01 - Materials Management Slide 01 To 13 PDF

ET ZC343 Materials Management
Lecture-1 12 Jan, Saturday 10 am-12 noon
Sandeep Kayastha, at Hyderabad
1
Ensure…..
You are attending lecture of the correct course.
Course Title:Materials Management

Course Code: ET ZC343.
2
Lectures, On Taxila and On WebEx
Lectures, and On Taxila

 Live WebEx Lectures between 10 am to 12 noon on most Saturdays and
Sundays. Actual lecture schedule will be available on Taxila.
 PPT of each chapter will be available in advance on Taxila, below Topic 22.
 PPT actually used in WebEx lecture and the video of WebEx lecture will be
available on Taxila, after the Lecture.
 Pre-recorded lectures are also being made available on Taxila gradually.
 Course Handout is available on Taxila.
 Post your messages in the Discussion Forum on Taxila.
On WebEx- During the Lecture

 Use WebEx’s Chat feature to post your comments, queries and doubts. Avoid
“Raise Hand” and other options.
 Keep the textbook beside you during the lecture.
3
Textbook
Introduction to Materials
Management
Stephen N Chapman, JR Tony Arnold, Ann K

Gatewood and Lloyd M Clive.
Pearson Education. 2018. Noida.
8th Edition.
You need to buy this textbook.
4
Syllabus
Chapter No Topic
1 Introduction to Materials Management
2 Production Planning System
3 Master Scheduling
4 Material Requirements Planning
Mid Term Test syllabus
5 Capacity Management
6 Production Activity Control
7 Purchasing
8 Forecasting and Demand Management
9 Inventory Fundamentals
10 Order Quantities
11 Independent Demand Ordering Systems
12 Physical Inventory and Warehouse Management
13 Introduction to Quality
15 Total Quality Management
16 Lean Production
Chapter 14 is not in the syllabus.
5
Evaluations
 Three quizzes- weightage (3x5%=) 15%

 Last Dates: 28 Feb, 28 March, 28 April.
 Multiple choice questions- 25 questions in each.
 Online on Taxlia.
 Assignments- (2x5%=) 10%.

 Two individual assignments of 5% each.
 Last dates: 20 March, 20 April.
 Mid-Semester Test- weightage-30%.

 Two-hour, closed book. Regular- March 8/9/10, Makeup- March 22/23/24. Check dates.
 Syllabus- Chapter 1 to 8.
 End-Semester Examination- weightage- 45%.

 Three-hour, open book. Regular- May 3/4/5. Makeup- May 10/11/12. Check dates.
 Syllabus- Chapter 1 to 16, except Chapter-14.
6
Enhanced learning
 MS Excel software will be used for solving problems.
 Select case studies from the textbook will be discussed.
 Two individual assignments- from own company.
 Materials Management in Practice.
 In a Nutshell- summary of the entire chapter in a slide
 Learning from One Another- participate through chats during the lecture.
7
Type on the chat now
About you…
1. Your company name

2. Designation
3. Experience in years
4. Education Qualifications
5. Your City
6. Other courses taken with me in this or earlier semesters.
7. Do you deal with materials management?
• For example-
 ONGC/Asst Mgr/9 yrs/ElectricalEngg/Mumbai/Project Mgt/Yes
 TataMotors/Senior Engineer/6 yrs/MechanicalEngg/Pune/None/No
8
Today’s lecture
Chapter Topic Dates(s)

No
1 Introduction to Materials Management 12 Jan
3 Master Scheduling
7 Purchasing
10 Order Quantities
16 Lean Production
9
Management
10
Topics
 Importance of managing materials

 Operating environment
 Manufacturing strategy (systems)
 The Supply Chain concept
 Conflicts in traditional systems
 What is Materials Management?
 Materials Management in practice
11
Importance of managing materials
12
Production Process
Inputs Outputs
Production Process
 Material  Goods
 Demand/Orders  Services
 Machines
 Manpower
 Methods/Technology
 Money
13
Types of materials
• Raw material
• Steel, copper, petroleum, cement, glass, cotton, apples, coal …
• Components and sub-assemblies
• Crankshafts, gears, bricks, tyres, lubricants, PCBs, sensors, yarn…
• Assemblies
• Engines, transmissions, printer card, control panels …..
• Finished goods
• Garments, footballs, TVs, watches, shoes, mobile phones, bulbs, …
• Supplies
• Lubricants, cutting tools, electrodes, solvents… …
• Machines
• Lathes, computers, welding equipment, forklifts…
14
Materials in pdn and non-pdn companies
 Manufacturing companies
 Electrical, Electronics, Automobiles, Construction, Garments, Fertilisers, Petrochemicals,
Pharmaceuticals, Chemicals, Food processing, Packaging…
 Non-manufacturing companies
 Retail, Hospitals, Airlines…
 Software, Banking, Entertainment…
 Governments
 Elections, Polio vaccination programmes…
15
Material Cost: 2016-17
Maruti Suzuki- 47K cr, MRF- 8K cr Crompton- 2.8K cr

Tata Chemicals- 3K cr Dr Reddys- 3K cr TCS- 93 cr 16
Material Cost- Automobiles
Materials (47%)
17
Material Cost- Hospitals
16%
18
Material cost- Consumer goods
50%
19
Material cost in different industries
20
Material cost and profits
Profit = Revenue - Cost

= Sales * Selling Price – Material cost – Other costs
 Reduction in Material cost increases profit.

