cpim - apics

CPIM

Certified in Production and Inventory Management

Detailed Scheduling and Planning Version 5.4—January 2016

Instructor Upgrade Packet

Detailed Scheduling and Planning Version 5.4 – January 2016

Net Change Document

1 of 8

AllmaterialcanbedownloadedfromtheinstructorcommunitybyselectingthefileDSPv5.4IGDownloadPacket.pdf Page Change Page

ReplacedVisualNumber(ifUpdated)

AllpagesofAboutThisGuide

In“AboutThisGuide,”pageI‐iii,under“ExamContentManual,”secondparagraph,deletethelastsentence:“Candidatesshouldunderstandthedefinitionsofthekeytermsinthecontentoutline,aswellastheoutlinedtechniques–whyandhowtoapplythemandwhichonestoselectfordifferentsituations.”Addthefollowingnewfourthparagraphtothissection:“CandidatesshouldunderstandthedefinitionsofthekeytermsintheECM,whyandhowtoapplythem,andwhichonestoselectfordifferentsituations.TheCPIMcoursewarecoversmany,butnotall,ofthekeytermsintheECM.Therefore,candidatesshouldsupplementtheirlearningbystudyingtheECMkeytermlistusingtheAPICSDictionaryorotherECMreferencesasaguide.“ThischangepushessomecontentovertopageI‐iv.

AllpagesofAboutThisGuide

n/a

1‐10 Onpage1‐10,placeacopyofVisual1‐8andthetext“ContinuetodisplayVisual1‐8.” 1‐10 n/a1‐12 Onpage1‐12,placeacopyofVisual1‐8andthetext“ContinuetodisplayVisual1‐8.” 1‐12 n/a1‐15 Onpage1‐15,under"Excess,"lastparagraph,changethefirstsentencefrom

"Examplesincludeinventoryheldforproductiontobuffer…"to"Examplesofexcessinventoryareamountswellabovethoseheldforproductiontobuffer…"Changethelastsentencefrom"Seethediscussionofbuffersbelow..."to"Seethediscussionofbuffersonpage1‐17..."

1‐15 n/a

1‐17 Onpage1‐17,under"Obsolete,"changethelastsentencefrom"Obsoletepartsareremovedfrominventorybyengineeringchangeorders."to"Partsobsoletedbyanengineeringchangeorderaremarkedforremovalaspartofthematerialdispositionoractiontasksoftheengineeringchangeorder."

1‐17 n/a


Net Change Document

2 of 8

Page Change PageReplaced

VisualNumber(ifUpdated)

1‐26 Onpage1‐26,Inthereferencesatthetopofthepage,change“Epstein”to“EpsteinandBuhovac,2nded.”

1‐26 n/a

1‐28 Onpage1‐28,firstsentence,replace"…addressedduringmasterplanning,S&OP,andmasterscheduling."to"…addressedduringmasterplanningactivitiesandS&OP."

1‐28 n/a

1‐34,1‐36 OnVisuals1‐25,1‐26,and1‐27,revisethevaluestoprovideabetterexampleofFIFO. 1‐34,1‐36 1‐25,1‐26,1‐27

1‐37 Onpage1‐37,replacethetablewiththatfromVisual1‐26,withoutthequestionmarks.

1‐37 n/a

1‐49 Onpage1‐49,secondparagraph,firstsentence,change"…order‐for‐order…"to"…make‐to‐order…"

1‐49 n/a

1‐50 OnVisual1‐38,replacethecontentswiththatonVisual7‐17intheCPIMBSCMcourse.

1‐50 1‐38

1‐54 OnVisual1‐42,replacethecontentswiththatonVisual7‐17intheCPIMBSCMcourse.

1‐54 1‐42

1‐56 OnVisual1‐44,deletethelastbullet"Supplierandfactorypoliciesconsistofstandardlotsizes,productionefficiency,andcapacityavailability."

1‐56 1‐44

1‐60 Onpage1‐60,Changethefirstsentencefrom"ExplainthatthePOQistheoppositeofFOQ."to"ExplainthatthePOQstartswiththeEOQcalculation."

1‐60 n/a

1‐61 Onpage1‐61,changethefirstparagraphfrom"ThePOQmethodistheoppositeofFOQ.Theorderquantitymayvary,buttheintervalbetweenordersremainsfixed."to"ThePOQstartswithanEOQcalculation.ContrarytoFOQ,theorderquantitymayvary,buttheintervalbetweenordersremainsfixed."Omitthelastsentenceonthepage:"AsillustratedinVisual1‐49,POQstartswiththeEOQcalculation."

1‐61 n/a


Net Change Document

3 of 8



1‐62 OnVisual1‐51and1‐52,insertthenetrequirementsof"120,260,130,and120"inPeriods3through6onthegrids.Onpage1‐62,secondparagraphunderVisual1‐51,addanote:"Note:Netrequirementsforperiods3,4,5,and6areshownforinstructionalpurposes,butwouldnotappearinaproductionMRPsystem."

1‐62 1‐51,1‐52

1‐66 Onpage1‐66,thirdparagraph,change"…twoweeks'supply."to"…twoweeks." 1‐66 n/a1‐74 Onpage1‐74,addthefollowingtotheendofthefirstparagraph:"Explainthat

softwaresystemsmayrequiremanualinterventionandobservationofstocklevelsduringproductphase‐out."Atthebottomofthepage,addthefollowing:"Explainthatduringperiodsofexpectedgradualgrowthorgradualdecline,fixedsafetystockmaynotbetheidealmethodforphasingoutproducts.Assumingthatthesystemislookingatthefutureandthepast,asystem‐generatedtime‐basedsafetystockwouldbepreferred.Incertaincircumstances,anorganizationmaywishtomaintainasafetystocklevelandwillcontinuetoorderpartsduringaproductphase‐out.Whenanend‐of‐lifesupportdateisknown,afixedanddiminishingsafetystocktargetcanbesettoforcestocktozero,andsafetystockreplenishmentwillcease."

1‐74 n/a

1‐75 Onpage1‐75,under"Fixedsafetystock,”lastparagraph,addthefollowingsentencetotheendoftheparagraph:“Manualinterventionandobservationofstocklevelsmaybenecessaryduringproductphase‐out.”

1‐75 n/a

2‐14 OnVisual2‐12,movethetargetlevelupandadjusttheQ1linestocorrectthegraph. 2‐14 2‐12

2‐17 Onpage2‐17,under"Vendor‐managedinventory,"deletethethirdbullet:"Oftenthesupplierownsthegoodsuntilthecustomerusesthem.

2‐17 n/a


Net Change Document

4 of 8



2‐32 Onpage2‐32,addthefollowingsentencetotheendoftheparagraphunderVisual2‐27:"Partsinventorymaybemanagedwithasupermarketapproachtoimprovepicking."

2‐32 n/a

2‐33 Onpage2‐33,underthebullet"Useapullsystem,"addthefollowingtotheendofthethirdsubbullet:"Partsinventorymaybemanagedwithasupermarketapproach,wherepartsareeasytotakeoffofashelf,muchliketheshelvesofasupermarket.Inventoryisthenrestockedsothatemployeeshaveeasyaccess."

2‐33 n/a

2‐34,2‐35 OnVisual2‐30,thirdbullet,change"...nextstation..."to"...upstreamworkstation...,"andchangethefifthbulletfrom"...whichcanthenreleasetheassemblytothenextstation."to"...whichcanthenindicatetheneedtostartthereplacementassemblyfortheonejustpulled."Onpage2‐35,under"Implementsynchronousflow,"thirdsubbullet,thirdline,change"...nextworkstation..."to"...upstreamworkstation..."Changethefifthsubbulletfrom"...whichcanthenreleasetheassemblytothenextstation."to"...whichcanthenindicatetheneedtostartthereplacementassemblyfortheonejustpulled."

2‐34,2‐35 2‐30

2‐52 OnVisual2‐48,replacetheright‐handcolumn"Year'ssupplyonhand"with"Daysofsupply"andtherecalculatedvaluesbasedon250workingdaysayear.

2‐52 2‐48

3‐4 OnVisual3‐3,secondsubbullet,change"meaningful"to"significant"and"non‐meaningful"to"nonsignificant"

3‐4 3‐3

3‐5 Onpage3‐5,secondbullet,change"meaningful"to"significant"and"non‐meaningful"to"nonsignificant"

3‐5 n/a

3‐15 Onpage3‐15,lastbullet,thirdline,change"meaningful"to"significant" 3‐15 n/a


Net Change Document

5 of 8



3‐16,3‐17 Onpages3‐16and3‐17,andVisuals3‐13,3‐14,and3‐15,changeallinstancesof"meaningful"to"significant"and"non‐meaningful"to"nonsignificant"tobettermatchtheAPICSDictionary.Onpage3‐16,intheparagraphunderVisual3‐13,secondsentence,change"butcanalsoleadtoerrors."to"butcanalsoleadtoerrors,asthesepartnumbersareoftenlongerandmorecomplexthannonsignificantones."

3‐16,3‐17 3‐13,3‐14,3‐15

3‐29 Onpage3‐29,under"Productstructureandpartinterdependencies,"lastparagraph,secondsentence,change"…tobuildoneenditem."to"…tobuildoneparentitem."

3‐29 n/a

3‐50 OnVisual3‐41,secondsubbullet,change"meaningful"to"significant"and"non‐meaningful"to"nonsignificant"

3‐50 3‐41

4‐25 Onpage4‐25,secondbullet,change“Scheduledreceiptsareforplannedordersscheduledbeforeweek1andaredueduringtheplanninghorizon.”to“Scheduledreceiptsareforplannedordersthatwerereleasedbeforeweek1andaredueintheperiodindicated.”

4‐25 n/a

4‐52through4‐56

Onpreviouspages4‐52through4‐60,repositionAppendixA,B,andC,whichcontainsolutions,sothattheydonotappearintheparticipantworkbook.ReplacethemwiththeblankMRPgridworksheetsintendedforparticipants.Note:previouspages4‐57through4‐60areomitted.

4‐52through4‐56

n/a

5‐13 Onpage5‐13,secondparagraph,lastsentence,change"…bottom‐upplanning…"to"…bottom‐upreplanning…"

5‐13 n/a

5‐19 Onpage5‐19,thirdbullet,secondsentence,change"Thereisonlyenoughmaterial…"to"Therewillbeonlyenoughmaterial…"

5‐19 n/a

5‐44 Onpage5‐44,intheparagraphunderVisual5‐28,secondsentence,remove"linkagesanddependencies"Addthefollowingasanew,thirdsentence"ManysoftwareprogramsthatcreateGanttchartshaveaddedtheabilitytoseelinkagesandrelationshipsbetweenactivities."

5‐44 n/a


Net Change Document

6 of 8



5‐48 Onpage5‐48,lastparagraph,deletethefourthsentence"Aftertheexpecteddurationshavebeencalculated,theycanbeenteredintotheGanttchartandusedforotherprojectplanningtasks."

5‐48 n/a

5‐50 OnVisual5‐32,changetheidentifiersfor"Person"from"A,B,C,D,E"to"1,2,3,4,5" 5‐50 5‐325‐74 Onpage5‐74,firstparagraph,secondsentence,change"fromtheirresponsibility

matrix."to"fromtheprojectschedule."5‐74 n/a

6‐34 Onpage6‐34,placeacopyofVisual6‐29andthetext“ContinuetodisplayVisual6‐29.”

6‐34 n/a

6‐38 AtthetopofVisual6‐32,addthefollowingformulaforutilization:"Utilization=actualhoursworked/availabletime(hours)"Onpage6‐38,addthefollowingsentencetothebeginningofthefirstparagraphunderVisual6‐32:"Describetheformulaforcalculatingutilizationanddirectparticipantstopage6‐43foranexplanationofavailabletime,ifnecessary."

6‐38 6‐32

6‐39 Onpage6‐39,under"Utilization,"firstsentence,change"…relativetoitsavailabletime."to"…relativetoitsavailabletime.(Seepage6‐43foranexplanationofavailabletime.)

6‐39 n/a


6‐56 n/a

7‐14,7‐15 OnVisual7‐14,change"WC1"to"WCA,""WC2"to"WCB,"and"WC3"to"WCC"and"Operation1"to"Operation10,""Operation2"to"Operation20,"and"Operation3"to"Operation30."Onpages7‐14and7‐15,thirdbulletonpage,change"WC1"to"WCA,""WC2"to"WCB,"and"WC3"to"WCC."

7‐14,7‐15 7‐14


Net Change Document

7 of 8



7‐17 Onpage7‐17,firstparagraph,secondsentence,change"Wewillrefertothemasworkcenterloadreportsinthissession."to"Whilesomeauthorsrefertothemasworkcenterloadreports,theAPICSDictionaryreferstothemasloadprofiles;wewillusebothtermsinthissession."

7‐17 n/a

7‐22,7‐23,7‐26,7‐27

OnVisual7‐19,removethesecondbullet"Holdordersinproductioncontrol."Onpage7‐22,changethequestionfrom"Askwhyreducinglotsizeandholdingordersinproductioncontroldonot..."to"Askwhyreducinglotsizeinproductioncontroldoesnot..."Intheanswer,removethesecondparagraph.Onpage7‐23,removethesecondbullet(itwillbemovedtopage7‐27).Changethequestionfrom“Whydon’treducinglotsizeandholdingordersinproductioncontrol…”to“Whydoesn’treducinglotsizeinproductioncontrol…”OnVisual7‐22,insertanewfourthbullet"Holdordersinproductioncontrol"Onpage7‐27,under"Redistributeload,"insertthesecondparagraphtakenfrompage7‐23asthefourthbullet.

7‐22,7‐23,7‐26,7‐27

7‐19,7‐22

7‐69 Onpage7‐69,#2,answerchoice"a,"change"workorderloadreport"to"workcenterloadreport"

7‐69 n/a

7‐73 Onpage7‐73,question9,changethelastsentenceinthequestionstemfrom"Thismeans…"to"Mixedflowschedulingmeans…"

7‐73 n/a


8‐26 n/a



Net Change Document

8 of 8



8‐46 Onpage8‐46,atthetopofthepage,placeacopyofVisual8‐36andthetext“ContinuetodisplayVisual8‐36.Changetheanswertothequestionfrom"Theyareprobablylocatedtowardtheleft,ornon‐collaborative,side.Appropriateconsiderationshouldbegiventomovingthemtotheright,towardthird‐partylogisticsoutsourcing."to"Assumingmanytransportationsuppliersarelocatedtowardtheleft,ornon‐collaborative,side,appropriateconsiderationshouldbegiventomovingthemtotheright,towardthird‐partylogisticsoutsourcing."

8‐46 n/a

9‐6 Inthereferencesatthetopofthepage,change“Epstein”to“EpsteinandBuhovac,2nded.”

9‐6 n/a


9‐12 n/a

9‐16 Onpage9‐16,movethefourthquestiontobecomethesecondquestion‐‐sothattheordermatchestheparticipantworkbook.Changetheanswertothequestion"Howmightglobalsourcingrisksbemitigated?"byaddingthefollowingtotheend:"Specificriskmitigationsmayincludeinsurance,redundancyofsuppliers,employeetraining,andproductdiversification,andshouldbeconsideredagainsttheirtradeoffinprice."

9‐16 n/a


9‐18 n/a

A‐2a OnpageA‐2a,Bibliography,change"Epstein,MarcJ.,MakingSustainability:BestPracticesinManagingandMeasuringCorporateSocial,EnvironmentalandEconomicImpacts…"to"Epstein,MarcJ.andBuhovac,AdrianaR.,MakingSustainabilityWork:BestPracticesinManagingandMeasuringCorporateSocial,EnvironmentalandEconomicImpacts,2nded.,..."

A‐2a n/a

APICS CPIM Exam Content Manual

Version 5.0

Visit apics.org/ecmerrata for APICS CPIM Exam Content Manual errata. Internet links cited in the bibliographic references can be found in a more usable format on the

APICS website at apics.org/cpim. The references in this manual have been selected solely on the basis of their educational value to the APICS CPIM certification program and on the content of the material. APICS does not endorse any service or other materials that may be offered or recommended by the authors or publishers of books and publications listed in this manual. ©2016 APICS 8430 West Bryn Mawr Avenue, Suite 1000 Chicago, IL 60631-3439 USA Phone: 1-800-444-2742 or +1-773-867-1777 Fax: +1-773-639-3000 No portion of this document may be reproduced under any circumstances. CPIM is a registered trademark of APICS.

Letter to Candidates Dear Candidate: For more than a generation, the Certified in Production and Inventory Management (CPIM) program has been recognized as the international standard for individual assessment in the field of operations managements as it relates to transformation of products and services. Initiated by APICS in 1973, it provides a standard for individuals and organizations to evaluate their knowledge of this evolving field. APICS has administered more than 1 million tests in over 40 countries, and more than 100,000 professionals have earned the APICS CPIM designation—3,000 of them at the Fellow level. The mission of the APICS CPIM program is to be the premier professional certification for supply chain and operations management that tests the candidate’s knowledge and understanding of the principles and practices of operations and inventory management. The APICS CPIM program is designed to educate individuals in the various concepts, methodologies, terminology, and integration of topics within the supply chain and operations management function and to test candidates’ in-depth knowledge of these concepts. APICS has worked to ensure that APICS CPIM exams are consistently reliable and that the highest professional standards are used to develop and administer the program. Because organizations operate in a changing and challenging international environment, the APICS body of knowledge continues to grow to include recognized concepts and tools to improve competiti- veness and effectiveness organizations. The CPIM Exam Content Manual (ECM) is updated regularly to reflect these changes in the body of knowledge and to assist candidates in their understanding of the scope of material covered in the program. Using a typical business process orientation, the APICS CPIM program integrates individual modules in a progression of increased understanding. It is highly recommended that candidates follow this sequence of examinations to increase both understanding and success:

1. Entry module—Basics of Supply Chain Management: Terminology and basic concepts related to managing the flow of materials from suppliers to customers both internal and external throughout the supply chain

2. Core competency modules—Master Planning of Resources, Detailed Scheduling and Planning, Execution and Control of Operations: Available methodologies and techniques to drive processes and the application of these techniques

3. Capstone module—Strategic Management of Resources: Choosing the appropriate structures and methodologies to achieve organizational strategic objectives and an understanding of the integration of operations within the greater context of the organization

The following is a summary of each of the APICS CPIM modules. Basics of Supply Chain Management (BSCM) As the introductory module, Basics of Supply Chain Management introduces the material presented in depth in the other four modules. Experience has shown us that APICS CPIM candidates who master the material in Basics of Supply Chain Management first find the other modules easier to understand; therefore, we strongly recommend that all APICS CPIM candidates start with this module. This module introduces the definitions and concepts for planning and controlling the flow of products and services into, though, and out of an organization. Many of the key terms in this module are expanded in the other modules. This module explains fundamental relationships among the various activities that may occur in the supply chain network from suppliers to customers. In addition, the module covers types of manufacturing and service systems, forecasting, master planning, material requirements planning, capacity management, production activity control, purchasing, inventory management, and distribution. Four main management philosophies are covered: enterprise resources planning, lean, quality management, and the theory of constraints.

CPIM Exam Content Manual 1

Master Planning of Resources (MPR) In Master Planning of Resources, candidates explore processes used to develop sales and operations plans, identify and assess internal and external demand management requirements, planning and replenishment in a networked distribution environment, and gain an understanding of the importance of producing feasible master schedules that are consistent with business policies, objectives, and resource constraints. The module focuses on developing and validating a plan of supply; relating management of demand to manufacturing, distribution and service environments; and developing and validating the master schedule. Detailed Scheduling and Planning (DSP) In Detailed Scheduling and Planning, candidates focus on the various techniques for inventory, procurement, and material and capacity scheduling. This module includes detailed descriptions of material requirements planning, capacity requirements planning, inventory management practices, and procurement and supplier planning. Techniques, such as material and capacity-constrained scheduling, are included and applicable to a variety of manufacturing and service organizations. Candidates will also become familiar with sustainable practices, supplier partnerships, lean principles, and outsourcing strategies and techniques. Execution and Control of Operations (ECO) Execution and Control of Operations focuses on four main areas: execution of operational plans and schedules, control of the work completed and the analysis of results, the management of and communication in the workplace, and the importance of utilizing appropriate design principles. The module explains techniques for scheduling and controlling operations within available capacity and deals with the execution of quality initiatives, cost management, and problem solving. Finally, this module presents techniques for making the most of resources, the environment, and continuous improvement activities.

Strategic Management of Resources (SMR) In Strategic Management of Resources, candidates explore the relationship of existing and emerging processes and technologies to operations strategy and supply chain-related functions for both manufacturing and service organizations. The module addresses three main topics: understanding the business environment, developing operations strategy, and implementing operations strategy. For maximum comprehension, candidates are strongly encouraged to be familiar with the information and concepts outlined in the other APICS CPIM modules before taking this course. Historical performance data confirms that candidates who successfully complete the other four modules approximately double their chances of passing the Strategic Management of Resources capstone module. The APICS CPIM program continues to evolve, incorporating relevant and current concepts and techniques into the body of knowledge, such as supply chain management, lean, service industries, globalization, theory of constraints, sales and operations planning, outsourcing, critical chain, and sustainability. APICS CPIM is an outstanding educational program, and APICS relies on your comments and suggestions to maintain and improve the program for future candidates. We wish you success in your pursuit of your operations management knowledge.

William R. Leedale, CFPIM, CIRM, and CSCP Chair, CPIM Subcommittee

2 ©APICS

Introduction This ECM provides assistance for those studying in the production and inventory management field, developing and conducting educational courses and workshops, and preparing for the certification examinations. The objective of this manual is to outline the APICS CPIM body of knowledge, which the APICS Certification Committee has organized into five modules: • Basics of Supply Chain Management • Master Planning of Resources • Detailed Scheduling and Planning • Execution and Control of Operations • Strategic Management of Resources

In this manual, each exam module begins with a statement of the scope of the subject matter, followed by a descriptive outline of the content as well as a bibliography of the references. Key terminology for the particular exam modules is provided on pages 9-29. Each exam module concludes with sample questions typical of those that appear on the examinations. The correct answers for the sample questions, with brief explanations of why they are correct, appear at the end the manual. The recommended procedure for mastering the subject matter is to review the content outline, which defines the material, and then to study each topic, using the references. At the end of each major section is a list of the references that apply to the topics in that section. The first number indicates the sequence number for the reference in the Bibliography section, and the numbers in parentheses indicate the chapter(s) within that reference. These outlines form the content and structure for the certification examinations. Candidates should understand the definitions of the key terms in the content outline, as well as the outlined techniques—why and how to apply them and which ones to select for different situations. New developments in the state of the industry may be described in current literature.

Sufficient references are given for each topical area to provide different approaches to material covered in each module and different styles of presenting it. Reading the available APICS periodical material, including APICS magazine, the Production and Inventory Management Journal, and the APICS Operations Management Now e-newsletter will help you maintain an awareness of changes in the state of this discipline.

About the APICS CPIM Examinations Candidates answer a predetermined number of questions to assess their knowledge in key areas. Each of the APICS CPIM exams (except Basics of Supply Chain Management) consists of 75 multiple-choice questions. The Basics exam consists of 105 multiple-choice questions. There is a three-hour time limit for each APICS CPIM exam. For more information about testing and registration policies and procedures you can download the bulletins from the APICS website at apics.org/cpim, or call APICS Customer Service at 1-800-444-2742 (United States and Canada) or +1-773-867-1777. Students who successfully complete CPIM examinations may be eligible to receive hours of college credit recommendations from the New York State Regents Research Fund, National College Credit Recommendation Service, based on an academic evaluation of student learning outcomes. The semester hours of undergraduate credit per exam are as follows: • BSCM: 3 semester hours • MPR: 2 semester hours • DSP: 2 semester hours • ECO: 2 semester hours • SMR: 3 semester hours

Detailed information about the outcomes and credit recommendations is available at www.nationalccrs.org. Transcripts are available through APICS.


Question Format The questions on the CPIM examination are intended to test a candidate’s understanding of the CPIM body of knowledge. In addition, it is helpful to understand the various formats of questions on the examination. The following seven examples illustrate the types of multiple-choice questions that may be found on the examination. For Example 1, choose the response that best completes the statement.

Example 1: The key to a successful production plan is: (A) capacity requirements planning. (B) material requirements planning. (C) dynamic priority planning. (D) adequate production capacity. (The correct answer is D.)

For Example 2, choose the response that best answers the question.

Example 2: Which of the following approaches enables MRP techniques to be used for planning and controlling independent demand items? (A) pegged orders (B) two-bin system (C) time-phased order point (D) reorder point (The correct answer is C.)

For Example 3, choose the one response that does NOT correctly complete the statement.

Example 3: Group technology identifies the similarities among all of the following EXCEPT: (A) costs (B) parts (C) shapes (D) processes (The correct answer is A.)

For Example 4, another type of multiple-choice question, there are two or more statements, or possibilities. The question, and the

statements, are always followed by four-answer choices labeled A, B, C, and D. When answering multiple-choice questions of this type, read each question and the statements carefully to determine whether each statement (I through IV) is true or false. Next, look at the four choices. While this form of question is increasingly less common, the correct response requires determining if one or a combination of choices best answers the question. In Example 4, you should choose option A if you believe statements I and III are true. You should choose option B if you believe statements I and IV are true. You should choose option C if you believe statements II and III are true. Finally, you should choose option D if you believe statements II and IV are true.

Example 4: If a company changes from make-to-stock to assemble-to-order, the effects on inventory levels are which two of the following? I. Lower finished-goods inventory II. Higher finished-goods inventory

III. Lower work in process IV. Higher work in process

(A) I and III (B) I and IV (C) II and III (D) II and IV (The correct answer is B.)

Example 5 is similar to Example 4, but the number of possible combinations is greater. The best strategy for answering these questions is to consider each statement, decide whether it is true, and then search for the correct combination. If the combination you seek is not given, reconsider each statement carefully.

Example 5: Management policies and decisions about which of the following have a direct impact on investment? I. Customer service levels

II. Intra-company transportation modes III. Placement of distribution centers IV. Types of production processes

4 ©APICS

(A) I and II only (B) III and IV only (C) I, II, and IV only (D) I, II, III, and IV (The correct answer is D.)

Examples 6 and 7 ask for a judgment or evaluation of the MOST or LEAST appropriate choice. The judgment is not one person’s opinion, but is the accepted choice according to the APICS body of knowledge. Example 6 asks for the MOST appropriate choice. Example 7 calls for the LEAST appropriate choice.

Example 6: The MOST significant advantage of aggregating demand data before they are stored is that:

(A) information about demand is lost. (B) there is risk of input error in the

aggregation process. (C) data will usually be inconsistent with

financial information. (D) the processing time required to

aggregate is extensive. (The correct answer is A.)

Example 7: Which of the following lot-sizing calculations would be LEAST sensitive to changes in unit costs?

(A) least total cost (B) period order quantity (C) part period balancing (D) lot-for-lot (The correct answer is D.)

Taking the Test The test is designed to evaluate a candidate’s knowledge of the subject matter. Therefore, the key to success is a thorough understanding of the subject matter. All questions are based on the current CPIM body of knowledge as defined in the exam content manual. When you start your exam, read all the directions carefully. Be sure you understand the directions before you begin to answer any questions.

Read each question carefully and thoroughly. If a question includes stimulus material, such as a table, graph, or situation, be sure to study it before you answer the question. Take care to avoid assuming information not given, as well as assuming you know what is being asked without reading the question completely, or second-guessing the question. Every effort has been made to avoid misleading wording and to provide sufficient information for each question. Choose the best answer from the choices given. Do not look for hidden tricks or exceptions to the norm. For each question, one and only one of the four choices represents the correct answer. Once you begin the test, approach the questions in order, but do not waste time on those that are unfamiliar or seem difficult to you. Go on to the other questions and return to the difficult ones later if you have time. If you have some knowledge about a particular question, you may be able to eliminate one or more choices as incorrect. Your score on the test will be based on the number of questions you answer correctly, with no penalty for incorrect answers; therefore, it is to your advantage to guess rather than not answer a question. Avoid changing an answer unless you are absolutely certain that you marked the wrong answer. Interpreting Test Scores Scoring is based on your correct responses. There is no penalty for incorrect answers. The omission of an answer will be counted the same as an incorrect answer. The CPIM scaled score range is 265–330: 265–299: Fail 300–330: Pass 320 and greater: Fellow level For each examination, you receive a score for the total test. All candidates will also receive diagnostic information on their performance.


Studying for the APICS CPIM Exam APICS offers a number of resources to help individuals prepare for the APICS CPIM examinations.

APICS CPIM References Bibliography. The APICS CPIM examination subcommittees have identified a number of references for each APICS CPIM module. These are listed in the bibliography section of each module. All references contain excellent material that will assist in test preparation. For additional information on the APICS CPIM references, visit the APICS website at apics.org/cpim, or call APICS Customer Service at1-800-444-2742 (United States and Canada) or +1-773-867-1777.

A candidate may discover that the material covered in one reference duplicates material covered in another reference. Both sources are included as references to provide candidates some discretion in selecting test preparation materials that they find accessible and understandable. For instance, a candidate who uses a specific reference in preparing for a certification exam that he or she passed may feel comfortable using that same reference to prepare for other certification exams. In deciding if a single reference is sufficient, candidates should assess their own levels of knowledge against both the descriptive examination specifications and the detailed topic list contained in the respective module’s content outline. If there are any areas of weakness, the candidate should consult another reference as part of the test preparation process.

6 ©APICS

References for CPIM Exam Modules While these references do not cover the CPIM body of knowledge extensively, they do cover the material a successful candidate is required to know. References Author(s) BSCM MPR DSP ECO SMR APICS Dictionary, 14th ed., 2013 APICS

X X X X X

APICS CPIM Detailed Scheduling and Planning Reprints, 2010

APICS Exam Committee X

APICS CPIM Execution and Control of Operations Reprints, 2015


APICS CPIM Master Planning of Resources Reprints, 2010


Accounting Handbook, 5th ed. 2010 Siegal, Shim X Crafting and Executing Strategy: Concepts and Readings, 19th ed. 2014

Thompson, Peteraf, Strickland, Gamble X

Designing and Managing the Supply Chain, 3rd ed., 2008

Simchi-Levi, Kaminsky, Simchi-Levi

X

Distribution Planning and Control, 2nd ed. 2004

Ross X

Introduction to Materials Management, 7th ed., 2012

Arnold, Chapman, Clive X X X

Juran’s Quality Handbook, 6th ed., 2010 Juran, DeFeo X Leading Change, 2012 Kotter X Lean Production Simplified, 2nd ed., 2007 Dennis X X The Lean Toolbox, 4th ed., 2009 Bicheno, Holweg X Making Sustainability Work, 2nd ed. 2014 Epstein, Buhovac X X Manufacturing Planning and Control for Supply Chain Management, APICS/CPIM Certification Edition, 2011

Jacobs, Berry, Whybark, Vollmann X X X

Operations Strategy, 3rd ed., 2011 Slack, Lewis X Project Management, 11th ed., 2013 Kerzner X


It is not practical to list all texts that contain excellent material. Although not currently primary references for the exams, the following chart shows texts that have been used previously for both the CPIM body of knowledge and APICS CPIM courseware. These are still excellent and viable references for APICS CPIM candidates to study. References Author(s) BSCM MPR DSP ECO SMR APICS CPIM Basics of Supply Chain Management Reprints, 2009

X

APICS CPIM Execution and Control of Operations Reprints, 2011

X

Capacity Management, 2008 Blackstone X A Guide to the Project Management Body of Knowledge, 4th ed., 2008

Project Management Institute Standards Committee

X

Introduction to Materials Management, 6th ed., 2008

Arnold, Chapman, Clive X X X

Juran’s Quality Planning and Analysis, 5th ed., 2007

Gryna, Chua, DeFeo X

Lean Six Sigma, 2002 George X Mainstreaming Corporate Sustainability, 2013

Farver X

Making Sustainability Work, 2008 Epstein, Buhovac X Manufacturing Planning and Control Systems for Supply Chain Management, 5th ed., 2005

Vollmann, Berry, Whybark, Jacobs X X X

Master Scheduling in the 21st Century, 2003

Wallace, Stahl X

Project Management, 7th ed., 2008

Meredith, Mantel X

Project Management, 10th ed., 2009

Meredith, Mantel X

Sales & Operations Planning: The How-to Handbook, 3rd ed., 2008

Wallace, Stahl X

Sales Forecasting: A New Approach, 2002

Wallace, Stahl X

Service Management and Operations, 2nd ed., 2000

Haksever, Render, Russell, Murdick X

Strategic Management of Resources References Sourcebook, 2009

X

Content outline. The content outline for each module provides an overview of the major topics included in that module. Each major topic is denoted by a Roman numeral and is followed by a list of the references that are particularly relevant to that topic.

APICS Dictionary. The APICS Dictionary, 14th edition, is an essential publication that applies to the exam content manual and exams. Within the profession, terminology varies among industries, companies, and the academic community. Each examination uses standard terminology as defined in the APICS Dictionary. Recognizing the terms and understanding their definitions are essential.

Reprints. The committee responsible for the exam content manual and examination selects articles that are particularly applicable to the curricula and exam preparation. These articles then are reprinted in module-specific collections. The reprints are included in the references for each module.

8 ©APICS

Terminology Candidates are encouraged to be familiar with all key terms listed below for the corresponding modules. The APICS Dictionary is the primary guideline for all definitions of the key terms. Definitions for those terms followed by an * are included in the supplemental glossary listed below the key terms. In studying for the APICS CPIM certification, candidates may discover multiple terms used to denote the same technique. Examples of this include “sales and operations planning” versus “production planning” and “master production schedule” versus “master schedule.” APICS has attempted to provide consistency across all modules with recognized and preferred terminology. However, synonyms are often used by authors in the various references used to compile the body of knowledge.

