PRODUCTION MANAGEMENT SYSTEMS

New approaches to manufacturing have been adopted by firms worldwide as a result of

technological developments and management’s desire to reduce costs. Some of these systems
are: the Just-In-Time (JIT) Approach, Materials Requirements Planning (MRP) and
Manufacturing Resources Planning (MRP II).

Just-In-Time (JIT)
- was developed in the sixties by the Toyota Motor Company of Japan.
- a manufacturing philosophy that emphasizes the following:
a) short setup and lead time
b) small batch sizes
c) frequent production runs
d) high quality
e) constant improvement in product and process design
- advocates a zero or minimal amount of inventories and defects
- frequent delivery of inputs and outputs to minimize levels of inventories

*Toyota factories keep on hand only that amount of parts needed for immediate
production. Hence, it reduces storage, personnel and financing costs for Toyota.

There are certain requirements have to be in place for the successful adoption of JIT. These are
as follows: a) design flow process, b) total quality control (TQC), c) stable schedule, d) kanban
pull and e) close coordination with suppliers.

a. Design flow process

- Requires that the plant layout allows a smooth flow of production to keep work-in-
process inventory at the minimum
- Preventive maintenance at different stages must be in place
- Deliveries of raw materials by suppliers must be more frequent but in smaller quantities

b. Total Quality Control

- Requires that employees in different production stations assume responsibility for the
quality of their work, minimizing quality control inspection and rework
- Requires the developmental skills not only among people in the production, but even
among the other divisions of the company as well

c. Stable schedule
- Strong coordination with the marketing, finance and production people is necessary

d. Kanban pull
- Kanban is the japanese word for “card”
 - Known as the pull system and triggers the movement of inputs to the station where they
are required
- Cards are used to indicate the need for inputs

e. Coordination with suppliers

- This may increase the suppliers’ delivery cost therefore, suppliers must be located near
the company’s production plant
- Can only be made possible if the company is a big customer relative to the size of the
supplier

The requisites for the successful implementation of JIT include constant improvement in process
design. The improvement in process design can lead to a more efficient production outweighing
the higher setup costs brought by frequent production runs of smaller quantities. These costs can
be reduced by improving communication and coordination with suppliers. Suppliers proximity to
the end-user reduces risks of stockouts. The resulting lower levels of inventories can lead to lower
level investments and lower carrying costs.

Comparative Annual Inventory Reduction

COMPANY INVENTORY TYPE ANNUAL INVENTORY (in No.
of Days)
Pre-JIT Post-JIT
(2013) (2016)
A Work-In-Process 6.0 1.7
B Work-In-Process 7.5 6.3
C Work-In-Process 60 30.0
D Raw Materials 162.0 120.0

Materials Requirements Planning (MRP)

- Developed in the 1960’s
- A computer-based information system designed to handle ordering and scheduling of
dependent-demand inventories eg. raw materials and component parts
- Results in low levels of work-in-process inventories since items are procured just prior to
the time when they will be needed
- Results in better inventory planning and scheduling
- Requires the preparation of a master production schedule, bill of materials, inventory and
purchase records and the lead time for each item
- Determines the” finished” or “end-item” requirements and breaks up these requirements
into time-phased requirements in an assembly-time chart
The assembly time-chart indicates that aluminum windows must be installed in 10 weeks. The
cart shows the different processes and the duration each process in the manufacturing and
installation of aluminum windows.

The manufacture of aluminum frames takes 4 weeks while the glass cutting takes 2 weeks. Note
that materials needed for each process are procured immediately prior to the commencement
of the process. For instance, glass materials are ordered on the 2nd week just in time for the glass
cutting process which starts on the 4th week.

CONCLUSION:
Since MRP involves careful estimates of the “finished end item” requirements and the length of
each process, the acquisition of raw materials can be more effectively planned. The end result
is a lower investment in inventories and better cash budgeting.

Manufacturing Resources Planning (MRP II)

- Was developed in the early 1980’s as an expansion of MRP
- Includes two additional elements: Finance and Simulation
a. Finance translates the operating plan into financial terms
b. Simulation addresses “what if” questions

Improvements in Inventory Turn-Over and

Delivery Lead Time with MRP II
Companies A B C D E F G H I
Inventory Turn-Over (Days)

Pre-MRP II 30 60 10.5 6 120 14 4 30 45

Current 25 30 7 4 95 7 3 21 23
Future 20 20 7 4 80 7 2 14 19

Delivery Lead Time

Pre-MRP II 40 45 1 10 10 9 45 7 30
Current 30 30 1 7 7 6 30 3 14
Future 21 20 1 5 4 3 20 3 7

After applying MRP II, the companies reduced the number of days in inventories
and delivery lead times.

Implications of the three production systems to inventory and financial

management:

1. Just-In-Time (JIT) – Lower storage costs and financing costs

2. Material Requirements Planning (MRP) – Lower investment in raw materials
inventories and better cash planning
3. Manufacturing Resources Planning (MRP II) – The system can determine
valid schedules of materials, production, shipments to customers and
machine requirements and cash flow/profit forecasts.