 Increase in sales too increases profit, but it also increases the Material cost.
21
Operating Environment
22
23
Government Demanding Customers

 Regulations  Lower prices
 Taxes, customs duties  Improved quality
 Reduced lead time
 Product and volume flexibility
Economy
 Affects demand, shortages and Order Qualifiers
surpluses  Customer requirements for price,
 Global trade quality, delivery, etc.
Competition Order Winners

 Profitability  Characteristics that persuade
 Availability of materials customers to select a product or service
24
Lecture-2 13 Jan, Sunday 10 am-12 noon
25
Today’s lecture

No
1 Introduction to Materials Management 12 Jan, 13 Jan
2 Production Planning System 13 Jan
3 Master Scheduling
7 Purchasing
10 Order Quantities
16 Lean Production
26
Chapter-1
Management
27
Topics

-----------------------
 Manufacturing strategy (systems)
28
Manufacturing Strategy (Systems)
29
Manufacturing systems-1
• Engineer-to-order: Buildings, Ships, Garments…

• Make-to-order: Furniture, Jewelry….
• Assemble-to-order: Dell computers, Amazon, …
• Make-to-stock: Groceries, Cars, Mobiles…
Design Manufacture Assemble Store

Customer
Delivery Lead Time

Order date Delivery date
30
Manufacturing systems-2
Delivery Lead Time
Design Purchase Manufacture Assemble Ship Engineer-to-order

• Buildings, Garments…
Delivery Lead Time
Make-to-order
Purchase Inventory Manufacture Assemble Ship • Furniture, Jewelry…
Delivery Lead Time

Assemble-to-order
Purchase Inventory Assemble Ship • Dell computers, Amazon…
Delivery Lead Time
Make-to-stock
Manufacture Assemble Stock Ship • Groceries, Cars, Mobiles…
31
Characteristics of manufacturing systems
Engineer-to-order Make-to-order
 Customised, unique products.  Little designing.
 Manufacturing does not start until the order  Manufacturing does not start until the order
is received and design is completed. is received.
 No inventory of materials; material is  Often uses standard materials; inventory of
purchased after the order is received. raw materials is held.
 Long lead-time to deliver products.  Lead time to deliver is reduced.
Assemble-to-order Make-to-stock
 No design activity.  No customer involvement in design.
 No manufacturing, only assembly; the  Goods are produced in anticipation of
product is assembled from standard customer demand.
components.  Inventory of finished goods is held.
 Inventory of standard components is held.  Shortest delivery lead time.
 Shorter lead time to deliver products.
32
Implications of manufacturing system
33
The Supply Chain Management
Concept
34
Supply chain-1
 Links many companies- including intermediaries such as wholesalers,

warehouses, and transporters.
 Includes all activities and processes to supply a product or service to the

customer- flow of material, information, and funds.
35
Supply chain-2
36
Drivers of supply chain concept
 Integrated systems (ERP) and the sharing of information.

 Global competition and supply.
 Flexible designs - reduced product life cycles.
 JIT approach to inter-organizational relations.
 Subcontracting or outsourcing.
37
Supply chain- working with the suppliers
 Mutual cost reduction

 Inventory, testing and inspection….
 Mutual product design
 Enhanced information flow
 Electronic exchange of orders, drawings, funds, information of
deliveries, inventories, production schedules, compatible ERP software
…
38
Conflicts in Traditional Systems
39
Objectives of an company and its departments
 Maximize profits- company
 Highest market share- marketing

 Highest growth- marketing
 Best customer service- marketing
 Lowest production costs- production
 Lowest distribution costs- logistics
 Lowest inventory costs- stores
 ……
40
Conflicts in traditional systems
41
What is Materials Management?
42
Materials Management
 Definition
 Planning and controlling the flow of materials by single department.
 Objectives
 Maximize the use of the firms resources.
 Provide the required level of customer service.
43
Materials Management activities-1
 Production planning
 Forecasting, Master planning, Materials Requirements Planning,
Capacity Planning.
 Physical supply and distribution