CPIM Key Terminology BSCM MPR DSP ECO SMR 14 Points (Deming’s) X A3 method X ABC classification X abnormal demand X absorption costing X X acceptable quality level (AQL) X acceptance sampling X action message X activation X activity-based cost accounting X X activity based management (ABM) X actual costs X actual demand X adaptive smoothing X adjustable capacity X advanced planning and scheduling (APS) X X X advanced planning system (APS) X advance ship notice (ASN) X aggregate forecast X aggregate plan X agility X allocation X X X alpha factor X alternate operation X alternate routing X X analysis of variance (ANOVA) X andon X X anticipated delay report X anticipation inventories X appraisal costs X assemble-to-order X assembly line X assignable cause X X attribute data X availability X


CPIM Key Terminology BSCM MPR DSP ECO SMR available capacity X available inventory X available time X available-to-promise (ATP) X average cost per unit X average inventory X average outgoing quality limit (AOQL) X back scheduling X backflush X backflush costing X backhauling X backlog X backorder X backward integration X backward scheduling X balanced scorecard X balance sheet X balancing operations X bar code X baseline measures X base series X basic seven tools of quality (B7) X batch X X batch picking X batch processing X benchmarking X X X benchmark measures X bias X bill of distribution X bill of labor X bill of lading (uniform) X bill of material (BOM) X bill of resources X block scheduling X bonded warehouse X bottleneck X X bottleneck operation X bottom-up replanning X break-bulk X break-even point X X bucketed system X bucketless system X budgeted capacity X buffer X X buffer management X X buffer stock X

10 ©APICS

CPIM Key Terminology BSCM MPR DSP ECO SMR bullwhip effect X X business plan X business process reengineering (BPR) X business-to-business commerce (B2B) X by-product X X calculated capacity X capable-to-promise (CTP) X X capacity available X X capacity-constrained resource (CCR) X capacity control X capacity management X X capacity planning X capacity planning using overall factors (CPOF) X capacity-related costs X capacity requirements X capacity requirements planning (CRP) X capacity strategy X capacity utilization X carrying cost X cash conversion cycle X cash flow X cash-to-cash cycle time X X cause-and-effect diagram X X cell X cellular manufacturing X X centralized inventory control X central point scheduling X certificate of compliance X certification audits X certified supplier X X changeover X changeover costs X chase production method X X chase strategy X check sheet X closed-loop MRP X collaborative planning, forecasting, and replenishment (CPFR) X

common carrier X common causes X common parts bill of material X competitive advantage X competitive analysis X component X concurrent design X concurrent engineering X X


CPIM Key Terminology BSCM MPR DSP ECO SMR conformance X consignment X constraint X X constraints management X consuming the forecast X continuous improvement X continuous manufacturing X X continuous process control X continuous process improvement (CPI) X continuous production X X X continuous replenishment X contract carrier X contribution X contribution margin X control chart X X control limit X X control points X co-product X X core competencies X core process X corporate culture X corrective action X correlation X X cost center X cost of goods sold X cost of poor quality X cost of quality X cost variance X cost-volume-profit analysis X count point X critical chain method X critical characteristics X critical path method (CPM) X X critical point backflush X critical ratio X critical-to-quality characteristics (CTQs) X cross-docking X cumulative available-to-promise X cumulative lead time X current ratio X curve fitting X customer relationship management (CRM) X X customer service X customer service level X customer-supplier partnership X X X customs broker X

12 ©APICS

CPIM Key Terminology BSCM MPR DSP ECO SMR cycle counting X cycle stock X cycle time X data governance* X days of supply X decentralized inventory control X decision matrix X decision support system (DSS) X decomposition X decoupling X decoupling inventory X dedicated capacity X dedicated line X de-expedite X define, measure, analyze, improve, control (DMAIC) process X

delivery lead time X X X delivery schedule X Delphi method X demand filter X demand forecasting X demand lead time X demand management X demand planning X demand time fence (DTF) X demonstrated capacity X X demurrage X dependent demand X design for manufacturability X design for manufacture and assembly (DFMA) X design of experiments (DOE) X design-to-order X detention X deviation X direct costs X direct labor X direct material X discounted cash flow X discrete available-to-promise X discrete manufacturing X discrete order picking X disintermediation X dispatching X distressed goods X distribution X X distribution center X X


CPIM Key Terminology BSCM MPR DSP ECO SMR distribution channel X X distribution inventory X distribution network structure X distribution of forecast errors X distribution requirements planning (DRP) X distribution warehouse X divergent point X dock-to-stock X downtime X drop ship X drum-buffer-rope (DBR) X X drum schedule X duty X early manufacturing involvement X early supplier involvement (ESI) X earned hours X echelon X e-commerce X econometric model X economic order quantity (EOQ) X economic value added X effective date X efficiency X X electronic data interchange (EDI) X employee empowerment X X employee involvement (EI) X X engineer-to-order X enterprise resources planning (ERP) X X environmentally responsible business X excess capacity X expedite X explode X exponential smoothing forecast X external failure costs X external setup time X X extrapolation X extrinsic forecasting method X fabricator X failsafe work methods X failure mode effects analysis (FMEA) X X feature X feedback X feeder workstations X field service X fill rate X final assemble schedule (FAS) X X

14 ©APICS

CPIM Key Terminology BSCM MPR DSP ECO SMR finished goods inventory X finishing lead time X finite forward scheduling X finite loading X X finite scheduling X firm planned order (FPO) X first-article inspection X first in, first out (FIFO) X X first-order smoothing X first pass yield X fishbone analysis X fitness for use X five focusing steps X five forces model of competition X five Ss X X five whys X fixed cost X fixed-location storage X fixed order quantity X fixed overhead X fixed-position manufacturing X flexibility X X flexible workforce X floor stocks X flowchart X X flow control X flow processing X flow rate X flow shop X fluctuation inventory X focused factory X X focus forecasting X forecast X forecast consumption X forecast error X forecast horizon X forecast interval X forecast management X form-fit-function X forward flow scheduling X forward integration X forward scheduling X X four Ps X freight consolidation X freight forwarder X frequency distribution X


CPIM Key Terminology BSCM MPR DSP ECO SMR functional layout X X functional product* X funnel experiment X Gantt chart X X X gatekeeping X gateway work center X X gemba X gemba walk* X genchi genbutsu X general and administrative expenses (G&A) X generally accepted accounting principles (GAAP) X X global measurements X global reporting initiative (GRI) X global trade identification number (GTIN)* X go/no-go X green manufacturing X green reverse logistics X gross margin X gross requirement X group technology (GT) X hansei X hazmat X hedge X hedge inventory X heijunka X X histogram X X horizontal dependency X horizontally integrated firm X hoshin X X hoshin planning X house of quality (HOQ) X X hurdle rate X hybrid production method X hypothesis testing X idle capacity X X idle time X inactive inventory X inbound stockpoint X income statement X incoterms X indented bill of material X independent demand X indirect costs X infinite loading X X information system architecture X input/output control (I/O) X X

16 ©APICS

CPIM Key Terminology BSCM MPR DSP ECO SMR insourcing X intangible costs X intellectual property X intermittent production X intermodal transport X internal customer X internal failure costs X internal rate of return X internal setup time X X interoperation time X interplant demand X X in-transit inventory X intrinsic forecast method X inventory accounting X inventory accuracy X inventory adjustment X inventory buffer X inventory control X inventory investment X inventory management X inventory ordering system X inventory policy X inventory turnover X X inventory valuation X Ishikawa diagram X ISO 14000 Series Standards X ISO 9000 X ISO 26000 X item master record X jidoka X X jishuken X job analysis X job costing X X job enlargement X job enrichment X job sequencing rules X job shop X X job shop scheduling X X job status X joint replenishment X Juran trilogy X Just-in-Time (JIT) X kaizen X X kaizen blitz X kaizen event X kanban X X


CPIM Key Terminology BSCM MPR DSP ECO SMR keiretsu X key performance indicator (KPI) X X key success factors X kit X knowledge-based system X labor efficiency X labor productivity X labor standard X lag capacity strategy X landed cost X X last in, first out (LIFO) X X lead capacity strategy X leading indicator X lead time X X lead-time offset X lean enterprise X lean metric X lean production X X X lean six sigma* X learning curve X learning organization X least changeover cost X least-squares method X least total cost X level loading X level of service X level production method X level schedule X X X liabilities X life cycle assessment (LCA) X lifecycle analysis X lifecycle costing X limiting operation X line X line balancing X line haul costs X Little's law* X load X load leveling X X load profile X X load projection X local measures X logistics X X lot X lot control X X lot cost X

18 ©APICS

CPIM Key Terminology BSCM MPR DSP ECO SMR lot-for-lot X lot size X lot-size inventory X lot sizing X lot splitting X X lot traceability X lower control limit (LCL) X lower specification limit (LSL) X low-level code X machine center X machine hours X machine-limited capacity X machine loading X maintenance, repair, and operating (MRO) supplies X X make-or buy decision X make-to-order X make-to-stock X management by walking around (MBWA) X managerial accounting X manufacturing calendar X manufacturing environment X manufacturing execution systems (MES) X X manufacturing layout strategies X manufacturing lead time X X manufacturing order X manufacturing order reporting X manufacturing philosophy X manufacturing process X manufacturing resource planning (MRP II) X manufacturing strategy X market driven X marketing strategy X mass customization X X master planning X master planning of resources X master production schedule (MPS) X master schedule X master schedule item X master scheduler X material-dominated scheduling (MDS) X material requirements planning (MRP) X material safety data sheet (MSDS) X materials handling X materials management X mean X mean absolute deviation (MAD) X


CPIM Key Terminology BSCM MPR DSP ECO SMR mean absolute percent error (MAPE) X mean squared error (MSE) X mean time between failures (MTBF) X mean time to repair (MTTR) X measure phase X median X milk run X min-max system X mixed-flow scheduling X X mixed-model production X X mixed-model scheduling X X mix forecast X mode X modular bill of material X modularization X move card X move time X X moving average X muda (waste) X X multilevel bill of material X multilevel master schedule X multisourcing X mura X muri X nesting X net present value X net requirements X network planning X X nominal group technique X nonconformity X nonevident failure X nongovernmental organization (NGO) X non-value-added X normal distribution X X obsolete inventory X one-card kanban system X one less at a time X one-piece flow X on-hand balance X on-time schedule performance X open order X X operating expense X operation X operational performance measurements X X operation costing X operation due date X

20 ©APICS

CPIM Key Terminology BSCM MPR DSP ECO SMR operation duration X operation overlapping X operation/process yield X operations management X operations plan X operations scheduling X operations sequence X operations sequencing X operation start date X operations strategy X operation time X operator flexibility X opportunity cost X option X option overplanning X order entry X ordering cost X order picking X order point X order policy X order priority X order promising X order qualifiers X order release X order winners X outbound stockpoint X outlier X outsourcing X X overall equipment effectiveness (OEE) X overhead X X overhead allocation X overlapped schedule X X overload X overstated master production schedule X owner's equity X pacemaker X X package to order X pallet positions X panel consensus X parent item X Pareto's law X X participative design/engineering X X X participative management X X payback X P:D ratio X X pegging X


CPIM Key Terminology BSCM MPR DSP ECO SMR people involvement X perceived quality X performance measure X performance measurement system X performance objectives X performance standard X periodic replenishment X period order quantity X perpetual inventory record X phantom bill of material X physical inventory X physical supply X picking list X pickup and delivery costs X pipeline stock X plan-do-check-action (PDCA) X X plan for every part (PFEP) X planned load X planned order X planned order receipt X planned order release X planning bill of material X X planning horizon X X planning time fence X point of sale (POS) X X point-of-use delivery X point-of-use inventory X poka-yoke (mistake-proof) X post-deduct inventory transaction processing X postponement X X X pre-deduct inventory transaction processing X prevention costs X preventive maintenance X X X primary work center X priority X priority control X X priority planning X X private carrier X probability X probability distribution X probable scheduling X problem-solving storyboard X process batch X process capability X X process capability index X process control X

22 ©APICS

CPIM Key Terminology BSCM MPR DSP ECO SMR process costing X X process flexibility X X process flow X process flow analysis X process flow diagram X process flow production X process flow scheduling X process focused X process manufacturing X X processor-dominated scheduling X process train X procurement X procurement lead time X product configuration catalog X product cost X X product differentiation X product family X product focused X product group forecast X production activity control (PAC) X X production capability X production forecast X production level X production line X production plan X X production planning X production rate X production schedule X production scheduling X productive capacity X X productivity X X product layout X product life cycle X product line X product load profile X product mix X X product-mix flexibility X product positioning X X product profiling X product/service hierarchy X profit margin X program evaluation and review technique (PERT) X X X project costing X X projected available balance X project management X X X project manufacturing X


CPIM Key Terminology BSCM MPR DSP ECO SMR project phase X project plan X protective capacity X protective inventory X protective packaging X prototyping X pull signal X pull system X X purchase order X purchase requisition X purchasing lead time X push system X X pyramid forecasting X QS 9000 X qualitative forecasting techniques X quality X quality at the source X quality circle X quality control X X quality costs X X quality function deployment (QFD) X X X quantitative forecasting techniques X quantity discount X queue X X queue time X X quick asset ratio X quick changeover X radio frequency identification (RFID) X random cause X random-location storage X random sample X random variation X rate-based scheduling X rated capacity X X raw material X receiving X record accuracy X redundancy X regression analysis X released order X remanufacturing X X remedial maintenance X reorder quantity X repair order X repetitive manufacturing X X replanning frequency X

24 ©APICS

CPIM Key Terminology BSCM MPR DSP ECO SMR replenishment lead time X request for quote (RFQ) X required capacity X requirements explosion X requisition X rescheduling X residual income X resiliency X resource X resource-constrained schedule X resource leveling X resource-limited scheduling X resource planning X X resource profile X responsible procurement X return on investment (ROI) X reverse auction X reverse logistics X rework X X risk management* X risk pooling X robust design X root cause analysis X X rough-cut capacity planning (RCCP) X routing X X running sum of forecast errors X run time X X safety capacity X X safety lead time X safety stock X sales and operations planning (S&OP) X sales plan X sales promotion X sample X sampling distribution X sawtooth diagram X scatter chart X X scatterplot X scheduled downtime X scheduled load X scheduled receipt X scheduling X scheduling rules X scrap X scrap factor X seasonal index X


CPIM Key Terminology BSCM MPR DSP ECO SMR seasonal inventory X seasonality X second-order smoothing X self-directed work team X semifinished goods X sensei X service X service function X service industry X service level agreement (SLA) X service parts X setup X setup costs X setup time X X shelf life X Shingo's seven wastes X X shipping manifest X shitsuke X shojinka X shrinkage X single-card kanban system X single exponential smoothing X single-level bill of material X single-minute exchange of die (SMED) X single-source supplier X six sigma X X small group improvement activity X SMART X smoothing constant X smoothing factor X social responsibility X special cause X specification X specific identification X split lot X spread X standard X standard costs X X standard deviation X X standard time X standardized work* X start date X statistical process control (SPC) X X statistical quality control (SQC) X stockkeeping unit (SKU) X stockout costs X

26 ©APICS

CPIM Key Terminology BSCM MPR DSP ECO SMR stockout percentage X store X strategic drivers X strategic performance measurements X strategic plan X strategic planning X strategic sourcing X subcontracting X substitution X summarized bill of material X sunk cost X super bill of material X supermarket approach X supplier X supplier certification X supplier-input-process-output-customer (SIPOC) diagram X

supplier lead time X supplier measurement X supplier partnership X supplier relationship management (SRM) X supplier scheduling X supply chain X supply chain management X surge capacity X sustainability X X SWOT analysis X synchronized production X X tactical plan(s) X tactical planning X Taguchi methodology X takt time X X target inventory level X tariff X terminals X terminal-handling costs X terms and conditions X theoretical capacity X X theory of constraints (TOC) X X theory of constraints accounting X third-party logistics (3PL) X X throughput X X throughput time X time-based competition (TBC) X time bucket X time buffer X time fence X


CPIM Key Terminology BSCM MPR DSP ECO SMR time-phased order point (TPOP) X X time series X time series analysis X time standard X tolerance X X total cost curve X total cost of ownership (TCO) X total costs X total factor productivity X total line-haul cost X total productive maintenance (TPM) X X total quality control (TQC) X total quality management (TQM) X X traceability X X tracking capacity strategy X tracking signal X trading partner X traffic X transaction channel X transfer batch X transfer pricing X transient state X transit inventory X transit time X transportation X X transportation inventory X trend X trend forecasting models X truckload carriers X two-bin inventory system X two-card kanban system X X two-level master schedule X U-lines X uniform plant loading X unit cost X UN Global Compact Management Model X United Nations Global Compact X unitization X unit load X unit of measure X unplanned repair X upper control limit (UCL) X upper specification limit (USL) X upstream X usage variance X utilization X X

28 ©APICS

CPIM Key Terminology BSCM MPR DSP ECO SMR value added X X value analysis X value chain X value chain analysis X value perspective X value stream X X value stream mapping X variable cost X X variable costing X variance X VATI Analysis X velocity X vendor-managed inventory (VMI) X vertical dependency X vertical integration X virtual cell X virtual organization X visual control X visual management* X visual review system X voice of the customer (VOC) X X wait time X wall-to-wall inventory X warehouse demand X warehousing X waste X X wave picking X waybill X ways X weighted moving average X what-if analysis X where-used list X work cell X work center X X work in process (WIP) X X work order X workplace organization X yield X X zone X zone picking X


Supplemental Glossary The following key terms are not found in the APICS Dictionary, 14th edition, so definitions have been provided below. Data governance—The overall management of the accessibility, usability, reliability, and security of data used to ensure data record accuracy. Gemba walk—The word “Gemba” is a Japanese term meaning the place where value is created and the actual work is done, such as the shop floor in a manufacturing plant. The aim of Gemba walk is to provide a leader with the opportunity to observe floor activities as they happen and ask questions about them, thus becoming more aware of what is going on in the organization. Global Trade Identification Number (GTIN)—GTINs uniquely identify all products and services that are sold, delivered and invoiced at any point in the supply chain. GTINS are typically found at point of sale and on cases and pallets of products in a distribution or warehouse environment. Functional product— Goods that are widely available from a range of sources. Typically, they have stable design, low profit margins, steady and predictable demand and long life cycles. Lean six sigma—A combined approach for process improvement and problem solving based on lean and six sigma methodologies. Little’s Law—Over the long term, inventory equals the process rate (i.e., cycle time) multiplied by the throughput. Risk management—Risk management is a systematic approach to identifying, analyzing, and addressing an organization’s exposure to uncertainty within the supply chain. Standardized work—Standardized work identifies, defines and documents current best practices for achieving consistent results and forms the baseline for continuous improvement. The

standardized work is presented using a combination of pictures and text, which are placed at each workstation where the activity or process is performed and employees are trained to do the tasks as defined in the Standard Work document. Visual Management—The concept of making the current condition of a workplace obvious at a glance, and hence more effective, by providing real-time information on work status using a combination of visual signs. Examples of Visual Management include kanban cards, tool shadow boards, and storyboards. Additional Resources for APICS CPIM Candidates In addition to the cited references, it may be helpful for you to pursue chapter-sponsored courses, college courses, APICS workshops, self-study courses, or courses offered by the APICS network of Authorized Education Providers (AEPs) as a means of learning the body of knowledge that is tested in the certification program. A wide variety of courses are available. As with any investment, you should research various courses before choosing one. For courses, visit the Partner and Event Finder on the APICS website at apics.org/finder or call APICS Customer Service at 1-800-444-2742 (United States and Canada) or +1-773-867-1777. APICS CPIM Instructor-Led Review Courses Available for each module of the APICS CPIM program, APICS CPIM review courses are designed for classroom review of the key principles and concepts for each content area. This ECM is used as the basis for the content in the CPIM review courses. It is important to understand that CPIM review courses are intended to assist the candidate in reviewing the body of knowledge and are not necessarily education. There will likely be some content in APICS review courses not covered by the exams. Course developers and/or instructors may believe that additional material needs to

30 ©APICS

be taught or included in the glossary to ensure understanding of the body of knowledge that can be tested. They also may decide that a concept or term is adequately covered by the definitions in the APICS Dictionary or the CPIM ECM Glossary and not cover it in the course. These differences sometime lead candidates to perceive a potential disconnect between the courseware and the exam, when in fact they are both covering the same body of knowledge. APICS CPIM review courses do not “teach the test” and, in many areas, they review but do not teach concepts. All APICS review courses provide a thorough review of the subject matter, but none should be used without the most current CPIM ECM as a means to direct the candidate’s study. Note: The Review Course Participant Workbook is not a stand-alone reference or comprehensive single source and should be used only by a participant attending an instructor-led review course. For courses, visit the Partner and Event Finder on the APICS website at apics.org/finder or call APICS Customer Service at 1-800-444-2742 (United States and Canada) or +1-773-867-1777. Independent Study Courses APICS correspondence courses offer professionals a unique home-study alternative to the classroom. Correspondence courses are designed and conducted for APICS by the MGI Management Institute. For more information on course availability, contact APICS Customer Service at 1-800-444-2742 (United States and Canada), or +1-773-867-1777. APICS Educational Programs APICS offers a variety of educational programs, including workshops in supply chain and operations management and an annual international conference and exposition. For a complete list of APICS learning opportunities and information on course availability, call APICS Customer

Service at 1-800-444-2742 (United States and Canada), or +1-773-867-1777. APICS Online Study Tools The new APICS CPIM Study Tools are an online resource for APICS CPIM students to complement self-study or instructor-led courses. APICS CPIM Study Tools can be accessed at apics.org. For more information, please contact APICS Customer Service at 1-800-444-2742 (United States and Canada), or +1-773-867-1777. CPIM Exam Simulator The CPIM Exam Simulator is designed to increase candidates’ learning potential and assist in preparation for the CPIM exams. With over 300 online practice questions for each module, candidates can study with self-paced, timed and final exam simulations. For more information please contact APICS Customer Service at 1-800-444-2742 (United States and Canada), or +1-773-867-1777. APICS Certified Fellow in Production and Inventory Management (CFPIM) The distinguishing characteristic of a Certified Fellow in Production and Inventory Management (CFPIM) is the willingness to share acquired knowledge with others through presenting, teaching, publishing, and participating in APICS educational activities. This knowledge sharing must take place above and beyond a candidate's normal job duties and be directly related to the APICS CPIM body of knowledge. To obtain the APICS CFPIM designation, an application form must be filled out and submitted to the APICS corporate office. Points are awarded based on the following criteria: APICS CPIM exams passed, presentations, high scores on APICS CPIM exams (320 or greater), published works, classroom teaching, and various volunteer or practitioner activities. To apply for the CFPIM Certification visit apics.org/cfpim.


APICS CPIM Certification Maintenance: Continuing Professional Development The Importance of Certification Maintenance The growing number of individuals choosing to pursue professional development through the APICS CPIM program indicates a strong awareness that continuing education and skills development are essential to meeting the information and technological challenges in today’s rapidly evolving workplace and global marketplace. Professional development opens doors to individual career opportunities and organizational success. Although APICS CPIM recognition and maintenance are voluntary programs, they equally demonstrate one’s commitment to achieving the highest level of professional development and standards of excellence. Both the APICS CPIM certification and APICS CPIM certification maintenance programs demonstrate one’s commitment to achieving the highest level of professional development and standards of excellence. The APICS CPIM certification maintenance program upholds both the objectives of the APICS CPIM program and the APICS vision to promote lifelong learning. This flexible program recognizes that individuals are at various levels in their careers, come from many industries, have different educational needs and career goals, and have varying degrees of access to continuing education. Thus, requirements for maintaining certification can be met through multiple sources and a variety of professional development activities intended to help prepare for the challenges ahead and maintain a professional edge by: • preserving the currency of hard-earned

certification credentials • expanding your knowledge of the latest

industry practices • exploring new technology solutions

• reinforcing skills • improving job performance • demonstrating commitment to

excellence • increasing competitive advantage

To promote professional growth and lifelong learning, APICS CPIM and CFPIM designees must complete the certification maintenance program every five years. Complete details on how to maintain your designation will be mailed to candidates upon successful completion of the certification requirements. APICS Code of Ethics When you start an examination, you will be asked to pledge to abide by the APICS Code of Ethics. Once certified, you pledge to continue your education to increase your contribution to the supply chain and operations management profession. After achieving the fellow level of certification (CFPIM), you pledge also to share your APICS CPIM knowledge with others by participating in APICS research and educational activities at local, district, national, and international levels. The APICS Code of Ethics is as follows: • Maintain exemplary standards of

professional conduct. • Not misrepresent your qualifications,

experience, or education to APICS or others you serve in a professional capacity.

• Respect and not violate the United States Copyright of all APICS materials, including but not limited to courseware, magazine articles and other APICS publications, APICS conference presentations, and CPIM, CSCP and SCOR-P examination resources. In this same spirit, you must not violate the copyright of other organizations and individuals in your professional capacity.

• Not engage in or sanction any exploitation of one’s membership, company, or profession.

• Encourage and cooperate in the interchange of knowledge and

32 ©APICS

techniques for the mutual benefit of the profession.

• In your professional capacity, respect the fundamental rights and dignity of all individuals. You must demonstrate sensitivity to cultural, individual, and role differences, including those due to age, gender, race, ethnicity, national origin, religion, sexual orientation, disability, language, and socio-economic status.

• In your professional capacity, not engage in behavior that is harassing or demeaning to others based on factors including, but not limited to, age, gender, race, ethnicity, national origin, religion, sexual orientation, disability, language, or socio-economic status.

• Adhere to this Code of Conduct and its application to your professional work. Lack of awareness or misunderstanding of an ethical standard is not itself a defense to a charge of unethical conduct.

• Contact the Ethics Committee when uncertain whether a particular situation or course of action violates the Code of Conduct.

• Not become the subject of public disrepute, contempt, or scandal that affects your image or goodwill.

Failure to abide by APICS Code of Ethics policy may result in sanctions up to and including decertification.


Detailed Scheduling and Planning Examination Committee Carol M. Bulfer, CPIM (Chair) Parker Hannifin Corporation Jorge E. Calaf, CPIM, CIRM, CPA

American University of Puerto Rico Staffan Cederstrand, CPIM Medius Dynamics AB Lawrence Ettkin, Ph.D., CFPIM

University of Tennessee–Chattanooga Andrea Prud'homme, Ph.D., CFPIM, CIRM,

CSCP The Ohio State University

William S. Thurston, CPIM, CIRM, CSCP, PMP Scope of the Subject Matter Please read the introductory materials in this manual for essential information pertaining to the examination. The subject matter of Detailed Scheduling and Planning includes inventory management, material requirements planning, capacity requirements planning, and procurement and supplier planning for both producing goods and providing services. Recognizing the importance of supply chain management, this module also covers deployment of supply chain strategies related to scheduling, planning, and sourcing. The emphasis is on applied and higher-thinking questions. Detailed Scheduling and Planning translates product-level plans and schedules generated at the master planning level into requirements that can be procured or produced in all types of environments, including goods and services industries. This supports the strategies and objectives established by the company, as constrained by lead time, cost, equipment, personnel, sustainability considerations, or other constraints. The subject matter, therefore, encompasses anything required to bridge the master planning area with the execution and control area of the APICS CPIM body of knowledge. This includes understanding the commonalities and

differences between producing goods and providing services. Also included is the planning, scheduling, resource allocation, and implementation of projects. The successful candidates will understand the tools and techniques for planning of inventory, including planning techniques such as material requirements planning, capacity requirements planning, lean, the theory of constraints, and project management. They will understand the effect of using each technique, know standard measures for inventory, materials, capacity, and supplier performance, and be able to recognize when to escalate issues. The candidates must be able to apply the concepts and techniques in the content, as well as analyze situations to determine which approaches are applicable. This includes the ability to: • use inventory policies to minimize

inventory and yet meet customer service objectives

• recognize when to use which capacity technique and how that technique supports the master schedule and the production plan

• know where to locate and how to apply standard formulae and algorithms for materials and capacity

• understand supplier partnerships and relationships and the best ways to communicate the firm’s needs and expectations of the supplier

• explain procurement planning and supply chain options

34 ©APICS

Detailed Scheduling and Planning Content The following table identifies the four main topics of the exam. The relative importance of these topics varies among industries, but the figures show the percentage designated for each section of the exam.

Diagnostic part

Main topic Percentage of exam

I Planning the Management of Inventory

25%

II Planning Material Requirements to Support the Master Schedule

25%

III Planning Operations to Support the Priority Plan

25%

IV Planning Procurement and External Sources of Supply

25%

Content Outline I. Planning the Management of Inventory Inventory planning concepts, policies, methodologies, and techniques determine part stocking levels, order quantities, safety stocks, forecasts, and handling and storage requirements, including global supply chain risks. This covers inventory techniques and tools used within the detailed material planning process. These include the effect of inventory accounting decisions on material planning calculations, as well as financial management and accuracy. Objectives that apply to inventory are evaluated with respect to balancing the desired customer service level with inventory reduction techniques. Measures of inventory performance are assessed.

A. Types and Classifications of Inventory: Examples include: raw materials, work in process, finished goods, maintenance, repair, and operating supplies, returned goods, excess, inactive, obsolete, scrap, and distressed and perishable inventory. Manufacturing and service industries are assessed from their different requirements and impacts on the planning processes.

B. Inventory Policies

1. Lot-sizing techniques for independent and dependent demand are applied to different types of production and service environments in support of inventory investment strategies.

2. Safety stock and safety lead time techniques

and their effects on inventory and customer service objectives are considered.

3. Inventory policies related to trade-offs in

stocking levels, customer service, environmental impact, and inventory accuracy targets in different business environments are evaluated.

4. Inventory performance measures as

they relate to business objectives. These may include: inventory turnover, customer service levels, and inventory accuracy.

5. Inventory valuation methods include: first

in, first out, last in, first out, specific identification, transfer pricing, standard and actual cost, and project and process cost. These are compared for their effect on inventory investment and related replenishment and justification decisions in various business environments.

C. Inventory Planning

1. Appropriate order review methodologies, such as material requirements planning, reorder point, periodic review, visual review, and kanban/pull system triggers, are evaluated for different types of inventory and business objectives.

Detailed Scheduling and Planning 35

2. Understanding the differences between dependent and independent demand as related to various inventory models and sources of demand are addressed.

3. Lean concepts that improve throughput

and reduce or eliminate inventories, including value-stream mapping techniques and pull systems, are reviewed.

4. The impact of global sourcing risks, such

as financial, political, transportation, and environmental, on inventory planning decisions is considered.

D. Accuracy, Handling, Storage, and

Traceability

1. Cycle counting, physical inventory, and using ABC classification are presented as methods for improving and sustaining part count and inventory investment accuracy.

2. Alternative storage and material handling options, such as stock location systems and automated storage and retrieval systems, are evaluated.

3. The importance of proper identification,

country of origin declaration, documentation, tracking, and traceability of inventory movement is emphasized, including bar coding and radio frequency identification tagging.

References: 1; 2; 3 (chapters 9–12); 4 (chapters 2-3, 6-7, 16); 5 (chapter 4); 6 (chapters 8, 9, 13–14, 16); 8 (chapters 1, 2, 4–6, 8–10); 9 II. Planning Material Requirements to Support the Master Schedule Planning material requirements driven by the master production schedule, including material requirements planning (MRP), deals with dependent demand parts and interrelationships that require planning at any given time. It also includes independent

demand planning for service parts, matching supply with demand, and managing demand at aggregate and disaggregate levels. MRP combines three principles: • Calculation, as opposed to forecast, of

dependent demand for component items • Netting of requirements for all items • Time phasing.

A. Identifying Information Used in the

Material Planning Process: This section describes the inputs used in calculating requirements for inventory items and their importance to the detailed material planning process. Accurate, timely, and complete data are critical.

1. Inventory data describe parts, define

current usage rates, stock balances, and track historical demand as required to support the policies, methodologies, and techniques of the material planning process. In a lean environment, this inventory data can be maintained in a plan-for-every-part record.

2. Master schedule data describe types,

quantities, sources, priorities, and time phasing of product demand generated as a result of the master planning process, including customer orders and forecasts.

3. Engineering data define the product

structure and parent/component relationships and include information on part interdependencies, lead times, and effective management of engineering changes.

B. Identifying the Desirable Characteristics of

the Detailed Material Planning Process: This section addresses those characteristics that enhance the capabilities of using material planning process outputs. Understanding sources of demand is useful in evaluating the resolution of action messages. Various safety policies are used to minimize the impact of uncertainty on the planning process.

36 ©APICS

1. Decisions are required that facilitate material planning, establish priorities, resolve conflicts through pegging relationships, and support other decisions and productivity measures based on the type of environment and product life cycles.

2. System feedback mechanisms enable the

monitoring of appropriate actions neces-sary to balance supply and demand.

3. Integration with master planning, final

assembly, and configuration processes ensures that material availability matches demand quantities, timing, and priorities.

C. Mechanics of the Detailed Material

Requirements Planning Process: Planning data calculate gross-to-net requirements by exploding bills of material and determining time-phased inventory needs. The requirements are exploded level by level — accounting for order policies, safety stock, and allocations.

1. Generating time-phased requirements

creates a material plan that supports company and supplier needs for longer-range planning and shorter-range tactical information. In a lean enterprise, pull systems are then integrated with enterprise resources planning and material requirements planning (MRP) systems.

2. The format of MRP time-phased data for

a given part number is often referred to as an MRP grid. This grid displays gross requirements, scheduled receipts, projected available, net requirements, and planned order receipts and planned order releases.

D. Maintaining the Validity of the Material

Plan: The output from the planning process recommends the placement and replanning of supply orders to maintain the validity of order priorities. The effects of planning parameters on the process are identified.

1. System replanning of order priorities to respond to changes of demand and supply results in actions that resynchronize the material plan with the current material requirements.

2. Revising planning parameters addresses the options of adjusting lead time, lot size, safety stock quantity, kanban quantity, cycle times, and other parameters to reflect product life cycles, current conditions, and company strategy.

3. What-if analysis and simulation tools,

methodologies, and techniques enable planners to evaluate viable alternatives without changing the existing material plan.

E. Managing the Project Plan

1. The project planning process is necessary to plan the resources for specific project activities. It includes a statement of work, work breakdown structure, project schedule, responsibility matrix, resource requirements, and budget.

2. The project implementation phase

includes selecting the project team, scheduling the work, and managing the team dynamics, schedule, and budget.

