introduction to materials management chapter 2. introduction to materials management 7 th edition...
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Introduction to Materials Management 7th EditionArnold, Chapman, Clive
2© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Planning System Questions What are we going to make? What does it take to make it? What do we already have? What do we need to get?
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
3© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Key is to match Priority
What is needed, when, and how much Capacity
Capability to produce what is needed and when
Priority(Demand)
Capacity(Resources)
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
4© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Major levels of Planning and Control
In order of time span (long to short) and detail (general to detailed): Strategic business plans Sales and Operations Plans
(Production Plans and Marketing Plans)
Master Production Schedules Material Requirements Plans Purchasing and Production Activity
Control
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
5© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
At Each Level, Need to Decide What are the priorities
What to produce? How much? When?
What is the available capacity? How can the differences between
priorities and capacities best be resolved?
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
6© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Planning HierarchyStrategic
Business Plan
ProductionPlan
Master ProductionSchedule
MaterialRequirementsPlan
Production ActivityControl andPurchasing
MasterPlan
Planning
Implementation
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
7© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Production Plan
Quantities of each product group to be produced each period
Projected/desired inventory levels Resources needed
Equipment Labor Material
Availability of needed resources
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
8© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Master Production Schedule Shows, for each period, the
quantity of each end item to be made.
Level of detail is higher than the Production Plan End items versus groups of items Time periods usually shorter (e.g.,
weeks versus months)
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
9© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
More Detailed Planning and Control Material Requirements Plan
End item requirements broken down into specific components – what to make or buy, and when
Production Activity Control Execution plan, detailing specific orders to
produce items from the Material Requirements Plan
Purchasing Similar to Production Activity Control, only
includes items to be purchased rather than produced.
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
10© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Capacity Management At each level of the planning and control
system, reconciliation with resources must be made Must obtain the right resources or change
the plan Inadequate resources = missed
production schedules Resources significantly exceed planned
production = idle resources and extra cost
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
11© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Sales and Operations PlanStrategic
Business Plan
MarketingPlan
ProductionPlan
Detailed Sales Plan
MasterProductionSchedule
SALES AND OPERATIONS PLAN
Annually
Monthly
Weeklyor
Daily
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
12© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Sales and Operations Planning
Can be used to update the strategic plan Provides a tool to manage change Enforces functional plans to be realistic
and coordinated Represents a plan to achieve company
objectives Provides management visibility of
production, inventory, and backlogs.
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
13© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Developing the Production Plan Some key questions that must be
answered to develop an effective planning strategy: How flexible are the resources, both
in quantity and timing? Are “outside” resources available
(subcontracting)? Can we utilize inventory to meet
demand?
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
14© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Basic Production Plan Strategies
Chase – vary production rates to meet changes in demand
Often used when inventory cannot be used or when resources are flexible and inexpensive to change
Level – establish average demand level and set production rate to that level
Often used when resources difficult or very expensive to change
Hybrid – use a combination of some chase and some level
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
15© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Demand
No. of Units
Time
Example Demand Pattern
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
16© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Demand
Chase ProductionNo. of Units
Time
Chase Production:
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
17© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Demand
Level Production
No. of Units
Time
Level Production:
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
18© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Production Rate = Sales - Open Inv + End Inv # of Production Periods
Level Production Plan
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
19© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Level Production Plan Practice Problem Charlie’s Chairs has a forecast (in ‘000)
of 50, 60, 70, 30 chairs for the next four quarters. His opening inventory is 40 chairs but he would like to reduce this to 30 by the end of the year. How many chairs should he make each quarter and what will be his ending inventory.
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
20© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Charlie’s Chairs - Solution
Sales = 210 chairsOpening inventory = 40Desired closing inventory = 30Production rate = 210 – 40 + 30 4 = 50 chairs/
quarter
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
21© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Demand
Level Production
No. of Units
Time
Level Production:
CREATE Inventory
USE Inventory
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
22© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Demand
Hybrid
No. of Units
Time
Hybrid Strategy
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
23© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Numerical Example:
Period 1 2 3 4 5 6 Total
Forecast (Demand) 150 160 180 175 155 140 960
Suppose the forecasted demand for a product family lookslike the table below. Assume the product family is aMake-to-Stock family with a starting inventory of 100.
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
24© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Production Plan Using a Level Strategy
Period 0 1 2 3 4 5 6 Total
Forecast (Demand)
150 160 180 175 155 140 960
Planned Production
160 160 160 160 160 160 960
Planned Inventory
100 110 110 90 75 80 100
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
25© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Production Plan using Chase StrategyPeriod 0 1 2 3 4 5 6 Total
Forecast (Demand)
150 160 180 175 155 140 960
Planned Production 150 160 180 175 155 140 960
Planned Inventory
100 100 100 100 100 100 100
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
26© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Production Plan using a Hybrid Strategy
Period 0 1 2 3 4 5 6 Total
Forecast (Demand) 150 160 180 175 155 140 960
Planned Production
140 140 140 175 175 175 945
Planned Inventory 100 90 70 30 30 50 85
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
27© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Make-to-Order Production Plans Products made to customer
specifications The customer is willing to wait for
completion Generally products more expensive to
make and/or store Often several options offered Company often uses a backlog of
unfilled customer orders rather than inventory
Introduction to Materials Management 7th EditionArnold, Chapman, Clive
28© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ
07458.All Rights Reserved.
Practice Problem Shawn’s Chimney Cleaning has new orders for
the next week of 4, 6, 2, 7 & 5 houses. He has 4 orders left over from last week and he would like to start next week with only 3 customers waiting for work. How many should he clean each day? Use a level plan.
Why use a level plan?
Introduction to Materials Management, 7th Edition Arnold, Chapman, Clive
© 2012, 2008, 2004, 2001, 1998, 1996 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Resource Bill
Tables: 500 x 20 = 10,000 board ft
Chairs: 300 x 10 = 3,000 board ft
Stools: 1500 x 5 = 7,500 board ft
Total wood required = 20,500 board ft
Tables: 500 x 1.31 = 655 Hrs Chairs: 300 x 0.85 = 255 Hrs Stools: 1500 x 0.55 = 825 Hrs
Total labor required = 1735 Hrs
Available Labor = 1600 Hrs
Required Labor = 1735 Hrs
Difference = Short 135 Hrs