 Transportation, Distribution inventory, Warehousing, Packaging,
Material handling, Order processing.
44
Materials Management activities-2
 Routine activities
 Materials planning, purchasing, receiving and inspection, storage,
inventory control, transportation, distribution of materials, disposal of
surplus, obsolete and scrap materials ...
 Planning and policy activities

 Make or buy decisions, developing new sources of supply, global
sourcing, import substitution, rating the suppliers, supplier integration,
promotion of standardization, value engineering, cost reduction …
45
Materials Management in practice
46
Maruti-Suzuki…1
No of parts in a passenger car- 30,000
 Production plants- Two, Gurgaon and Manesar, Haryana

 Service stations- 3,013
 Dealers- 1,204
 Suppliers- 800. Tier-1 246 local, 20 global. Imports- 10%.
 Sources 70-80% components form locally developed vendors.
 Co-location- Over 76% of 246 suppliers located within 100 km, supplying 86% of the
components by value.
 Full supply system- prefer to buy sub-assemblies rather than components
 Warehouses- 16
47
Maruti Suzuki…2
 IT- integration with suppliers

 RFID- track pallets, inventory, and rejects.
 JIT- Milk run for collection of parts from suppliers, delivery on the
production line, no inspection ….
 Maruti Center for Excellence- advices suppliers on training, support and

consultancy to Tier-1 & Tier-2 suppliers.
48
Multiple factories
CBO: Company-owned Bottling Operations

FBO: Franchised Bottling Operations
RGB: Regular Glass Bottle
49
Global operations
Hyundai
Motors
50
Summary

 Manufacturing strategy
51
Thank You!
Next chapter: 2. Production Planning Systems
52
Chapter-2
Production Planning System
53
Topics
 Levels of planning
 Production (Aggregate/ Sales and Operations) plan
 Production plan strategies
 Example of Make-to-stock production plan strategies
 Example of Make-to-order production plan strategy
 Resource planning
54
Levels of planning
55
Levels of planning and control-1
Strategic
1. Strategic Business Plan Business Plan
2. Production (Aggregate/ Sales and Production Plan

(Aggregate/ Sales and Operations Plan)
Operations) Plan Master
Plan
Master Production
3. Master Production Schedule (MPS) Schedule Planning
Material Requirements
4. Material Requirements Plan (MRP) Plan
5. Purchasing and Production Activity Purchasing and Production Activity Implementation

Control
Control (PAC)
56
 Automobiles (30,000 Rs cr), Cement (800 Rs cr),

Strategic Plan Electronics (1,200 Rs cr)
Production • Product category- Cars (5L) & Trucks

(Aggregate/ SOP) (50k)
Plan
Master Production • Specific Models- Alto (2L), Dzire

Schedule (2L), Swift (1L)
Material • Parts- Tyres (10L),

Requirements Engines (2L) + Dzire
Plan & Swift requirements
Purchasing and
• Buy (0.5L),
Production Activity
manufacture
Control
(1.5L) engines
57
58
Balancing at each level
Demand Capacity
 What to produce or procure?  Resources- Machines, Manpower

 Time- No. of shifts, No. of days a week
 How much?
 When?
59
Production planning- Summary
Plan Demand Capacity Decisions by Level of Time horizon-
detail
Strategic Business Future products, future Future capacity- Setup/ Top 2 to 10 years
Plan demand acquire new plants, close Management Low
plants, New equipment
Production Quantities of each Resources needed and Senior 3 to 18 months
(Aggregate/ Sales product group to be availability- Equipment, Management
and Operations) produced each period labor, material + Desired
Plan inventory levels
Master Production Quantity of each end Subcontracting, Number Middle 1 to 3 months
Schedule (MPS) item to be made for of shifts Management
each period
Material End item requirements Manpower hiring/firing Middle Determined by
Requirements Plan broken down into Management production/
(MRP) specific components purchase lead
time
Production Activity Detailing specific Overtime Junior 1 day to 4 weeks
Control (PAC) and orders to produce or Management High
Purchasing purchase items 60
Production plan
(Aggregate/ Sales and Operations plan)
61
Production (Aggregate/ Sales and Operations) plan
Strategic
Annual
Business Plan
SALES AND OPERATIONS PLAN

Marketing Production Quarterly/ Monthly
Plan Plan
Detailed Master Production

Sales Plan Monthly/Weekly
Schedule
62
Remaining chapter will be covered in the next
lecture.
63
Sandeep Kayastha
64
Chapters
Chapter No Topic
3 Master Scheduling
7 Purchasing
10 Order Quantities
Physical Inventory and Warehouse
12
Management
13 Introduction to Quality Introduction to Materials Management
Stephen N Chapman, JR Tony Arnold, Ann K Gatewood and
14 Introduction to Process Lloyd M Clive.
15 Total Quality Management Pearson Education. Noida.
Eighth Edition.
16 Lean Production 65
Chapter-3
Master Scheduling
66
Topics
 What is a Master Production Schedule (MPS)?