References: 1; 2; 3 (chapters 4, 11); 6 (chapters 7–9); 7 (chapters 3–4, 11–13, 17, 22); 8 (chapters 1, 14) III. Planning Operations to Support the Priority Plan Capacity is defined as the capability to produce goods or provide services. Capacity requirements planning (CRP) provides a check that the material plan is achievable based on existing orders and available capacity. Capacity management encompasses planning, establishing, measuring, monitoring,


and adjusting levels of capacity to execute the master schedule and related materials plan. It addresses the approaches for balancing the material plans with available internal and external resources and supporting activities, including constraint management and line and flow balancing. Uncertainty planning is also covered, including variability and capacity in a transient state. A. Identifying Information Used in the

Detailed Capacity Planning Process: This section addresses the use of work center and routing data to schedule orders and establish resource load by time period. Efficiency and utilization are used to determine the rated capacity of each work center. The material requirements plan provides the basis for projecting resource load by time period. The impact of unplanned work and quality problems on resources is identified. Also included are scheduling, queuing, and throughput management in various industries, including service.

1. The availability of theoretical,

demonstrated, and rated capacity, qualified by efficiency and utilization factors, is evaluated in different types of environments.

2. Load from planned and released orders,

repetitive schedules, past-due orders, rework, and work in process is calculated.

3. Impacts of industry-specific conditions,

such as remanufacturing, byproducts, co-products, and recycled material, are assessed.

B. Recognizing the Characteristics and

Techniques of the Detailed Capacity Planning Process: Various approaches for applying the process within different production and service environments are discussed. Attention is given to flow production by addressing process flow scheduling.

1. System design specifications and techniques include infinite and finite capacity planning, queuing and sequencing, constraint-based finite scheduling, load balancing for scheduling manufacturing operations, and establishing projected load on manufacturing resources.

2. Simulation and modeling techniques

enable a variety of scheduling and loading conditions to be assessed for transformation processes.

3. Operations are loaded, and adjusted for

capacity reductions or increases, to support business and customer service targets and to accommodate process variability.

4. Recognizing intangible and variable

capacity characteristics is necessary to manage load in a service industry.

5. Pull systems are integrated with

material requirements planning and enterprise resources planning systems to align shop floor activity with customer demand and takt time.

6. Integration with master planning, final

assembly, shop floor activities, and configuration processes ensures that capacity availability matches demand.

C. Using the Detailed Capacity Planning

Process: The output of detailed capacity planning is used to adjust the levels of capacity or load to complete scheduled work within the required timeframe.

1. Safety capacity is used in environments

that must accommodate unplanned load variability.

2. Methods of balancing capacity and load

include rescheduling orders, splitting orders, outsourcing, workforce development, changing capacity through workforce changes, and modifying order quantities and priorities.

38 ©APICS

3. In process industries, capacity management is used to manage constraints and flow balancing in either batch or continuous mode.

D. Measuring the Performance of the Detailed

Capacity Planning Process: This section identifies opportunities to measure and monitor the performance of operational objectives. The capacity planning process is measured on the ability to balance workload with available capacity and support on-time performance.

References: 1; 2; 3 (chapters 5–6, 15); 6 (chapters 10–12) IV. Planning Procurement and External Sources of Supply Procurement and supplier planning encompass planning and evaluation activities that companies employ to qualify suppliers and establish effective communication channels. Emphasis is on defining mutual business needs, product and process information, the impact of global sourcing, sustainability practices, and quality management required for the ongoing relationship. This includes approaches to communicating forecasts, orders, and schedules to ensure that purchased capacity and materials will be available in the required quantities and at the required time. A. Establishing Relationships with Suppliers:

Establishing long-term procurement partnerships is necessary to ensure competitive advantage and continuous improvement. Applying supply chain strategies to actual sourcing techniques will be addressed, including the principle of total procurement costs.

1. Varying degrees of partnership—

strategic alliance, joint venture, retailer-supplier, distributor integration, contract manufacturing, and technical and operational partnering—are examined.

2. Supplier selection alternatives include

single or multiple sourcing, domestic

and foreign providers, and special services. Additional supply chain links may exist, including retail, distribution, and transportation companies.

3. Effective communication techniques are

addressed, as are cultural differences, commercial versus government interests, and information technology support. Data necessary for collaboration include risk sharing, technical and quality specs, engineering changes, supply chain inventories, and future demand.

4. Environmentally responsible

purchasing— minimizing the impact the organization and its suppliers have on the environment—is examined.

B. Techniques and Concepts for Supplier

Partnerships: This section explores the elements of supplier relationships in different competitive environments and markets.

1. Supplier involvement in product

engineering using techniques such as concurrent engineering provides mutual value to companies and suppliers.

2. Techniques for procurement of

materials and services include contracts, kanbans, blanket orders, purchase orders, consignment, and pricing agreements. Additional considerations include supplier relationship management principles and activities, demand forecasting, outsourcing, and e-commerce.

3. Delivery approaches include traditional

modes of transportation, third-party logistics (3PL), cross-docking, point-of-use delivery, direct shipment and vendor-managed inventory (VMI).

4. Procurement planning, new product

introduction, and engineering change control affect supply chain performance.


5. Supplier participation in the partnership addresses areas of product design, quality requirements, related technology, sustainable business practices, delivery, and accounting processes.

6. Goals and benefits of the partnership

include improved technology, reduced inventory, improved customer service, improved quality, reduced lead times, improved visibility, better value-chain forecasting, cost reductions, reduced impact on the environment, damage and loss prevention, process improvement, access to new markets, and reduced time to market.

7. The supplier rating system encompasses

quantitative measures, such as cost and on-time delivery, product quality, environmental impact, and qualitative measures such as social performance, including the aspects of workforce diversity, human rights, labor, and anticorruption.

References: 1; 2; 3 (chapters 7, 13, 16); 4 (chapter 16); 5 (chapters 3, 5–9); 7 (chapter 8); 8 (chapters 3, 6–11, 14); 9 Key Terminology An understanding of the list of terms on pages 9–29 of this document is strongly recommended. The list is intended to be thorough but not exhaustive. The candidate is also expected to be familiar with the definitions of terms identified in the content outline. Definitions of these terms can be found in the APICS Dictionary, 14th edition.

40 ©APICS

Material Requirements Planning (MRP) Grid Many valid variations are used to display the MRP time-phased data. The following chart is the abbreviated grid sometimes used in texts and work problems.

Bibliography All test candidates should familiarize themselves with the following references for this examination. The recommended references pertaining to the diagnostic areas are listed at the end of each section of the content outline. Please see page 8 in the introduction to this manual for a list of past references that can also be used for study. Also, candidates who have not yet passed the suggested first module—Basics of Supply Chain Management—should familiarize themselves with the basic concepts of materials management presented in this exam content manual. All of these references are available at apics.org/shopapics.

The MRP Grid Technique Order quantity 50 Safety stock 8 Allocated quantity 5 Low-level code Lead time 3 Periods

1 2 3 4 5 6 7 8 x Gross requirements 40 10 30 50 50 20 30 40

Scheduled receipts 50 Projected available 140 95 85 105 55 55 35 Net requirements 3 Planned order receipts 50 Planned order releases 50


References 1. APICS CPIM Detailed Scheduling and

Planning Reprints, 2010. 2. APICS Dictionary, 14th ed., 2013. 3. Arnold, J.R. Tony, S.N. Chapman, L.M.

Clive, Introduction to Materials Management, 7th ed., Prentice Hall, 2012.

4. Bicheno, J. and M. Holweg, The Lean Toolbox, 4th ed., PICSIE Books, 2009.

5. Epstein, Marc J., A. R. Buhovac, Making Sustainability Work, 2nd ed., Berrett-Koehler Publishers, Inc. 2014.

6. Jacobs, F.R, W.L. Berry, D.C. Whybark, and T.E. Vollmann, Manufacturing Planning and Control for Supply Chain Management, APICS/CPIM Certification Edition, McGraw-Hill, 2011.

7. Kerzner, H., Project Management: A Systems Approach to Planning, Scheduling, and Controlling, 11th ed., John Wiley & Sons, Inc., 2013.

8. Simchi-Levi, D., P. Kaminsky, and E. Simchi- Levi, Designing and Managing the Supply Chain, 3rd ed., McGraw-Hill, 2008.

9. *The G4 Sustainability Reporting Guidelines https://www.globalreporting.org/resourcelibrary/GRIG4-Part1-Reporting-Principles-and-Standard-Disclosures.pdf.

*Internet links cited in the bibliographic references above can be found at apics.org/careers-education-professional-development/certification/ cpim/primary-references.

Sample Questions The following ten questions are similar in format and content to the questions on the exam. These questions are intended for practice—that is, to enable you to become familiar with the way the questions are asked. The degree of success you have in answering these questions is not related to your potential for success on the actual exam, and should not be interpreted as such. Read each question, select an answer, and check your response with the explanation on page 45–46.

1. Service level = 1 – Number of stockouts Number of replenishment cycles

The expression above is used to measure historical service levels in terms of a percentage for which of the following statistical control procedures?

(A) Line items shipped on time (B) Total quantity filled (C) Orders filled complete (D) Ordering periods not out-of-stock

2. An organization using time-phased

requirements planning has the following net requirements for an item:

Week Net required 2 350 5 1,200 7 1,000

11 1,500 Lead time 1 week Unit cost $1

Setup cost $30 Carrying cost 0.5% per week

If it is assumed that sufficient capacity is available in weeks 1 through 11 to order any amount in any period, which of the following is the most economical ordering plan?

(A) Week 1 4 6 10

Order 350 1,200 1,000 1,500 (B) Week 1 6

Order 1,550 2,500 (C) Week 1 4

Order 350 3,700 (D) Week 1 4 10

Order 350 2,200 1,500

42 ©APICS

3. Lot Size: Lot-for-lot On Hand: 500 Allocated: 0 Safety Stock: 0 Lead Time: 4

The chart shows the gross requirements for an item in a material requirements planning system. Stock on hand is 500, and there is nothing on order. The item has a lead time of four periods and is being ordered lot-for-lot. Which of the following would be the correct planned order release for the item?

(A) 100 in Period 1, 400 in Period 3 (B) 100 in Period 4, 400 in Period 6 (C) 100 in Period 5, 400 in Period 7 (D) 500 in Period 5

4. Calculation of rated capacity of a work

center includes consideration of which of the following? (A) Efficiency and utilization (B) Utilization, setup, and run time (C) Utilization and available work time (D) Efficiency, utilization, and available

work time

5. Which of the following is part of the capacity requirements planning process? (A) Determining the bill of resources (B) Determining the planned order

release (C) Calculating load on each work

center (D) Development of a forecast

6. To create an effective customer-supplier

partnership, it is essential to (A) Establish stability in schedules that

enable suppliers to react within their lead time

(B) Evaluate the suppliers based on price and then send the purchase order

(C) Establish a delivery schedule with a corresponding purchase order and send them to the suppliers

(D) Establish a preventive maintenance program to avoid quality problems due to machine troubles

The MRP Grid Technique Order quantity Safety stock Allocated quantity Low-level code Lead time

Periods 1 2 3 4 5 6 7 8

x

Gross requirements 100 300 200 400 Scheduled receipts Projected available 500 400 100 Net requirements Planned order receipts Planned order releases


7. A drill press operates at 50 percent efficiency and 80 percent utilization. How many clock hours must be worked to produce 80 standard hours? (A) 32 (B) 100 (C) 160 (D) 200

8. Which of the following might a planner

use to solve an overload problem? (A) Multiple setups (B) Alternate routings (C) Infinite loading (D) Adjust loading factors

9. Given the following purchase cost data

for product Z: 0 on hand (December 27) 100 @ $10 = $1,000 (December 28) 10 @ $11 = $110 (January 3) 10 @ $8 = $80 (January 10)

If this company is using a weighted average costing method and 100 units were sold on January 8, the cost per unit for the sale is: (A) $9.17 (B) $10.00 (C) $10.09 (D) $8.00

10. Which of the following is a major use of

the bill of material? (A) Engineering change control (B) Plan for every part (C) Costing of the process (D) Preventive maintenance schedule

44 ©APICS

Answers to Sample Questions Note: References to the content outline appear in parentheses. Detailed Scheduling and Planning

1. D (IB) The percentages of line items shipped on time (A), of the total quantity filled (B), and order filled complete (C) are all incorrect because the formula does not include any of these statistics. The formula (D) includes the number of stockouts that have occurred during some number of replenishment cycles or lead times. One minus the proportion of replenishment cycles in which a stockout occurs is the percentage of ordering periods not out of stock, or service level.

2. D (IID)

Total cost = setup cost + carrying cost

Setup cost = number of setups × cost per setup

Carrying cost = units × unit cost × number of periods × carrying cost per period

The costs are calculated as follows:

A. Setup cost = $120 = $30 × 4 Carrying cost = $0 Total cost = $120

B. Setup cost = $60 = $30 × 2 Carrying cost = $48 = (1,200 × $1 × 3 × .005) + (1,500 × $1 × 4 ×.005) Total cost = $108

C. Setup cost = $60 = $30 × 2 Carrying cost = $55 = (1,000 × $1 × 2 × .005) + (1,500 × $1 × 6 × .005) Total cost = $115

D. Setup cost = $90 = $30 × 3 Carrying cost = $10 = (1,000 × $1 × 2 × .005) Total cost = $100

3. A (IIC) Lot Size: Lot-for-lot On Hand: 500

Allocated: 0 Safety Stock: 0

Lead Time: 4

The MRP Grid Technique Order quantity ___ ___ Safety stock ____ ____ Allocated quantity ___ ___ Low-level code Lead time ____ ____ Periods

1 2 3 4 5 6 7 8 x Gross requirements 100 300 200 400

Scheduled receipts Projected available 500 400 100 Net requirements 100 400 Planned order receipts 100 400 Planned order releases 100 400

Answers to Sample Questions 45

4. D (IIIA) Setup and run time are used to calculate required capacity. The rated capacity = time available × efficiency × utilization.

5. C (IIIA) A, and D are related to rough-cut

and B is related to the MRP explosion process.

6. A (IVA) Partnerships require a

commitment to stability within the agreed-upon response parameters. B and C are short-term and tactical in nature. D is really something that needs to be done without any regard to partnering.

7. D (IIIB) Standard hours = (clock hours) ×

(utilization × efficiency). Therefore, clock hours = (standard hours) / (utilization × efficiency) = 80 / (0.80 × 0.50) = 200 hours. A is incorrect because 32 = (standard hours) × utilization × efficiency. B and C are incomplete applications of the correct formula, dividing standard hours by utilization alone to arrive at 100 (B), and by efficiency alone to arrive at 160 (C).

8. B (IIIC) If the planner had an alternate

route, it could be used to distribute or divide the load between two choices, which makes B the correct answer. Multiple setups (A) add to the load, making it an incorrect choice. Infinite loading (C) detects the overload but does not solve the overload problem. Loading factors should reflect reality. Adjusting accurate loading factors (D) to address an overload will only hide reality from the planner; therefore, it is also incorrect.

9. C (IB) Standard costing is a method of

setting a new standard based on various parameters. A is incorrect because of average cost after January 10. B is incorrect because it is the FIFO cost of the product. C is correct because this is the weighted average on January 8. D is incorrect because this is the last cost paid for each item.

10. A (IIIB) For a comprehensive explanation, see page 70 of Arnold, J.R. Tony, S.N. Chapman, and L.M. Clive, Introduction to Materials Management, 7th ed., Prentice Hall, 2012. A is a major use of the bill of material because engineering sometimes changes the design of the products, and a record is required to know what to change. B is an extension of the item master. C uses routing information. D does not use the bill of material.

46 ©APICS

About This Guide

Instructor Guide

© 2016 APICS Confidential and Proprietary

Thispageleftintentionallyblank

CPIM

Certified in Production

and Inventory Management

Detailed Scheduling and Planning

Version 5.4 – January 2016

Certification Review Course

Instructor Guide

©2016APICSConfidentialandProprietary


Instructor Guide Version 5.4 I-ii © 2016 APICS

APICSacknowledgesthecontributionsofthefollowingindividualstothisandpreviousversions.

AlBukey,CFPIM,CIRM,CSCP PaulBernard,CIRMThomasF.Cox,CFPIM,CSCP BarbaraM.Craft,CPIMRichardDonahoue,CPIM,CSCP SharonDow,CIRM,C.P.M.BarryE.Firth,CIRM MichaelFord,CFPIM,CSCPSusanFranks,CFPIM,CSCP EileenGame,CIRMMartinR.Gartner,CFPIM,CSCP AnnK.Gatewood,CFPIM,CIRMMichelGavaud,CFPIM,CIRM,CSCP,C.P.M. ThomasP.Geraghty,CPIMDavidT.Jankowski,CFPIM,CSCP EdwardJ.Kantor,CPIMGeraldL.Kilty,CFPIM,CIRM,CSCP AnthonyKren,CFPIM,CIRM,CSCP,C.P.M.TheodoreLloyd,CPIM HenryLumTerryLunn,CFPIM,CIRM,CSCP DavidA.Magee,CPIM,CIRM,CSCPDebraHansford,CPIM,CIRM,CSCP,C.P.M.,CPSM JamesR.McClanahan,CFPIM,CIRM

WilliamM.Monroe,CFPIM,CIRM,CSCP CharlesV.Nemer,CPIMMaryanneRoss,CFPIM,CIRM,CSCP PaulSchönsleben,Ph.D.FranScher,Ph.D. ArvilJ.Sexton,CPIMAngelA.Sosa,CFPIM CarolynFarrSly,CSCP,CPIM,C.P.M.RobVanStratum,CPIM,CIRM,CSCP JesseE.TaylorMerleJ.Thomas,Jr.,CFPIM BlairWilliams,CFPIM,CSCPJoniWhite,CFPIM,CIRM,CSCP PaulaWrightLeeZimmerman,CFPIM,CIRM,CSCP HenryZoeller,CFPIM

Version5.4–January2016Stock#09125‐V54

©2016APICS

Noportionofthispublicationmaybereproducedinwholeorinpart.

APICSwillnotberesponsibleforanystatements,beliefs,oropinionsexpressedbytheauthorsofthispublication.TheviewsexpressedaresolelythoseoftheauthorsanddonotnecessarilyreflectendorsementbyAPICS.

APICS8430W.BrynMawrAve.,Suite1000Chicago,IL60631

About This Guide ParticipantWorkbookPage

© 2016 APICS I-iii Instructor Guide Version 5.4

Module Description

Thiscoursefocusesoninventorymanagement,materialandcapacityschedulingandplanning,supplierrelationships,andtheinfluenceofleanphilosophiesintheseareas.Itexplainstheuseofamaterialdominatedschedulingtechnique,materialrequirementsplanning(MRP),injobshop,batch,andcertainrepetitiveprocesses.Thecourseexplainscapacityplanningindetail,introducesothercapacity‐planningtechniquessuchasprocessor‐dominatedschedulingincontinuousflowprocesses,andreviewsprojectmanagementtechniques.

Exam Content Manual

TheAPICSCPIMExamContentManual(ECM)isanimportantdocumentthatallexamcandidatesshouldstudyandreviewinpreparationforeachCPIMexam.Therefore,weareprovidingtheappropriateECMineveryParticipantWorkbook.TheobjectiveofthismanualistooutlinetheAPICSCPIMbodyofknowledgethattheAPICSCertificationExamCommitteehasdefinedforeachCPIMexam.

Therecommendedprocedureformasteringthesubjectmattercoveredineachcertificationexamistoreviewthecontentoutline,whichdefinesthematerial,andthentostudyeachtopic,usingthereferences.Attheendofeachmajorsectionisalistofthereferencesthatapplytothetopicsinthatsection.ThefirstnumberindicatesthesequencenumberforthereferenceintheBibliographysection,andthenumbersinparenthesesindicatethechapter(s)withinthatreference.Theseoutlinesformthecontentandstructureforthecertificationexaminations.Assuch,havingthemostcurrentexamcontentmanualisessentialasitisrevisedannually.

TheParticipant’sworkbookhasbeendevelopedbasedontheexamcontentoutlineandthereferenceslisted.UsingtheexamcontentmanualinconjunctionwithaCPIMclassandthisParticipantWorkbookwillhelpbetterpreparecandidatesfortheCPIMcertificationexams.

CandidatesshouldunderstandthedefinitionsofthekeytermsintheECM,whyandhowtoapplythem,andwhichonestoselectfordifferentsituations.TheCPIMcoursewarecoversmany,butnotall,ofthekeytermsintheECM.Therefore,candidatesshouldsupplementtheirlearningbystudyingtheECMkeytermlistusingtheAPICSDictionaryorotherECMreferencesasaguide.

Class Problems and Activities

Throughoutthecourse,thereareclassdemonstrations(inwhichinstructorscanintroduce/explainconcepts),aswellasactivitiesforparticipants.Theseactivitiesaredesignedtoreview,enhance,anddeepentheparticipants’knowledge.Theactivitiesmaybeperformedindividually,inpairs,orinsmallgroupsasindicated.

Severalsymbolsassociatedwithactivities/problemsandsolutionsareusedthroughoutthecourse:

Thiscubewiththequestionmarkinthecornerindicatesanactivity,classproblem,oroptionalhomeworkproblem.


Instructor Guide Version 5.4 I-iv © 2016 APICS

Thiscubewiththesolidcornerindicatesasolutiontoaproblem.

ThissymbolonaslideindicatesthatthesolutionisfilledinsequentiallyusingthebuildfeatureofPowerPoint.Simplyadvanceasyouwouldtomovethroughthevisualsandtheslidewillsequentiallybuild.Buildslidesofferyouawaytoexplainthesolutiononepartatatime,andtofillinapartialsolutionandthenaskforparticipantinputbeforecompletingthesolution.Ifyouprefertomodifythesequenceofthebuildslides,usethecustomanimationfeatureinPowerPoint.

Thissymbolindicateslearningobjectives.Thelearningobjectiveshavebeendesignedtobemeasurable,togiveparticipantsaguidetowhatknowledgetheywillhaveaftertakingthecourse,andtoserveasreviewtopicsfortheinstructorattheendofeachclass.

AnasteriskbesideavisualindicatesthatthevisualdoesNOTappearintheparticipantworkbook.Thesearetypicallyseenbesidesolutionvisualsreservedfortheinstructor.

Instructor Preparation

Instructorsshouldexpecttospendanaverageoftwotofourhoursofpreparationforeachhourofinstruction.TheyshouldalsoreadthecurrentExamContentManualsectiononDSPandbefamiliarwiththereferencesforDSP.Asareviewcourseforexampreparation,itisimportanttoprovideanobjectivepresentationofthematerial,withoutbias.Itisalwaysanexcellentideatoprovidepracticalexamplesoftheconceptsbeingtaught.

Theinstructorcommunityisavailableforcommunicatingwithandaskingquestionsoffellowinstructors.Tobeaddedtothiscommunity,[email protected].

APICSrequiresInstructorDevelopmentProgram(IDP)participationforinstructorswhoteachCPIMcoursesonbehalfofAPICSPartners.Foradditionalinformation,[email protected].

AllinstructorsarealsoencouragedtoattendanAPICSsponsoredTrain‐the‐Trainerprogramtoenhancetheirinstructorskills.CheckwithyourlocalAPICSpartnerformoreinformation.

Instructor Materials

Instructorswillneed

acopyofthecompletenine‐sessioninstructorguide theCD‐ROMofPowerPointvisualsforeachsession.

Equipment Needed

projectorandscreen twoflipchartswithstands,paper,andmarkers(recommended) whiteboardandmarkers(recommended)

*


© 2016 APICS I-v Instructor Guide Version 5.4

Guide and Workbook Formats

ThisinstructorguidecontainsallninesessionsoftheDSPcourse.

Theleft‐handinstructorpages,oreven‐numberedpages,inthisguidecontainimagesofthevisualstoaccompanythelecture,notestoshapethecontentofthelecture,andquestionstoposetoparticipantstostimulatediscussion.Intheparticipantworkbooktheseleft‐handpagescontainonlythevisualsandspacetotakenotes.

Theparticipantpages,orodd‐numberedpages,containthecontentofthecourse.Theseright‐handpagesarethesameintheinstructorguideandparticipantworkbook.Thisfacing‐pagelayoutallowsaninstructortoseewhattheparticipantsarereferencing.

Iconsareusedthroughouttheinstructortexttogivevisualcuesanddrawattention.Alistoftheiconsandtheirusesappearsbelow.

Instructor Guide Icons and Cues

Thefollowingisalistoficonsandcuesthatwillindicateupcomingtasks.

Ask:Identifiesaquestiontoasktheclass

Discuss:Identifiesatopicforclassdiscussion

Explain:Indicatesthatatopicmayrequirefurtherexplanation

Flipchart:Identifiesanactivityforwhichitmaybehelpfultowriteinformationonaflipchart

Note:Indicatesanitemtowhichspecialattentionshouldbepaid

Time:Indicateshowmuchtimetospendonacertainactivity CPIMStudyTools:Indicatesthattheseinstructormaterials(solutionslidesandperformancecheckanswers)areavailabletostudentsonlineintheCPIMStudyTools


Instructor Guide Version 5.4 I-vi © 2016 APICS

X X

X

Suggested Training Room Layout

Thesuggestedtrainingroomlayoutshownbelowisconducivetolearningasitpromotesinteractionamongthelearnersaswellasbetweenthelearnersandtheinstructor.Ideally,theroomshouldaccommodateadditionalworktablesforbreakoutexercisesattheback.However,thisisnotnecessary.

Approximately 35 feet

Ap

pro

ximate

ly 4

0 fe

et2

0 feet (op

tion

al)

Ap

pr o

x im

a te

ly 6

0 f

ee t

Projector

FlipFlip

Screen

Extra Work Tables

Co

ffeeInstructor Table

Approximately 35 feet

Ap

pro

ximate

ly 4

0 fe

et2

0 feet (op

tion

al)

Ap

pr o

x im

a te

ly 6

0 f

ee t

ProjectorProjector

FlipFlip

Screen

Extra Work TablesExtra Work Tables

Co

ffee

Co

ffeeInstructor Table

Instructor Table

Or,useoneofthelayoutsshownontherighttoencourageparticipationbytheclassandtoinvolvealllearners.

Trytoavoidthetraditionallayoutshowntotherightwheninstructing.Youwillseethatitfillsfromthebackaspeopletrytoavoidactiveparticipationintheclass.Thefocusisontheinstructorandnotonthelearner.

Movearoundtheroomduringclasssessions—especiallyifyouarerestrictedtousingatraditionalroomlayout.Thiswillencourageeveryparticipanttotakeamoreactiveroleinthelearningenvironment.Whenasessionends,puttheroombackinproperorderbeforeleaving.


© 2016 APICS I-vii Instructor Guide Version 5.4

Visual Aids (Slides)

VisualaidsintheformofPowerPointslidesareincludedanddesignedtohelpexplaininformationortoprovidevisualcuesforrecallingandunderstandinginformation.ThecourseCDcontainsallthefilesyouneedtopresentthevisuals.

IfyoudonothaveaccesstoafullversionofPowerPoint,aPowerPointviewerfilecanbedownloadedfromMicrosoft.

To Move through the Slides

Clickthemousebuttontoadvancefromslidetoslide. Youcanalsousethearrowkeys,spacebar,andthePageUpandPageDownkeysto

movethroughtheslides. Tojumptoaspecificslideinthepresentation,typetheslidenumber,andthenpress

<enter>.

To Draw Freehand on a Slide

ClicktheFreeformtoolonthebottomleftorrightcorneroftheslide(itresemblesapencil).

Placethecrosshairpointerwhereyouwanttobegindrawing. Holddownthemousebuttonwhiledrawing.Adrawingpencilwillappear. Movethemousetodrawshapesontheslides. Toenddrawing,presstheEscapekeyonthekeyboard. AlternativestotheFreeformtoolonslidesthattheinstructormustfillinincludethe

following: Usetraditionaloverheadtransparenciesandasecondprojectorforvisualswhere

spacesmustbefilledin SomeprojectorsallowtheusertoplaceablanktransparencyovertheLCDpanel.

Theinstructorcanthenwriteontheblanktransparency

To End the PowerPoint Slide Show

PresstheEscapekey

Equipment

Arriveatleast45minutestoonehourearlyforeachsessiontosetupandtesttheequipment—projector,flipchart,whiteboard,etc.Testtheequipment;walktothebackoftheroomtotestforfocus,clarity,andsightlines.Learnhowtodimthelightsifnecessary.

Blackboards and Whiteboards

Blackboardsareoneoftheoldestvisualaidsandcanbeveryeffective.Whiteboardscanbeusedinmuchthesameway.Usethemtoworkthroughclassproblemsandforillustration.Bebrave!Drawstickpeopleandtrucks,etc.,tomakeyourpoint.Thiscangivegoodmemorycluestolearners,pacethepresentation,andenliventheclassatyourartisticexpense.


Instructor Guide Version 5.4 I-viii © 2016 APICS

Flip Charts

Flipchartscanbeusedforworkingproblemsandwillbeusedinthefinalreviewactivity.Youcanalsopostquestionstoaflipcharttocomebacktolater.Theinformationonflipchartsispermanentandcanberetrievedforlateruse.Theyarealsogreattopostaroundtheroomduringtheworkshop.Flipchartsrequirespecialmarkers.Whiteboardmarkerswillwork,buttendtodryoutquickly.

Performance Checks

Thereismuchmaterialtobecoveredineachsession.Theperformancecheckswerecreatedtogiveyouanopportunitytoassesstheparticipants’learning.Theperformancechecksmaybeusedasevaluationtoolsorhomeworkassignments.Anoptionistosendthemtotheparticipantsasapre‐courseassignmenttoassesstheirknowledgebeforethecoursestarts.Ifyouareusingtheperformancechecksforevaluationorhomeworkassignments,makesureyouhaveapolicyandthattheparticipantsunderstandit.Theparticipantsareadultswithotherresponsibilities,soyoushouldtrytohaveaflexiblepolicy.

Pleasenotethataprogresscheckanswersheetfortheparticipants’useinrecordingthecorrectanswerstotheperformancecheckquestionscanbefoundintheAppendix.

Class Participation

Telltheparticipantsthateveryonehasacontributiontomake,andeveryoneshouldparticipateinclassdiscussionsandproblemsolving.

Icebreaker

Beforethefirstsession,havetheparticipantsintroducethemselves,identifytheiremployer,statetheirjobtitle/functions,andwhattheyhopetogetoutoftheclass.

APICS CPIM Study Tools

InadditiontoyourprintedAPICSCPIMinstructorguide,APICShasdevelopedtheAPICSCPIMStudyTools—anonlinelearningenvironmenttohelpyourstudentsmasterthecoreconceptswithintheAPICSCPIMmoduleandtohelpyoumanageyourstudents’progress.Thisonlinetoolcontainspresentationslidesandassessmentstocomplementyourstudents’APICSCPIMlearningexperience.

ToaccessAPICSCPIMStudyTools,youwillneedanAPICSID.

IfyoucurrentlydonothaveanAPICSID,simplygotoapics.org/newusertocreateone. IfyouareamemberoftheAPICSInstructorDevelopmentProgram(IDP),simplylogin

toapics.orgusingyourAPICSID. IfyouarenotalreadyamemberoftheAPICSIDP,[email protected]

themthatyouareaninstructorwhohaspurchasedanAPICSCPIMinstructorguidewiththeintentionofteachinganAPICSCPIMcourse.TheAPICSProfessionalDevelopmentteamwillhelpgetyousetupsothatyoucanaccesstheAPICSCPIMStudyTools.

FullinstructionsonaccessingAPICSCPIMStudyToolsareavailableonlineatapics.org/cpimstudytools.

Session 1: Inventory Policies Participant Workbook Page

© 2016 APICS 1-9 Participant Workbook Version 5.4

Types and Classifications of Inventory

Inthissection,wewilladdressthemajortypesandclassificationsofinventoryinconventional,lean,andTOCmanufacturingprocesses.Wealsowilldiscussserviceinventory.

Ourgoalistohelpyouunderstandhowdifferenttypesofinventoriesaffectinventoryinvestmentorthevalueofinventoryatalllevelsmeasuredinmonetaryterms.

Rememberthatdetailedschedulingandplanningbalancesinventoryinvestmentobjectiveswithcustomerserviceandproductionefficiencyobjectives,andthatinventorystrategyandpoliciesbothaffectandreflecttradeoffsamongthethreeobjectives.

Major Types of Manufacturing Inventory

Manufacturinginventorycanbeclassifiedintofourmajortypesthatarefoundinbothconventionalandleanmanufacturingprocessenvironments:

rawmaterials workinprocess(WIP) finishedgoodsanddistributioninventories maintenance,repair,andoperatingsupplies(MRO)

Thefirstthree(rawmaterials,WIP,andfinishedgoods),arebasedontheflowofmaterialsfromsuppliersthroughmanufacturingandintothedistributionsystem.

Isinventoryconsideredanassetoraliability,andwhy?

______________________________________________________________________________________________

______________________________________________________________________________________________


Instructor Guide Version 5.4 1-10 © 2016 APICS

1 • 8 © APICS Confidential and Proprietary


Raw material

Work in process (WIP)

Finished goods and distribution inventories

Maintenance, repair, and operating (MRO) supplies

Visual 1-8

ContinuetodisplayVisual1‐8.

Raw Material

Pointoutthatrawmaterialincludespurchasedandextracteditems,suchascomponentsoffinishedproductsandsubassemblies.Theyarethelowest‐levelcomponentsinabillofmaterial(BOM).Notethatinleanenvironments,rawmaterialinventoriesarekeptlow.

WIP

ExplainthatWIPinventoryresultswhenrawmaterialistransformedintofinishedgoodsindiscretesteps,andcanbeinvariousstagesofcompletion.NotethatleanmanufacturingtechniquesreduceunnecessaryWIPandinventorycoststhroughfasterthroughputandshorterleadtimes.



Raw Material

Rawmaterialsarepurchaseditemsorextractedmaterialsthatareconvertedintocomponentsandproductsduringthemanufacturingprocess.

Rawmaterialsincludecomponentssuchasmanufacturedpartsorsubassembliesthataretransformedintofinishedproducts.

