniques to identify processes surrounding quality, then measures and prioritises those processes unlike the aforesaid JIT system which surrounds resource and cost reduction (Businessballs.co.uk, 2011). The focus of TQM is on collaboration among various departments within an organisation for improving quality or maintaining existing quality by requiring that everyone who is involved within the creation or consumption of the products produced by an organisation are responsible for the quality of the product and the processes needed to produce that product. provides maximum benefit to In other words, TQM that involve organisations

management, suppliers, work force and customers in order to meet expectations (Jacowski, T, 2007). TQM follows Kaizen principles and uses tools such as quality circles:3.3.1 Kaizen Kaizen is a core principle of TQM and is a philosophy that enables humans within an organisation to feel empowered by owning responsibilities and providing knowledge within teams to improve quality and performance (Businessballs.co.uk, 2011).
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3.3.2 Quality Circles Quality Circles are a form of quality tool that are similar to Kaizen teams in that they play an integral role to any continuous improvement system such as TQM. Quality Circles are made up of knowledgeable humans that can review practices and suggest improvements. B & D Patterns would benefit from the use of quality circles within its organisation in order to share knowledge and limit error (Businessballs.co.uk, 2011). 3.4 Taguchi Method The Taguchi method is a structured approach for determining the best combination of inputs to produce a product. Developed by Genich Taguchi, this method encompasses robust quality design in that products should be designed to be of high quality and defect free. (University of Notre Dame, 2011). Using statistical data its focus is on the success or failure of quality control using a quality loss function rather than on processes or inventory. B & D Patterns could simply define their quality control procedures and how to assume success or failure at the outset for input into MRP without using complicated statistical formulae so that quality loss can be taken into account (Businessballs.co.uk, 2011).

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4.

Forrester Effect/Bull Whip Effect discussion of supply chain management and quality

Following

management methods, another important consideration is the Forrester Effect, also known as the Bullwhip Effect. This is where small fluctuations in end customer demand result in the amplification of demand upstream. The term Bullwhip stems from a scenario whereby a small flick of the wrist at the handle will create a large crack of the whip at its tip. Excess Jay inventory and excess stock is created by the Forrester Effect.

Forrester found the time between orders along the supply chain and lack of visibility of orders causes inaccurate decisions about orders (Mangan et al, 2008). The bullwhip effect usually flows up the supply chain, starting with the retailer, wholesaler, distributor, manufacturer and then the raw materials supplier. This effect can be observed through most supply chains across several industries; it occurs because the demand for goods is based on demand forecasts from companies, rather than actual consumer demand. As previously discussed, B & D Patterns use MRP which focuses on lean manufacturing as with Just in time. All three methods use sales forecasts to determine demand for a product or service. If B & D Patterns were to start to manufacture a new product then they would estimate demand of that product based on the current condition of the appropriate market. If the demand did not match the forecast and demand was lower than anticipated then the extra inventories would begin to increase causing companies closest to the consumer, in this instance Rolls Royce (AA) Aerospace, to decrease inventory which amplifies the extra inventory of each company up the supply chain, thus creating the Forrester Effect (Vitez, O, 2011). To minimise this risk, B & D Patterns would need to manage the variation in consumer demand by using a JIT system alongside their MRP system.
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Toyota found this to be the case and instead of using the traditional MRP push system singularly, they felt a Kanban pull system working alongside the MRP system would be more beneficial to their operations (Bizcovering.com, 2008). An alternative would be for B & D Patterns to disregard the MRP and opt for a JIT system which is focused on inventories and implement a point of sale system. This would manage the fluctuations in consumer demand by allowing each company in the supply chain to process the information regarding products electronically. Consumer demand could then be analysed based on information provided by the point of sale system allowing operations managers to order more materials if required (Vitez, O, 2011).

This seeks to confirm the opinion of Slack et al (2010) who found the Forrester Effect to be a dynamic behaviour of supply chains. His theory suggests that operations can use a mixture of strategies to reduce the Forrester Effect which B & D Patterns may like to adopt: By sharing information through the supply chain and linking all operations to the source of the demand, fluctuations in demand could reduce. Decision making processes through the supply chain should be the same so that decisions can be co-ordinated. Sources of inefficiency or ineffectiveness in the supply chain should be eliminated.

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5.