 Developing a MPS-1 (Textbook problem).
 Developing a MPS-2 (Textbook example problem).
 Developing a MPS-3 (Lot size).
 Rough-cut capacity planning.
 MPS at what level? (Raw material, Component, or End product?).
 MPS and delivery promises.
 Data requirement and Time frames for MPS
67
What is a Master Production
Schedule (MPS)?
68
Strategic

Plan
3. Master Production Schedule (MPS) Master Production Planning

Schedule

Control
Control (PAC)
69


Plan


Purchasing and
• Buy (0.5L),
Production Activity
manufacture
Control
(1.5L) engines
70
71
detail
Strategic Business Future products, future Future capacity, Setup/ Top 2 to 10 years
Production (Sales Quantities of each Resources needed and Senior 1 to 18 months

and Operations) product group to be availability. Equipment, Management
Plan produced each period labor, material + Desired
inventory levels

each period

Requirements Plan broken down into Management pdn. / purchase
(MRP) specific components lead time

Purchasing purchase items
72
MPS in a Nutshell
73
Master Production Schedules (MPS)-1
A company requires 600 of A, 600 of B, 900 of C, and 1500 of D in 6 weeks. Develop a MPS.
Week 1 2 3 4 5 6 Total
Product A 600
Product B 600
Product C 900
Product D 1500
Total 3600
74
Two Sample MPS
MPS-1
Product A 100 100 100 100 100 100 600
Product B 100 100 100 100 100 100 600
Product C 150 150 150 150 150 150 900
Product D 250 250 250 250 250 250 1500
Total 600 600 600 600 600 600 3600
Several other MPS are possible.

MPS-2
Product A 100 100 100 100 100 100 600
Product B 200 200 200 600
Product C 300 300 300 900
Product D 300 300 500 200 200 1500
Total 600 600 600 600 600 600 3600
75
Objectives and steps for MPS
 Objectives of MPS
 Make effective use of resources.
 Maintain good customer service and effective levels of inventory.
 MPS is accomplished by
 Developing a preliminary MPS.
 Checking MPS against capacity.
 Reconcile any differences.
76
Developing a MPS-1.
(Textbook problem)
77
Textbook problem. 1/4.
 A company manufactures three products, A, B and C. The aggregate sales forecasts and that of
products A, B and C are given below.
Sales Forecasts
Week 0 1 2 3 4 5 6 Total
Aggregate 160 160 160 160 215 250 1105
Product A 70 70 70 70 70 80 430
Product B 40 40 40 40 95 120 375
Product C 50 50 50 50 50 50 300
 The inventory at the end of period 0 is A=350, B=100, and C=50 units. At the end of period 6,
the management wants to have inventory A=125, B=340, and C=160 units.
 Develop a Master Production Schedule (MPS).
MPS
Week 0 1 2 3 4 5 6 Total
Product A ? ? ? ? ? ? ?
Product B ? ? ? ? ? ? ?
Product C ? ? ? ? ? ? ? 78
Textbook problem. 2/4. MPS-1.
Sales Forecasts
Week 0 1 2 3 4 5 6 Total
Product A 70 70 70 70 70 80 430
Product B 40 40 40 40 95 120 375
Product C 50 50 50 50 50 50 300
Total 160 160 160 160 215 250 1105
MPS-1
Week 0 1 2 3 4 5 6 Total Given:
Product A 205 205 1. Sales forecasts of A, B, and C.
Product B 205 205 205 615 2. The inventory at the end of period 0 is
Product C 205 205 410 A=350, B=100, and C=50 units. At the
Total Planned 205 205 205 205 205 205 1230 end of period 6, the management wants
to have inventory A=125, B=340, and
Inventory C=160 units.
Week 0 1 2 3 4 5 6
Product A 350 280 210 140 70 0 125
Product B 100 265 430 595 555 460 340 Closing inventory in period t+1 =
Product C 50 0 -50 -100 55 210 160 Closing inventory in period t + Production in t – Sales in t
Total Planned 500 545 640 735 680 670 625 79
Another MPS, MPS-2.
Sales Forecasts
Product A 70 70 70 70 70 80 430 1. Sales forecasts of A, B, and C.
Product B 40 40 40 40 95 120 375 2. The inventory at the end of period 0 is
Product C 50 50 50 50 50 50 300 A=350, B=100, and C=50 units. At the
Total 160 160 160 160 215 250 1105 end of period 6, the management wants
MPS-2 C=160 units.
Week 0 1 2 3 4 5 6 Total
Product A 205 205 Production schedule of
Product B 205 205 205 615 Product A, B and C changed
Product C 205 205 410 as compared with MPS-1 in
Total Planned 205 205 205 205 205 205 1230 previous slide.
Inventory
Week 0 1 2 3 4 5 6
Product A 350 485 415 345 275 205 125
Closing inventory in period t+1 =
Product B 100 60 225 390 555 460 340
Closing inventory in period t + Production in t – Sales in t
Product C 50 0 -50 -100 -150 5 160
Total Planned 500 545 640 735 830 670 625 80
Another MPS, MPS-3.
Sales Forecasts
end of period 6, the management wants
Total 160 160 160 160 215 250 1105
C=160 units.
MPS-3
Week 0 1 2 3 4 5 6 Total
Product A 30 30 30 30 30 55 205 Production schedule of
Product A, B and C changed
Product B 100 100 100 100 100 115 615 as compared with MPS-2 in
Product C 70 70 70 70 70 60 410 previous slide.
Total Planned 200 200 200 200 200 230 1230
Inventory
Week 0 1 2 3 4 5 6
Product A 350 310 270 230 190 150 125
Product B 100 160 220 280 340 345 340
Product C 50 70 90 110 130 150 160
Total Planned 500 540 580 620 680 640 625 81
Developing a MPS-2.
(Textbook example problem)
82
Example Problem- From Textbook. 1/2.
 HotshotCo manufacturers two products, H and I. The aggregate sales forecasts and that of
products H and I are given below.
Sales forecasts
Week 0 1 2 3 4 Total
Aggregate 300 350 300 250 1200
Product H 200 300 100 100 700
Product I 100 50 200 150 500
 Develop a Master Production Schedule (MPS) for Product H and I. Keep the aggregate
production level constant at 250 units.
 The opening inventory of Product H is 200 units and that of Product I is 300 units. The company
wants to reduce inventory of Product H to 100 units and that of Product I to 200 units at the end
of 4 months.
MPS
Product H ? ? ? ? ?
Product I ? ? ? ? ? 83
Sales forecast
Given:
Week 0 1 2 3 4 Total 1. Sales forecast of H and I.
Aggregate 300 350 300 250 1200 2. The opening inventory of Product H is 200 units and
Product H 200 300 100 100 700 that of Product I is 300 units. The company wants to
Product I 100 50 200 150 500 reduce inventory of Product H to 100 units and that
of Product I to 200 units at the end of 4 months.
Master Production Schedule (MPS)
Product H 250 250 100 600 A solution. Other solutions are also possible.
Product I 250 150 400
Inventory /Projected Available

