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Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information.

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Presentation on theme: "Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information."— Presentation transcript:

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2 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 1 Production/Operations Management Dr. Eliot Elfner St. Norbert College Spring 2008 SCM – Maintain

3 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 2 Key issues addressed by physical supply: ACQUIRE –From whom and when should materials be ordered or produced? –What criteria should be used to evaluate suppliers? MAINTAIN –How much, when and where should material be stored? TRANSFORM –When and how should inputs be converted into outputs LOGISTICS –By what transportation mode and particular transport service should materials be transported?

4 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 3 Inventory Stock of items held to meet future demand Inventory management answers two questions –How much to order –When to order

5 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 4 Types of Inventory Raw materials Purchased parts and supplies Labor In-process (partially completed) products Component parts Working capital Tools, machinery, and equipment Finished goods

6 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 5 Reasons To Hold Inventory Meet unexpected demand Smooth seasonal or cyclical demand Meet variations in customer demand Take advantage of price discounts Hedge against price increases Quantity discounts

7 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 6 Inventory Costs Carrying Cost –cost of holding an item in inventory Ordering Cost –cost of replenishing inventory Shortage Cost –temporary or permanent loss of sales when demand cannot be met

8 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 7 Inventory Costs Ordering cost: cost incurred each time an order is placed with a supplier or production is ordered with its own shop. Setup costs: cost involved in changing over a machine to produce a different part or item. Holding cost: cost associated with maintaining an item in inventory until it is used or sold. Stockout or shortage cost: occurs when the demand for an item exceeds its supply. Item cost: becomes relevant if a quantity discount is available.

9 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 8 Warehouse Space Material Handling Costs Opportunity Costs Insurance - Property and Goods Property Taxes Administrative Expenses Shrinkage and Obsolescence Inventory Management Costs of Having an Inventory

10 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 9 Good inventory management is important to all because.. Inventories represent a major commitment of monetary resources Inventories affect virtually all aspects of a companys daily operations Inventories are a major competitive weapon for many companies

11 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 10 Types of Inventory Items Independent demand items are finished goods or parts that are shipped as end items to customers - EOQ Models Dependent demand items are raw materials, component parts, or subassemblies that are used in the production of a finished product - MRP/ERP Models

12 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 11 Inventories are typically measured in three ways: Average aggregate inventory value: used to accumulate total value of all items held in inventory on the average, over some time period. Weeks of supply: computed by dividing average aggregate inventory held, by sales per week at cost. Inventory turns: computed by dividing annual sales at cost, by average aggregate inventory value maintained during the year.

13 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 12 Inventory Management Types of Materials to be Managed Raw Materials Supplies Partially Manufactured Goods Finished Components for Final Assembly Finished Products Ready for Shipment Materials in Transit

14 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 13 Objectives of Inventory Management Buffer Internal Routine Activities from Outside Variability Never Run Out of Anything Never Have Much of Anything on Hand Never Pay More for Material than Necessary (i.e. - take quantity discounts) CONFLICTING GOALS

15 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 14 Prioritizing Inventory Management - ABC Analysis Based on the Pareto Malfeasance Curve Uses the Rule –80% of the cost of Inventory Management Will be the Result of 20% of the Items in the Inventory –Based on Different Valuations of Items in the Inventory

16 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 15 Prioritizing Inventory Management - ABC Analysis A Items - The Vital Few - 80% of Inventory Value –Require extensive Systems of Inventory Management (MRP, JIT, etc.) B Items % of Inventory Value –Often included in the A Item Control Systems C Items - The Trivial Many - The Rest –Control based on never running out

17 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 16 C Item Inventory Control Methods (Simple) Inventory Turnover Goals Dollar Limits Time Limits Fixed Ordering Times Fixed Ordering Quantities

18 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 17 Types of Inventory Control Systems Continuous review systems (each time a withdrawal is made from inventory, the remaining quantity of the item is reviewed to determine whether an order should be placed) Periodic review systems (the inventory of an item is reviewed at fixed time intervals, and an order Is placed for the appropriate amount)

19 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 18 Continuous Review and Periodic Review Systems Continuous Review System Advantages Lower Safety Stock Fixed lot sizes may make it easier to obtain quantity discounts Individual review of items is used and this may be very desirable for expensive items Periodic Review System Advantages Less time consuming and expensive to maintain Allows combining orders to the same supplier Inventory record keeping costs can be reduced

