materials management systems- mrp ii & jit

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Technological Educational Institute of Piraeus

MSc ADVANCED INDUSTRIAL AND MANUFACTURING SYSTEMSModule: Industrial Systems and Management

Assignment 2: Materials Management Systems: MRP II & JIT

Module Leader : Dr Emilia Kondili

Students Name:

Georgios G. ROKOS

Students Signature :___________________________

Date: January 2011

TECHNOLOGICAL EDUCATIONAL INSTITUTE OF PIRAEUS

Table of Contents

Preface .................................................................................................................................. 2 Abstract ................................................................................................................................ 3 1. Introduction to MRP II and JIT ..................................................................................... 4 1.1 MRP, closed-loop MRP and MRP II ....................................................................... 4 1.2 Just In Time ............................................................................................................. 6 2. JIT Implementation ....................................................................................................... 9 2.1 JIT introduction in a company ............................................................................... 9 3. Materials Management Systems ............................................................................... 13 3.1 Materials Management Philosophies and Practices ...........................................13 3.2 Benefits and functionalities of Materials Managements Systems .....................15 3.3 Materials Management Systems: a brief market overview ...............................17 Annex I. MRP II: A Case Study .......................................................................................... 19 References ......................................................................................................................... 26

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TECHNOLOGICAL EDUCATIONAL INSTITUTE OF PIRAEUS

Preface PrefaceThis paper has its origins in the Industrial Systems and Management Module of the MSc in Advanced Industrial and Management Systems, undertaken at the Technological Educational Institute of Piraeus, in cooperation with the Kingston University, under the aegis of Dr. Emilia Kondyli. This assignment revolves around Material Management Systems, focusing on JIT and MRP. It presents elaborately the principles, the philosophy and the differences between those two systems and proposes a plan for their integration based on former actual experiences and examples. It also records the advantages of their integration and co-existence. Moreover, this paper occupies with Material Management as an ensemble of techniques and practices. It identifies the functionalities that they include and the general advantages associated with their implementation. It also presents an overview of vendors market. Finally, a case study is included in Annex 1, to simulate how an MM system, in particular MRP II, can be smoothly implemented in a manufacturing company producing small fridges. The case study is written in the form of a report, written by a product manager who proposes the implementation of the system. Most data about the company are imaginary. However, they are taken from other referenced publications. Hopefully, this paper will be a pleasant experience for its readers.

Georgios Rokos

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TECHNOLOGICAL EDUCATIONAL INSTITUTE OF PIRAEUS

Abstract:JIT and MRP II are two production systems based on different philosophies, the pull or Kanban philosophy, based on order-fulfillment, and the push, make-to-stock philosophy based on demand forecasts. In fact, MRP was Americans response to the Japanese JIT. Their optic angle differs. As a result, JIT and MRP II offer different benefits and carry different defects. The goal of combining each systems benefits so as to cover their defects is a challenging task. History shows that it is possible to successfully implement JIT on top of MRP II and, subsequently, to benefit from both systems characteristics. (Krepchin, 1986)

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TECHNOLOGICAL EDUCATIONAL INSTITUTE OF PIRAEUS

Chapter 1.. Introduction to MRP II and JIT Chapter 1 Introduction to MRP II and JITIn the 1980s, US companies were forced to confront the productivity challenge. A series of articles in famed magazines, such as Newsweek, Business Week, Fortune and Time Inc., and journals, such as American Industry, were dealing with Americas hysteresis compared to the Japanese production model (Wight, Manufacturing Resource Planning: MRP II: Unlocking America's Productivity, 1984). American manufacturers were wondering what was going wrong. In the early 80s most of them were accusing their labor-based system for their productive insufficiency. Nevertheless, at that time, some large companies such as Tennant, Twin Disc and Hewlett-Packard (Sheldon, 2005), were already unfolding their plans to conform to the teachings of one of the fathers of Production Management that all resources, including people, who are not a cost source but a production resource, will have to be managed in better way if greater productivity is to be attained (Drucker, 2010). Both MRP II and JIT are practices that highlight scheduling and capacity.