Week 0 1 2 3 4
Product H 200 250 200 100 100
Product I 300 200 150 200 200
84
Developing a MPS-3.
(Lot size)
85
Example problem- From Textbook. 1/2
 The sales forecasts of a product is given below,

 Develop a Master Production Schedule for the product.
 The product is made in lots of 100 units.
 The opening inventory of the product is 80 units and the company wants to reduce it to 20 units
after 6 periods.
Period 0 1 2 3 4 5 6
Sales forecast 60 60 60 60 60 60
Projected Available 80 ? ? ? ? ? 20
MPS ? ? ? ? ? ?
86
 MPS. Production lot size=100 units

Period 0 1 2 3 4 5 6
Given:
1. Sales forecast
Projected Available 80 20 60 0 40 80 20 2. The opening inventory of the
MPS 100 100 100 product is 80 units and the
company wants to reduce it to 20
units after 6 periods.
 MPS if Production lot size=150 units

Period 0 1 2 3 4 5 6
Sales forecast 60 60 60 60 60 60 Closing inventory in period t+1 =
Projected Available 80 20 110 50 140 80 20 Closing inventory in period t + Production in t – Sales in t
MPS 150 150
87
Rough-cut capacity planning
88
 Establishes whether critical resources are available

 Critical labor resources
 Critical material resources
 Bottleneck operations
 Often uses a resource bill for a single product
89
Capacity requirement. 1/2
 Labour is a critical resource at ComputerCo. The labour resource bill to produce 4 models of a
computer are given below.
 What will be the total labour required to produce-