Theyarethelowest‐levelcomponentsinabillofmaterial(BOM).

Theprocurementprocessandmanagementofsupplierrelationshipsaddressthemanagementofrawmaterialsupplyrequirementsinbothmanufacturingandserviceindustries.Inleanmanufacturingenvironments,rawmaterialinventoriestypicallyareverylow.Leanmanufacturingreliesonrelationshipswithsuppliersthatdeliverrawmaterials,oftendirectlytothefactoryfloor.Suppliersdothisinappropriatelotsizestoreducethewasterepresentedbyinventorycarryingcosts.

WIP

Insomeconventionalmanufacturingprocessenvironmentssuchasintermittent(jobshop)andbatch,productiontransformsrawmaterialsintofinishedproductsinaseriesofdiscretesteps.ThisresultsinwhatiscalledWIPinventory:goodsinvariousstagesofcompletioninaproductionprocess.WIPincludesthefollowing:

rawmaterialthathasbeenreleasedforinitialprocessing semifinishedstockandcomponents completelyprocessedmaterialsawaitingfinalinspectionandacceptanceasfinished

goodsinventory.

Mostmanufacturingfirmshavesomeinventorythatfitsthisclassification.ProductionreportingcommunicatesthecompletionstatusofproductsateachintermediatestageofproductionsothataccountingcandeterminethevalueofWIP.Thisisbasedondirectmaterialandlaborcostsandallocatedfactoryoverheadcosts.

Inapureleanmanufacturingenvironment,WIPlevelsaresignificantlylower.Productionlayouts,suchascontinuousflowandcellular,andothermethodsfacilitateacontinuousone‐pieceflowofmaterialfromrawmaterialtofinishedproductthatissynchronizedwithcustomerdemand,orpullrate.ManufacturingleadtimesandWIPdecreasebydesign.





Raw material

Work in process (WIP)

Finished goods and distribution inventories

Maintenance, repair, and operating (MRO) supplies

Visual 1-8


Finished Goods and Distribution Inventories

Explainthatfinishedgoodscanconsistofenditemsaswellaspartssoldtocustomersasreplacements.Finishedgoodsmaybeheldtoreduceleadtimes.Leanmanufacturingtechniquesfocusonreducingfinishedgoodsinventories.

Asktheclasshowtheuseofdistributioncenterscanloweroveralldistributioncosts.

Answer:

Thelowerunitcostoffulltruckloadshipmentstodistributioncentersforlocaldistributionoftenoutweighsthehigherunitcostofshippingoverlongdistancesdirectlytothecustomer.

MRO Supplies

MROsuppliessupportgeneraloperationsandmaintenanceandarenotincludedinthecostofgoodssold.



Subclassifications of Manufacturing Inventory

Visual1‐9showsadditionalwaysofclassifyingandanalyzingthefourmajortypesofinventorywejustdiscussed.Thiswillprovideadditionalunderstandingoftheirimplicationsforinventoryinvestment.

Whatcouldcausethesetypesofinventory,andwhatcanbedoneaboutthem?

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

Whyshouldthetargetinventorylevelforexpensiveoperatingitemsbelower?

______________________________________________________________________________________________

Excess

Therearetwoperspectivesonexcessinventory.Manyauthorsdefineitasmaterialsprocuredormanufacturedinexcessofcurrentoperationalneeds.Excessinventorymayoccurbyplaninresponsetolot‐sizingrules,seasonalityconsiderations,oranticipationbuilds.Apricebreakordiscountforapartmaygivethepurchasingdepartmentsufficientreasontobuyalargerquantitythannormal.Inaccurateinventoryrecordscouldpromptprematurereplacement.Ordercancellationsmayresultinhigherinventory,thusincreasingcarryingcostsandriskofspoilageandobsolescence.Inleanmanufacturing,Just‐in‐Time(JIT)materialdeliveriesanddemand‐pullschedulingreducetheincidenceofexcessinventory.Oneoftheeightwastesofmanufacturingintheleanphilosophyisoverproduction.

Asecondperspectiveonexcessinventoryshowstheinfluenceofthetheoryofconstraints(TOC)productionphilosophy.

excessinventory—Anyinventoryinthesystemthatexceedstheminimumamountnecessarytoachievethedesiredthroughputrateattheconstraintorthatexceedstheminimumamountnecessarytoachievethedesiredduedate.Totalinventory=productiveinventory+protectiveinventory+excessinventory.

─APICSDictionary

Examplesofexcessinventoryareamountswellabovethoseheldforproductiontobuffercriticalconstrainingresourcestoachievethedesiredthroughputrate,andfinishedgoodsinventoryattheshippingpointtoprotectpromisedshippingdates.Seethediscussionofbuffersonpage1‐17under“OtherManufacturingInventory.”



Inactive, Obsolete, and Scrap Inventory

Continuetoexplainthesubclassificationsofmanufacturinginventory:inactive,obsolete,andscrap.

Addressthesignificanceofavoidingorreducingthesetypesofinventorytomanageinventorycoststhroughbetterinventoryplanningandpractices.

Other Manufacturing Inventory



Buffers

Inventory buffers

Return goods

Visual 1-10

Buffer and Inventory Buffer

BufferandbufferinventoryaretermsdefinedintheAPICSDictionary.Whiletheirdefinitionsdifferslightly,itismoreimportanttofocusonthefactthatbothleanandTOCusebufferstoachievebetterresults.

LeanandTOCproductionclassifyinventoryaswaste,butinsomeinstancesitisnecessarytousebuffersofrawmaterialsandfinishedgoodstoexpeditethroughput,especiallyforconstrainedresources.

Theneteffectisshorterleadtimes,bettercustomerservice,lessWIP,lowerinventories,andanoverallreductionininventorycosts.



Inactive

Inactiveinventoryisstockthathasexceededconsumption,ordemand,withinadefinedperiodoftimeorhasnotbeenusedforadefinedperiod.Likeexcessinventoryandobsoleteinventorydiscussedbelow,itisanassetfromanaccountingperspectivebutentailsongoingcarryingcosts.Inactiveinventoryoftenisthedirectresultofinventorynotbeingusedwithin12to18monthswithnoforeseeablefutureuse.Forproperassetreporting,thisinventoryshouldbevaluedatzeroandthecostshouldbewrittenoffagainstcurrentprofits.

Obsolete

Obsoleteinventorytypicallyisnotusedorsoldatfullvaluebecausetheproductsarenolongerproducedorsupported.Disposingoftheinventorymeansthatitscostscannotberecoveredthroughrevenues,whichmeanslostrevenueandreducedprofit.Partsobsoletedbyanengineeringchangeorderaremarkedforremovalaspartofthematerialdispositionoractiontasksoftheengineeringchangeorder.

Scrap

Scrapismaterialthatisoutsideofspecificationsandisnotpracticaltorework.Scrapcanbearesultofthenatureofthematerialsandthemanufacturingprocess.Ascrapfactorshouldbebuiltintodeterminingmaterialrequirements.


Buffer inventories in lean and TOC environments are examples of inventories that incur a cost, but whose overall impact on inventory investment is positive. This is because their objective is to maintain desired throughput, reduce manufacturing lead time, and lessen the dependence on forecasts—thus reducing total inventory and production costs.

Buffer Bufferisaquantityofrawmaterialsorsemifinishedgoodsrequiringfurtherprocessing,oftenpurposelymaintainedataworkcentertoachievedesiredthroughput.

InTOC,thetermstrategicbufferisusedforrawmaterialsandsemifinishedproductsthatarriveearly,aswithatimebuffer,toensurethatacriticalconstrainedresourceorshippingpointdoesnotrunshortofmaterialstoprocessorship.InTOCproductionphilosophy,bufferlevelsareevaluatedasoftenasdailytoensuretheyarenottoohighortoolow.Constantadjustmentstominimizeinventoryinvestmentcostsareconsideredtobeagoodpractice.

Buffers,includingsafetystock,canbeusedtoaddressfluctuationsincustomerdemandandsupplyateachworkstationorprocessandattheshippingpointorfinishedgoodslevel.

Inventory Buffer

ThedefinitionofinventorybufferintheAPICSDictionaryissimilartothedefinitionofbuffer.Itappliestoinventoryusedtoprotectthethroughputofanoperationortheschedulefromdelaysindelivery,qualityproblems,anddeliveryofincorrectquantities.



Other Manufacturing Inventory (cont.)

Return Goods


Return Goods

Reasons for:

Customer quality demands

Damage or defects

Recalls

Over-forecasting

Seasonal demand

Obsolete inventory

Repair and remanufacturing

Recycling

Disposition of:

Correct defects

Replace

Return for resale

Repair or remanufacture for resale

Sale into other markets

Convert to reusable components

Reuse in current form

Visual 1-11

Brieflyreviewthetypesofreturngoodsinventoryandalternativewaysofdisposingofthem.Theexamplesgivengenerallyareself‐explanatory.

Note:RepairandremanufacturingarediscussedinmoredetailinSession2intheOrderReviewMethodssection.

Asktheclasstogiveexamplesofthetwotypesofrecycling:conversiontoreusablecomponentsandreuseincurrentform.

Answer:

Therecyclingofglassprovidesexamplesofboth.Crushingglassbottlestocreatefeedstock,orreusablecomponents,forthemanufactureofnewglassisoneformofrecycling.Recirculationofglassbeveragebottlesforreuseisanother.Yetanotherexampleofreuseisthereturnofpackagingmaterialsandpalletstosuppliers,whichisbecomingacommonpracticeascompaniesimplementgreenmanufacturing,greenreverselogistics,andsustainabilityprograms.



Hard, Perishable, and Distressed Inventory

Thenatureofhardgoodsisimpliedinthediscussionoftangibleproductsabove.Theyarepartofaserviceprovided.Wecaninferthattwotypesofhardgoodsexist:

thosethatinvolvesomerawmaterialtransformation,suchasrestaurantmeals,customclothing,andbakedgoods

materialsthatarenottransformedduringtheservicetransaction,suchasgoodsboughtfromaretailstore,automobilepartsinstalledbyanautomotiverepairshop,orreplacementpartsusedinasurgicaltransplantoperation.

Perishableinventoryisfoundinbothmanufacturingandserviceindustries.Hakseveretal.,inServiceManagementandOperations,2nded.,chap.19,usestheexampleofbrochuresforanathleticeventasaperishablegoodsreordermodel.Thekeyconceptisthatbrochuresboughtbutnotsoldfortheeventareworthlessfromtheserviceorganization’sstandpoint.

Distressedgoodsalsoarefoundinbothmanufacturingandservices.Theyincludeproductsthataredamagedorclosetotheirexpirationdatesandcannotbesoldatfullprice.Anexamplewouldbedamagedpaintingsorotherworksofart.Distressedgoodsoftenarefoundatclearancesales.

Givesomeexamplesofserviceinventorythatareconsideredhardgoods:

______________________________________________________________________________________________

______________________________________________________________________________________________

Givesomeexamplesofserviceinventorythatareconsideredperishablegoods:

______________________________________________________________________________________________

______________________________________________________________________________________________

Service Inventory Management and Costs

Likeinventorymanagersinmanufacturing,serviceinventorymanagersaresubjecttothesamevariationsandfluctuationsincustomerdemandfordifferenttypesofproducts.Theyfacethesamechallengeswithrespecttobalancinginventorycostswithcustomerserviceandserviceefficiency.

Themanagementofphysicalinventoryinserviceindustriesissubjecttothesameprinciplesandpoliciesusedinmanufacturingwhendealingwithissuessuchasforecastinganddemandmanagement,ordermanagement,inventoryperformance,andaccuracy.



Aggregate Inventory Policies

References:Arnoldetal.,IntroductiontoMaterialsManagement,7thed.,chap.2,9;George,LeanSixSigma,chap.13,14;BichenoandHolweg,TheLeanToolbox,4thed.,chap.9,17;Simchi‐Levyetal.,DesigningandManagingtheSupplyChain,chap.1,12;Jacobsetal.,ManufacturingPlanningandControlforSupplyChainManagement,APICS/CPIMCertificationEdition(2011),chap.5,16;Garrisonetal.,ManagerialAccounting,12thed.,chap.3,4;Williams,“CostingInventory—YesItCostsMoney,”APICSCPIMDSPReprints,January,2010;EpsteinandBuhovac,2nded.,MakingSustainabilityWork,chap.4.

Introduction



Resolving sales and operational conflicts

Inventory valuation

Performance metrics

Visual 1-17

Explainthescopeofaggregateinventorypoliciescoveredinthissection;differentiatebetweenaggregate‐levelpoliciesandtheitem‐inventorypolicieswewilldiscussinthenextsection.

Resolving Sales and Operational Conflicts


Emergence of Conflicts

During the development of business strategy− Choice of manufacturing strategy: make-to-stock, make-to-

order, assemble-to-order, engineer-to-order − Choice of manufacturing process to support strategy:

intermittent, repetitive, continuous, project

During priority and capacity planning− Customer service levels− Efficient plant operations− Backlog and safety stock decisions

Minimum inventory investment− Low inventory levels− High inventory turns

Visual 1-18

Business Strategy Choices

Facilitateadiscussiononthekindsofconflictsandtradeoffissuesthatariseduringthedevelopmentofbusinessstrategyandpriorityplans.Notethefollowingconflictingobjectives:

sales—highcustomerservicelevels operations—efficientplantoperationandmaterialavailability finance—minimuminventoryinvestment costofmaterials—totallifecyclecost

Agoodexampleisthesettingofsafetystockpolicywherethetradeoffisbetweencustomerserviceandinventoryinvestmentcosts.ThistypeofissuecanbeaddressedatboththeS&OPandmasterschedulinglevel.




Introduction

Thetwotypesofinventorypoliciesareaggregateanditem‐level.

Aggregate‐levelpoliciesareassociatedwiththeimpactofinventorymanagementontheoverallfinancialperformanceofthecompany.

aggregateinventorymanagement—Establishingtheoveralllevel(forexample,dollarlevel)ofinventorydesiredandimplementingcontrolstoachievethisgoal.

─APICSDictionary

InthissectionofSession1,wewillcoverthreetopicsthatrelatetoaggregateinventorypolicy: resolvingsalesandoperationalconflicts inventoryvaluation performancemetrics

Item‐levelpoliciesareassociatedwithmaterialsandoperationsplanningandexecution.Laterinthissection,wewillcovertwoimportantpolicies—lotsizingandsafetystock,bothofwhichconstraintheinventoryplanningfunctionsaddressedinSession2.

Resolving Sales and Operational Conflicts

Business Strategy Choices

Inanymanufacturingorganization,differentfunctionshavedifferentobjectives.Thesedifferentobjectivesemergeandareaddressedasearlyaswhenamanufacturerdecideswhattomakeandsell,andhowtomakeit.Themanufacturermustmakechoicesrelatingto

manufacturingstrategyorproductionenvironment,suchasmake‐to‐stock,make‐to‐order,assemble‐to‐order,engineer‐to‐order,andmasscustomization

manufacturingprocess,suchasintermittent,repetitive,continuous,andproject.

Decisionsonthesechoicesareinfluencedbyproductandprocessdesign,technologyrequirements,levelofexpecteddemand,productvarietyandvolume,geographicscopeofthemarket,lifecycleandenvironmentalcostofpurchasedmaterials,andcustomerexpectationsaboutorderfulfillmentspeedandlocation.Ultimately,thesechoicesanddecisionsneedtobalanceasetofconflictingobjectives:

highcustomerservicelevels—highproductvarietyandquality,andshorterleadtimesandproductionflexibilitytorespondtocustomerorders

efficientplantoperations—longproductionrunstominimizechangeoversandreduceper‐unitproductioncosts;highrawmaterialinventorylevelsatlowcosts

minimuminventoryinvestment—lowlevelsofinventoryandhighinventoryturns,orinventoryturnover.

realcostofmaterials—lowestpurchasepriceversustotallifecycleandenvironmentalcosts



Priority and Capacity Planning Choices

Brieflynotethattheconflictsbetweeninventoryinvestment,customerservice,andproductionefficiencyareaddressedduringmasterplanningactivitiesandS&OP.

Resolving Conflicts


Shorter lead time

Flexible production Lessen

dependence on forecasts

Resolving Conflicts

Synchronize pull production with

customer demand Minimize inventory

investment

Faster throughput

Eliminate wasteful procedures from the production process

Ensure one-piece continuous flow of

material

Empower employees

Constraint buffers to ensure full utilization

Just-in-Time delivery of raw materials to factory point of use

Visual 1-19

Discussresolvingconflictsthroughmeansotherthantheconventionalapproach,inwhichdirecttradeoffsaremadebetweeninventoryinvestmentandcustomerservice,forexample.

Asthediagramshows,anothermethodistochangetheapproachtoproductionandcustomerservice.Thismightincludetakingstepstoincreasethroughputandadoptpullproductiontechniques,asintheleanandTOCphilosophies.

Walktheclassthroughthethoughtprocessinthediagram:Moreproductionflexibilityandfasterthroughputcanleadtobetterresponsivenesstocustomersandlowerinventorylevels.



Cost of Goods Sold (Cost of Sales)

Retailstoresgenerallysellgoodsinthesamephysicalforminwhichtheyareacquired.Sometimesthefreightcostsareaddedtotheacquisitioncoststocreate“landedcosts.”Thisoccurswhenthefreightcostscanbetrackedeasilytotheitembeingbought.Landedcostsarelistedasanassetonthebalancesheetuntiltheitemissold.Theacquisitioncostsbecomethecostofgoodssoldoncetheitemissold,thusreducingprofitintheperiodsold.

Serviceorganizationscarrymaterialinventoriesasinthecaseofplumbers,personal‐serviceorganizations,hospitals,hotels,beautysalons,educationalorganizations,banks,andotherfinancialinstitutions.Examplesofmaterialinventoriesincludethepipesandfittingsofaplumbingcompany,andofficesuppliesusedbypersonalserviceandfinancialinstitutions.Theseareconsumedasoperatingsuppliesandarenottrackedascostofgoodssold.Otherserviceorganizationsprovidetangiblegoodsinadditiontotheservice,suchasautomobilerepaircompaniesthatsellpartswiththeservice.Thesepartsusuallyarecarriedininventoryasanasset,issuedtothejobasrequired,andtrackedascostofgoodssoldwhentheserviceisprovided.

Amanufacturingcompanyconvertsrawmaterialandpurchasedcomponentsintofinishedgoods.Itscostofsalesincludestheconversioncosts,suchaslaborandoverhead,aswellastherawmaterialsandcomponentcostsofthegoodsitsells.Amanufacturerhasthreetypesofinventoryaccounts:materials,WIP,andfinishedgoods.Afterrawmaterialsaretransformedintofinishedproducts,theyremainininventoryuntiltheyaresold.Inamake‐to‐orderenvironment,shipmentusuallyisimmediateuponcompletingproduction.Oncesold,thematerialsaresubtractedfrominventoryandareincludedinacompany’sincomestatement,alongwithlaborandoverheadcosts,asthecostofgoodssold.Notethattheterms“costofgoodssold”and“costofsales”areusedinterchangeably.

Types of Inventory Valuation

ShowninVisual1‐23arevarioustypesofinventoryvaluationmethods.Thedifferentmethodsarenecessarywhenthecostofanitemchangesduringtheaccountingperiod.Thesemethodsproducedifferentinventoryinvestmentvalues.Onceacompanyselectsitsinventoryvaluationmethod,itisdifficultandtime‐consumingtochangetoanothermethod.

Specific identification

Thespecificidentificationmethodkeepstrackoftheunitsfromthebeginninginventoryandtheunitspurchased,resultinginidentificationofthepurchasecostofeachitem.Trackingcanbedonebycodingorserialnumberidentification.Thismethodisbestusedforexpensiveitems,ratherthanforloworfrequentlychangingunitcosts,andcanbeusedtodetermineactualcost.

Average cost

Withtheaveragecostmethod,thecostofgoodssoldandendinginventoryarebasedontheaverageoftheactualcostspaidforeachunitproducedorpurchased.Theaveragecostappliestoalloftheitemsavailableforsaleduringtheperiod.



Continuesummarizingthetypesofinventoryvaluation.First in, first out (FIFO)


Costing Method Example Data Source

Record of purchases

April 100 units $10 each

May 100 units $12 each

June 100 units $14 each

Ending first quarter inventory: 0 units

Second quarter usage: 210 units

Source: CPIM Inventory Management Certification Review Course (APICS 1998).

Visual 1-24

ExplainthatthisvisualincludesdatatobeusedinthesampleFIFOandlastin,firstout(LIFO)calculations.


Costing Method—FIFO Calculation

Date Quantity received

Unit cost ($)

Inventory value ($)

Usage quantity

Issue unit cost ($)

Issue value ($)

April 100 10 1,000 90May 100 12 1,200 10

80June 100 14 1,400 20

10

July starting inventory of 90 at

960

$14= $1,260

Cost of goods sold = $2,340

10 900 10 100 1212

14

240

140

Visual 1-25

WalktheclassthroughtheFIFOcalculationusingthebuildslide.



Standard cost

Withstandardcostsystems,asinglevalueisselectedforaninventoryitemthatisreasonableandoftenbasedonhistoricaloranticipatedcosts.Thedifferencebetweenactualcostsincurredandstandardcoststhenisreportedintheformofavariancefromthestandard.Thistechniqueconsistentlyreportstheinventoryassetandthecostofgoodssoldatthesamevalue.Standardcoststypicallyarereviewedandupdatedannually.

Actual cost

Actualcostscanbeusedwhenthereisameansoftrackingthespecificcostofeachitem,suchassomeformoflotcontrol,toaspecificpurchaseorderorproductionrun.Thismethodisnotusedoftenexceptforcustomitemsoruniqueitemssuchasexpensivejewelry.

Transfer cost and price

Transfercostandpriceareimportantinthetransferofgoodsbetweensistercompaniesordivisions.Althoughmanagementpolicycansetthetransferprice,thenettransfereffectistomovetheinventorycostsfromthesellingdivisiontothebuyingdivision.Theydonotaffectthevaluationofassets,asdoaverage,standard,andactualcost.

First in, first out (FIFO)

TheFIFOmethodassumesthattheoldestitemsininventoryarethefirstonesissuedfrominventory.Inaperiodofincreasingcosts,thistendstokeepthetotalinventoryvalueonthebalancesheetclosetothecurrentmarketvalue,butwouldchargecostofgoodssoldattheolderandlowercostvalues.

Visual1‐25showstheFIFOcalculationbasedonthedatainVisual1‐24.



Last in, first out (LIFO)

BrieflyexplainLIFO:Itassignscostofgoodssoldbasedonthemostrecentcostincurred—incontrasttoFIFO.

Class Problem 1.2: Last In, First Out


Problem 1.2 LIFO


Unit cost ($)

Inventory value ($)

Usage quantity

Issue unit cost ($)

Issue value ($)

April 100 10 1,000 ? ? ?May 100 12 1,200 ? ? ?

? ? ?June 100 14 1,400 ? ? ?

? ? ?Cost of goods sold = ?

July starting inventory of 90 at $____ = ?

Visual 1-26

Havetheclassdoproblem1.2intheparticipantworkbook.ReviewthesolutioninVisual1‐27,whichisabuildslide.

Solution:


Problem 1.2 Solution


Unit cost ($)

Inventory value ($)

Usage quantity

Issue unit cost ($)

Issue value ($)

April 100 10 1,000May 100 12 1,200

June 100 14 1,400

July starting inventory of 90 at

10 100960

12 240

$10 = $900

Cost of goods sold = $2,700

12208010

9010

1414

1260140

Visual 1-27*

Costofgoodssoldis$2,700;Julystartinginventoryof90at$10is$900.

AsktheclasstoexplainwhyusingLIFOinaperiodofrisingpricesresultsinalowertotalinventoryvalueonthebalancesheetthanwithusingFIFO.

Answer:

LIFOkeepstheitemspurchasedearlieratlowercostsonthebalancesheet.Duringatimeofrisingcosts,thisresultsinalowerinventoryvaluationthaniftheFIFOvaluationwereused.Currentprofitswillbelowerbecausethemoreexpensiveitemsarechargedtocostofgoodssold.

Note:Althoughnotcommonlyused,theLIFOmethodisusedinthegroceriesindustry,amongothers.Itisnotanacceptedaccountingmethodinsomecountries.



LIFO (last in, first out)

TheLIFOmethodassumesthatthelatestitemsininventoryarethefirstonesbeingissuedtoproductionorsales.Thismethodassignscostofgoodssoldbasedonthemostrecentcostincurred.Inaperiodofrisingcosts,thiswouldtendtounderstatethetotalinventoryvalueonthebalancesheet.However,itwouldchargecostofgoodssoldatvaluesclosetothecurrentmarketvalue.Itshouldbenotedthatthisisstrictlyanaccountingmethodforvaluinginventoryandisnotnecessarilybasedonthephysicalmovementofinventory.

Class Problem 1.2: Last In, First Out

CalculatetheLIFOvaluationforthisinventory:


Unit cost ($)

Inventory value ($)

Usage quantity

Issue unit cost ($)

Issue value ($)

April 100 10 1,000May 100 12 1,200

June 100 14 1,400

Cost of goods sold = July starting inventory of 90 at $____ =

Onceyouhavecalculatedtheanswer,explainwhythiswouldresultinalowertotalinventoryvalueonthebalancesheetthanwithusingFIFO.

______________________________________________________________________________________________

______________________________________________________________________________________________



Inventory Performance Metrics

Aggregate Inventory Metrics


Aggregate Inventory Metrics

Inventory turns

Days of supply

Cash-to-cash cycle

Customer service

Visual 1-28

Explaintheoverallbusiness‐levelperspectiveofaggregateinventorymetrics.Introducethefourmetricswewillreview.

Inventory turns


Inventory Turns

A measure of how effectively inventory is being used

Example:Annual cost of goods sold = $1,000,000Average inventory = $500,000

Annual cost of goods soldAverage inventory in dollarsInventory turns =

$1,000,000$500,000Inventory turns = = 2

Note: “Cost of goods sold” is synonymous with “cost of sales.”

Visual 1-29

Brieflywalkthoughthecalculationofinventoryturns.

Askwhattheinventoryturnsratiowouldbeinanothercompanythatgeneratesthesamelevelofannualsaleswithanaverageinventoryof$20,000.Askhowlongitwilltake,onaverage,torecovercostofinventory.

Answer:

Theratiowouldbe$1,000,000to$20,000,or50.Itwouldtakeaboutaweekonaveragetorecoverinventorycosts.Thisisbasedontheturnsbeingalmost52,orweekly.

Giveexamplesoftypicalinventoryturns.Simchi‐Levyetal—inDesigningandManagingtheSupplyChain,3rded.,p.57—givethefollowingUSmanufacturingmedianaggregateturnsin2001:

electroniccomputers:7.0 papermills:8.0 industrialchemicals:6.4 bakeryproducts:23.0 bookpublishingandprinting:2.5 householdaudioandvideo:3.9



Order quantities in production and service environments

Orderquantitydecisionsarebasedonmanydifferentmethods.Decidinghowmuchtoorderatatimeoftenisdependentonthemanufacturingenvironmentacompanyoperateswithin,aswellastheproductionsystemsandmethodsitemploys.Whencompaniesuseanenterpriseresourcesplanning(ERP)system,atime‐phasedrecordiscreatedthatpermitsdevelopingdiscretelotsizessupportingthelot‐for‐lot(L4L)andPOQmethods.

Forprojectandmake‐to‐ordermanufacturers,themajorityofcustomerorderswillbepurchasedormanufacturedforeachorderasthescheduledictates.Toaccountforthecostsofeachorderandtoeliminateorminimizeresiduals,itemsareobtainedonlyforeachorder.Thismaterialisallocatedtotheparticularorderwhenitreachesinventoryandisissuedagainstthatordernumber.ThesameitemmaybesubjecttoL4Lorderingforcertaintypesoforders,andtodifferentorderingtechniquesforotherorders.Anexampleisabusinessthatperformscontractworkforthegovernmentandusesthesamematerialsinitscommercialbusiness.

Inleanandrepetitiveenvironments,theL4Lmethodmakessensebecausethethemeistoonlyproducewhatisneeded.Inlean,overproductionisconsideredoneoftheeightwastesoftheToyotaProductionSystem.Customersdeterminetherateofproduction,whichisconvertedtoatakttimethatsetsthepaceofproduction.Theidealflowpatternisaone‐pieceflowandtheideallotsizeisone.Smallerlotssimplymeanlowerinventorycosts.Whentheidealone‐pieceflowcannotbeobtained,inventorybufferingisestablishedbetweenprocesses.Inventoryinvestmentinthisenvironmentisminimizedtowhatisneededtosupportthecontinuousflowofproducttothecustomer.

Orderquantitydecisionsalsoarefactorsinservicesparalleltothoseinmanufacturing,especiallyinpurchasing.Theenvironmentinwhichtheyareemployedcandifferslightlyintermsofstoragecapacity,shelflife,replenishmentcycles,anddemandpatterns.



Costs associated with order quantity decisions


Order Quantity-Cost Relationship

0

200

400

600

800

1000

1200

1400

1600

0 200 400 600 800 1000 1200Order quantity

Cos

t in

dolla

rs

Ordering costs

Carrying costs

Total cost

EOQ

Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by Permission of Pearson Education

Total cost = carrying costs + ordering costs

Visual 1-38

Discusstheorderquantitycostrelationshiptointroduceinventorycarryingcostandorderingcost.

Carryingcosthasalinearrelationshiptoorderquantity. Orderingcostdecreasesatageometricrate. Resultingtotalcostcurveislowestatapointcalledtheeconomicorderquantity(EOQ),

whichwewilldiscusslater.Inventory carrying cost


Inventory Carrying Cost

Opportunity (capital) cost

Storage costs− Space, workers, equipment− Counting and handling

Risk costs− Obsolescence− Damage and deterioration− Lost or stolen goods− Insurance

Visual 1-39

Explainthethreecategoriesofcostsassociatedwithcarryingorholdinginventory.Notethatopportunitycost,orcapitalcost,willbereviewedseparately.



Opportunity cost

Typicallythelargestcomponentofcarryingcost,opportunitycostoftenisreferredtoasacompany’scostofcapital.Thecostofcapitalrepresentstherateofreturnthecompanycouldearnfromitsbestinvestmentopportunities.Bytyingupmoneyininventory,regardlessofwhetherthefundsareborrowedornot,thecompanyisforgoingthisalternativeinvestment.

Inventorycarryingcostusuallyisexpressedasapercentageofaverageinventoryforachosenperiod.Ittypicallyisdeterminedbytheaccountingdepartmentandmaydifferbyinventoryaccountingclassification.

Ordering cost

Orderingcostsapplytopurchaseordersandmanufacturingorders,andconsistofthefollowing:

coststoprepareandplaceanordertosuppliersorthefactory setupcostsforinternalmanufacturing costsofreceiving,handling,andinspection

Thecoststoreplenishinventorystocksdifferbetweenordersplacedtooutsidesuppliersandordersplacedtothefactory.Ineithercase,thecostisexpressedastheamounttoplaceasingleorderinabsolutecurrencyvalues.Costelementsmayincludetheclericalcostsoforderrequisition,release,monitoring,manufacturingsetup,andmaterialshandlingandinspectionuponreceipt.

Whataresomeotherorderingcosts?

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________



Lot-Sizing Techniques

EOQ


Economic Order Quantity

0

200

400

600

800

1000

1200

1400

1600

0 200 400 600 800 1000 1200Order quantity

Cos

t in

dolla

rs

Ordering costs

Carrying costs

Total cost

EOQ

Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by Permission of Pearson Education

Total cost = carrying costs + ordering costs

Visual 1-42

ReviewtheeffectoftherelationshipsbetweenorderingcostsandcarryingcostsondeterminingtheEOQ.

Note:Orderingcostsaresometimesreferredtoaspreparationcosts.OrderingcostisanAPICSDictionarytermandiswidelyusedintextbooks.


Economic Order Quantity

Demand is relatively constant and known.

Item is produced or purchased in lots or batches, not individually.

Ordering and inventory carrying costs are constant and known.

Replenishment occurs all at once.

Visual 1-43

ExplaintheassumptionsunderlyingtheEOQ.

AskwhyitisacceptabletoselectanorderquantitythatisslightlyhigherorlowerthantheactualEOQ.

Answer:

BecausethecurveisshallowattheEOQpoint,anorderquantityslightlyhigherorlowerthantheEOQnormallywillnotmakemuchdifference.

AsktheclasswhenitwouldbeappropriateandinappropriatetousetheEOQmethodinmanufacturingorservices.

Answer:

Itisappropriatewhendemandisstableandcontinuous.

Answer:

Itisinappropriateinmake‐to‐order,wherethecustomerdeterminesthequantity;whenshelflifeisshort;andwhenreplenishmentisnotinbatchesanddoesnotoccurallatonce.



Lot-Sizing Techniques

Inanidealworld,acustomercouldalwaysorderandreceivetheexactquantitydesired.Inreality,thisisseldompossibleoreconomicallyfeasibleforthesupplierorthecustomer.Asaresult,productsoftenareorderedandmadeinmultiplescalledlots.

AsshowninVisual1‐42,thecostofcarryinginventoryrisesataconstantratewithorderorlotsize,whiletheorderingcostdecreaseswithincreasesinlotsizeatageometricrate.Lot‐sizingtechniquesfallintogeneralcategoriesofeconomic,fixed,period,L4L,ordernperiods,andPOQ.

EOQ

TheEOQisbasedonthefollowingassumptions:

Demandisrelativelyconstantandknown. Theitemisproducedorpurchasedinlotsorbatches,notcontinuously. Orderingandinventorycarryingcostsareconstantandknown. Replenishmentoccursallatonce.

Onewaytodevelopanannualusageistodetermineanaveragemonthlyusagerateandmultiplyby12.Themonthlyratemustbefactoredsothatshortmonths,potentiallybecauseofshutdown,areequalizedwithlongmonths;forexample,Marchhas22productivedays.

Theoretically,theoptimumorderquantityisthequantityindicatedonthehorizontalaxisbelowwherethetwocostcurvesintersectinVisual1‐42,whichalsocoincideswiththepointatwhichthetotalcostcurveisataminimum.Thedashedverticallineintersectswiththispoint,whichiscalledtheEOQ.