20 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 19 B Level Inventory Management Independent vs. Dependent Demand Concerned with Questions of How Much and When EOQ, ELS, and Quantity Discount Models Concern w/Suboptimization/Releasing Capital Safety Stock

21 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 20 B Level Inventory Management Disadvantages Cost of Accurate Data Dynamic Nature of Inventory Systems Best suited to B Level, Independent Demand Items Assumes Constant, Steady Demand Sub-Optimizes Other Management Methods Overlap-MRP

22 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 21 Inventory Costs Ordering cost: cost incurred each time an order is placed with a supplier or production is ordered with its own shop. Setup costs: cost involved in changing over a machine to produce a different part or item. Holding cost: cost associated with maintaining an item in inventory until it is used or sold. Stockout or shortage cost: occurs when the demand for an item exceeds its supply. Item cost: becomes relevant if a quantity discount is available.

23 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 22 Inventory models give answers to two questions: l l When should an order be placed or a new lot be manufactured? ROP l How much should be ordered or purchased? EOQ/ELS

24 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 23 Components of Inventory Costs Purchase Price Inventory Ordering Costs Inventory Carrying Costs

25 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 24 Insurance Interest Spoilage Obsolescence Material Handling Etc. Components of Inventory Carrying Costs

26 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 25 Inventory Cost Model Total Cost = Annual Purchase Costs + Annual Ordering Costs + Annual Carrying Costs A Function of Ordering Quantity

27 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 26 Quantitative Model TC = Total Costs PC = Annual Purchasing Costs OC = Annual Ordering Costs CC = Annual Carrying Costs TC = PC + OC + CC

28 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 27 Assumptions Of Basic EOQ Model Demand is known with certainty Demand is relatively constant over time No shortages are allowed Lead time for the receipt of orders is constant The order quantity is received all at once

29 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 28 The Inventory Order Cycle Demand rate 0Time Lead time Order Placed Order Received Inventory Level Reorder point, ROrder qty, Q Lead time Order Placed Order Received

30 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 29 EOQ Cost Model C O - cost of placing order D - annual demand C C - annual per-unit carrying costQ - order quantity Annual ordering cost = C O D/Q Annual carrying cost = C C Q/2 Total cost = C O D/Q + C C Q/2

31 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 30 EOQ Model Cost Curves Total Cost Ordering Cost C o D/Q Order Quantity Q Annual cost ($) Minimum total cost Optimal order Q opt Carrying Cost C c Q/2 Slope = 0

32 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 31 EOQ Example C C = $0.75 per yard C O = $15 D = 10,000 yards

33 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 32 EOQ With Noninstantaneous Receipt Q(1-d/p) Inventory level (1-d/p) Q2Q2 Time 0 Order receipt period Begin Order receipt End Order receipt Maximum inventory level Average inventory level

34 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 33 EOQ With Noninstantaneous Receipt p = production rate d = demand rate

35 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 34 Production Quantity Example C C = $0.75 per yard C O = $15 D = 10,000 yards d = 10,000/311 = 32.2 yards per day p = 150 yards per day Production run = Q/p=2,256.8/150=15.05 yards Number of production runs = D/Q=10,000/2,256.8 = 4.43

36 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 35 Quantity Discounts Price per unit decreases as order quantity increases Order SizePrice 0-99$ $8 (d1) 200+ $6 (d2)

37 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 36 Economic Order Quantity Quantity Discounts (Solution Procedure) Step 1 : Compute Q for the unit cost associated with each discount category. Step 2 : For those Q that are too small to receive the discount price, adjust the order quantity upward to the nearest quantity that will receive the discount price. Step 3 : For each order quantity determined in Steps 1 and 2, compute the total annual inventory price using the unit price associated with that quantity. The quantity that yields the lowest total annual inventory cost is the optimal order quantity.