 200 units of Model D24 +
 100 units of Model D27.
90
Total Standard hours =

Standard Production Standard hours *
Model hours Units Production Units
Model D24 0.203 200 40.60
Model D25 0.300 250 75.00
Model D26 0.350 400 140.00
Model D27 0.425 100 42.50
Total 298.10
91
MPS at what level?
(Raw Material, Component, or End
product?)
92
MPS at what level?
Production environments
 Make-to-Stock
 Limited end-products, many materials.
 Make-to-Order
 Many end-products, few materails.
 Assemble-to-Order
 Many end-products, combination of
components and subassemblies.
FAS: Final Assembly Schedule
93
Master Schedule decisions
* FAS- Final Assembly Schedule
 Prepare Master Schedule where variety is lowest.
94
MPS and delivery promises
95
 MPS can be used to make delivery promises.
96
Delivery promises
Capacity
Units
Booked Orders Available to Promise
Time
97
Delivery promises. 1/2
 Confirmed orders for a product and its MPS are given below.
 Inventory available at the end of period 0 is 100 units.
 How many units are Available-to-Promise (ATP)?
Period 0 1 2 3 4 5
Customer Orders 80 10 10 30
MPS 100 100
ATP ? ? ? ? ?
98
Period 0 1 2 3 4 5
The available inventory at the
Customer Orders 80 10 10 30 end of period 0 is 100 units.
MPS 100 100
ATP 20 80 70
For period 1 = On hand + MPS - Customer orders due before next MPS = 100- 80= 20 units.
For period 2 = MPS - Customer orders due before next MPS = 110- (10+10) = 80 units
For period 3 = MPS - Customer orders due before next MPS = 0-10= -10 units. Since negative, no
units available for ATP.
For period 4 = MPS - Customer orders due before next MPS = 100- 30= 70 units
99
Data requirements and Time frames
for MPS.
100
Data requirements for MPS
 Sales forecasts
 Actual customer orders
 Inventory levels
 Production Plan data
 Capacity constraints
101
Time frames
•Planning horizons in the MPS

 Frozen Zone (closest to current date)
 Capacity and materials committed to customer orders, forecast generally ignored
 Senior management approval for changes
 Slushy Zone
 Less commitment of materials and capacity
 Tradeoffs negotiated between marketing and manufacturing
 Liquid Zone – All changes allowed within limits of the Production Plan
102
Thank you
Next Chapter: 4. Material Requirements Planning
103
Lecture-3 19 Jan, Saturday 10 am-12 noon
104
Today’s lecture

No
2 Production Planning System 13 Jan, 19 Jan
3 Master Scheduling 19 Jan
7 Purchasing
10 Order Quantities
16 Lean Production
105
Chapter-2
Production Planning System
106
Topics
 Levels of planning
 Production (Aggregate/ Sales and Operations) plan
 Production plan strategies

 Example of Make-to-stock production plan strategies
 Example of Make-to-order production plan strategy
 Resource planning
107
Production plan strategies
108
Production rate for following demand?
Demand
50
40
No. of Units
30
20
10
Time
109
Chase strategy
Chase production
No. of Units
Demand
Time
110
Level production strategy-1
Level Production
No. of Units
Demand
Time
111
Level strategy-2
USE inventory
Level Production
No. of Units
CREATE inventory
Demand
Time
112
Subcontract strategy
Demand
No. of Units
Subcontract
In-house production
Time
113
Hybrid strategy
Hybrid
No. of Units
Demand
Time
114
Production plan strategies- Summary
1. Chase strategy
2. Level strategy
3. Sub-contracting strategy
4. Hybrid strategy
115
Production plan strategies- Summary
Strategy Production rate When to use
Chase strategy Production rate = Demand  When product cannot be stored or customer cannot
wait; resources are flexible and inexpensive to change.
Vary production rates to meet
changes in the demand.  Used in agriculture- sowing and harvesting; Amazon and
Restaurants use during peak and lean periods.
Level strategy Production rate = Avg. demand  When product can be stored; resources are rigid or
expensive to change.
Inventory varies.
 Used in the production of seasonal products-
refrigerators, garments, crackers….
Subcontracting Smooth production in-house,  When demand uncertainty is high; garment

strategy sub-contract variation. manufacturing.
Hybrid strategy A combination of Chase, Level  Most companies use Hybrid strategy when feasible.
and Sub-contracting strategies.
116
Example of Make-to-stock
production plan strategies
117
Make-to-stock production plans
 Products are made in expectation of demand.

 Products are kept in inventory, and orders are fulfilled from inventory.
 Examples: Laptops, cars, books, tyres, bulbs, shampoos, watches, …
Products are Made-to-stock when-

 Demand is fairly constant and predictable.
 Delivery times demanded by the marketplace are much shorter than the
time needed to make the product.
 Product has long shelf life.
118
Numerical example
Demand forecast for a product family is given in the table below. The starting inventory is
100 units.
 Create production plans using a) Chase strategy, b) Level strategy, and c) any Hybrid
strategy.
Period 1 2 3 4 5 6 Total
Demand forecast (units) 150 160 180 175 155 140 960
119
Production plan using Chase strategy
 Chase strategy
 Planned production = Demand forecast
 Note that inventory remains the same
Period 0 1 2 3 4 5 6 Total
Demand forecast 150 160 180 175 155 140 960