Thegraphicshowsthattheorderingcostdecreasesatageometricratewhilethecarryingcostincreasesataconstantrate.Inaddition,thelowestpointisthecenteroftheshallowestareaonthetotalcostcurveandisnotmuchdifferentfromawiderangeoforderquantitiesaroundit.

WhyisitacceptabletoselectanorderquantitythatisslightlyhigherorlowerthantheactualEOQ?

______________________________________________________________________________________________

______________________________________________________________________________________________

WhenwoulditbeappropriateandinappropriatetousetheEOQmethodinmanufacturingorservices?

______________________________________________________________________________________________

______________________________________________________________________________________________



FOQ


Fixed Order Quantity

Use usually is dictated by some condition related to shipping, handling, or line replenishment.

Regardless of demand variability, suppliers receive orders with consistent order quantities, but at a variable frequency.

Quantity may be determined very informally, or it might be based on some form of calculation, such as EOQ.

It is simple to use and relies on judgment and past history.

It leads to inventory buildup.

Visual Visual 1-44

ExplainthatFOQspecifiesastandardnumberofunitstobeordered.Theadvantageisthatitiseasytounderstand.Pointoutthatorderquantitiesarefixed,butorderfrequencycanvary.


Fixed Order Quantity Grid


Order qty.: 500 FixedSafety stock: 80Allocated qty.: 0Lead time: 2 PeriodsLow-level code: 0

Technique

*For Period 3: 40 to satisfy demand and 80 to maintain safety stock **For Period 5: 10 to maintain safety stock

Periods1 2 3 4 5 6 7 8

Gross requirements 130 160 120 260 130 120 185 115

Scheduled receiptsProjected available 370 240 80 460 200 570 450 265 150

Net requirements 120 10

Planned order receipts 500 500

Planned order releases 500 500

Visual 1-45

Note:TheMRPgridwillbefullyexplainedinSession4.

ExplainthatFOQusedinMRPPeriod3hasaneedfor80unitstoreplenishsafetystockand40tosatisfygrossrequirements.

Period5hasaneedtoreplenish10unitsofsafetystock.

Inbothcases,theorderquantityisfixedat500.

Note:Itiswiseforanyorderquantity,whetherfixed,EOQ,orother,tobereviewedperiodicallytodetermineanychangesrequiredforoptimuminventoryandorderinglevels.

AsktheclassiftheFOQinthevisualseemsappropriate.Whyorwhynot?

Answer:

No.Theitembeingplannedisanenditem.InanMRPenvironment,FOQwouldnotbeappropriateatanend‐itemlevelbecauseoftherelativelyhighlevelsoffinishedgoodsinventory(projectedavailable)shown.ItwouldbeappropriateifdemandwerestableandconsistentandiftheFOQwereequaltothatdemand.



L4L

TheL4Lruleischaracterizedbythefollowing:

Itemsareorderedfromsuppliersandthefactoryintheamountsnecessary,whentheyareneeded.

Orderquantitieschangeasrequirementschange. Nounusedlot‐sizeinventoryiscreated.ExamplesoftheuseofL4Lareasfollows:

inplanningandfulfillingtime‐phasedrequirementsfordependentdemanditems,asinMRPandforindependentitemsinmasterproductionscheduling

whenorderingcomponents,suchasAitemsthatareexpensivetoinventoryfromeithersuppliersorthefactory

perishableitems inaleanenvironment,whereinventoryisconsideredawaste

WithaL4Ldecisionrule,youorderexactlywhatyouneed,whenyouneedit.Ittakesintoaccountbothquantityandtimephasingandavoidsinventorybuildup.ItisaprocessthatplansorderreleasesforthepurchaseormanufactureofenditemsbasedonactualrequirementsratherthananEOQorFOQ.

Order n periods

UnlikeL4LandFOQ,inthismethod,theorderquantityisbasedonanestimateofwhatitwillrequiretosatisfydemandforacertainnumber(n)ofperiods.Ifinventorymanagementwantstoorderaquantitytocoverthreeweeksofdemand,itcanmakeanestimate,basedonjudgmentorforecast,ofthequantityequivalenttothreeweeks’demand;oritcanuseamoresystematiccalculation,basedonEOQ,calledthePOQsystem.



POQ


Period Order Quantity

has a fixed number of periods between orders

bases order quantities on forecast for the number of periods.

consolidates periods of discrete demand to reduce order costs

starts with an EOQ calculation.

Visual 1-48

ExplainthatthePOQstartswiththeEOQcalculation.Ithasafixednumberofperiods—days,weeksandsoon—betweendeliveries,buttheorderquantitiesarebasedonnetrequirementsfortheconsolidatedperiods.


Period Order Quantity: Before Order

Source: CPIM Inventory Management Certification Review Course (APICS, 1998).

1 2 43 765Periods

130 160 120 260 130 120 185

8

Order qty.: POQEOQ = 650

Safety stock: 80 FixedAllocated qty.: 0Lead time: 2 PeriodsLow-level code: 0

Technique

115

370 80 ? ?240 ?

4153650=

usage period AverageEOQ=POQ

120 260 130 120

? ? ?

?

Gross requirementsScheduled receiptsProjected availableNet requirementsPlanned order receiptsPlanned order releases

?

(when rounded)

Visual 1-49

IntroducethesamegridweusedtoillustrateFOQ.RatherthanusingFOQtomeetnetrequirements,wewillusetheEOQof650shownintheplanningdataattheupper‐leftofthevisualgiven.TheEOQwilldeterminethenumberofperiodsbetweenorders,whichthenenablesustodeterminethePOQ.Notethesafetystockof80isaccountedforinthenetrequirements.

PointoutonthevisualthatyouneedtodividetheEOQbytheaverageperiodusagefortheeight‐periodplanninghorizontocalculatethePOQorderperiod.Seethenextvisualforthecompletecalculation.

NotethatVisual1‐49isaviewofthedatabeforeanorderisdetermined.



POQ

ThePOQstartswithanEOQcalculation.ContrarytoFOQ,theorderquantitymayvary,buttheintervalbetweenordersremainsfixed.

InPOQ,thelotsizeisequaltothenetrequirementsforagivennumberofperiods—forexample,fourdaysoroneweek.Thenumberofperiodsstaysthesame,buttheorderquantityvariesbasedonactualrequirements.

OnewaytolookatPOQisthatitconsolidatestheL4Lrequirementsforanumberofperiodstoreduceorderingandhandlingcosts.



Calculation of number of periods and net requirements


Period Order Quantity Calculation

Determine EOQ

Forecast average period usage for the planning horizon

Divide EOQ by average period usage to determine POQ period

Calculate net requirements for POQ period (4 periods)

650

12208

153

650

1534

120 + 260 +130 + 120 = 630

=

=

Visual 1-50

Continueexplainingthecalculation:

AgainassumethattheEOQis650unitspertheformula. Averageperiodusage,inthisexample,isthesumoftheforecastdemand,orgross

requirements,overeightperiods(1,220)dividedbythenumberofperiods(8)=153. ThePOQperiodisEOQ(650)dividedby153=4

Toshowthecalculationofthenetrequirementforthenextfourperiods,seethenextvisual.


Period Order Quantity: After Order

Source: CPIM Inventory Management Certification Review Course (APICS, 1998).

Order qty.: POQEOQ = 650

Safety stock: 80 FixedAllocated qty.: 0Lead time: 2 PeriodsLow-level code: 0

Technique

Net requirements for POQ period (4 periods) = 120 + 260 +130 + 120 = 630

Gross requirements1 2 43 765

Periods

130 160 120 260 130 120 185

8115

370 80 330 200240 590

630

630

80 ? ?

Scheduled receiptsProjected availableNet requirementsPlanned order receiptsPlanned order releases

185 115

?

120 260 130 120

Visual 1-51

Thisvisualisaviewofthedataaftertheorderisdetermined.Pointoutthatinthisexample,POQusesthesumofnetrequirementsforfoursubsequentperiodsstartinginthefirstperiod,Period3,thathasanetrequirement(120+260+130+120=630).

Afterreceiptsareapplied,netrequirementsforPeriods4,5,and6arezero.ThenextorderquantitycannotbecalculateduntiltotalnetrequirementsareknownforPeriod7through10.

Note:Netrequirementsforperiods3,4,5,and6areshownforinstructionalpurposes,butwouldnotappearinaproductionMRPsystem.

Comparison of FOQ and POQ


Comparison of FOQ and POQ

FOQ Method

POQ Method

Periods

1 2 3 4 5 6 7 8


Scheduled receipts

Projected available 370 240 80 460 200 570 450 265 150

Net requirements 120 10

Planned order receipts 500 500

Planned order releases 500 500

Periods

1 2 3 4 5 6 7 8


Scheduled receipts

Projected available 370 240 80 590 330 200 80 ? ?

Net requirements 120 260 130 120 185 115

Planned order receipts 630 ?

Planned order releases 630

Visual 1-52

ComparetheresultsofFOQversusPOQbasedoninventorylevelsasdiscussedontheparticipantworkbookpage.NotealsothecomparisontoL4L.



Comparison of Lot-Size Techniques

Class Problem 1.3: Lot-Size Techniques

Ingroups,discusshowtheselot‐sizemethodscompareinrelationtotheefficientresponsetodiscreteperioddemand—forexample,netrequirementsshowninmaterialplanningtimebucketsforenditemsandcomponents—andtheirrelativeaffectsoninventoryinvestment.

Thenassignrelativerankings—high,medium,orlow—tothefivelot‐sizetechniquesinthetablebelow.Bepreparedtopresentyourfindingsandtocommentonothergroups’findings.

TechniqueEfficient response to discrete period

demand

Impact on inventory

investment

Five lot-size techniques: FOQ, EOQ, lot-for-lot, order n, and POQ



Safety Stock

Definition of Safety Stock


Definition of Safety Stock

safety stock—1) In general, a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply. 2) In the context of master production scheduling, the additional inventory and capacity planned as protection against forecast errors and short-term changes in the backlog. Syn: buffer stock, reserve stock.

—APICS Dictionary

Visual 1-55

Note:Safetystockisapplicableinbothsupplyanddemandsituations—forbothfinishedgoodsandrawmaterials.RefertotheAPICSDictionary.

Discussthetypesofuncertaintythatmayrequirecompaniestocarrysafetystock.Leadparticipantstoconcludethattheseuncertaintiescanexistforbothfinishedgoodsandrawmaterial.

Explaintheuseofsafetyleadtimeinmanagingrawmaterials—forexample,twoweeks.

Purpose of Safety Stock


Purpose of Safety Stock

Source: Adapted from CPIM Inventory Management Certification Review Course (APICS 1998).

LT

ReorderpointQ

uant

ity

c abTime

LT

Point a: Zero inventory level is reached after replenishment; no stockout

Point b: Zero inventory level is reached as replenishment occurs; no stockout

Point c: Zero inventory level is reached before replenishment; stockout

100

0

Visual 1-56

Walkthroughthestockoutscenariointhisorderpointsituation.OrderpointbasicsarecoveredintheAPICSBasicsofSupplyChainManagementcourseandcanbereviewedinIntroductiontoMaterialsManagement,Arnoldetal.,7thed.,chap.11.Theorderpointdiagramhereisbasedonorderpoint(OP)=demandduringleadtime(DDLT)(nosafetystock).

Notethattheorderpointis100units,whichistheestimateddemandduringleadtime.Withcaseb,theactualuseofinventoryoccursatarateequaltothedemandduringleadtime(100),soreplenishmentoccursjustasinventoryreaches0.However,casecshowsthat,withoutsafetystock,afasteruseofinventoryfromthereorderpoint(100)to0causesastockoutbeforereplenishmentoccurs.CaseashowsthattheDDLTwaslessthan100andtherewasaninventorybalanceatreplenishment.



Time period safety stock

Atimeperiodsafetystockprovidesanevenamountofsafetystock,equaltotheestimatedusage,overadesignatedtimeframe.Theperiodcanbesetasdays,weeks,ormonths.Safetystockvariesdirectlywiththechangeindependentorindependentdemand,asapplicable.Thisdiffersfromstatistical‐basedsafetystockinthattheamountisnotbasedondeviationfromdemand.Instead,whendemandvariesinfutureperiods,suchaswithseasonalproducts,thetimeperiodsafetystockvariestoreflectthedynamicquantity.

Asanexample,low‐costindependentdemandC‐classitemsonlyarereviewedfororderingonamonthlybasis.Providingaone‐monthtimeperiodofsafetystockprotectsagainstthesituationinwhichanend‐of‐monthreviewdoesnotindicatereorder,butonthenextday,theavailablebalanceistakenbelowthereorderpoint.Withnoformalreviewplanneduntiltheendofthemonth,thesafetystockquantityprovidesabufferforthisdelay.

Timeperiodsafetystockisprojectedbasedonactualdemand,forecasteddemand,oracombination.Inventorysystemssetupusingamonthlyforecasttodeterminedemandmultiplytheforecastedmonthlyusagebythenumberoftimeperiods.

Timeperiodsafetystock=forecastmonthlyusage×safetystocktimeperiod

Example:

Safetystocktimeperiod=2weeks=0.5months

Forecastmonthlyusage,basedonfourweeks=50units

Timeperiodsafetystock=50×0.5=25units

Thistechniquealsoisusefulforitemswithfrequent(dailyorweekly)deliveries.Thetimeperiodsafetystockprovidesabufferagainstdelaysinreceiptsthatwouldotherwiseshutdownproductionordelayshipmentstocustomers.

Notethatifthetimeperiodforsafetystockisadailyfigure,theforecastshouldbenormalizedtocompensateformonthsdifferinginthenumberofworkdays.



Fixed safety stock


Fixed Safety Stock

A new part is being phased in.

A part is being phased out.

Visual 1-62

Explainfixedsafetystockandtwocasesinwhichitapplies.Explainthatsoftwaresystemsmayrequiremanualinterventionandobservationofstocklevelsduringproductphase‐out.

Approaches to Safety Stock



Part type or situation Statistical Time period Fixed

Finished goods (independent demand)

Effective if demand is large volume and stable

Could be used; result might be a higher safety stock level than necessary

Could be used; result might be a higher safety stock level than necessary

Raw materials (dependent demand)

Not normally used

Parts with fluctuating demand; safety stock can increase or decrease as demand changes

Parts requiring special oversight: parts being phased in or out

Visual 1-63

Explainthemethodsusedtodeterminesafetystockforfinishedgoodsandrawmaterials.Safetystockprotectsagainstfluctuationinbothdemandandsupply.

Askwhatinferencescanbedrawnabouttheuseofsafetystockforindependentanddependentdemanditems.

Answer:

Statisticalsafetystockisbestusedforindependentdemand.

Timeperiodcanbeusedforlow‐costindependentC‐classitemsandfordependentdemanditems.

Fixedsafetystockcanbeusedforindependentdemanditemsinspecialcircumstancesanddependentdemandparts.

Explainthatduringperiodsofexpectedgradualgrowthorgradualdecline,fixedsafetystockmaynotbetheidealmethodforphasingoutproducts.Assumingthatthesystemislookingatthefutureandthepast,asystem‐generatedtime‐basedsafetystockwouldbepreferred.Incertaincircumstances,anorganizationmaywishtomaintainasafetystocklevelandwillcontinuetoorderpartsduringaproductphase‐out.Whenanend‐of‐lifesupportdateisknown,afixedanddiminishingsafetystocktargetcanbesettoforcestocktozero,andsafetystockreplenishmentwillcease.



Fixed safety stock

Fixedsafetystockenablestheplanningofasafetystockquantityforpartsthatrequirespecialoversight.Thefixedsafetystocktechniquegenerallyisappliedwhenthefollowingsituationsexist:

Anewpartisbeingphasedin. Apartisbeingphasedout.

Inthefirstsituation,itisnecessaryfortheplannertoobtainadequatehistoryonanewpartbeforecalculatingastatisticalsafetystock.Untilthattime,theplannercanestablishafixedsafetystockhighenoughtoprovidethetargetservicelevel.

Thesecondcaserequirestheplannertosetthefixedsafetystocktozeroandmanuallycheckusageagainststockbalances.Otherwise,iftheproducthasalongusagehistory,theapplicationsoftwaremaytrytocalculateasafetystockandtriggerreplenishment.Manualinterventionandobservationofstocklevelsmaybenecessaryduringproductphase‐out.


ThetableinVisual1‐63suggestsanapproachtosettingsafetystocklevelsfordifferenttypesofinventoryusingdifferentsafetystockmethods.

Whatinferencescanbedrawnabouttheuseofsafetystockforindependentanddependentdemanditems?

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________



Wrap-Up and Homework


Learning Objectives

Recognize types and classifications of inventories− Recognize the major types and sub-classifications of inventory. − Explain how they affect inventory valuation and investment.− Compare the types and roles of inventory management and

policies in manufacturing and service industries.

Understand aggregate inventory policies− Explain how aggregate inventory policy interrelates with a

company’s customer service and operations efficiency objectives.

− Describe the role of inventory valuation methods.− Explain the significance of aggregate and item-inventory

performance metrics.

Visual 1-65


Learning Objectives (cont.)

Understand item inventory policies− Describe how lot-sizing and safety stock policies

support aggregate level policies in manufacturing and service industries.

− Differentiate among the major lot-sizing methods.− Explain the use of safety stock in managing inventory.

Visual 1-66

Reviewtheobjectiveswiththeclass.

Vocabulary Check


Vocabulary Check

Objective: Reinforce terminology used in this session.

Complete the activity in class, individually or in pairs, or as homework.

Visual 1-67

Haveparticipantstake10minutestodothevocabularycheckinclass,eitherindividuallyorinpairs.Iftimeisnotavailable,participantscandoitashomework.

Solution:


Vocabulary Check Solution

1. d

2. k

3. i

4. a

5. l

6. j

7. c

8. f

9. h

10. g

11. b

12. e

Visual 1-68* 1.d 5.l 9.h2.k 6.j 10.g3.i 7.c 11.b4.a 8.f 12.e

Session 2: Inventory Planning Participant Workbook Page


Uses of order point

Theusesoftheorderpointmethodareasfollows:

primarilyforindependentdemanditems,suchasfinishedgoodsandMRO fordependentdemanditemssuchasrawmaterialswhendemandisstableand

continuous notforhigh‐valueclassAitemsbecauseofinventorycosts forlimitinglotsizesbecauseoftruckloadandstoragecapacityatthereceiving

warehouse



Periodic Review System


Periodic Review System

CharacteristicPeriodic

review systemOrder point

system

Interval between orders

Fixed and constant

Varies depending on actual usage

Order quantity Varies by period Usually fixed

Periodic Review Versus Order Point System

The periodic review system also is called the fixed reorder cycle inventory model and the fixed-interval order system.

Visual 2-11

Animportantpointtomakeisthattheperiodicreviewsystemistheoppositeoftheorderpointsystemintermsoforderquantityandorderinterval.Italsoisknownasafixedintervalordersystem.

Explainthataperiodicreviewatregularintervalscanbebasedonaperpetualinventoryrecordorvisualreview.

Logic


Periodic Review

Target level (T)

Q3Q2Q1

Un

its

in s

tock

Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by permission of Pearson Education

Visual 2-12

Walkthroughthelogicoftheperiodicreviewsystem(PRS)showninthevisualtoexplainthatordersareplacedatfixedintervalsandthatorderquantityvaries.Thereviewintervalsareequal;quantitiesQ1,Q2,andQ3arenotnecessarilythesame.Alsopointoutthedemandduringleadtimeandtheon‐handinventoryatthetimeoftheorder.

Remindtheclassthatwhenanorderisplaced,thequantityonhandplusthequantityorderedmustbesufficienttolastuntilthenextshipmentarrives.

Thequantityequaltothedemandduringleadtimeplusthedemandduringthereviewperiodplussafetystockiscalledtarget(ormaximum)inventorylevel.

Formoreperiodicreviewcalculations,whichwereintroducedintheBasicsofSupplyChainManagement(BSCM)CPIMreviewcourse,referparticipantstoIntroductiontoMaterialsManagement,Arnoldetal.,7thed.



Application

ThePRSisadvantageousinthefollowingsituations:

Receivingdeliveriesofmanydifferentitemsfromonesourceatonetimeiseconomical. Trackingandpostingtransactionsofmanysmallissuesfrominventoryisexpensive. Itissafetoassumethatsufficientinventoryhasbeenorderedtolastuntilthenext

reviewinterval. Itemshavealimitedshelflife,suchasfarmproduce,chemicals,andfoodproducts. Orderingcostsarelow;orderingonceaweekormonthisnotacostissue.

WhyisthePRSoftenusedinretailandwarehouselocations?

__________________________________________________________________________________________________

__________________________________________________________________________________________________

Vendor-Managed and Consignment Inventory

VMIandconsignmentinventorysystemsareusedtoreplenishbothindependentanddependentdemand.Theyarenotinthesamecategoryastheorderreviewmethodswehavejustcovered.Instead,suppliersinvolvedinVMIandconsignmentinventoryapplysomeofthesetechniquesinplanningandmanaginginventoriesfortheircustomers.

Vendor-managed inventory

Vendor‐managedinventory(VMI)differsfromconsignmentintheserespects:

Thecustomersharesvisibilityofitsdemandwiththesupplier,intermsofpromotionsandpoint‐of‐salesrates,throughvariousinformation‐sharingtechnologies.

Thecustomer’sinformationisaninputtotheplanningprocessusedbythesupplier,whichassumestheentireroleforplanningandreplenishment.

Ownershipoftheitemisnegotiableanddependsonthebusinessrequirementsandcontractualagreementsbetweenthetwoparties.

Consignment inventory

Consignmentinventoryoccurswhenasupplierprovidesacustomerwithinventoryforusebutretainsownershipoftheproductuntilitisusedorsold.Thesupplierorthecustomerperiodicallyinventoriestheconsignedproductand,asaresult,thesupplierbillsthecustomerandreplenishestheconsignedinventory.Analternativeisthatthecustomerpaysperiodicallybasedonusage.



Reverse Logistics Planning


Reverse logistics planning

addresses reverse flow of products and components

accepts and returns goods for repair, remanufacture, and recycling of products and components

recognizes similarities and differences between “repair and remanufacture” and normal manufacturing

assumes that independent and dependent demand planning for repair and remanufacturing is similar to manufacturing planning and control principles.

Visual 2-14

Explainthatreverselogisticsisasetofsupplychainmanagementactivitiesinvolvedinthereturn,repair,remanufacture,andrecyclingofproductsandcomponents.

Thefocusinthissectiononreverselogisticsisonthereturnofproductsandcomponentsforrepairandremanufacture.Seethenotebelowforthekeyreferenceforthissection.

Ofspecificinterestishowtheindependentanddemandplanningenvironmentsforrepairandremanufacturecanbesimilartoanddifferentfromnormalmanufacturing.

Similaritiesincludetheuseofforecasting,advancedplanning,materialrequirementsplanning,limitedcapacityconditions,BOMs,routingfiles,inventorystatusreports,andworkcentercapacity.

Akeylearningpointisthatthematerial,labor,andmachinecapacityrequirements,aswellasthesetsofoperationsneededforrepairandremanufactureprocesses,areprobabilistic.

Unlikenormalmanufacturing,material,labor,machinecapacity,andoperationsarenotstandardforthereturnedenditemanditscomponents,butaredependentoninspectionofthereturneditemtodeterminetheextentorrepairofremanufacturerequired.

TheauthorsofMRPIIforRemanufacturingandRepair,citedbelow,concludethatrepairandremanufactureoverallhavemoresimilaritiestothandifferencesfromtheprinciplesofMPCapplicabletonormalmanufacturing.

Note:Forreverselogisticsandreturngoodshandling,seeDemmyetal.,MRPIIforRemanufacturingandRepair(CPIMDSPReprints2010),pp.34–39.



Impact of Lean Production Concepts

Thepurposeofthissectionisnottoteachthebasicsofleanmanufacturing,butrathertofocusontheireffectoninventorylevelsandtheirimplicationsforDSP.

Tighter Coupling of Production Activities

Leanmanufacturingisknownforitsemphasisoneliminatingwaste,andonewayitaccomplishesthisisthroughthereductionofproductionleadtime.InLeanSixSigma,MichaelGeorgeobservesthatlongleadtimes

causehighvariationinleadtime createextracostsofovertime,scrap,rework,andcapitalinvestedininventoryand

equipment createhiddencosts:manufacturingoverheadcausedbyexcessiveplantsize,expeditors,

stockrooms,andpersonnel reducetherateofqualityimprovements:Qualityproblemsaredetectedafterlarge

stockpilesofWIPandfinishedgoodshaveaccumulated.Problemsdetectedatthislatestagearemorelikelytoleadtoobsolescenceandlowersalesmargins.

Shorter Production Lead Times

Principles

Basedontheobservationsabove,Georgeinfersthreeprinciplesforshorteningleadtime:

PutamaximumcapontheamountofWIPtopredictleadtime. MaintainsupplychainvelocitybysustaininganevenflowofWIPandensuringthatWIP

isrelatedtocurrentdemand. Releasematerialintothelineinamountsconsistentwithappropriatebatchsizesto

preventexcessWIP.



Implementing the principles


Pull System

Each workstation makes only enough to replenish what the next workstation is using.

One process replenishes only what the next process is using.

One factory produces only what the distributor or customer uses (the pull).

Visual 2-27

Someauthorsrefertothepullsystemasakanbansystem.Aworkstationproducespartsonlywhenadownstreamworkstationsignalstheneedforit.Eachworkstationwithdrawsonlythepartsorassembliesitneedsatthetimefromanupstreamworkstation,basedonwhattheworkstationneedstomakeforitsimmediatecustomer.Partsinventorymaybemanagedwithasupermarketapproachtoimprovepicking.


Strategic buffer

must be adequate to service demand during manufacturing lead time

needs to account for the cycle time interval before manufacturing can shift from making one product to another

needs to account for transportation time, safety stock, and seasonality and promotions

caps WIP in the system and allows managers to reduce lead times by reducing setup and batch size.

Visual 2-28

ExplainthatGeorgeusesthetermcycletimeintervaltodescribethetimeittakesfortheproductionlinetoresumerunningaproductafteritchangesovertomakingotherproducts.


Process flexibility

can swiftly change volume or mix

requires the following:− flexible machinery − cross-trained employees− quick changeovers.

Visual 2-29

Brieflyreviewtheimportanceofflexibilityofmachineryandworkersinleanmanufacturing,asbothaffectthefactory’sabilitytoproduceinsmallerbatchesinordertorespondquicklytocustomerdemandandlessenthedependenceonforecasts.



Implementing the principles

OrganizationscantakethefollowingstepstoreduceWIPandthereforeleadtime:

Useapullsystem. Thefactoryproducesonlywhatthecustomerordistributoruses,whichcreatesthe

pull. Eachworkstationmakesonlyenoughtoreplenishwhatthenextworkstationis

using. Eachprocessreplenishesonlywhatthenextprocessisusing.

Inotherwords,workstationAmakesonlyenoughtoreplenishwhatthenextworkstation(B)isusing.IfBtakesanassemblyfromtheinventorybufferatA,Abeginstoworkonreplacingtheassemblybasedonakanbanorsignal,suchasanemptybin.Partsinventorymaybemanagedwithasupermarketapproach,wherepartsareeasytotakeoffofashelf,muchliketheshelvesofasupermarket.Inventoryisthenrestockedsothatemployeeshaveeasyaccess.

Determinethestrategic,orfinishedgoods,buffer. Thestrategicbuffermustbeadequatetoservicedemandduringmanufacturinglead

time. Itneedstoaccountforcycletimeinterval.Thisisthetimethatittakesproductionto

shiftbacktomakingapartaftermakingotherparts. Itneedstoaccountfortransportationtime,safetystock,andseasonalityand

promotions. ItisimportantbecauseitputsacapontheamountofWIPinthesystemandenables

thestartofcontinuousimprovementinitiativestoreduceleadtimesthroughsetupandbatch‐sizereduction.

Increaseflexibilitytodealwithproductlinecomplexity.Thisrequirestheabilitytoquicklychangevolumesandproductmixusingflexiblemachinery,cross‐trainedemployees,andquickchangeovers.



Implementing the principles (cont.)


Synchronous Pull

Synchronous pull uses takt time to control the velocity of flow and reduce overall lead time.

Operation times must be known and standardized.

Completion of an assembly at one workstation triggers production of an assembly at the upstream workstation and throughout the production process.

The system assumes that through process improvements, batch sizes that are consistent with the desired rate of flow can be implemented.

The trigger can be recognized by MRP software, which can then indicate the need to start the replacement assembly for the one just pulled.

Visual 2-30

Reviewhowthemovefromabasicasynchronouskanbansystemtoasynchronousoneleadstofurtherreductionsinleadtime.

Financial Implications

Asktheclasstoexplainhowreducedproductionleadtimewouldaffectfinancialperformance.

Answer:

Reductionininventorylevels,inventoryinvestment,andinventorycarryingcosts

Note:Guideparticipantsbypromptingthemto

nameafewmetricsthatarerelevant,suchascash‐to‐cashcycle,daysofsupply,andinventoryturns

explainthelogicalrelationshipbetweenthroughputincreaseandinventoryreductionstohigherinventoryturnsandlowerinventoryinvestment.



Implementing the principles (cont.)

Implementsynchronousflow. Thebasicpullsystemhasnotimingassociatedwithoperationsintheproduct

routing.Wheneveracustomerneedsapart,thepullsystemrespondsbyreplenishingthepartpreviouslysupplied.Thissystemisasynchronous.

Adoptingasynchronouspullsystem,throughtheuseoftakttimetocontrolthevelocityofflowthroughtheproductionprocess,willreduceoverallleadtime.

Thisrequiresknowingandstandardizingoperationtimes,whichwillenablecompletionofanassemblyproducedatoneworkstationthatwillinturntriggerproductionofanassemblyattheupstreamworkstationthroughouttheproductionprocess.

Italsoassumesthatthroughprocessimprovements,organizationscanimplementbatchsizesthatareconsistentwiththedesiredrateofflow.

NotethatthetriggercanberecognizedbyMRPapplicationsoftware,whichcanthenindicatetheneedtostartthereplacementassemblyfortheonejustpulled.

Financial Implications

Howwillareductioninproductionleadtimeaffectfinancialperformance?

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________



Lean Production Tools


Five Principles of Lean

Value

Value stream

Flow

Pull

Perfection

Visual 2-31

UsethisvisualofthefiveleanprinciplesfromLeanThinkingbyWomackandJonestointroducethetoolsweareabouttodiscuss.Threeofthem—valuestream,flow,andpull—areofparticularinteresttousastheyrelatetothroughputandwasteelimination.

Note:ThefiveprinciplesherearenottobeconfusedwiththethreeprinciplesonmanagingWIPtoreduceleadtimeinLeanSixSigmabyMichaelGeorge.


Major Lean Improvement Tools

Value stream mapping

Pull system

Setup reduction

Total productive maintenance

Visual 2-32

Usethisvisualtosummarizethetoolswewillcover.

Note:Pullsystemhasalreadybeenreviewed.



Application of ABC analysis and classification

ABC analysis and classification model

ABCanalysisisauseful,relativelysimplemethodforclassifyingandanalyzinginventory.InItalyinthe19thcentury,economistandphilosopherVilfredoParetoobservedthatroughly80percentofthewealthofItalywasheldby20percentofthepopulation.Thisissometimesreferredtoasthe80‐20rule,orPareto’sLaw.

Withrespecttoinventory,Pareto’sLawisshowngraphicallyonVisual2‐45.Althoughmanydeviationsarepossible,aruleofthumbistoidentifyapproximately20percentofthoseitemsthataccountforapproximately80percentoftheusagecostofgoodsasA,thenext15percentofitemsasB,andthebottom5percentasC.

Inactualpractice,the80‐20ruleneedstobelookedatasaruleofthumb.Infact,theAPICSDictionaryusesaslightlydifferentdistributionasshowninVisual2‐46.

Theusesoftheclassificationschemecenterondegreeofcontrol.Itiscommonsensethatmanagersshouldbemoreconcernedwiththecostlyfewthanthetrivialmany.AfewwaysinwhichABCclassificationsmaybeusedarelistedonVisual2‐47.

Cycle counting frequency

WhenusingABCanalysisincyclecounting,countersshouldverifyAitemsmorefrequentlythanBorCitems.

Customer service

Orderquantityandsafetystocklevelsareestablisheddependingontheeconomicsandcriticalityofeachitem.Fromanaccountingperspective,thefocusisdollaraccuracy.ItmightalsotakeintoaccountthatAitemstakelongertoprocureifthereisanunplannedstockout.

Engineering priorities

Valueengineeringeffortsarebetterspentonitemswithhighcostorusagethanonitemswithlowvalueorusage.

Replenishment systems

ItmightbemoreeconomicaltocontrolsomeCitemswithasimpletwo‐binsystemofreplenishment,whileemployingmoresophisticatedmethodsforAandBitems.OneadvantageofMRP,though,isthatallitemscanbenefitfromthesamedegreeofcontrol.

Investment decisions

Aitemsrepresentalargerinvestmentininventory;therefore,moreanalysistypicallyisusedwhenmakingdecisionsaboutorderquantityandsafetystockforAitemsthanforBorCitems.TheprimaryfocuswhenconsideringhowtoimproveinventoryturnsisalwaysonAitemsfirst.