Conclusion

Supply Chain Management involves collaboration between outsourcing partners, suppliers, and customers. It comprises the transformation of goods from raw materials through to the delivery of the finished product; it also includes the management of key information flows. Product differentiation, high quality, low cost, on time delivery and flexibility can only be achieved when operations managers make effective decision in ten areas of operation management. Critical decisions to be made within operations management include designing the layout and processes. The decisions made as to the layouts and processes affect management decisions to use specific technology and process types to achieve the organisational strategies. The organisation has to ensure it makes the right decision with regard to labour requirements, purchasing decisions, capacity needs and inventory needs as these affect the decision made with regard to the layouts and processes as the end processes must relate to materials. By integrating these activities relationships within the supply chain should improve and the organisation should be able to achieve a competitive advantage through lower cost higher quality products (Samson et al, 2008).

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Bibliography Adam, F, Sammon, D, 2004. The Enterprise Resource Planning Decade: Lessons Learned and Issues for the Future. The Idea Group Inc, London. Aguayo, R, 1991. Dr Deming: The American who Taught the Japanese about Quality. Fireside, New York. Alpha-erp.com, 2009. Alpha MRP Benefits. Manufacturing Resource Planning - MRP Benefits. Available from: http://www.alphaerp.com/mrp-benefits.html 1 May 2011 Bbc.co.uk, 2005. Material Requirements Planning, A Manufacturing Revolution. Available from: http://www.bbc.co.uk/dna/h2g2/A3488646#footnote2 1 May 2011 Bizcovering.com, 2008. Operations Management at Toyota. Available from: http://bizcovering.com/major-companies/operations-managementat-toyota/ 1 May 2011 Businessballs, 2011. Quality Management. Total Quality Management (TQM). Available from: http://www.businessballs.com/qualitymanagement.htm 5 May 2011 Caruso, D, 2011. 4 Ways an Integrated ERP System Improves Supply Chain Performance. Available from: http://www.microsoft.com/enus/dynamics/industries/manufacturing-erp-supply-chain.aspx 4 May 2011 Cheng, T C E, Podolsky, S, 1996. 2nd Edition. Just in Time Manufacturing: An Introduction. The University Press, Cambridge. Gross, J M, 2003. Kanban Made Simple: Demystifying and Applying Toyota's Legendary Manufacturing Process. Amacom Books, New York. Jacowski, T, 2007. Six Sigma vs Total Quality Management. Available from: http://www.pmhut.com/six-sigma-vs-total-quality-management 4 May 2011 James, T, 2010. Basic Principles of MRP. Available from: http://www.ehow.com/list_7644563_basic-principles-mrp.html 1 May 2011 Kochan, T A, Lansbury, R D, MacDuffie, J P, 1997, After Lean Production: Evolving Employment Practices in the World Auto Industry. Cornell University Press, United States of America. Louis, R S, 2006. Custom Kanban: Designing the System to Meet the Needs of your Environment. Productivity Press, United States of America.

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Mangan, J, Chandra L, Butcher, T, 2008. Global Logistics and Supply Chain Management. Antony Rowe Ltd, Wiltshire. Ono, Taiichi, 1988. Toyota Production System. Productivity Inc, United States of America. Orlicky, J, 1995. 2nd Edition. Material Requirements Planning. Mc-Graw Hill, New York. Proud, J F, 2007. Master Scheduling: A Practical Guide to Competitive Manufacturing. Wiley & Sons Inc, New Jersey. Samson, D, Singh, P J, 2008. Operations Management: An Integrated Approach. Cambridge University Press, United States of America. Schaffer, R, 2008. Customer Service & Retention, Quality Management. Available from: http://www.contactprofessional.com/topics/customerservice-retention/quality-management-983 5 May 2011 Slack, N, Chambers, S, Harland, C, Harrison, A, Johnston, R, 2010. 6th Edition. Operations Management: And MyOMLab. Pitman Education Ltd, Essex. SMThacker.co.uk, 2010. Materials Management & Stock Control. Available from: http://www.smthacker.co.uk/materials_management_stock_control.htm 5 May 2011 University of Notre Dame, 2011. Robust Design The Taguchi Philosophy. Available from: http://www.nd.edu/~atovar/ame30362f08/robust_design_taguchi.ppt 4 May 2011 Vitez, O, 2011. The Bullwhip Effect in Supply Chain. Available from: http://www.ehow.com/about_5230010_bullwhip-effect-supply-chain.html 3 May 2011 Wilson, J ,1995. Henry Fords Just in Time System. Available from: http://www.accessmylibrary.com/article-1G1-17852169/henry-ford-justtime.html 3 May 2011

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