1.1

MRP, closed-loop MRP and MRP II

In the 60s, a new method of Material Planning was rising to replace the traditional Economic Order Quantity (EOQ) technique. This method, called Material Requirements Planning (MRP), depicts the finished good requirements as recorded in the Master Production Schedule (MPS) for a predefined product structure (stemming from Bill of Material or BOM) and turns them into a detailed plan of supplies and production orders, without neglecting the inventory on hand. MRP may sound easy to handle, however, its application is very time-consuming if carried out manually. Companies that implemented MRP saw their inventory, production costs and delivery lead times decrease as a result of coordinating supplies and production. Despite MRPs success manufacturers were looking for a more extended Planning technique that would apply to more types of resources. In the 1970s, companies started incorporating Capacity Requirements Planning (CRP) into the MRP logic. Capacity was introduced to MPS, so that resources requirements such as labor would be also taken into account in the generation of a production plan. CRPs incorporation in the MPS took MRP to the next level, identified as closed loop MRP (Altekar, 2005). In the early 1980s, the inclusion of financial resources signified the transition to the Manufacturing Resources Planning (MRP II) era. American Production and Inventory Control Society (APICS) defines MRP II as: A method for effective planning of all resources of manufacturing company. Ideally

it addresses operational planning in units, financial planning in dollars and has a simulation capability to answer what-if questions. It is made up of a variety of functions each linked together: Business Planning, Production Planning, Master Production Scheduling, Material Requirements Planning, Capacity Requirements4

TECHNOLOGICAL EDUCATIONAL INSTITUTE OF PIRAEUS

Planning and the execution system for capacity and priority. Outputs from these systems would be integrated with financial reports, such as the business plan, the purchase commitment report, shipping, budget, inventory production, etc. (APICS,1985). At the beginnings of MRP and MRP II many Process Industries reacted to their correlation with Discrete Manufacturing Industries. Sheikh (2003) finds that there are only some minor differences between the two when it comes to MRP. Specifically, he recognizes that scheduling and Work In Progress Control as they are incorporated in the MRP logic are not so vital for Continuous Process Manufacturing Companies due to their easy-to-handle BOMs and court lead-times. Yet, the purchasing function associated with MRP remains a plus even in this kind or companies. In addition, MRP could facilitate quality and cost control processes as far as Batch Process Manufacturing companies are concerned, especially when the batch mode implies numerous BOM levels, extended lead-times and workcenterdependent lot-sizes. That is because their planning and scheduling processes are likely to look alike those of jobshop environments. Table 1 compares the MRP logic in Process and Discrete Manufacturing. Sr. No. 1. 2. 3. 4. Function MPS Constraint Planning Issues MRP I Differences Between MRP II Functionalities as Applied to Discrete and Process Manufacturing Discrete Manufacturing Unit driven Production Material availability Schedule attainment Primary tool for detailed planning Process Manufacturing Process driven family Capacity utilization Process continuity and yields Secondary tool, or not used for detailed planning Primary tool for detailed planning 1. Shallow and simple formulas 2. Bill shape could be A, V, X, or I. 3. BOM models the manufacturing process 4. Quality specifications are much wider (p.ex. acceptable water content between 2 and 7%) 5. Process outputs may vary due to variation in the input specifications, such as potency (a measurement of active material in a specific lot), concentration, or purity Additional specifications, such as unit of measurement, lot/batch number, sublot number, expiry and/or best-before date, container type and ID, potency, etc are required Fixed by process Fixed and dedicated Process focused 5

5. CRP 6. BOMs/ Formulas

8. Routings 9. Work Centers 10. Planners

7. Material Specifications

Secondary tool for detailed planning 1. Deep and complex BOMs 2. BOM shape is generally either A or X 3. BOM models the product breakdown 4. Quality specifications are tight (p.ex., acceptable dimensions 100,002mm). 5

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