Class Problem 2.1: ABC Analysis for Cycle Counting

Sample ABC Analysis


Problem 2.1 Sample ABC Report

* Calculated based on 250 days per year


Report row #

PartCumulative

percent items

Unit cost On handUsage (units)

Usage (value)Percent

total usage

Cumulative percent of total

usage

Days of supply*

1 81201 5 $ 69.56 600 3,316 $ 230,660 20.70 20.70 45

2 81203 10 $ 879.60 38 170 $ 149,532 13.46 34.22 56

3 85097 15 $ 53.47 1,324 1,951 $ 104,325 9.39 43.61 170

4 88248 20 $ 7.00 2,543 11,467 $ 80,349 7.23 50.84 0

5 85439 25 $ 69.10 313 1,057 $ 73,038 6.57 57.41 74

6 81202 30 $ 43.88 565 1,528 $ 67,062 6.04 63.45 92

7 80400 35 $ 8.25 1,771 7,304 $ 60,258 5.42 68.87 61

8 87401 40 $ 65.94 100 764 $ 50,378 4.53 73.40 33

9 81513 45 $ 19.00 298 2,227 $ 42,313 3.81 77.21 33

10 84192 50 $ 33.74 80 1,224 $ 41,308 3.72 80.93 16

11 85427 55 $ 14.95 1,110 2,503 $ 37,442 3.37 84.30 11

12 86814 60 $ 24.80 295 1,320 $ 32,736 2.95 87.25 56

13 81613 65 $ 13.10 400 2,052 $ 26,881 2.42 89.67 49

14 81992 70 $ 167.50 14 154 $ 25,795 2.32 91.99 23

15 86270 75 $ 7.25 767 2,644 $ 19,169 1.73 93.72 73

16 81401 80 $ 416.00 14 45 $ 18,720 1.69 95.41 78

17 82618 85 $ 22.45 6 725 $ 16,276 1.46 96.87 2

18 80401 90 $ 73.92 0 201 $ 14,858 1.34 98.21 0

19 83284 95 $ 154.03 17 68 $ 10,474 0.94 99.15 63

20 85318 100 $ 3.60 288 2,616 $ 9,417 0.85 100.00 27

$ 1,110,991

Visual 2-48

Solution:



1. Where would you place the cutoffs for A and B items for the purposes of cycle counting?

General ABC distribution (per APICS Dictionary)

This case

Category Percent of items

Dollar usage (%) Percent of items

Dollar usage (%)

A 10–20 50–70 20 51B 20 20 20 22C 60–70 10–30 60 27

2. What overrides would you use to place an item in a higher or lower category for cycle counting purposes? Why?There do not appear to be any items that need to be moved into higher or lower categories. Even though an item may have a high per-unit value, it may not account for a high percentage of usage and therefore does not need to be moved to the A category.

Visual 2-49* 1. TheannualusagedoesfitthegeneralABCclassificationmodel,sothecutoffsforAand

Bcouldbe,forexample,at20percentand40percent.

General ABC Distribution (per APICS Dictionary)

This Case

Category % of Items Dollar Usage (%) % of Items Dollar Usage (%)

A 10–20 50–70 20 51

B 20 20 20 22

C 60–70 10–30 60 27 2. Itappearsthatnoitemneedstobemovedintohigherorlowercategories.Forexample,

eventhoughanitemmayhaveahighvalue,itmaynotaccountforahighpercentageofusageandthereforedoesnotneedtobemovedtotheAcategory.


Problem 2.1 Solution (cont.)

Report row #

PartCumulative

percent items

Unit cost On handUsage (units)

Usage (value)

Percent total

usage

Cumulative percent of total

usage

Year's supply on

hand

3 85097 15 $ 53.47 1,324 1,951 $ 104,325 9.39 43.61 0.68

11 85427 55 $ 14.95 1,110 2,503 $ 37,442 3.37 84.30 0.44

10 84192 50 $ 33.74 80 1,224 $ 41,308 3.72 80.93 0.07

14 81992 70 $ 167.50 14 154 $ 25,795 2.32 91.99 0.09

17 82618 85 $ 22.45 6 725 $ 16,276 1.46 96.87 0.01

18 80401 90 $ 73.92 0 201 $ 14,858 1.34 98.21 0.00

3. Identify any anomalies that should be questioned with respect to the inventory items in this report.

• Planners may want to reexamine stocking policies for items in rows 3 and 11.

• The company could carry more of the items in rows 10, 14, 17, and 18 to protect against a production line shutdown.

Visual 2-50*

3. Itemsinrows3and11haveabout8monthsand5monthsofsupplyonhand,respectively,andplannersmightwanttore‐examinethestockingpoliciesonthesetwoitems.Itemsinrows10,14,17,and18areshowingverylowon‐handbalancesasCitems,andacompanycouldcarrymoretoprotectagainsthavingtoshutdownaproductionline.

Session 3: Information Used in the Material Planning Process Participant Workbook Page


Session 3: Information Used in the Material Planning Process

Purpose

Thissessionintroducesthebasicinformationandinputsthatareimportanttomaterialplanning,whichalsoisthesubjectofthenexttwosessions.Thissessionreviewsthefollowing:

planningfactors,inventorydata,end‐itemdemand,andproductstructureinformationusedinmaterialplanning

approachestoplanningandschedulingmaterialsindifferentproductionenvironments thematerialrequirementsplanning(MRP)model keyMRPplanningprocessparametersandperformancecharacteristics



Learning Objectives


Learning Objectives

Information Used in Material Planning− Differentiate among planning factors, inventory status

data, and historical demand and usage data. − Explain the relative advantages of significant and

nonsignificant item numbers.− Describe at least five sources of requirements for the

master production schedule (MPS). − Explain the minimum length of the planning horizon

for the MPS.− Describe the role of the bill of material (BOM) in

material planning.

Visual 3-3



Characteristics of the Material Planning Process− Explain the differences in material planning

approaches used in different production environments.

− Briefly describe the material requirements planning (MRP) model and its functions.

− Briefly describe the functions of key MRP planning process parameters.

− List at least five key performance characteristics of MRP.

Visual 3-4

Refertothelearningobjectivesontheopposingpageandreviewthemwiththeparticipants.

Askparticipantsiftheyhavequestionsabouttheobjectivesorwishtoaddothertopics.

Listanyadditionalobjectivesonaflipcharttobereviewedattheendofthesession.



Learning Objectives

InformationUsedinMaterialPlanning Differentiateamongplanningfactors,inventorystatusdata,andhistoricaldemand

andusagedata. Explaintherelativeadvantagesofsignificantandnonsignificantitemnumbers. Describeatleastfivesourcesofrequirementsforthemasterproductionschedule

(MPS). ExplaintheminimumlengthoftheplanninghorizonfortheMPS. Describetheroleofthebillofmaterial(BOM)inmaterialplanning.

CharacteristicsoftheMaterialPlanningProcess Explainthedifferencesinmaterialplanningapproachesusedindifferent

productionenvironments. Brieflydescribethematerialrequirementsplanning(MRP)modelanditsfunctions. BrieflydescribethefunctionsofkeyMRPplanningprocessparameters. ListatleastfivekeyperformancecharacteristicsofMRP.



Information Used in Material Planning

References:Arnoldetal.,IntroductiontoMaterialsManagement,6thed.,chap.3–5;Jacobsetal.,ManufacturingPlanningandControlforSupplyChainManagement,APICS/CPIMCertificationEdition(2011),Chap.8;TaylorandBolander,SystemFrameworkforProcessFlowIndustries(CPIMDSPReprints2001).

Item Data

Brieflyintroducethreetypesofitemdatausedinthematerialplanningprocess:

planningfactors statusdata historicaldemandandusagedata

Planning Factors


Item Data: Planning Factors

Part # DescriptionUnit of

measureOrderpolicy

Orderquantity

Sourcecode

ABCcode

Leadtime

Standardcost

10564 gearhousing

EA 50 M B 3 108.44

Primelocation Drawing Revision

Lastcycle

Lastreceipt

Lastissue

YTDusage

MTDusage

12C3 10564B F1 D 03/22 04/01 04/06 190 23

On hand AvailableOn

orderSafetystock

17 7 10 22 0

Date Reference Initials Receipts Issues Adjust Location Balance03/13 M1056 VXS 49 S2 12C3 5203/20 A357 MOM 15 S2 12C3 3703/22 C87 REC -1 S2 12C3 3603/27 A412 MOM 22 S2 12C3 1404/01 M1103 VXS 26 S2 12C3 4004/06 A415 MOM 23 S2 12C3 17

Transaction history:

AllocationsScrapfactor

.10

FOQ

Planner/buyer

Stores

Planning factors

Visual 3-6

Explainthatthisisasampleitemdatareportbasedondatainotherfiles,suchastheitemmasterandinventoryfiles.Thefourplanningfactorsshowninthevisualarelotsize,leadtime,scrap,andsafetystock.RemindtheclassthatthesetermswerediscussedinSession1asinventorypolicies.



Item Numbering

Topreventconfusion,anitemnumberorpartnumbermustbeassignedtoeveryrawmaterial,component,andsemifinishedandfinishedproduct.Somebasicprinciplesforaccuratetransactionsareasfollows:

Useuniqueitemnumbers—Thisrequirementseemsobvious,butitisespeciallysignificantforengineeringchanges.Ifachangeresultsinrevisedform,fit,orfunction,theitemshouldbegivenanewidentificationnumber,notjustanengineeringrevisionnumber.Eventhoughthenewitemscouldbesubstitutedfortheoldone,separateidentificationshouldbekeptforaccuratecounting,lotidentificationandtraceability,andcosting.

Insomecases,anengineeringchangeletterornumberisincludedasapartoftheitemidentificationcode.Ifanengineeringchangeaffectsonlythedrawingforapart,asinfixinganerrororoversight,anewitemnumberisnotrequiredbecausetwonumberswouldidentifythesameitem.Anengineeringrevisionletterornumbershouldbekeptseparatefromtheitemidentification.

Useonlyonesetofitemnumberswithinanorganization—Goalsofvariousorganizationalunitssometimesleadtodifferentitemidentificationsforthesamethings.Forexample,marketingmaylistsimpleanddescriptiveitemnumbersinsalescatalogs,whereasengineeringmightprefersequentialnumbersthatsuggestthechronologicalorderinwhichpartswereintroduced.Ifpossible,itisbesttouseonesetofnumbersthroughouttheorganization.

Assignresponsibilityforcreatingitemnumbers—Toenforceuniformityanduniqueness,asingleauthorityshouldbegivenresponsibilityandaccountabilityforidentifyingitems.

Donotreassignitemnumbersnolongerinuse—Evenmanyyearsafterapartorproducthasbeenretired,someneedforidentificationofthatpartmightoccur.

Useshortitemnumbers—Itemnumbersarecopied,keyed,printed,andspokenoften;manyerrorsandmisunderstandingscanbeavoidedbykeepingthemshortandsimple.

Keepitemnumbersuniform—Thesamenumberofcharactersshouldalwaysbeusedforallitemnumbers.Ifanitemcodeispartalphabeticandpartnumeric,therelativepositionsofthealphabeticandnumericportionsshouldalwaysbeconsistent.

Avoidconfusingcharacters—Useofmixedalphabeticandnumericorspecialcharacterscanleadtoerrorsinidentification,suchasIand1,2andZ,Oand0.

Allowroomforexpansion—Ascompaniesgroworcombine,itemnumbersmightnotaccommodateadditionalunitswithoutrestructuringorreuse.Thiscanbetroublesome,especiallywithsignificantnumbers.Whenitemnumberingsystemsarefirstdeveloped,allowanceshouldbemadeforfuturegrowth.



Significant identification

Askwhatthedifferenceisbetweensignificantandnonsignificantitemnumbers.

Answer:

Significantnumbershavelogictotheirstructure;nonsignificantnumbers,orcodes,arerandomlyassignedorconsistofsimplesequentialnumbers;thereisnoapparentlogictotheirstructure.


Significant Item Identification CodesInternational standard book number (ISBN)

Example 0-03-076980-9

Description • 0 is the group identifier for the English language.

• 03 is the publisher identifier.

• 076980 is the title identifier.

• 9 is the check digit.

Magazine subscriber identifier

Example 68506STJ7533TVG

Description • 68506 is the postal code.• STJ are the first 3

consonants in the last name.

• 7533 are four digits of street address.

• TVG is the abbreviation for the magazine.

Visual 3-13

Explainthatthepurposeofasignificantpartnumberistoconveysomeinformationabouttheitembeingidentifiedforthepeoplewhomustuseit.Thishelpstoimprovecommunicationandefficiencybutalsocanleadtoerrors,asthesepartnumbersareoftenlongerandmorecomplexthannonsignificantones.


Advantages of Significant Codes

Easier to understand, work with, and recall

Easier recognition of part identity increases organization efficiency

Easier to detect miscoded items using size or color information

Easier to interpret using hyphens or symbols

Visual 3-14

Discusstheadvantagesofsignificantcodes.Haveparticipantsgiveexamplesofcodestheyuseandtheiradvantages.

Nonsignificant identification


Advantages of Nonsignificant Codes

Shorter codes are faster to input or write.

Numerical codes are easier and faster to input.

Random or sequential number assignment is better at accommodating the growth of item numbers.

Nonsignificant codes can automatically be generated by software.

Visual 3-15

Explainthatnonsignificantitemnumbersmightconsistofeitherrandomorsimplesequentialnumbersorlettersthatonlyidentify,notdescribe.Themainadvantageisthatcompaniescanassignanumbertoanitemwithouthavingtofititintoaspecificcategoryorrangeofnumbers.



Significant identification

Whatisthedifferencebetweensignificantandnonsignificantitemnumbers?

______________________________________________________________________________________________

______________________________________________________________________________________________

Withinthebasicprinciplesdescribedaboveregardingitemnumbering,thereisanimportantdecisiontomakeabouttheformthatitemnumbersshouldtake.Thepurposeofasignificantnumberistoconveysomeinformationabouttheitembeingidentifiedtothepeoplewhomustuseit.Visual3‐13showsexamplesofsignificantitemcodes.

Someoftheadvantagesofchoosingsignificantitemnumbersareasfollows:

easiertounderstand,workwith,andrecall easierrecognitionofpartidentityincreasesorganizationefficiency easiertodetectmiscodeditemsusingsizeorcolorinformation easiertointerpretusinghyphensorsymbols

Nonsignificant identification

Nonsignificantnumbersmightconsistofeitherrandomorsimplesequentialnumbersorlettersthatonlyidentify,notdescribe.

Theadvantagesofchoosingnonsignificantnumbersincludethefollowing:

Shortercodesarefastertoinputorwrite. Numericalcodesareeasierandfastertoinput. Randomorsequentialnumbersarebetterataccommodatingthegrowthofitem

numbers. Nonsignificantcodescanbeautomaticallygeneratedbysoftware.



The Master Production Schedule

Introduction


Introduction to the MPS

Material versus processor-dominated scheduling

Goals of master scheduling− Balance supply and demand per the production plan.− Plan efficient use of company resources.− Determine end-item priorities shown in the MPS.

Hand off from MPS to MRP, which then establishes and maintains the priorities for components and assemblies

Visual 3-16

Discussthefollowingpointswiththeclass:

Schedulingandplanningmayschedulematerialsfirstinwhatiscalledmaterials‐dominatedscheduling,asinMRP,orscheduleequipmentandcapacityfirst,asinprocessor‐dominatedscheduling.Processor‐dominatedschedulingoftenisusedinprocessindustriessuchaschemicalandpetrochemicals.Capitalinvestmentishighandcapacityutilizationisamajorconcern.ThiswillbecoveredinmoredepthinSession7.

TheMPSisthepriorityplanforenditems.TheduedatesandquantitiesshownintheMPSrepresentend‐itempriorities.

TheMPSprovidesMRPwithend‐itemduedates.MRPusesthesedatestocontrolplannedorderreleaseandreceiptdatesforcomponentsandassemblies.

TheMPSbalancessupplyanddemandasdictatedbytheproductionplan,andtheproductionplanshouldrepresentaggregate‐levelbalancing—forexample,atthesalesandoperationsplanning(S&OP)level—ofcustomerservice,productionefficiency,andinventoryinvestment.

Sources of MPS Requirements


Sources of MPS Requirements

Periods1 2 3 4 5 6 7 8

Sales forecast 100 100 120 120 100 100 100 100Interplant orders 50 150 10Special engineering needs 20Service part requirements 30 30Special promotion 80Safety stock change 10 -10Anticipation buildup 5 5Totals 130 160 120 260 130 120 185 115

Product ABC

Visual 3-17

UseVisual3‐17toemphasizetherangeofitemsthatconstituteMPSrequirements.TheseallareindependentdemanditemsforwhichcomponentpartsneedtobeplannedbyMRP.



Engineering Data

Bill of material

Asacompanydesignsanewproductormodifiesanexistingone,thedesignengineersmayreceiveinputfromsuppliers,customers,andotherfunctionalareasoftheorganizationduringthedesignprocess.Thedesignteamthencreatestheproductstructure.Thematerialsandcomponentsintheproductstructurecanbelistedinasummarizedpartslist,orsummarizedBOM,asshowninVisual3‐23.Thesummarizedpartslistshowsquantitiesbutdoesnotshowtherelationshipsamongcomponentsintheassembledtable.

Product structure and part interdependencies

Fromasummarizedpartslist,itisnotpossibleforMRPtocalculaterequirementsforthedependentdemandcomponentsandmaterialsforenditems.TheseoftenaredisplayedforinstructionalpurposesinwhatiscalledaproducttreeBOM,asshowninVisual3‐24.

Forplanningpurposes,MRPapplicationsoftwarewillrefertodataasshownintheindentedBOM.(SeeVisual3‐25.)TheindentedbillcontainsthepartstructureinformationintheproducttreeBOM,aswellasalistofcomponentquantitiesnecessarytobuildoneparentitem.ItisfoundintheproductorBOMmasterfile.



Lead time

Discusstheroleofprocessengineeringindevelopinglead‐timedataandthelocationoflead‐timedataintheroutingfile.

Conclusion

Closetheengineeringdatasectionbybrieflysummarizingthethreeelementsofengineeringdatathatprovidecriticalinputstothematerialplanningprocess.



Education and Training

InvestinginMRPeducationcanproducemorethanafour‐to‐onereturnoninvestmentbecauseeducationpreparesemployeestoimplementnewplanningsystemsandresolveproblems.Employeesbegintothinkaboutcompanywideprioritiesandaboutthebroadersupplychaininsteadofjustthinkingabouttheirownlimitedoperationalareas.

BothmanagementandMRPusersneedintensiveeducationandtrainingtounderstandthebenefitsofMRPtothecompanyandtheirownpersonalworkeffort.Educationprovidesuserswithknowledgeontheconceptsandbenefitsofthesystem.Traininggivesthemthetoolsneededtoperformtheirtasks.

WhenimplementinganMRPsystem,itiscriticalthatusersbetrainednotonlyinthefunctionalityofMRP,butalsointhenecessityofinputtingaccurateinformationtobeabletousethesystemeffectively.Documentedproceduresshouldbereadilyavailabletoplannersandschedulers.



Wrap-Up and Homework


Learning Objectives

Information Used in Material Planning− Differentiate among planning factors, inventory status

data, and historical demand and usage data. − Explain the relative advantages of significant and

nonsignificant item numbers.− Describe at least five sources of requirements for the

master production schedule (MPS). − Explain the minimum length of the planning horizon

for the MPS.− Describe the role of the bill of material (BOM) in

material planning.

Visual 3-41



Characteristics of the Material Planning Process− Explain the differences in material planning

approaches used in different production environments.

− Briefly describe the material requirements planning (MRP) model and its functions.

− Briefly describe the functions of key MRP planning process parameters.

− List at least five key performance characteristics of MRP.

Visual 3-42

Reviewtheobjectiveswiththeclass.

Vocabulary Check


Vocabulary Check

Objective: Reinforce terminology used in this session.

Complete the activity in class, individually or in pairs, or as homework.

Visual 3-43

Solution:


Vocabulary Check Solution

1. d

2. c

3. i

4. a

5. f

6. h

7. k

8. e

9. g

10. b

11. j

Visual 3-44*

1.d 5.f 9.g2.c 6.h 10.b3.i 7.k 11.j4.a 8.e

Session 4: MRP Mechanics: The Basics Participant Workbook Page


Class Problem 4.3: Net Requirements and Planned Orders for Item D

TheinstructorwillreviewthenettingandschedulingofplanneditemDthroughperiod2.Notetheuseofthreenewvariables:allocations,scheduledreceipts,andfixedorderquantitylotsize.

Allocationsarecomponentson‐handbutnotavailable.Theyhavebeenallocatedtootherplannedordersbutarenotyetphysicallyremovedfrominventory.

Scheduledreceiptsareforplannedordersthatwerereleasedbeforeweek1andaredueintheperiodindicated.

UsingthegrossrequirementsforDandreferringtothecalculationsummarybelow,determinethenetrequirements,projectedavailablebalances,andplannedorderreceiptsandreleasesfortheremainingperiods.Postthemtothegridbelow.

Summaryofthecalculationofthenetrequirementandplannedorderreceiptforperiod1:

On-hand balance (or previous PAB) 170 - Allocations - 120 + Scheduled receipts + 160 - Gross requirements - 0

PAB (preliminary) 210 - Safety stock - 0

PAB (adjusted for safety stock) (= net requirement if < 0) 210

If 0 or > 0 = no net requirement If net requirement exists, create planned order receipt per lot-size policy + 0

Final PAB = PAB (preliminary) (210) + planned order receipt quantity (0) 210 Noplannedorderreceiptsarerequiredinperiod1sincethebalancebeingprojectedisadequatetocoverdemand.Usetheprocedureaboveforallperiods,asappropriate.



Gross Requirements for Item C


Instructor-Led Problem: Gross Requirements for Item C

Period: 1 2 3 4 5 6 7 8

Item A:

Gross requirements 10 100 10

Net requirements 10 100 10

Planned order receipts 10 100 10

Planned order releases 10 100 10

Item B:

Gross requirements 10 120 20 10 10

Net requirements 30 20 10 10

Planned order receipts 30 20 10 10

Planned order releases 30 20 10 10

Independent demand Item C 10 10 10 10 10 10 10 10

Item C requirements:

From Item A P/O releases at 2 per

From Item B P/O releases at 2 per

From Item C Ind. demand at 1 per

Gross requirements for Item C:

Visual 4-25

ExplainthatwenowareatthelowestleveloftheBOMs.WeneedtoplanitemsCandE.Wealsointroduceanewvariable,thedemandforservicepartC.StartingwithC,walktheclassthroughcalculatinggrossrequirementsusingthebuildfeatureofVisual4‐26.Pointoutthefollowing:(1)servicepartC;and(2)quantitiesperintheBOMsforCinrelationtoitsparents,BandF.Also,besuretopointoutthelow‐levelimpactofpartC.


Solution: Gross Requirements for Item C

Period: 1 2 3 4 5 6 7 8

Item A:





Item B:











20 20

10 10

10

10 10 10 10 10 10

30 70 250 30 50 10 10

20204060

200

Visual 4-26

Period: 1 2 3 4 5 6 7 8

Item A:





Item B:











20 20

10 10

10

10 10 10 10 10 10

30 70 250 30 50 10 10

20204060

200



8. Intheabovescenario,inwhichperiodwilltheplannedorderreleasesbethesame

forbothlot‐for‐lotandafixedorderquantityof25?

a. 2b. 3c. 4d. 5

9. InventorydatausedbyMRPis

a. scheduledreceiptsb. grossrequirementsc. netrequirementsd. plannedorderreleases

10. AsMRPnetsanitem,itcalculatesnetrequirementsof20inperiod2.Thegrossrequirementsare125andscheduledreceiptsare25inperiod2.Theprojectedavailableis95inperiod1.Whatistheitem’ssafetystock?

a. 10b. 15c. 20d. 25

Gross requirementsScheduled receiptsProjected availableNet requirementsPlanned order receiptsPlanned order releases

1 2 43 8765

Periods

A

Technique

Order quantitySafety stock Allocated quantityLead time 3

15 10 20 0 15 25 0 1525

20



Appendix A: Completed MRP Grid from Instructor Walkthrough of Items A and F and Their Components

Item A Lot size = L4L

Lead time = 2 1 2 3 4 5 6 7 8

Gross requirements 10 100 10 Scheduled receipts Projected available 0 0 0 Net requirements 10 100 10 Planned order receipts 10 100 10 Planned order releases 10 100 10 Item F Lot size = L4L Lead time = 1

Gross requirements 20 20 10 Scheduled receipts Projected available 0 0 0 Net requirements 20 20 10 Planned order receipts 20 20 10 Planned order releases 20 20 10 Item B Lot size = L4L Lead time = 1

Gross requirements 10 120 20 10 10 Scheduled receipts Projected available 100 100 90 90 0 0 0 0 0 Net requirements 30 20 10 10 Planned order receipts 30 20 10 10 Planned order releases 30 20 10 10 Item D Lot size= 160 Allocation quantity = 120 Lead time = 1

Gross requirements 20 220 20 20 10 Scheduled receipts 160 Projected available 170 210 190 190 130 110 90 80 80 Net requirements 30 Planned order receipts 160 Planned order releases 160 Item C Lot size = 150 Safety stock = 15 Lead time = 2

Gross requirements 10 30 70 250 30 50 10 10 Scheduled receipts Projected available 120 110 80 160 60 30 130 120 110 Net requirements 5 105 35 Planned order receipts 150 150 150 Planned order releases 150 150 150 Item E Lot size = 140 Lead time = 1

Gross requirements 90 80 50 30 10 Scheduled receipts Projected available 120 120 120 30 90 40 10 0 0 Net requirements 50 Planned order receipts 140 Planned order releases 140



Appendix: Blank MRP Grid Worksheets

Item A Lot size = Lead time =

1 2 3 4 5 6 7 8

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item F Lot size = Lead time =

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item B Lot size = Lead time =

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item D Lot size = Allocation quantity = Lead time =

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item C Lot size = Safety stock = Lead time =

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item E Lot size = Lead time =

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases



Appendix B: Complete Solution for Optional Problem 4.6 Item A Lot size = L4L

Lead time = 2 1 2 3 4 5 6 7 8

Gross requirements 30 40 10 20 20 Scheduled receipts Projected available 0 0 0 0 0 Net requirements 30 40 10 20 20 Planned order receipts 30 40 10 20 20 Planned order releases 30 40 10 20 20 Item F Lot size = L4L Lead time = 1

Gross requirements 10 10 15 10 Scheduled receipts Projected available 0 0 0 0 Net requirements 10 10 15 10 Planned order receipts 10 10 15 10 Planned order releases 10 10 15 10 Item B Lot size = 60 Lead time = 2

Gross requirements 30 50 20 35 20 10 Scheduled receipts Projected available 100 100 70 20 0 25 5 55 55 Net requirements 35 5 Planned order receipts 60 60 Planned order releases 60 60 Item D Lot size = 160 Allocation quantity = 120 Lead time = 1

Gross requirements 60 90 30 55 40 10 Scheduled receipts 100 Projected available 170 150 90 0 130 75 35 25 25 Net requirements 30 Planned order receipts 160 Planned order releases 160 Item C Lot size = 150 Safety stock = 15 Lead time = 2

Gross requirements 15 75 210 40 180 50 15 5 Scheduled receipts Projected available 120 105 30 120 80 50 150 135 130 Net requirements 195 115 15 Planned order receipts 300 150 150 Planned order releases 300 150 150 Item E Lot size = 140 Lead time = 1

Gross requirements 190 10 195 10 Scheduled receipts Projected available 120 120 120 70 60 5 5 135 135 Net requirements 70 135 5 Planned order receipts 140 140 140 Planned order releases 140 140 140



Appendix: Blank MRP Grid Worksheets

Item A Lot size = Lead time =

1 2 3 4 5 6 7 8

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item F Lot size = Lead time =

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item B Lot size = Lead time =

Gross requirements Scheduled receipts Projected available Net requirements Planned order Receipts Planned order releases Item D Lot size = Allocation quantity = Lead time =

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item C Lot size = Safety stock = Lead time =

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item E Lot size = Lead time =

Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases



Appendix C: Complete Solution for Optional Problem 4.7

Item A Lot size = L4L Lead time = 2

1 2 3 4 5 6 7 8

Gross requirements 20 5 110 25 Scheduled receipts Projected available 0 0 0 0 Net requirements 20 5 110 25 Planned order receipts 20 5 110 25 Planned order releases 20 5 110 25 Item F Lot size = L4L Lead time = 1

Gross requirements 25 25 25 Scheduled receipts Projected available 0 0 0 0 Net requirements 25 25 25 Planned order receipts 25 25 25 Planned order releases 25 25 25 Item B Lot size = 60 Lead time = 2

Gross requirements 20 5 135 25 50 Scheduled receipts Projected available 100 100 80 75 0 35 45 45 45 Net requirements 60 25 15 Planned order receipts 60 60 60 Planned order releases 60 60 60 Item D Lot size = 60 Allocation quantity = 120 Lead time = 1

Gross requirements 40 10 270 50 100 Scheduled receipts 100 Projected available 170 150 110 100 10 20 40 40 40 Net requirements 170 40 80 Planned order receipts 180 60 120 Planned order releases 180 60 120 Item C Lot size = 150 Safety stock = 15 Lead time = 2

Gross requirements 5 165 135 345 10 60 10 10 Scheduled receipts 150 Projected available 120 115 100 115 70 60 150 140 130 Net requirements 50 245 15 Planned order receipts 150 300 150 Planned order releases 150 300 150 Item E Lot size = 140 Lead time = 1

Gross requirements 180 180 205 25 25 Scheduled receipts Projected available 120 120 80 40 115 90 65 65 65 Net requirements 60 100 165 Planned order receipts 140 140 280 Planned order releases 140 140 280

Session 5: Using MRP Outputs and Managing Projects Participant Workbook Page


Pegging

Unexpectedeventscancausecomponentsofanenditemtoarrivelate.Forinstance,theremightbeaproblemwiththedeliveryofapurchasedcomponentfromasupplier,ortheinspectionofaproductionlotfromthefactorymightcausetherejectionofsomeoftheparts.

Toassessandaddresstheimpactofsuchevents,plannersmustbeabletotracethegrossrequirementsforanaffecteditemtoitsimmediateparentandupwardtoitsparentintheMPS.Thisimplosionprocesspermitstheplannertodeterminewhichparentsgeneratehowmuchoftheitem’stotalgrossrequirementsinanyperiod.Theplannercanthenusebottom‐upreplanningtoevaluateandimplementalternativesolutionssuchas

compressingleadtime cuttingorderquantity substitutingmaterial changingtheMPS.



Single-Level Versus Full Pegging


Full-Level Pegging

Component C

1 2 3 4 5 6 7 8

Item C 10 30 70 250 30 50 10 10

Service part demand 10 10 10 10 10 10 10 10

Item A (POR) 20 200 20

Item A (POR Item B) 30 20 10 10

Item F (POR Item B) 30 20 10 10

Item NumberPeriod

Source of Requirements

Gross Requirements

POR = planned order releases

Visual 5-11

Explainthatfullpeggingtracesgrossrequirementsforcomponentstoorderreleasesatlevel0.Itcanbeusedtofindwhatgeneratedthedemandatthefinishedgoodslevel,suchasaforecast,salesorder,servicepartsdemand,orinterplantdemand.Thefull‐peggingreportinVisual5‐11showsthatcomponentC’sdemandistracedtoenditemparentsAandFandservicepartC,anindependentdemanditem.ItemFisnotshownasasourceinsingle‐levelpeggingbecauseitistwolevelsupfromcomponentC.

Askparticipantswhyitisimportanttoknowthemaster‐scheduledparentforalow‐levelcomponent.

Answer:

Ifanimbalancebetweenthedemandandsupplyforacomponentcannotberesolvedatalowerlevel,theconsequencesofadjustmentstotheMPScanbeweighedandaddressed.

ExplainthatresolvingimbalancesattheMPSlevelisalastresortbecauseithasacascadingeffectontheschedule.



Class Problem 5.2: Create Firm Planned Order

Reviewthefollowing:

ItemYhasagrossrequirementof50unitsinperiod3. TheregularnettinglogicofMRPhasscheduledaplannedorderreleaseinperiod1fora

quantityof80tobereceivedinperiod3. ArawmaterialrequiredtofabricateitemYwillnotbeavailableuntilperiod2.There

willbeonlyenoughmaterialtofabricate50unitsofitemY. TheplannerhastheflexibilitytoreducetheplannedleadtimeofitemYtooneperiod. Themosteconomicorderlotsizeis80(twolotsof40),butafteralotof40,itemY’s

orderquantitymaybeincreasedinmultiplesof10.

Basedontheaboveassumptions,addressthefollowing:

1) WhywouldMRPautomaticallyplananorderfor80ratherthan50?Whatcantheplannerdoaboutthis?

2) WhatwouldaplannergainbycreatinganFPOreleaseforYinperiod2,foraplannedorderreceiptinperiod3?

3) Usingthegrid,createanFPOtodevelopaplannedorderreceiptinperiod3inordertokeeptheproductionofcomponentYonschedule.Thenfinishbalancingtherecord.

Periods

1 2 3 4 5 6 7 8


Scheduled receipts 30

Projected available

Net requirements

Planned order receipts

Planned order releases

Item YOrder qty.: 40; Allocation qty.: 0Safety stock: 0; Low-level code: 1Lead time: 2



What-If Analysis and Simulation


Simulation

Run what-if analysis.

Run MRP in offline or test environment.

Test different planning parameters and assumptions.

Evaluate alternatives.

Manage risks.

Visual 5-14

Explainthatwhat‐ifanalysesnormallyaredonebyrunningMRPinasimulationmodeusingacopyoftherealERPdatabase,soasnottocompromisetheintegrityoftheschedulecurrentlyinuse.WhenasimulatedMRPscenarioreflectsthedesiredresults,itcanbecopiedovertothelivesystemtobecometheactualmaterialplan.

Inviteparticipantstoshareexamplesinwhichwhat‐ifanalysisandsimulationareusedtotestvariousMRPscenarios.Thescenariosmightbebasedonplanningparametersandassumptionssuchasplantshutdowns,assemblylinerebalancing,changesinlaborormachinecapacity,reductioninlotsizes,orurgentcustomerrequests.



Project Plan Elements

Statement of Work

Thestatementofworkisthefirstplanningdocumentthatshouldbeprepared.Thestatementofwork

definesthescopeoftheproject describesthehistoryandpurpose explainsdeliverables indicatesmeasurablesuccessindicatorsforaproject. capturesthesupportrequiredfromthecustomer identifiescontingencyplansforeventsthatcouldthrowtheprojectoffcourse.