Planned production 150 160 180 175 155 140 960
Inventory at the end of period 100 100 100 100 100 100 100
Inventory at the end of period 0 = 100 units, given.
120
Production plan using Level strategy
 Level strategy
 Planned production = Average demand forecast
 Note that Planned production is same but inventory changes
Demand forecast 150 160 180 175 155 140 960
Inventory at the end of 100 110 110 90 75 80 100
period
Planned production = Total demand forecast/6 = 960/6 = 160 units.
121
Production plan using a Hybrid strategy
 Hybrid strategy
 Planned production = 140 units in periods 1 to 3, and 175 units in periods 4 to 6.
Demand forecast 150 160 180 175 155 140 960
Inventory at the end of 100 90 70 30 30 50 85
period
122
Choosing a production plan strategy
Best production plan strategy depends on

1. Cost of carrying inventory
2. Cost of changing capacity (production rate)
123
Example of Make-to-stock
production plan strategies
124
Example from textbook. 1/3
 Sales forecast of a product is given in the table below.

 Inventory at the end of period 0 is 100 cases and the company wants to
reduce that to 80 cases by the end of the planning period.
 Cost of carrying inventory is $ 5/case/period.
 Cost of changing the capacity (production rate) is $ 20/case.
 Compute the cost of Chase strategy and Level strategy,
Period 1 2 3 4 5 Total
Sales forecast (cases) 110 120 130 120 120 600
125
Level strategy. 2/3
Sales forecast 110 120 130 120 120 600
(cases)
Production 116 116 116 116 116 116 580
Ending inventory 100 106 102 88 84 80
Production in period 0 is 116, given.  Cost of carrying inventory is $ 5/case/period.
 Cost of changing the capacity (production rate) is $ 20/case
Cost of carrying inventory = (106 + 102 + 88 + 84 + 80) * 5 = $ 2,300
Total cost = $ 2,300 + production cost
126
Chase strategy. 3/3
Sales forecast (cases) 110 120 130 120 120 600
Production 100 90 120 130 120 120 580
Change in production -10 +30 +10 -10 0
Ending inventory 100 80 80 80 80 80
Production in period 0 is100, given.  Cost of carrying inventory is $ 5/case/period.
 Cost of changing the capacity (production rate) is $ 20/case
Cost of carrying inventory = (80 + 80 + 80 + 80 + 80) * 5 = $ 2,000
Cost of changing production = (10 + 30 + 10 + 10 + 0) * 20 = $ 1,200
Total cost = $ 2,000 + $ 1,200 + production cost
127
Example of Make-to-order
production plan strategy
128
Make-to-order production plans
 Products are made to customer specifications.

 The customer is willing to wait for production.
 Generally several options are offered and make-to-order products are more
expensive to make.
 Company has a backlog of unfilled customer orders rather than inventory.
 Backlog: When the product is not available in the stock and the customer
waits for the product to be delivered.
129
 A printing shop undertakes printing after it gets confirmed order from the customer.
 The forecast of orders in hours of work is given below.
 The backlog of orders at the end of period 0 was 100 hours, and the company wants
to reduce he backlog to 80 hours after the end of period 5..
 What will be the backlog of orders after each period?
Sales forecast (hrs) 100 100 100 100 100 500
Production (hrs) ? ? ? ? ? ?
Projected backlog (hrs) 100 ? ? ? ? 80
130
 A printing shop undertakes printing after it gets confirmed order from the customer.
 The forecast of orders in hours of work is given below.
 The backlog of orders at the end of period 0 was 100 hours, and the company wants
to reduce he backlog to 80 hours after the end of period 5..
 What will be the backlog of orders after each period? Use level strategy.
Sales forecast (hrs) 100 100 100 100 100 500
Production (hrs) 104 104 104 104 104 520
Projected backlog (hrs) 100 96 92 88 84 80
131
Resource planning
132
Resource planning
 What resources are required to meet the production plan?

 Are resources available?
 If not, how will the difference be reconciled?
Demand Capacity
133
Resource bill
 Resource bill: Quantity of critical resources needed to make one unit of the
product group.
 The resource bill for manufacturing Tables, Chairs and Stools by a company
is given in the table below.
Product Wood Labour
(square feet) (standard hours)
Table 20 1.31
Chair 10 0.85
Stool 5 0.55
 Wood and labour required to produce 500 Tables, 200 Chairs and 100 Stools
in the next month will be 12,500 square feet and 880 standard labour hours.
If the company does not have the required wood or labour hours it will have
to obtain them or change the plan.
134
Thank You!
Next chapter: 3. Master Scheduling
135
Sandeep Kayastha
136
Chapters
Chapter No Topic
3 Master Scheduling
7 Purchasing
10 Order Quantities
12
Management
Eighth Edition.
Chapter-3
Master Scheduling
138
Topics

