Lean Production, 5 S`s and 7 wastes.

(B. García López, M.C Gil Hurtado and C. Regife Vera)

Lean production

Lean production is a production system which aims to eliminate waste through a focus on what the customers want at the exact moment it is needed. To be effectively implemented it requires an analysis of the activities that take part in production and an optimization of the whole process by eliminating waste and activities that not add value according to customer needs.

• Toyota Production system

Also known as Toyota Production System (TPS), lean production is based on 4 principles:

1. Completely specified work.

2. Relationships between customer and supplier must be direct and related information specific.

3. Direct and simple flows of products and services.

4. Implementation of a scientific method at the lowest possible level in the organization.

• Attributes of a lean manufacturer

When we talk about lean production it is key the role of top levels of the organization in creating an atmosphere favourable to this system and in encouraging commitment of all sources of value. We can define some attributes of

Economic Order Quantity

(R. Rodriguez Pineda & J. de la Cerda Alcaide)

INVENTORY MODELS (INDEPENDENT DEMAND)

There are different kinds of inventory models depend on the demand. In this case, inventory models assume that demand for an item is either independent of or dependent on the demand for other items. For example:

• Independent demand is demand for a finished product, such as a computer, a bicycle, or a pizza.
• Dependent demand, on the other hand, is demand for component parts or subassemblies. For example, this would be the microchips in the computer, the wheels on the bicycle, or the cheese on the pizza.

In this section, we are going to focus in the independent demand models and use the Basic Economic Order Quantity (EOQ) and the Production Order Quantity Model, to answer the questions: when to order? and, how much to order?

BASIC ECONOMIC ORDER QUANTITY (EOQ)

It is one of the oldest and most commonly known inventory control technique. It has several assumptions:

• Demand is known, constant and independent.
• Lead time is know and constant.
• Receipt of inventory is instantaneous and complete. In other words, the inventory from an order arrives in one batch at one time.
• Quantity discounts are not possible.
• The only variable costs are the cost of setting up (setup cost) and the cost of holding or storing inventory over time.
• Stock outs can be completely avoided if orders are place at right time

Therefore, we can confirm that the objective of inventory models is to minimize total cost.

Cost as a function of Order Quantity

Taking into account the graph, it is possible to

OMII UNIT 6. Extra content: JIT – Scheduling. Importance for effective schedules

(L. Schmidt and P. Nawrot)

Important for effective JIT schedules: communication, within the organization and outside suppliers.

Better scheduling improves the ability to meet customer orders, drives down inventory by allowing smaller lot sizes and reduces work-in-process.

Examples to reduce setup costs:

OMII UNIT 2.2.: Inventory Management (exercises)

(J. de la Cerda and R. Rodríguez)

 

eoq-exercises

OMII UNIT 6.2: KANBAN + Just in Time in Services

(L. Schmidt and P. Nawrot)

KANBAN

Way to achieve small lot sizes is to move inventory through the shop only as needed rather than pushing it on the next workstation whether or not the personal there are ready for it.

When inventory only moves when it’s needed a Pull-System and its ideal lot size is 1.

Kanban is a Japanese word and means card. Kanbans allow arrivals at a work centre to match (nearly match) the processing time. Effort to reduce inventory = Japanese use systems that “pull” inventory through a work centre. Use a card to signal the need for another container of material to be produced. Important is the authorization of next material which should be produced. Each container of items has its own authorization →its own Kanban card and is pulled from the producing department or supplier. Sequence of kanbans ‘pulls’ the materials through the plant. There are also Kanban cards without any card as “Kanban”. Sometimes they are only empty position on the floor, sometimes flag or rag signal!

Kanban with visual contact:

1. User removes a standard-size container of parts from a small storage area.
2. Signal is seen by the producing department or storage area. Optimum lot size → producing department may make several containers at a time.

 

Kanban works, pulling units as needed from production. Similar to the resupply that occurs in your neighbourhood

OMII UNIT 4.2.b.: MRP Exercises (2nd Part)

(R. Iglesias and L. Gete)

1. Briefly remainder of what Material Requirement planning is, and its characteristics:

Material Requirement Planning (MRP) is a dependent demand technique that uses a bill-of-material, inventory, expected receipts, and a master production schedule to determine material requirements.

The Plan must meet:

– The requirements of the master schedule and the capacities of the production facility.

– Plan must be executed as designed.

– Inventory investment must be minimized though effective time-phased.

– Excellent record integrity.

It has been addressed the component of the Material Requirements Planning (MRP), thus the second step will be the Construction of the Gross Requirement Plan. The Gross Requirement Plan shows when an item must be ordered from suppliers if there is no inventory on hand, or when production must be started to satisfy demand for finished product by a particular date.