38 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 37 Quantity Discount Model Q opt Carrying cost Ordering cost Inventory cost ($) Q(d 1 ) = 100Q(d 2 ) = 200 TC (d 2 = $6 ) TC (d 1 = $8 ) TC = ($10 ) Quantity (Q)

39 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 38 Quantity Discount Example Order C C = $190 per computer SizePrice C O = $2, $1,400D = ,

40 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 39 HOMEWORK Read Webster, Chapters 6 & 7 Problems DUE Tue, 4/15 in class –P. 138, Problems 2, a-e and 3, a-e –P. 140, Problem 14

41 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 40 Material Requirements Planning (MRP) is a production system that was specifically designed to handle dependent demand inventory items. Dependent Demand Inventory Control

42 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 41 MRP Computerized inventory control & production planning system Schedules component items when they are needed - no earlier and no later

43 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 42 When to Use MRP Dependent and discrete items Complex products Job shop production Assemble-to-order environments

44 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 43 MRP Inputs & Outputs Master Production Schedule Material Requirements Planning Work OrdersPurchase OrdersRescheduling Notices Product Structure File Inventory Master File Planned Order Releases

45 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 44 MRP Inputs Master production schedule Product structure file Inventory master file

46 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 45 Master Production Schedule Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders & demand forecasts Quantities represent what needs to be produced, not what can be produced

47 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 46 Level 0 Level 1 Level 2 Level 3 Product Structure Tree Clipboard Rivet (2) Iron Rod (3 in.) Spring (1) Spring Steel (10 in.) Bottom Clip (1) Top Clip (1) Pivot (1) Sheet Metal (8 in 2 ) Clip Assembly (10) Sheet Metal (8 in 2 ) Board (1) Pressboard (1) Finish (2oz.)

48 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 47 The MRP Matrix Item –name or number identifying scheduled item LLC –low-level-code; lowest level at which item appears in a product structure

49 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 48 Production Planning and Scheduling Framework Resource Planning Aggregate Production Planning Demand Forecasting Rough-cut Capacity Planning Master Production Schedule Detailed Capacity Planning Material Requirements Planning Purchasing Shop-Floor Control Feedback

50 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 49 Bill of Material for the Office Chair Example Level 0 Level 1 Level 2 Back CushionSeat Cushion Chair Frame Fasteners (8) Fasteners (3) Wheels (6) Base Unit Adjuster Mechanism Office Chair

51 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 50 For all components and subassemblies MRP systems determine: Order Quantities Planned order release dates Order due dates

52 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 51 Operation Setback Chart for Economy Office Chair 1 - Way Adjuster Mechanism Wheels Base Unit Fastener - 1 1/4 Nylon Back Cushion Nylon Seat Cushion Economy Chair Frame Fastener - 1 1/4 Period 1Period 2Period 3Period 4Period 5Period 6Period 7 Period 8 Economy Office Chair

53 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 52 Issues to be concerned with when using MRP systems: Loss of visibility for low level components MRP nervousness Minimum length of the planning horizon Freezing the MPS Lumpiness of demand

54 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 53 Lot Sizing Procedures Lot for Lot Fixed Order Quantity Period Order Quantity Part Period Balancing

55 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 54 Distribution Requirements Planning extends the logic of MRP into the physical distribution system. is a mechanism for integrating the physical distribution system with the production planning and scheduling system. assists in maintaining distribution inventories in field warehouses, distribution centers, etc., by improving the linkages between marketplace requirements and manufacturing activities.

56 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 55 Distribution Requirements Planning (Cont) helps managers anticipate future requirements and closely match the supply of products to demand, and adjust to changes in the marketplace. can yield significant logistics savings through improved planning of transportation, dispatching, etc.

57 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 56 Distribution Requirements Planning Central coordinating role Detailed local information Critical link between marketplace, demand forecasting, and master production scheduling Generates valuable information for the master scheduling process

58 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 57 DRP in Production Planning and Scheduling Resource Planning Aggregate Production Planning Demand Forecasting Distribution Requirements Planning Master Production Scheduling Planned Shipments Marketplace (Customers and other demand sources)

59 Introduction to P/OM Introduction to Supply Chain Management SCM – Acquisition SCM – Maintain SCM – Transform SCM – Distribute Webster Chapters Information Technology Foundations Demand Management Supply Management Inventory Management Capacity Management Production Management Transportation Management Quality Management POM Tools Forecasting Lean Manufacturing Project Management Simulation Statistical Process Control 58 Production/Operations Management Dr. Eliot Elfner St. Norbert College Spring 2008 The End – Maintain


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