AccordingtoAGuidetotheProjectManagementBodyofKnowledge,3rded.,theprojectstatementofworkshouldindicateabusinessneed,describetheprojectscope,andincludeareferencetoaplanthatsupportstheorganization’sstrategicgoals.Theorganization’sneedfortheprojectcanbebasedonmarketdemand,technologicaladvances,standards,andsoon.Theprojectscopedocumentsprojectrequirements,whichmaybecomemoredetailedastheprojectscopebecomesbetterunderstood.

Work Breakdown Structure

Theworkbreakdownstructureistheprimaryplanningtoolfororganizingwork.Theworkbreakdownstructuredefines,indetail,theworkthatneedstobedoneandprovidesahierarchicalformatthatassiststheplannerinthefollowing:

structuringtheworkintomajorcomponentsandsubcomponents verifyingconformancewithallobjectives implementingasystemofprojectresponsibilitycommitments developingasystemofreportingandsummarization

Usinginformationfromthestatementofwork,successivelevelsofdetailregardingtasksareaddedtotheworkbreakdownstructure.

Visual5‐26showsanexampleofaworkbreakdownstructure.Noonestructureiscorrect—theworkbreakdownstructurecantakemanyforms.

Theworkbreakdownstructureaidsinsequencingactivities,suchasidentifyingtherelationshipsamongscheduleactivities,andestimatingresources,whichincludepersons,equipment,ormaterials.



Project Schedule


Project Schedule

project schedule—A list of activities and their planned completion dates that collectively achieve project milestones

─APICS Dictionary

The most common project scheduling methods are− Gantt charts− Critical path method (CPM)− Program evaluation and review technique (PERT)

Visual 5-27

Explainthatoncetheworkbreakdownstructureisinplace,theprojectschedulecanbedeveloped.Thescheduleservesasthebasisformonitoringprojectactivity.Ganttchartingandnetworktechniques,suchascriticalpathmethod(CPM)andtheprogramevaluationandreviewtechnique(PERT),canbeemployedtoscheduleprojects.

Gantt Charts


Example Gantt Chart

Created using Microsoft® Office Project software

Visual 5-28

ExplainthataGanttchartdisplaystasksasbarsonahorizontaltimescale.TheGanttchartisaneasy‐to‐readmethodofshowingcurrentprojectstatus.ManysoftwareprogramsthatcreateGanttchartshaveaddedtheabilitytoseelinkagesandrelationshipsbetweenactivities.

AskparticipantstogiveexamplesoftheirexperienceswithGanttcharts.



Network diagrams and techniques

Thenetworkplanningprocessdescribesaprojectasanetworkofactivitiesortasksthathavespecificrelationshipstoeachother.Totransformaprojectplanintoanetwork,youmustknowtheactivitiesthatcomprisetheproject.Youmustdetermineeachactivity’spredecessorsorsuccessors.Anactivitycanhaveanyoneofthefollowingconditions:

Usuallyandatthebeginningofaproject,itmayhaveasuccessorbutnopredecessor. Usuallyattheendofaproject,itmayhaveapredecessorbutnosuccessor. Itmayhavebothpredecessorsandsuccessors.

Thenatureoftheworktobedonedeterminespredecessor‐successorrelationships.Thecompletednetworkisusedtodeterminetheproject’stotalduration.

Critical path method

critical path method—A network planning technique for the analysis of a project’s completion time used for planning and controlling the activities in a project. By showing each of these activities and their associated times, the critical path, which identifies those elements that actually constrain the total time for the project, can be determined.

─APICS Dictionary

Alistofactivities,theirduration,andtheirinterdependenciestypicallyareputintoanetworkdiagramforCPM.Activitiesaredeterminedtobeeithercritical,inthattheirdelaywouldlengthenthetotalprojecttimeline,ornoncritical.CPMisusefulforprioritizingactivitiesonthecriticalpath.

CPMismostappropriateforactivitiesthatarewelldefinedoraresimilartoactivitiesthathavebeenperformedbefore.Asingle,deterministicestimateofthedurationofeachactivityisusedforCPM.

ThecriticalpathfortheprojectinVisual5‐29isshownintheunshadedredtasks.ThepathfromstarttoA,C,F,andfinishisthelongestcriticalpathwithadurationof5+5+6days,or16daystotal.



Program evaluation and review technique


Program Evaluation and Review Technique

PERT is used when times may vary or are not understood.

Three time estimates are made:− O = Optimistic− ML = Most Likely− P = Pessimistic

Expected time = (O + 4ML + P)/6

The expected time is used in the project plan and Gantt chart.

Visual 5-30

ExplainthatinCPM,thetaskdurationsarewellunderstoodtypicallyfromhistoricalexperienceandaredeterministic.PERTcanbeusedwhenactivitiesarenotwelldefined,dataarenotavailableontaskdurations,ortheconfidenceinthetaskdurationestimatesislow.PERTisbasedonprobabilistictimeestimates.Thetechniqueusesstatisticalmethodstodeterminethedurationofanactivity.


Example PERT Time Estimates

Start Expected Optimistic Most likely Pessimistic

Task A 5.83 days 4 days 6 days 7 days

Task B 3.33 days 2 days 3 days 6 days

Task C 4.5 days 3 days 4 days 8 days

Task D 1.17 days 1 day 1 day 2 days

Task E 3.83 days 2 days 4 days 5 days

Task F 6.67 days 4 days 7 days 8 days

Finish 0 days 0 days 0 days 0 days

Visual 5-31

Explainthatprobabilisticvaluesfordurationcanbegeneratedusingtheformulaonthepreviousvisual.Thesevaluesareusefulwhentheprojectteamhasnoexperiencewiththeprojecttasksandcannotaccuratelyassesstheestimateddurationforeachtask.Visual5‐31representsateam’sestimatesofoptimistic,mostlikely,andpessimisticvaluesforaproject.Thelongestandshortesttimedurationestimatesfortheprojectcanthenbecalculated.



Program evaluation and review technique

Whenactivitiesarenotwelldefined,thereisnosimilaractivityexperience,orconfidenceintheestimatesoftaskdurationsislow,PERTcanbeused.PERTisbasedonprobabilistictimeestimates,whichderivefromstatisticalmethodsthatdeterminethedurationofanactivity.

PERTisanextensionofCPM,whichincorporatesvariabilityinactivityduration,ortimeestimates,intothenetwork.ThedifferencebetweenthetwomethodsisthatinCPM,activitydurationsareassumedtobedeterministic.

Becauseitcanlocateandcalculateavailableslacktimeandestimateandre‐estimateaproject’scompletiondate,PERTisthetechniquemostoftenusedwhentaskdurationsareuncertain.ManygovernmentorganizationsrequiretheuseofPERTforcomplexprojects.

Visual5‐31showscalculatedexpecteddurationsforaprojectwhoseprojectteamwasnotfamiliarwiththetasksandcouldnotaccuratelyestimatetaskdurations.TheformulaonVisual5‐30wasusedtogenerateexpectedtaskdurationsfromtheoptimistic,mostlikely,andpessimisticdurations.Theestimatedexpecteddurationscanbeusedforfurtherprojectplanning.



Responsibility Assignment Matrix


Responsibility Assignment Matrix

Activity Person 1 2 3 4 5Define A R C I I

Design I A R C I

Develop A I R C I

Test R I A R C

R = Responsible for task completion A = Accountable for outcome

C = Consulted (provides input on the work) I = Informed of progress

Source: adapted from A Guide to the Project Management Body of Knowledge (Project Management Institute 2004). Visual 5-32

Explainthepurposeandlayoutofaresponsibilityassignmentmatrix.Itisusedtoidentifyrolesandresponsibilitiesofteammembersbasedontheworkbreakdownstructure.IntheexampleonVisual5‐32,therearefourcategoriesofresponsibilityassigned:R,A,C,andI,asdefinedonthevisual.Notallprojectsutilizeallcategories.Whichcategoriesareusedoftendependsonthespecificorganizationalstructure.

Resource Requirements


Resource Requirements

Resource requirements− Resource loading− Resource leveling− Constrained resource scheduling

• Heuristic method• Optimization method

− Critical chain method

Visual 5-33

Previously,welookedathowtouseschedulingmethodstoallocatetimeforaproject.Now,wewilllookattheallocationofphysicalresourceutilizationandavailability.Explaintheresourcerequirements,resourceloading,andresourceleveling.



Class Problem 5.3: Project Planning (cont.)

Responsibility Matrix

Basedontheworkbreakdownschedule,identifyrolesandresponsibilitiesforthethreeworkersandcreatearesponsibilitymatrix.Foreachactivityintheprojectplan,usethelettersRandAtoindicatewhohasthemainresponsibility(R)fortaskcompletionandaccountability(A)foroutcome.Hint:Youmayfindithelpfultogroupthetasksasontheworkbreakdownstructure.

Task 1 2 3Worker



Class Problem 5.3: Project Planning (cont.)

Project Budget


Problem 5.3 Solution (cont.)

Example project budget

Worker 1 Worker 2 Worker 3 TotalTime worked in minutes

50 40 10

Labor cost $25 $20 $5 $50

Raw material cost

$40

Total cost $90

Labor rate: $30 per hour (fully loaded)

Visual 5-48*

Haveparticipantsfillinanestimatefortheprojectbudgettobuildonetable.Havethemusetherawmaterialandlaborcostsdiscussedearlierandtheminutesforeachworkerfromtheprojectschedule.

Note:Thelaborrateof$30belowisanarbitraryexampleinUSdollars.

Solution (cont.):

Intheexamplebelow,the50minutesforWorker1andthe40minutesforWorker2tosetup,assemble,andcleanuparegiven,aswellasthe10minutesthatWorker3spentinspectingandapprovingthetable.Thecostofrawmaterialwasestimatedat$40andlaborcostswere$50,foratotalestimateof$90pertable.

Worker 1 Worker 2 Worker 3 TotalTime worked in minutes

50 40 10

Labor cost $25 $20 $5 $50

Raw material cost

$40

Total cost $90

Labor rate: $30 per hour (fully loaded)

Session 6: Detailed Capacity Planning Participant Workbook Page


The Elements of Manufacturing Lead Time

Visual6‐29showsfiveelementsofmanufacturingleadtime.Eachelementhasitsowntime,whichisspecifiedonaper‐operationbasis.

Inaddition,thereisorderpreparationleadtime,expressedonaper‐orderbasis.Queue

queuetime—Theamountoftimeajobwaitsataworkcenterbeforesetuporworkisperformedonthejob.

─APICSDictionary

Frequently,astandardqueuetimeisspecifiedfortheworkcenter.

Setup time

setuptime—Thetimerequiredforaspecificmachine,resource,workcenter,process,orlinetoconvertfromtheproductionofthelastgoodpieceofitemAtothefirstgoodpieceofitemB.

─APICSDictionary

Setuptimealsoisreferredtoaschangeover.

Standardsetuptimeusuallyisspecifiedontheroutingandmayincludetimespentonthefollowing:

physicallypreparingequipment assemblingastationforworkonanewmanufacturingorder tear‐downtimefromthepreviousoperation internalsetup—setupproceduresperformedwhilethemachineorprocessisnot

running(Externalsetup,ortimeincurredinsetupprocedureswhilemachinesarestillrunning,isnotincludedinsetuptime.)

Run time

runtime—Thetimerequiredtoprocessapieceorlotataspecificoperation.Runtimedoesnotincludesetuptime.

─APICSDictionary

Standardruntimeusuallyisspecifiedontherouting.Wait time

waittime—Thetimeajobremainsataworkcenterafteranoperationiscompleteduntilitismovedtothenextoperation.Itoftenisexpressedasapartofmovetime.

─APICSDictionary



The Elements of Manufacturing Lead Time (cont.)


Elements of Manufacturing Lead Time

Waiting for operation to begin

Getting ready for the operation

Performing the operation

Holding after operation is complete

Transporting to next operation

Prepare manufacturing order

Queue Setup Run Wait Move

Visual 6-29


Continuetodiscusslead‐timeelementsbyreviewingtheelementsofmanufacturingleadtime.



Operation Versus Interoperation Time

Operationtime,orsetupandruntime,createsloadasshowninVisual6‐30.

Operationtimeateachworkcenterintheroutingconsistsofruntimeandsetuptime. Setuptimeincludesinternalsetuptime.Itdoesnotincludeexternalsetuptime,whichis

thetimespentonsetupwhenmachinesarestillrunning. Runandsetuptimesreflectstandardtimeoractualtimeneededateachworkcenter.

Interoperationtime—queue,wait,andmove—doesnotaffectload.

Thesemanufacturingleadtimeelementsdonotcontributedirectlytoload;rather,theyaffecttheestimatedtimingofloadafterorderrelease.

Interoperationtimescanberelativelylargeinthejobshopandbatchmanufacturingenvironments.

Itisimportanttonotethatinteroperationtimesinajobshopareelasticandcanbeinfluencedbyavarietyoftechniques.

Tosummarize:

Manufacturingleadtimecomprisesfiveelements. Twooftheseelements(setupandruntimes)arecalledoperationtime.Operationtime

impactscapacityplanningbecauseithelpstodeterminetheloadonspecificresources. Interoperationtime(queue,wait,andmove)doesnotaffectthemagnitudeofload,but

determineswhenloadfromsetupandrunwillbecreatedatspecificresources.

Whichelementsofmanufacturingleadtimecreateload?

______________________________________________________________________________________________

Whichelementofmanufacturingleadtimeisdirectlyaffectedbythequantitybeingproduced?

______________________________________________________________________________________________

Whichelementsofmanufacturingleadtimedonotaddvalue?

______________________________________________________________________________________________

______________________________________________________________________________________________

Whatroledoesinteroperationtimeplayincapacityplanning?

______________________________________________________________________________________________

______________________________________________________________________________________________



Utilization and Efficiency



Utilization− Intensity of use of resources− Measure actual, determine planned

Efficiency− Actual output versus standard− Measure actual, determine planned

Visual 6-31

Explainthatutilizationandefficiencyofworkcenteroperationsaffectthecapacitythatisactuallyavailabletomeetloadrequirements.Inthissection,wewillbrieflyreviewtheseconceptsandtheiruseincalculatingratedcapacity.

Utilization


Utilization

Manage queues (job shop)

Track plant performance—especially capital-intensive plants

Make-versus-buy decisions

Components of non-utilization− Scheduled nonproductive activity− Normal working patterns− Tactical under-utilization

Utilization = actual hours worked

available time (hours)

Visual 6-32

Describetheformulaforcalculatingutilizationanddirectparticipantstopage6‐43foranexplanationofavailabletime,ifnecessary.Brieflyreviewtheuseofutilizationanalysis.Spendafewminutesdiscussingthefactors(plannedandunplanned)thatcausetheutilizationratetobelessthan100percent:

schedulednon‐productiveevents normalworkingpatterns tacticalunderutilization

Note:Variablesetuptimes(undertacticalunderutilization)canbecalculatedbyspecifyingvaluesformajorandminorsetups.

Note:Utilizationisveryimportantinprocessindustrieswherecapitalcostsarehigh.However,inotherindustriesandincompaniesthatshifttoleanmanufacturing,utilizationislessimportant.

Discusstheconceptofactivatingaworkcenter.AccordingtotheAPICSDictionary,activationmeansputtingaresourcetowork.Activationtomaintainhighutilizationratesatnon‐constraintworkcentersisundesirable.




Theabilityofcapacitytoaccommodateloadisaffectedbytwomajorfactors,utilizationandefficiency,whichwewilladdressinthissection.

Utilization

Utilizationisameasureofhowintensivelyaresourceisbeingusedrelativetoitsavailabletime.(Seepage6‐43foranexplanationofavailabletime.)Utilizationisimportantforthefollowingtasks:

managingqueuesandleadtimesinthejobshoporbatchmanufacturingenvironment monitoringtheperformanceoftheplantincapital‐intensiveindustries makingkeybusinessdecisions,suchasmakeorbuy analyzingthehistoricalperformanceofaproductiveresource

Components of non-utilization

Visual6‐32showsthethreecomponentsofnon‐utilizationthathavetobetakenintoaccountindeterminingthecapacityofproductionresources.Thecomponentsarelistedbelowwithexamplesofeach.

schedulednonproductiveactivities preventivemaintenanceduringshifttime prototypeproduction reworkorders

normalworkingpatterns scheduledbreaks multipleworkcentersinacellnormallystaffedbyoneworker interruptionsforsupportactivities,suchaspalletwrapping,becauseofstaffing

constraints tacticalunderutilization

Limitutilizationperweekto,forexample,80percentofavailabletime.Limitingutilizationenablesvariabilityinactualrunandsetuptimes,improvesqueuemanagement,andenablesmachinestorunatlessthan100percentutilizationtoachievedesiredproductivityandqualityresults.

Allowforunplanneddowntimeoroccasionswhentherewillbenoworkarrivingattheworkcenter.

Intheoryofconstraintsproduction,limitorsynchronizetheuseofnon‐constraintworkcenterswiththethroughputofthecapacity‐constrainedresource.AnyadditionalactivationwillbuildupmoreWIPthanisneededtosupportoverallsystemthroughput.



Efficiency


Efficiency

Efficiency =

Compares clock, or actual hours worked, to standard hours produced

Allows tracking of cost performance

Can lead to reconsideration of standard hours

Is extremely sensitive to the experience of workers

standard hours producedactual hours worked

Visual 6-33

Discussthedefinitionofefficiency.HaveparticipantsdoProblem6.1toreviewandreinforcethekeyconceptslistedinthevisual.

Class Problem 6.1: Efficiency Calculation


Problem 6.1 Efficiency Calculation

1. Engineering studies indicate that the standard time to produce one unit is 20 minutes. A work center is expected to produce 24 units of item A on a particular day (eight-hour shift). At the end of the day, 30 units were produced. What is the efficiency?

2. The standard cost to produce one unit is $20. From a cost accounting standpoint, was production of item A above or below standard cost?

3. If the work center maintains about the same efficiency rate, what should be done to the predetermined standard hours currently in effect?

4. What are some of the possible causes for the deviation from standard hours in this case and in general?

Visual 6-34

Asktheclasstocalculatetheefficiencyofaworkcenterandthenanswerthreequestionsonefficiency.

Solution



1. (30 parts x 20 minutes)/60 minutes per hour = 10 standard hours

Efficiency = standard hours produced

actual hours worked=

10

8= 1.25

4. Efficiency is especially sensitive to the skill level of workers. Other factors influencing efficiency include machine slowdowns and non-conforming materials.

3. If the standard hours produced remain higher than actual hours worked, standard hours produced should be adjusted for more accurate capacity planning.

2. Because more units (standard hours) were produced in an eight-hour shift than expected with the same actual hours worked, then the actual cost per unit will have been lower than standard cost.

Visual 6-35*

1. If30unitsareproducedineightactualhours,thenthestandardhoursproducedequal10andtheefficiencyis1.25or125percent.

2. Becausemoreunits,orstandardhours,wereproducedinaneight‐hourshiftthanexpectedwiththesameactualhoursworked,thentheactualcostperunitwillhavebeenlowerthanstandardcost.

3. Ifthestandardhoursproducedremainhigherthanactualhoursworked,standardhoursproducedshouldbeadjustedformoreaccuratecapacityplanning.

4. Efficiencyespeciallyissensitivetotheskilllevelofworkers.Otherfactorsinfluencingefficiencyincludemachineslowdownsandnon‐conformingmaterials.



Reasons for queues

BecauseofthenegativeeffectonWIPinventorylevelsandleadtime,queuesneedtobemanagedandminimized.Therealsoaresomeargumentsinfavorofmaintainingappropriatelevelsofqueue.

Whydoqueuesexist?

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

Organizational reasons

Aqueueforbusinessreasonsisintendedasacushionagainstpotentialdisturbancesintheproductionprocess.Asanexample,Visual6‐48considerstwoadjacentworkcenters:Machine1andMachine2.

Ifbothworkcenterswereperfectlysynchronized,noqueuewouldbeneeded. Asaresultofamaterialshortage,overloading,scraporreworking,breakdown,or

absenceofworkers,adisturbancemayoccuratMachine1orattherawmaterialsissueprecedingMachine1.

Thequeuesbeforebothworkstationsserveasaninventorybuffer,preventingdisruptionstoeitherMachine1or2.

Thesizeofthequeuebeforeaworkcenterdependsonthedegreeofsynchronizationthatcanbemaintained,inpractice,withthepreviousworkcenters.

Whatfactorsshouldbeconsideredindeterminingthelengthofqueuesbeforenon‐constraintandcapacity‐constrainedorbottleneckresources?

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________




Queues to Cushion Disturbances

Queues to cushion disturbances in the production flow

Machine no. 2

Queue Queue

Machine no. 1

Source: Schönsleben P, Integral Logistics Management (CRC/St. Lucie Press, 2000) Visual 6-48


Economic reasons

Discusstheeconomicbenefitsofsequencingworkordersinthequeueandthepsychologicaleffectsqueueshaveonworkerproductivity.Alsodiscussthedownsideofqueues,includingincreasedleadtime,higherWIP,andhigherlevelsofinventoryinvestment.

Session 7: Detailed Capacity Management Participant Workbook Page


Determine Load

TheprimarysourcesofloadtobemeasuredbyCRPareasfollows:

plannedorderreleasesfromMRP openorderstatusinformationfromproductioncontrol

Othersourcesofloadtobeconsideredincludethefollowing:

productreworkrequirements scrapthatexceedsexpectations qualityrecalls

Totheextentthattheycanbepredicted,managersshouldtaketheseothersourcesintoaccountandprovideextracapacity,orsafetycapacity,thatcanbemadeavailablequickly.

Units of measure

Mostoften,workcenterloadsandcapacitiesaremeasuredintermsofhours,ratherthanunitsproduced.Timeisacommonelementwhenaworkcenterproducesmanydifferentparts,subassemblies,andassemblies.Hourstendtobeaveryflexibleunitofmeasureandgenerallyarestatedintermsofstandardhours.

Standardhourscanbeexpressedinmachineorlaborhours,dependingonwhetheraworkcenterismachine‐pacedorlabor‐paced.Applythistest:Wouldtheproductionratedoubleifweappliedtwicethenumberofworkers?

Iftheanswerismostlyno,theworkcenterismachine‐paced.Loadandcapacitystandardsshouldbeexpressedinmachinehours.

Iftheanswerismostlyyes,theworkcenterislabor‐paced,aswithahand‐packingoperation.Loadandcapacityareexpressedinlaborhours.



Simulate Scheduling of Load


Simulate Scheduling

WCCOperation 10

Week 1

WCAOperation 20

Week 2

WCBOperation 30

Week 3

Setup and Run

Wait and MoveQueueSetup

and RunWait and

MoveQueueSetup and Run

Wait and MoveQueue

Visual 7-14

Discussthesetwoimportantpointsaboutsimulating,ormodeling,theschedulingofplannedorderreleases:

BysimulatingtheschedulingofloadduringCRP,plannerscandeterminewhencapacitywillbeneededatworkcentersforplannedorderreleasesofcomponentsandenditems.

Thenplannersdeterminetotalloadonworkcentersinspecificperiodsbycombiningloadfromplannedorderreleases(r)withloadfromopenorders.

Explainthefollowingpointsaboutthesimulatedschedulingprocess:

Thepartinquestionhasathree‐weekleadtime,consistsofthreeoperations,andismadeinthreeworkcentersinthefollowingsequence:WCC,WCA,andWCB.

Backwardschedulingmostoftenisusedtoscheduleloadinspecificworkcentersinspecifictimeperiods.

Thebackwardschedulingmethodassumesaplannedreceiptdate,orduedate,inweek4.Thepartshouldbecompletedbytheendofweek3andbeavailableforuseatthebeginningofthenextweek,whenitisdue.

Theresultofsimulatedschedulingisaperiod‐by‐periodsummaryofloadandcapacityrequirementsatspecificworkcenters.Wewillshowshortlyhowthisinformationwillbeusedinworkcenterloadprofilesorreportsthatcompareloadandavailablecapacity.



Simulate Scheduling of Load

Loadisscheduledduringexecutionandcontrolofoperations.InCRP,asimulatedschedulingoftheloadonresourcesoccurs.ThesourcesforthisloadareplannedorderreleasesfromMRPandtheremainingworkforopenordersfromtheshopfloorcontrolreport.Thepurposeofthissimulation,ormodeling,istodetermineifadequateresourcesareavailableduringtheperiodwhentheyactuallyareneeded.

Theschedulingmethodmostcommonlyusedforplannedordersisbackwardscheduling,illustratedinVisual7‐14.Thevisualshowsthefollowing:

Theparthasaleadtimeofthreeweeks. Itpassesthroughthreeoperations. Itpassesthroughthreeworkcentersinthefollowingsequence:WCC,WCA,andWCB. Thebackwardschedulingmethodassumesaplannedreceiptdate,orduedate,inweek

4.Thepartshouldbecompletedbytheendofweek3andbeavailableforuseatthebeginningofthenextweekwhenitisdue.

Theresultofsimulatedschedulingisaperiod‐by‐periodsummaryofloadandcapacityrequirementsforplannedorderreleasesatspecificworkcenters.Theresultsofthesimulatedschedulingareusedtocreateworkcenterloadreportsorprofilesthatcompareloadandavailablecapacity.



Work Center Load Report



Capacity (120 hours)

OVEROVEROVER

Period

1 2 3 4 5 6

Work center 208

Visual 7-15

Explainthattheworkcenterloadreportcomparesloadandavailablecapacityatworkcentersbyperiod.Notethatitalsoiscalledaloadprofilebysomeauthors.

Askwhatthemajorsourcesofloadareinworkcenterloadreports.

Answer:

Plannedorderreleasesandremainingoperationsofopenorders

Askifloadandcapacityarenearlyinbalance.

Answer:

Loadandcapacityappeartobenearlybalancedovertherangeshownintheillustration

Askwhataplannerwouldlookforinaloadreport.

Answer:

(1) Alargeoverloadinperiod1causedbypastdueorders;(2)excessiveoverloadinindividualperiodsoroverall;(3)whethersafetycapacityhasbeenplannedtoaccommodateurgentjobsorrework;(4)sufficientoutlook.Isitenoughtolookaheadjustsixperiods?


Work Center Load Detail List

Week number Manufacturing order

Part number Operation Scheduled start

Scheduled complete

Load hours

1 12-678 ZY89-3872 040 Nov. 03 Nov. 06 32.0

12-719 TX23-8723 020 Nov. 02 Nov. 02 8.0

12-723 UD84-7492 040 Nov. 04 Nov. 09 64.0

Total week 1 104.0

2 12-699 PD63-8623 070 Nov. 09 Nov. 10 10.0

Work center 208 Capacity: 120.0 hours per week

Visual 7-16

Brieflyreviewanalternativeworkcenterloadreportformat.

Note:SeeBlackstonep.106and107forusefulexamplesofworkcenterorCRPloadreports.




TheprimaryoutputdocumentsandscreensfromCRParecalledworkcenterloadreportsorloadprofiles.(SeeVisual7‐15.)Whilesomeauthorsrefertothemasworkcenterloadreports,theAPICSDictionaryreferstothemasloadprofiles;wewillusebothtermsinthissession

Theworkcenterloadreportcomparestheloadsthatareexpectedateachworkcenterandtheavailablecapacityofeachworkcenterbyperiod.

Whatarethemajorsourcesofloadintheworkcenterloadreports?

______________________________________________________________________________________________

______________________________________________________________________________________________

Bar chart

Theworkcenterloadreportiscommonlyrepresentedbyabarchart.ThereportshouldcovertheplanninghorizonrequiredbytheplannerforCRP,whichcouldbeaslongastheplanninghorizonusedintheMRP.

Barchartsandlinegraphsareeasytointerpretandreadilyrevealwhetherunderloadoroverloadconditionsexistinparticulartimeperiods.Usingsuchchartsandgraphs,plannerscaninterprettheeffectsoftheloadconditionsoncapacitiesandpriorities.

Areloadandcapacitynearlyinbalance?

______________________________________________________________________________________________

______________________________________________________________________________________________

Whatwouldaplannerlookforinaloadprofile?

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

______________________________________________________________________________________________

Work center load detail list

Visual7‐16showsasimplifiedversionofanalternativeformatforconveyingcapacityandloadinformation.



Resolve Load-Capacity Imbalances


Balancing Load and Capacity

Increase capacity.

Reduce load.

Reduce capacity.

Increase load.

Redistribute load.

Visual 7-17

Explainagainthatinamaterial‐dominatedMRPandCRPsystem,plannersgiveprioritytoduedatesbyexercisingtheflexibilitythatisavailableintheuseofcapacityaswellasminimalamountsofflexibilityinscheduling.Thevisualsummarizestheadjustmentsthatcanbemadetobalanceloadandcapacity.

Askwhatspecificmeasurescanbeusedtobalanceloadandcapacity.

Answer:

(1)Implementingovertimeandextrashifts;(2)redeployingpersonnelbetweenworkcenters,whichusuallyiseveneasier;(3)developingawell‐preparedtemporaryworkforcesothatfrequentpeakloadscanbeeasilyhandled



Resolve Load-Capacity Imbalances (cont.)

Increase capacity

Addextrashifts:Thisincludesincreasingthelengthofshiftsorschedulingweekendshifts;itshouldbeusedinthemediumtermbecauseitisnotdesirabletobechangingscheduledshiftsfrequently.

Scheduleovertimeorweekends:Thisisagoodshort‐termsolutionwhencapacityshortfallsarepredictedtobetemporary

Addpersonnel:Personneladditionsarealonger‐termsolutionusedwhencapacityneedstobeincreasedoverfairlylongperiodsoftime.Hiringtemporaryhelp,whenpossible,mightbeappropriateforshort‐termneeds.

Cross‐trainandreassignworkers:Workerswithmultiplecapabilitiesprovideflexibilityneededtoreassignworkerstooverloadedworkcenters.Cross‐trainingofworkers,includingthoseinindirectlaborpositions,isaprerequisiteforaflexibleworkforce.

Addequipment:Thismaybeanoptionfortheshorttermifequipmentcanberented. Reducesetuptime:Thiscanbedonebystreamliningsetupsorusingdedicated

equipment.Reducingsetuptimeenablesmoreruntime,whichshortensoperationcycletimes.

Subcontract:Subcontractingmaybeasolutionforshort‐termcapacityissues.Thistypeofarrangementgenerallyhasastartdate,anenddate,andaspecificscopeofworktheoutsidecompanywillperformtohelpresolvetheoverload.

Outsourceworktooutsidemanufacturingfirms:Thisessentiallyisamake‐or‐buydecisionthatcanaccommodatelong‐termcapacityimbalances.Outsourcingusuallyisapermanentchoicethatcentersaroundafirm’sdecisiontofocusonitscorecompetenciesandcapabilities.




Reduce load


Overload Conditions: Reduce Load

Reduce lot sizes.

Change the MPS.

Visual 7-19

Reviewthemethodsofreducingload.

AskwhyreducinglotsizeinproductioncontroldoesnotrequirerevisionstotheMPS.

Answer:

Intheshort‐term,reducinglotsizescanbehandledwithfirmplannedorderstofreeupcapacity,butifthelot‐sizereductionisalong‐termsolution,themaster‐scheduledlotsizeswillhavetobeadjusted.

Note:Remindparticipantsthatreducinglotsizeresultsinatradeoffwithsetuptime.




Reduce load

Reducelotsize:Thiscanbeagoodshort‐termsolution,butitdependsonmanyfactors.Reducinglotsizewillreducetherun‐timeload,butattheexpenseofadditionalsetups.Considerthissolutionifparticularproductsmakeitdifficulttobalanceloadandcapacity.PlannerscanreducelotsizeinisolatedcasesbyusingfirmplannedordersintheMRPreplanningprocess.Tocoverextendedperiods,plannersmayneedtorevisetheMRPplanandthencompletelyreruntheCRPplan.Lotsizingconsolidatesindividualrequirementsthatarespreadovertime.Substantialchangesinlot‐sizingplanningfactorsmighthaveeffectsthatwouldbedifficulttopredictwithoutanalysis.

ChangetheMPS:Alastresortforreductionofloadwhenadequatecapacitycannotbeaddedintheshort‐termistochangetheMPS.Doingsocouldhaveanegativeeffectoncustomerserviceandisanindicationthatrough‐cutcapacityplanning(RCCP)isnotdoingitsjob.IftheMPSchanges,thenMRPandCRPmustbereruntoassesstheeffectsofthechanges.

Whydoesn’treducinglotsizeinproductioncontrolrequirerevisionstotheMPS?

______________________________________________________________________________________________

______________________________________________________________________________________________




Reduce capacity


Underload Conditions: Reduce Capacity

Eliminate shifts or reduce length of shifts worked.

Reassign personnel temporarily from direct labor job.

Visual 7-20

Reviewthemethodsforreducingcapacity.Increase load


Underload Conditions: Increase Load

Make items normally purchased or subcontracted.

Release orders early.

Increase lot sizes.

Increase the MPS.

Subcontract work for others.

Visual 7-21

Reviewthemethodsforincreasingload.

Askwhatthedisadvantagesandpotentialbenefitsareofincreasingloadinordertobalancecapacity.

Answer:

Disadvantages:Inventorywillincrease;inventorymaybecomeobsoleteifproducedtoosoon.

Benefits:Costoverheadwillbeabsorbedoverahighervolumeofproducts;workforceskillswillberetained.




Reduce capacity

Eliminateshiftsorreducelengthofshiftsworked:Mightincludetransferringorlayingoffpersonnelorsendingthemtotraining.Thismedium‐termsolutionwouldordinarilybetakenonlyinthecontextofotherfactors,suchasageneralbusinessslowdown.

Reassignpersonneltemporarily:Mayincludeshiftingpersonnelfromunderloadedtooverloadedworkcenters,ortopreventivemaintenanceorotherindirecttasks.

Increase load

Makeitemsnormallypurchasedorsubcontracted:Thismedium‐rangesolutionisthereverseoflettingworkoutforsubcontracting.Itrequiresamake‐or‐buyanalysis.Note:Inalogisticsnetwork,asubcontractormaybeconsideredapartnerandanextensionofthecompany.Bringingworkbackinhousemightcompensateforareductioninload,butattheexpenseofapartner.