Gross Material Requirement Plan = Independent demand (normally is given in the exercise).

The next step in the chart of the Material Requirement Planning would be to write down the schedule Receipts, which  means the material that has been already ordered (this data is already given in the exercise). The following term in the chart is the availability that is the inventory that we already had in our warehouses. The data in the first week will be given by the exercise, the following one should be calculated with this formula:

, where h = inventories,

e = schedule receipts, and

d = Gross Requirement.

– Net Requirement, is the requirement that

OMII UNIT 5.2.:LOADING JOBS AND METHODS

(J. Moreno and D. de la Cruz)

LOADING JOBS

Loading means the assignment of Jobs to work or processing centers.

Operations Managers assign jobs to work centers so that cost and completion times are kept to a minimum

Work centers are areas in a business in which productive resources are organized and work is completed.

• It may be a single machine, a group of machines, or an area where a particular type of work is done.
• The work centers can be organized in a variety of ways including by function in a job-shop configuration; or by product in a flow, assembly line, or group-technology-cell configuration

• A characteristic that distinguishes one scheduling system from another is how capacity is considered in determining the schedule.
• The scheduling systems can use Infinite Loading or Finite Loading

Infinite loading:

• Ignores capacity constraints, but helps identify bottlenecks in a proposed schedule to enable proactive management
• With infinite loading jobs are assigned to work centers without regard for capacity of the work center.
• Jobs are loaded at work centers according to the chosen priority rule.
• Priority rules are appropriate for use under the infinite loading approach.
• This is known as vertical loading.

Finite loading:

• Allows only as much work to be assigned as can be done with available capacity – but doesn’t prepare for inevitable slippage
• Finite loading considers the capacity of each work center and compares the processing time so that process time does not exceed capacity.
• With finite loading the scheduler loads the job that has the highest priority on all work centers it will require.
• Then the job with the next highest priority is loaded on all required work centers, and so on.
• This process is referred to as horizontal loading

Characteristics of High-Volume Operations

High-volume aka flow operations, like automobiles, bread, gasoline can be repetitive or continuous

• High-volume standard items; discrete or continuous with smaller profit margins
• Designed for high efficiency and high utilization
• High volume flow operations with fixed routings
• Bottlenecks are easily identified
• Commonly use line-balancing to design the process around the required tasks

Characteristics of Low-Volume Operations

Low-volume, job shop operations, are designed for flexibility.

• Use more general purpose equipment
• Customized products with higher margins
• Each product or service may have its own routing (scheduling is much more difficult)
• Bottlenecks move around depending upon the products being produced at any given time

What an Input-Output Process is?

• It is a technique that allows operation personnel to manage facility work flows.
• The idea of this process is to know how much work is carrying out in order to adjust it to the objective.
• Normally is applied when there is ignorance of the real work in the process

The advantages of Input-Output Control

• Identifies overloading and underloading conditions.

The overloading appears when the work process used is more than the expected.

The underloading condition occurs

OMII UNIT 2.1. : INVENTORY MANAGEMENT

(J.I. Camino and A. Fernández-Novel)

Inventory Classification: The ABC Analysis

This type of analysis considers that there is a range of items that have different levels of significance and should be handled or controlled differently. According to the Pareto Principle, in which is based, roughly 80% of the effects come from 20% of the causes. Then, in economic terms, it means that there are items (such as activities, customers, documents, inventory items, sales territories) with different value per unit. Then, items are grouped into three categories (A, B, and C) in order of their estimated importance. ‘A’ items are very important, ‘B’ items are important, ‘C’ items are marginally important.

The importance of the different goods is constructed by considering its annual demand and cost per unit. Then, a list can be created, in which the goods are divided usually as follows:

• Class A: 15% of total inventory, but 70% of dollar usage.
• Class B: 30% of total inventory, but 25% of dollar usage
• Class C: 55% of total inventory, but 5% of dollar usage

Record accuracy: The Cycle Counting Method

Goods inventory policies have no importance as long as management does not know what inventory belongs to the company. Once that information has been gathered, it is possible to order, schedule and ship goods in an efficient way, understanding the needs of the company and which goods are crucial.

In order to do so, there is a new method for checking the inventories without a great impact on the correct running of the company: The Cycle Counting method. It is based on counting a small subset of inventory, in a specific location, on a specified day. Cycle counts contrast with traditional physical inventory in that a full physical inventory may stop operation at a facility while all items are counted at one time. Cycle counts are less disruptive to daily operations, provide an ongoing measure of inventory accuracy and procedure execution, and can be tailored to focus on items with higher value, higher movement volume, or that are critical to business processes

In this method, goods are differentiated again according to the Pareto Analysis, so the ABC Method must have been performed before proceeding to its usage. Once the different goods have been classified, managers must create a schedule focused on the frequency in which goods are going to be checked. Despite the fact that every single company has its own schedule, it can be considered that “A” goods are going to be counted more frequently, and “C” goods are going to be counted less frequently than “B”.

INVENTORY MODELS

Basic Economic Order Quantity Model (EOQ)

This inventory model is based on the minimization of both holding costs and purchasing costs. Order costs decrease as many goods as the company purchases, due to economies of scale; on the other hand, holding costs increase, because it gets more expensive to control and maintain the stocked goods. Then, in order to minimize total costs, it is important to find the point in which the total cost, which involves both, is lower.

This model is based on the following assumptions:

• Demand for an item is known, constant and independent from other items (d).
• Lead time (L) is known and consistent
• Receipt of inventory instantaneous and complete
• Quantity discounts not possible
• The only variable costs are the ones previously explained
• Shortages can be completely avoided

Once that point (Q) has been found, and the manager knows how many to order, the model continues by answering the next question: when to order.

In order to understand it, it is important to understand two concepts: the Lead Time and the Reorder Point.

• Lead Time is the amount of time between placing an order and receiving it; in production systems, it is the wait, move, queue, setup and run times for each component produced.
• Reorder Point is the inventory level at which action is taken to replenish the stocked item.

OMII UNIT 4.2.a.: MRP Excercises

(Colucci F., Crisci D. and Sbarra L.)

INTRODUCTION

In this topic, we’re going to talk about the application of the Material Requirements Planning (MRP).

When we talk about this kind of model, we have to consider that this technique uses bill-of-material, inventory, expected receipts, and a master production schedule to determine material requirements. Furthermore, the MRP is defined as a dependent demand technique because the demand for one item is related to the demand for another item.

Before proceeding with the real application of the Material Requirements Planning we have to build the Bills of Material (as stated in the previous topics) that consists of a listing of the components, their description, and the quantity of each required to make one unit of product. Moreover, it provides a product structure (tree) which is composed by different levels.

As shown below, there are different variables as for MRP’s structure:

• Gross material requirements plan (GRi): a schedule that shows the total demand for an item (prior to subtraction of on-hand inventory and scheduled receipts) and when it must be ordered from suppliers if there is no inventory on hand, or when production must be started to meet its demand by a particular date.

• Security Stock (SSi): inventory that has to be maintained to avoid lack of inventory. This quantity cannot be used in the planning process.

• Planned receipt (PRi): the quantity planned to be received at a future date.

• Availability (Ai): real quantity in stock

Ai+1 = Ai + PRi + PORi –Gri

• Net material requirements (NRi): is the result of adjusting the gross material requirements with the available inventory and the planned receipts

                                  NRi= GRi – (Ai – SSi) – PRi

                 If the expression is [-], it means that the company does not need to make an order and therefore NRi = 0

                  If the expression is [+], it means that the company needs to place and order

• Planned order receipt (PORi): the quantity of a planned order to be received at a future date.

• Planned order release (PORRi): the scheduled date for an order to be released, or, when the order needs to be made. It needs to take into account the lead time for each product or component to be delivered or made and the date in which it needs to be received or made.

Finally, the techniques that we have used to establish the quantity and the time in which we have to order are two:

1. Lot-for-lot: generates exactly what was required to meet the plan

Q = NRi

 

2. Constant period: the lot is equal to the sum of the net material requirements for the chosen period; we can fix the interval between orders intuitively or the interval between orders is chosen from a constant period basic model.

EXCERCISES

 

We have solved 4 exercises that resume the MRP’s application with its techniques (see the attachment below).

OMII UNIT 5.1.b.: MRP. Bills of Materials and Lead Times

(M. Alarcón, E. Algorri, I. Celaya and P. Díaz)

Bill of Materials

A list of materials is a listing of the components, their descriptions and the quantity of each required to make one unit of a product.

Individual drawing describes not only physical dimensions of products but also any special processing as well as the raw material form which each part is made.

Because there is often a rush demand for new products entering the market, drawings and bills may be incomplete. Moreover complete drawing and BOM contains errors in dimensions, quantities or countless other areas, so once errors are identified engineering change notice are created (ECNs) complicating more the process. They are changes or corrections of an engineering drawing or bill of material.

One way a bill of material defines a product is by providing it product structure:

• Items above given level are called parents.
• Items below given level are called children

Example:

Bills of material can be grouped