Releaseordersearly:Releasingordersearlyisnotadvisableexceptintemporarysituations.Thisoptiontendstobuildupinventoriesofworkinprocess(WIP)andfinishedgoodswhileexpeditingneededrawmaterialsandthusshouldbeconsideredaload‐levelingoptionratherthanameanstocorrectcumulativecapacityexcess.

Increaselotsizes:Anoptionthatcouldbeaccomplishedbyusingfirmplannedorders;however,italsoproducesadditionalinventoryandshouldbeashort‐termsolution.

IncreasetheMPS:IncreasingtheMPSistheleastdesirablesolution,unlesstherearesalesorsalesprojectionstosupportit,becauseitrequiresarerunofbothMRPandCRP.Thissolutionmighthaveunforeseenresultsonthebalanceofworkloads.

Subcontractworkforothers:Whensubcontractingforothersisfeasible,itcanaccommodateshort‐orlong‐termloadimbalances.

Whatarethedisadvantagesandpotentialbenefitsofincreasingloadinordertobalancecapacity?

______________________________________________________________________________________________

______________________________________________________________________________________________




Redistribute load


Redistribute Load

Use alternate work centers.

Use alternate routings.

Modify priorities by adjusting operation start dates forward or backward.

Hold orders in production control.

Revise the MPS or lot sizes.

Overlap operations and split lots.

Visual 7-22

Explainthetechniquesforredistributingload.

Asktheadvantagesofloadleveling.

Answer:

Loadlevelingmakesiteasiertoplanandmanageproduction,asstaffinglevelsandmachineutilizationaremorestableandpredictable.




Inadditiontoreducingorincreasingload,asdiscussedabove,amanagermaychoosetoredistributeloadsothatitislevelormorecompatiblewithcapacity.Loadlevelingresultsinmorestableworkforcedeploymentandmachineuse.

Redistribute load

Usealternateworkcenters:Sometimesaworkcenterforacertainoperationhasalternates.Thesealternatesusuallyarelessefficientormorecostly,buttheyprovideanopportunitytoshiftworkfromanoverloadedtoanunderloadedworkcenterinthesametimeperiod.

Usealternateroutings:Attimestheoptimalsequenceshownbyaroutingisnotmandatoryforalloperations.Byconsideringalternativesequences,workloadsbetweenworkcentersmightbeshiftedintodifferentperiods.

Modifyoperationpriorities:Theplanneradjustsoperationstartdatesforwardorbackwardintimebytailoringtheroutingforanorderatrelease.Ineffect,modifyingprioritiestakesadvantageofthevariabilityofqueuetimeandabsorbssmallvariationsinload.Thisoptionoftenistherightoneforloadleveling,sinceorderduedatesremainvalidandtheinformationiscommunicateddirectlytothedispatchingsysteminproductioncontrol.

Holdordersinproductioncontrol:Holdingordersdeferstheloadonresources,butmayincreasedeliveryleadtimes,causeduedatestobemissed,andpreventattainmentoftheMPS.Ifloadlevelingistheobjective(forexample,anoverloadedplanningperiodisfollowedbyanunderloadedone),holdingordersinproductioncontrolmightbeaviableoption.Theorderduedatemaystillbeachievable,asqueuetimevariationmightpermittheordertobecompletedontime.

RevisetheMPSorlotsizes:ThisoptionmayhaveratherunpredictableresultsafterMRPandCRParererun.Theproblemmaybecomeaggravatedafterfollowingallthenecessaryreplanningsteps.

Runoverlappingoperationsoruselotsplitting:Bothtechniquescanbeusedtoexpediteproduction.Inlotsplitting,orderquantitiesaredividedandprocessedsimultaneouslythroughsimilarequipmentorworkcenters.Overlappingmaynotbeusefulwhenmultipletransfersofmaterialfromoneworkcentertothenextarecostlyortime‐consuming.

Whataretheadvantagesofloadleveling?

______________________________________________________________________________________________

______________________________________________________________________________________________



Prepare Operating Plan or Revise the MPS


CRP Model

Capacity requirements

planning

Determine load on resources over a period

of time

Simulate scheduling of load at work

centers by period

Create work center load reports

Resolve load-capacity imbalances

A

B

C D

E

Revise MPS if not resolved

Prepare operating plan for execution

Visual 7-23

Usethisslidetoreorienttheparticipants.WenowareatapointintheCRPcyclewherewecanpreparetheoperatingplanforexecutionorworkwiththemasterschedulertorevisetheMPS.

Prepare the operating plan for execution

Explainthatload‐capacityimbalancesmostoftencanberesolved,theelementsofaworkableexecutionplancanbeputinplace,andproductioncontrolcanproceed—enablingthemanagertoexecuteaplanthatmeetspriorityobjectives.

Revise the MPS


Revise the MPS

CRP’s first objective is to make capacity fit load.

If capacity is not available, revise master production schedule.

Explode requirements again during next MRP run.

If required, evaluate further; planners may need to take action.

Visual 7-24

AlthoughthefirstobjectiveofCRPistomakecapacityavailableforload,doingsomightnotbepossible.Insuchacase,theMPSmustberevised.

Pointoutthatifchronicoverloadingofcapacityoccurs,revisingtheMPSisonlyashort‐termsolution.Morecapacitywillbeneededtoachieverevenueandcustomerservicegoals.



Performance Check

Selectthebestanswertoeachofthefollowingquestions.

1. WhichofthefollowingstatementsappliestoCRP?

a. CRPisastand‐aloneoperation;itdoesnotdependonotherplanningandcontrolactivities.

b. CRPcanbeusedtocompensateforoverloadedconditionscausedbyhigher‐levelloadandpriorityplans.

c. CRPisusedinconjunctionwithMRP.d. CRPmostcommonlyisusedinrepetitiveorprocessproduction.

2. WhichofthefollowingisadirectinputtoCRP?

a. workcenterloadreportb. dispatchlistc. routingdatad. preventivemaintenanceschedule

3. WhichofthefollowingisanoutputofCRP?

a. routingdatab. workcenterloadreportc. preventivemaintenancescheduled. dispatchlist



Answers(cont.):

4. d—Addingshiftsandequipmentwillincreasecapacity.Also,schedulingovertimewillincreasecapacity.

5. b—Answeraidentifiescapacitybottlenecksratherthanmaterialproblems.Answercfocusesonlaborandequipmentratherthanmaterials.Answerdisusedinjobshopandbatchproductionenvironments.

6. a—Time‐phasedvisibilityoftheloadandcapacityimbalancesisakeyadvantageofCRP.Answerbisincorrectbecausecomputerprocessingtimecouldbeextensive,especiallywhenthereareimbalances.CRPisaprocessthatisdrivenbyMRPanditsvariousconsolidationprocessesandmaynotclearlyshowtheeffectsofmasterschedulerevisions,socisincorrect.CRPisnotequallyapplicableinalltypesofenvironments;therefore,answerdisincorrect.

7. c—Process‐dominatedschedulingisusedwhencapacitymanagementisahigherprioritythanduedates,soIandIVarethecriteriaforusingprocess‐dominatedscheduling.



8. Material‐dominatedschedulingisbestusedinthefollowingsituations:

I. Capacityisrelativelyexpensive.II. Materialisrelativelyexpensive.III. Capacityisflexible.IV. Duedateisflexible.

a. IandIIIb. IIandIVc. IandIVd. IIandIII

9. Inprocessflowscheduling,processtrainsarescheduledusingreverseflowscheduling,forwardflowscheduling,ormixedflowscheduling.Mixedflowschedulingmeansthefollowing:

a. Anintermediatestageisscheduledfirstwhenthemainbottleneckmovestoaprocessorinthatstage.

b. Thefirststageisscheduledfirstwhendemandislow.c. Thelaststageisscheduledfirstwhenthefirststageisconstrainedbymaterial

supplyonly.d. Anyofthesemethodscanbeused.

10. Whichofthefollowingstatementsaretrue?Theformalprocesstrainrepresentation

I. illustratesgeneralizeddefinitionofresources.II. illustratesdivergentproductstructure.III. supportsstage‐by‐stagescheduling.IV. supportscontinuousflowwithinastage.

a. Ionlyb. IIandIIIonlyc. I,II,andIIIonlyd. I,II,III,andIV



Thispageleftintentionallyblank

Session 8: Establishing Supplier Relationships Participant Workbook Page


Collaborative Relationships

Visual8‐21remindsusofthecontinuuminsupplyrelationships.Inthissectionofthecourse,wewillreviewtwotypesofcollaborativerelationships:

strategicalliances supplierpartnerships

Asdiscussedearlierinthissession,botharehighervalue‐addedrelationshipsthanthearm’s‐lengthrelationshipsshownontheleftsideofthecontinuum.Someauthorsseedistinctdifferencesbetweenthesetwoformsofcollaborativerelationships,butthereissomeoverlapaswell.

Strategic Alliances

Astrategicallianceinvolvestwoormoreorganizationsthatshareinformation,participateinjointinvestments,anddeveloplinkedandcommonprocesses.Simchi‐Levyetal.inDesigningandManagingtheSupplyChain(2008),3rded.,chap.8,addressfourtypesofstrategicalliancesthataresignificantinsupplychainmanagement:

technicalandoperationalpartnering distributorintegration thirdpartylogistics(3PL) retailer‐supplierpartnerships(RSP)

Let’sreviewthefirsttwotypes.Wewillreview3PLandRSPinSession9inthecontextofdeliveryapproachesthatacceleratethesupplychain.

Technical and Operational Partnering

IBM’spartnershipwithIntelandMicrosoftintheearly1980swasanexampleofastrategicallianceinvolvingtechnicalandoperationalpartnering.IBMtookapersonalcomputer(PC)tomarketwithouthavingtodevelopamicroprocessororoperatingsystem.ThesecomponentswereprovidedbyIntelandMicrosoftinabusinessagreementthatthatdidnotinvolvesettingupalegaljointventure.Ajointventureisaformal,legalentitycompletewitharticlesofincorporationinwhichpartiesagreetoriskequitycapitaltoachievespecificbusinessobjectives.

Thestrategicalliancefocusedononeproduct:thePC.Thegoalwastocreateacompetitiveadvantageforaspecificproductorproductline.Itwasnotapermanentorexclusiverelationship.OtherPCmanufacturerswerelaterabletosourcethesamecomponentsasIBMfromIntelandMicrosoft,andtheIBMPCeventuallylostitscompetitiveadvantage.



Strategic Alliances (cont.)


Strategic Alliances

Technical and operational partnering

Distributor integration

Third-party logistics (3PL)

Retailer-supplier partnerships

Visual 8-22


Distributor Integration

Leadadiscussiononthekeyelementsofdistributorintegration:

Itisastrategythatleveragesthenaturalstrengthsofmanufacturersandtheirdistributors:distributorsknowtheirendusersbetter;manufacturersprovidecriticalexpertiseandparts.

Highlevelsofinventoryinthedistributionnetworkcanbereducedbyholdinginventoryathigherlevelsofthedistributionnetwork.

Agreementscanbeputinplacetoencouragesharingofinventoryinformation,parts,andexpertiseamongdistributors.

Distributorintegrationisaformofriskpoolingasappliedtoinventorymanagement.

Note:RefertoSimchi‐Levyetal.,DesigningandManagingtheSupplyChain,chap.8,p.260–262



Supplier Partnerships

Authorsandpractitionerssometimesusethetermssupplierpartnershipsandstrategicalliancesinterchangeably.

Still,thiscoursetakesthepositionthatthereisonenotabledifferencebetweenthetwotypesofcollaboration:

Comparedtoasupplierpartnership,astrategicalliancelikelyhasaclear,commonstrategicgoalandanagreed‐uponbusinessplan.ThestrategicallianceinvolvingIBM,Microsoft,andIntel,forexample,hadaclearbusinessgoal:toachieveearlymarketshareleadershipinthePCmarketbyleveragingthecompetenciesofthreeleadingbrands.

Insupplierpartnerships,organizationsaremorelikelytohavecoordinatedratherthancommonbusinessplansthroughwhichtheystrivetogainmutualcompetitiveadvantageintermsofquality,speed,dependability,flexibility,andcost.

Value Proposition Areas

Ratherthanfocusingonthedifferencesbetweenstrategicalliancesandsupplierpartnerships,however,weshouldfocusonhowpartnershipscreatemorevalueforbothpartiesintherelationship,asopposedtoanarm’s‐lengtharrangement.

Product development

Often,manufacturersdonothavethecompetencetodesignandmakepartsthatarecriticaltotheirproducts.Companiescansolvethisproblembycollaboratingwithothermanufacturersonproductandprocessdesign,andbyusingconcurrentengineeringtospeedtime‐to‐marketofnewandredesignedproducts.

Operational integration and efficiencies

Supplychainmanagementdealswiththeinterconnectionbetweenmaterialtransformationprocessesinenterprisesthatselltoandbuyfromeachother.Supplierpartnershipsareameanstoimprovetheflowandthroughputofmaterialsinthesupplychainbyusing,forexample,leanmethodstoshortenleadtimesandreduceworkinprocess.Usingsuchmethodsalsoensuresthat,acrossthesupplychain,therateofproductioniscoordinatedandconsistentwithcustomerdemand.

Quality management

Supplierpartnershiparrangementscanincludestringentqualitystandardsandpracticestoensurethattheproductreflectsthevoiceofthecustomer,thatqualityisdesignedintoit,andthatinspectionwillnotbeneededbythecustomer.

Investment risk

Supplierpartnershipscanaffectinvestmentdecisions.FordMotorCompanyfoundthat,informingpartnershipswithkeysuppliers,theycouldassurethosesuppliersthatinvestinginequipmentneededtomeetFord’ssubassemblyrequirementswasamanageablerisk.



Supplier Partnerships (cont.)


Supplier Partnerships

Objectives are similar to strategic alliances.

Partnership creates more value for both parties.

Value proposition areas include the following:− product development− operational integration and efficiencies− quality management− management of investment risk− flexibility− access to markets

Visual 8-23


Continuediscussingthetypesofvalueaddedbysupplierpartnerships.

Askwhatothervaluepropositionareastheremightbe.

Answer:

Otherexamplesmightinclude

collaboratingonpackagingtoreducecostsrelatedtooperationalintegrationandefficiencies

strengtheningtechnologicalcapabilitiesofonepartnerbylearningfromanotherpartnerthatalreadyhasthesecapabilities—resultinginafasterlearningcycle

poolingresourcesandexpertisetoovercomehighmarketentrybarriers buildingfinancialstrengthforbothpartieswithhigherrevenuesresultingfromthe

partnership;reducingoperationsandadministrativecostsbecauseofcost‐sharingortheexpertiseofoneoftheparties.

Note:RefertoSimchi‐Levyetal.,DesigningandManagingtheSupplyChain,chap.8,p.247–249.



Operational Communication

Enteringintoaleanrelationshiprequiresanincreasedlevelofdetailinupfrontplanningandintheexecutionofcontracts.Changesinthemethodsandtimingofcommunicationmayberequired.Communicationchannelsneedtoextendbeyondtheconventionalpurchasingandsalesrelationshiptoincludeengineering,qualitycontrol,manufacturing,andlogistics.

Technology

Manualmethodsofcommunicationsuchaspurchaseorders,productspecifications,schedules,qualityspecifications,anddeliveryinformationaretooslowtosupportafast,responsiveexchangeofinformation.Movingtowardanintegratedrelationshiprequirestheestablishmentofquickcommunicationsystems,suchaselectronicdatainterchange,basedonrecognizedstandardsestablishedbytheAmericanNationalStandardsInstitute(ANSI).Othersystemsincludethebarcodingofshippinglabelsandtheuseofradiofrequencyidentification(RFID)tagstoexpeditethetrackingofmaterialinthewarehouseandintransit.

Planner/Buyer Approach

Apracticethathasgrowninpopularityistheuseofplanner/buyerswhoareindirectcontactwiththeMRPsystemandsuppliers.Theyareresponsibleforthefollowing:

materialplanningforitemsundertheircontrol,suchasmatchingmaterialrequirementswithsuppliers’manufacturingcapabilitiesandconstraints

communicatingschedulestosuppliers followinguponandresolvingsupplierproblems,andnotifyingthemasterschedulerof

delaysthatwillaffecttheschedule

Whensharedwithsuppliers,anMRPschedulecanserveasareleasedocumentandasaforecast,dependingontheplanninghorizon.

Technical and Quality Specs

Aleanenvironmentassumesthatqualityrequirementswillbemetbecausethereislittleornosafetystocktomakeupfordefectivematerial.Apreventiveplanwillidentifytherootcausesofproblemswhentheyoccurandmakeitpossibletocorrectthem.

Thesuccessofleanrequiresthatqualityspecificationsbeclearlycommunicatedtothesupplier.Thesuppliershouldhaveasysteminplacetorespondquicklywhenthecustomerreportsthereceiptofadefectiveproduct.



Operational Communication (cont.)


Operational Communication

Technology

Planner/buyer approach

Technical and quality specs

Scheduling

Delivery

Engineering drawings and changes

Packaging

Transportation

Visual 8-36


Scheduling and Delivery

Explainthatthecustomer,orplanner/buyer,andsupplierneedtofrequentlydiscussthescheduleandidentifypointsthatcouldaffectcost.

Discussthat,inaleanenvironment,deliveryfrequencyisdesignedtoprovideacontinuousflowprocesswhileminimizingtheneedforbufferstock.

Engineering Drawings/Changes

Discusstheimportanceofrapidlycommunicatingengineeringchangeorderstosuppliersandthebenefitofseekingtheirinputonprocessdesignchangesormaterialsthatmightberequired.

Packaging

Explainhowthecustomerandsupplierneedtoworktogethertoagreeonpackaging.

Transportation

Explainthatthecustomerandsuppliermustagreeonatransportationsystemthatcanreacttothecustomer’sneeds.

Discusstheimportanceofselectingtransportationsuppliersascarefullyasyouwouldproductsuppliers.

Askwhereintherelationshipcontinuummosttransportationsuppliersarelocatedandiftheyshouldbemovedtoadifferentlocationinthecontinuum.

Answer:

Assumingmanytransportationsuppliersarelocatedtowardtheleft,ornon‐collaborative,side,appropriateconsiderationshouldbegiventomovingthemtotheright,towardthird‐partylogisticsoutsourcing.

Session 9: Supplier Partnerships Participant Workbook Page


Learning Objectives

ProductandProcessDevelopment Explainthesignificanceoftime‐to‐market. Differentiatebetweenconventionalandconcurrentengineeringapproaches. Describeatleastthreeadvantagesofsupplierinvolvement.

Purchasing Explaintherelationshipbetweenthelevelofsupplierintegrationandchoiceof

purchasingapproach. Describeatleastthreeexamplesofhowsuppliersandcustomersusecontractsto

managerisk. Describethebenefitsandrisksofglobalsourcing.

SupplyChainAcceleration Explainthesignificanceoftotalcostofownership(TCO)inpurchasingdecisions. Describeatleasteightgoalsandbenefitsofsupplierpartnerships. Listfivekeyareasoftrainingtosupportsupplierpartnershipgoals. Describethevalueofengineering’sroleinsupplierpartnerships. Listthreemainfunctionsofsupplierrelationshipmanagementsystems. Explainhowsupplierpartnershipsareabletobenefitfromdeliverytechniquesthat

acceleratethesupplychain. Describethepurposeofsupplierratings.



Product and Process Development

References:Arnoldetal.,IntroductiontoMaterialsManagement,7thed.,chap.14;Simchi‐Levyetal.,DesigningandManagingtheSupplyChain,3rded.,chap.1.and11;EpsteinandBuhovac,2nded.,MakingSustainabilityWork:BestPracticesinManagingandMeasuringCorporateSocial,Environmental,andEconomicImpacts,chap.8;Bichenoetal.,TheLeanToolbox,4thed.,chap.15.


Product and Process Development

Translate customer needs into product design specifications.

Design the process for making the new product.

Time to market is of critical importance.

Conventional approach: serial involvement of various functions.

Concurrent engineering: simultaneous involvement of functions in a team approach.

Visual 9-6

Askparticipantsforexamplesofindustriesinwhichnewproductdevelopmentisofstrategicimportance.

Answer:

Examplesincludepharmaceuticals,thefashionindustry,consumerelectronics,andmotorvehicles.

Explainthatproductdevelopmenttranslatesthecustomer’sneedsintodesignspecifications.Thesespecificationsareusedbyprocessengineeringtodevelopaprocessthatcreatestheproductthecustomerwants.

Askwhatfunctionalareasofthefirmareinvolvedindesigningnewproductsandprocesses.

Answer:

Severalfunctionsareinvolvedinconceptualdevelopment,productdesign,andprocessdesign.Theseincludeoperations,researchanddevelopment,marketingandsales,productengineering,processengineering,andprocurement.

Askwhydevelopinganearlyadvantageinthemarketforaproductisofcriticalimportance.

Answer:

Duringtheproductintroductionandearlygrowthstagesoftheproductlifecycle,profitmarginsarehigh.Thesestagescomprisethecompetitiveadvantageperiod.Also,companiesthatbringproductstomarketbeforetheircompetitorsoftensustainmarketleadership.



Conventional Versus Concurrent Engineering

Theconventionalapproachtoproductandprocessdevelopmenthasbeenaserialapproach.

Differentdepartmentsreviewandmakeinputstothedesignprocessoncemanagementhasapprovedtheproductproposalandthenpassiton.

Conflictsbetweenmarketingpersonnelwhobelievethatmorelegroomandcomfortareimportantfeatures,productengineerswhobelievethattechnicalperformanceismoreimportantthancomfort,andfinancepersonnelwhowanttokeepproductioncostsdownmaynotberesolveduntillateinthedesignprocess.

Concurrentengineeringisawidelyusedpracticetoday.Ithasseveralkeycharacteristics:

Theinputsofdifferentfunctionsareconsideredsimultaneously. Simultaneousinputismadepossiblebyacross‐functionalteamapproachinwhich

participantsincludingcustomersandsuppliersworkacrossdepartmentallinestodevelopaproductwithfeaturesthecustomerwants.

Supplier Involvement

Therearetwoimportantadvantagestoinvolvingsuppliersintheconcurrentengineeringprocessearlyon:fastertime‐to‐marketandtheabilitytotapthesupplier’sexpertiseinproductandprocessdesign.

Involvingsuppliersearlyinthedevelopmentprocessenablesbothpartiestosharetechnologyanddesigninformation.

Animportantbenefitofinvolvingsuppliersearlyisthatdoingsosimplifiesproductdesignsandincreasesstandardization.

Simplified,morestandardizedproductdesignsresultinproductsthatareeasiertomanufactureandassemble.

Reducingdesigncomplexityintheinitialproductdevelopmentstageresultsinfewerengineeringdesignchangesandqualityproblems.

Leveragingasupplier’stechnicalcapabilitycansavetimeandresources. Earlyinvolvementbythecurrentsuppliersreducestime‐to‐marketsubstantially.



Purchasing

References:Arnoldetal.,IntroductiontoMaterialsManagement,7thed.,chap.7and14;George,LeanSixSigma(2002),chap.13;Simchi‐Levyetal.,DesigningandManagingtheSupplyChain,3rded.,chap.4,9,and10;Monczkaetal.,PurchasingandSupplyChainManagement,4thed.,chap.14and16;EpsteinandBuhovac,2nded.,MakingSustainabilityWork:BestPracticesinManagingandMeasuringCorporateSocial,Environmental,andEconomicImpacts(2008),chap.4.;Bichenoetal.,TheLeanToolbox,4thed.,2009,chap.16.

Purchasing Approaches


Purchasing Approaches

Purchase orders

Blanket orders

Lean

Consignment inventory

Vendor-managed inventory (VMI)

Visual 9-11

Discusstheexamplesofapproachesusedtoordermaterial,parts,andservicesfromsuppliersgivenonVisual9‐11.Theapproachesrangefromthoseusedwhenthereislittleornooperationalintegrationbetweensellerandbuyertothoseusedwhenoperationalintegrationishigh—asinlean,consignment,andvendor‐managedinventory.Theseapproachesinclude

purchaseorders:formalauthorizationforapurchasetransaction;lowoperationalintegration

blanketorderreleases:routineorderingonaregularbasisofproductionitemsandmaintenancesuppliesagainstablanketordercontract

leanpurchasingsystem:involvescommittedsupplychainpartners;buyerssendstableproductionschedulestosuppliersonaregularbasis;releaseofmaterialtothebuyerisbasedonkanbansignals

consignmentandvendor‐managedinventory:detailsinSession8.



Types of Contracts

Suppliersandtheirbuyersoftendevelopagreementsorspecialcontractstoachievetacticalandstrategicobjectives.Selectedexamplesofsuchagreementsorcontractsarepresentedbelow.Manyofthemreflecttheneedtomanageandhedgeriskinrelationshipswithsupplychainpartners.

Buy‐backcontracts Thesellergivesthebuyertheincentivetoordermoreunitsbyagreeingtobuybackunsoldgoodsatanegotiatedpricethatishigherthansalvagevaluebutlowerthanfullpurchaseprice.Bothpartieshedgetheirrisk.

Revenue‐sharingcontracts

Buyersharessomeoftherevenuefromitssaleswithitssupplierasaconditionforadiscountedwholesalepricefromthesupplier.

Pay‐backcontracts Thebuyer,suchasadistributor,consentstoanagreed‐uponpriceforitemsitdoesnotpurchasefromthemanufacturer.Themanufacturer’sriskiscushionedatapricethedistributoriswillingtopaytoavoidstockouts.

Cost‐sharingcontracts Thedistributoriswillingtosharesomeproductioncostswithamanufacturerinreturnforadiscountonthewholesaleprice.Productioncostsarehigh,andthebuyeriswillingtogivethemanufacturersomeincentivetoproducemoreunitsinordertobufferagainstastockout.

Pricingagreements Thebuyerisallowedtobuyitemsfromapricelistorcatalogatanegotiateddiscountduringacontractperiod.

Capacityreservationcontracts

Themanufacturerrevealsitsforecastofbusinessactivitybypayingtoreserveagivenlevelofcapacityatitssupplier.

Whywouldadistributorbewillingtosharesomeoftheproductioncostswithamanufacturerinreturnforadiscountonthewholesaleprice?

______________________________________________________________________________________________

______________________________________________________________________________________________



Global Sourcing


Global Sourcing

Cost and non-cost advantages

Supply chain management challenges

Importance of strategic sourcing

Visual 9-13

Discusstheadvantages,challenges,andinherentrisksofglobalsourcing,notingthatthelocationofabusinessmaymakeitpronetosocialandpoliticalrisksthataffectprocurement.

Askwhatsomeofthebenefitsandadvantagesofglobalsourcingmightbe.

Answer:

Accesstoinexpensivelabor,accesstoexpertiseortechnologynotavailablelocally,entryintothelocalmarketabroad.

Askwhatsomeofthesupplychainmanagementchallengesofglobalsourcingmightbe.

Answer:

Morecomplexpurchasingprocess:extratime,costsanddocumentation,currencyfluctuations;logisticsandquality:longerleadtimesandtransportationcosts

Askforexamplesofglobalsourcingrisks.

Answer:

Financial,politicalinstabilityorcorruption,terrorism,transportation,non‐governmentalorganizations(NGOs),orenvironmentalpollutionrisks

Askforwaysthatglobalsourcingrisksmightbemitigated.

Answer:

Implementariskmanagementplantoidentifyrisks,evaluatepotentialeffects,measureimpacts,andidentifyandimplementsolutions.Communicateresultsandmonitorrisksastheyevolve.Specificriskmitigationsmayincludeinsurance,redundancyofsuppliers,employeetraining,andproductdiversification,andshouldbeconsideredagainsttheirtradeoffinprice.

Askwhystrategicsourcingisappropriateforglobalsourcing.

Answer:

Strategicsourcingsystematicallyaddressestherisksassociatedwithglobalsourcingandhelpstodeterminetheappropriateprocurementstrategyfordifferentmaterials,products,andservices.



Global Sourcing

Intheglobaleconomy,morebusinessesaresourcingandsellingmaterials,products,andservicesoutsidetheirhomecountries.Formanufacturersinsomecountries,therearebenefitsandchallengestoglobalsourcing.

Whataresomeofthebenefitsandadvantagesofglobalsourcing?

______________________________________________________________________________________________

______________________________________________________________________________________________

Whataresomeofthesupplychainmanagementchallengesofglobalsourcing?

______________________________________________________________________________________________

______________________________________________________________________________________________

Whataresomeexamplesofglobalsourcingrisks?

______________________________________________________________________________________________

______________________________________________________________________________________________

Howmightglobalsourcingrisksbemitigated?

______________________________________________________________________________________________

______________________________________________________________________________________________

Whyisstrategicsourcingappropriateforglobalsourcing?

______________________________________________________________________________________________

______________________________________________________________________________________________



Supply Chain Acceleration

References:Arnoldetal.,IntroductiontoMaterialsManagement,7thed.,chap.15;George,LeanSixSigma(2002),chap.13and14;Simchi‐Levyetal.,DesigningandManagingtheSupplyChain,3rded.,chap.8and14;Monczkaetal.,PurchasingandSupplyChainManagement,4thed.,chap.11;EpsteinandBuhovac,2nded.,MakingSustainabilityWork:BestPracticesinManagingandMeasuringCorporateSocial,Environmental,andEconomicImpacts(2008),chap.3and8;Bichenoetal.,TheLeanToolbox,4thed.,chap.16;Kerzner,ProjectManagement:ASystemsApproachtoPlanning,Scheduling,andControlling,11thed.,chap.8.;TheG4SustainabilityReportingGuidelineshttps://www.globalreporting.org/resourcelibrary/GRIG4‐Part1‐Reporting‐Principles‐and‐Standard‐Disclosures.pdf


Supply Chain Acceleration

Total cost of ownership

Partnership goals and benefits

Training

The role of engineering

Supplier relationship management

Delivery approaches

Supplier rating systems

Visual 9-15

Brieflyreviewthefactorsthat,fromapurchasingexecutionandsupplierrelationshipstandpoint,contributetosupplychainspeedandflexibility.

Total Cost of Ownership


Total Cost of Ownership

Acquisition costs

Usage costs

End-of-life costs

total cost of ownership (TCO)—In supply chain management, the sum of all the costs associated with every activity of the supply stream. The main insight that TCO offers is the understanding that the acquisition cost often is a very small portion of the total cost of ownership.

─APICS Dictionary

Visual 9-16

Explainthatinanalyzingacontractorasingletransaction,buyersneedtoconsidermorethantheobviouscosts,suchaspurchasepriceandtransportationcost.Stresstherelevanceofsupplierpartnershipsinminimizingtotalcostofownershipforbothparties.

Conductashortdiscussionofhowparticipants’companiesincludetotalcostofownershipconsiderationsintheirpurchasingdecisionsandwhethertheyusethecostfactorsshowninthevisual.

Appendix

© 2016 APICS A-2a Instructor Guide Version 5.4

Bibliography

APICSDictionary,14thed.,2013.

APICSCPIMDetailedSchedulingandPlanningReprints,2010.

Arnold,J.R.,S.N.Chapman,L.M.Clive,IntroductiontoMaterialsManagement,7thed.,PrenticeHall,2012.

Bernard,P.A.,IntegratedInventoryManagement,Wiley,1999.

Bicheno,J.andHolweg,M.,TheLeanToolbox,4thed.,PICSIEBooks,2009.

BlackstoneJr.,J.H.,CapacityManagement,CengageLearning,2002.

Epstein, MarcJ.,andBuhovac,AdrianaR.,MakingSustainabilityWork:BestPracticesinManagingandMeasuringCorporateSocial,EnvironmentalandEconomicImpacts,2nded.,GreenleafPublishingLimited,2008.

Fogarty,D.W.,J.H.BlackstoneJr.,andT.R.Hoffmann,ProductionandInventoryManagement,2nded.,South‐WesternPublishingCo.,1991.

Garrison,R.H.andE.W.Noreen,ManagerialAccounting,12thed.,McGraw‐Hill,2008.

George,M.,LeanSixSigma:CombiningSixSigmaQualitywithLeanProductionSpeed,McGraw‐Hill,2002.

Haksever,C.,B.Render,R.S.Russell,andR.G.Murdick,ServiceManagementandOperations,2nded.,Prentice‐Hall,2000.

Horngren,C.,W.T.Harrison,andM.S.Oliver,FinancialandManagerialAccounting,PrenticeHall,2009.

Jacobs,F.R,W.L.Berry,D.C.Whybark,andVollmann,T.E.,ManufacturingPlanningandControlSystemsforSupplyChainManagement,APICS/CPIMCertificationEdition,McGraw‐Hill,2012.

Kerzner,H.,ProjectManagement:ASystemsApproachtoPlanningSchedulingandControlling,11thed.,Wiley,2013.

Kraljic,P.,“PurchasingMustBecomeSupplyManagement,”HarvardBusinessReview,September/October1993.

Lunn,T.andS.A.Neff,MRP:IntegratedMaterialRequirementsPlanningandModernBusiness,IrwinProfessionalPublishing,1992.

Meredith,J.R.andS.J.MantelJr.,ProjectManagement:AManagerialApproach,6thed.,Wiley,2006.

Monczka,R.M,R.B.Handfield,L.C.Giunipero,andJ.L.Patterson,PurchasingandSupplyChainManagement,4thed.,South‐WesternCengageLearning,2009.

Pilachowski,M.PurchasingPerformanceMeasurement,PTPublications,1996.


Instructor Guide Version 5.4 A-2b © 2016 APICS

Plossl,G.W.,Orlicky’sMaterialRequirementsPlanning,2ndrev.ed.,McGraw‐Hill,1994.

Ross,D.,DistributionPlanningandControl,2nded.,Springer,2004.

Schonsleben,P.,IntegralLogisticsManagement,2nded.,CRCPressLLC,2004.

Simchi‐Levi,D.,P.Kaminsky,andE.Simchi‐Levi,DesigningandManagingtheSupplyChain,3rded.,McGraw‐Hill,2008.

Williams,B.,ManufacturingforSurvival,Addison‐Wesley,1996.

Womack,J.P.andD.T.Jones.LeanThinking:BanishWasteandCreateWealthinYourCorporation,2nded.,Simon&Schuster,1996.

cpim - apics

Documents