139
What is a Master Production
Schedule (MPS)?
140
Strategic

Plan
3. Master Production Schedule (MPS) Master Production Planning

Schedule

Control
Control (PAC)
141


Plan


Purchasing and
• Buy (0.5L),
Production Activity
manufacture
Control
(1.5L) engines
142
143
detail
Strategic Business Future products, future Future capacity, Setup/ Top 2 to 10 years
Production (Sales Quantities of each Resources needed and Senior 1 to 18 months

and Operations) product group to be availability. Equipment, Management
Plan produced each period labor, material + Desired
inventory levels

each period

Requirements Plan broken down into Management pdn. / purchase
(MRP) specific components lead time

Purchasing purchase items
144
Lecture-4 20 Jan, Sunday 10 am-12 noon
145
Today’s lecture

No
3 Master Scheduling 19 Jan, 20 Jan
4 Material Requirements Planning 20 Jan
7 Purchasing
10 Order Quantities
16 Lean Production
146
Chapter-3
Master Scheduling
147
Topics

148
MPS in a Nutshell
149
Product A 600
Product B 600
Product C 900
Product D 1500
Total 3600
150
Two Sample MPS
MPS-1
Product A 100 100 100 100 100 100 600
Product B 100 100 100 100 100 100 600
Product C 150 150 150 150 150 150 900
Product D 250 250 250 250 250 250 1500
Total 600 600 600 600 600 600 3600
Several other MPS are possible.

MPS-2
Product A 100 100 100 100 100 100 600
Product B 200 200 200 600
Product C 300 300 300 900
Product D 300 300 500 200 200 1500
Total 600 600 600 600 600 600 3600
151
Blank slide.
152
Objectives and steps for MPS
 Objectives of MPS
 Make effective use of resources.
 Maintain good customer service and effective levels of inventory.
 MPS is accomplished by
 Developing a preliminary MPS.
 Checking MPS against capacity.
 Reconcile any differences.
153
Developing a MPS-1.
(Textbook problem)
154
 A company manufactures three products, A, B and C. The aggregate sales forecasts and that of
products A, B and C are given below.
Sales Forecasts
Week 0 1 2 3 4 5 6 Total
Aggregate 160 160 160 160 215 250 1105
Product A 70 70 70 70 70 80 430
Product B 40 40 40 40 95 120 375
Product C 50 50 50 50 50 50 300
 The inventory at the end of period 0 is A=350, B=100, and C=50 units. At the end of period 6,
the management wants to have inventory A=125, B=340, and C=160 units.
 Develop a Master Production Schedule (MPS).
MPS
Week 0 1 2 3 4 5 6 Total
Product A ? ? ? ? ? ? ?
Product B ? ? ? ? ? ? ?
Product C ? ? ? ? ? ? ? 155
Textbook problem. 2/4. MPS-1.
Sales Forecasts
Week 0 1 2 3 4 5 6 Total
Product A 70 70 70 70 70 80 430
Product B 40 40 40 40 95 120 375
Product C 50 50 50 50 50 50 300
Total 160 160 160 160 215 250 1105
MPS-1
Product A 205 205 1. Sales forecasts of A, B, and C.
Product B 205 205 205 615 2. The inventory at the end of period 0 is
Product C 205 205 410 A=350, B=100, and C=50 units. At the
Total Planned 205 205 205 205 205 205 1230 end of period 6, the management wants
Inventory C=160 units.
Week 0 1 2 3 4 5 6
Product A 350 280 210 140 70 0 125
Product B 100 265 430 595 555 460 340 Closing inventory in period t+1 =
Product C 50 0 -50 -100 55 210 160 Closing inventory in period t + Production in t – Sales in t
Total Planned 500 545 640 735 680 670 625 156
Another MPS, MPS-2.
Sales Forecasts
Total 160 160 160 160 215 250 1105 end of period 6, the management wants
MPS-2 C=160 units.
Week 0 1 2 3 4 5 6 Total
Product A 205 205 Production schedule of
Product B 205 205 205 615 Product A, B and C changed
Product C 205 205 410 as compared with MPS-1 in
Total Planned 205 205 205 205 205 205 1230 previous slide.
Inventory
Week 0 1 2 3 4 5 6
Product A 350 485 415 345 275 205 125
Product B 100 60 225 390 555 460 340
Product C 50 0 -50 -100 -150 5 160
Total Planned 500 545 640 735 830 670 625 157
Another MPS, MPS-3.
Sales Forecasts
end of period 6, the management wants
Total 160 160 160 160 215 250 1105
C=160 units.
MPS-3
Week 0 1 2 3 4 5 6 Total
Product A 30 30 30 30 30 55 205 Production schedule of
Product A, B and C changed
Product B 100 100 100 100 100 115 615 as compared with MPS-2 in
Product C 70 70 70 70 70 60 410 previous slide.
Total Planned 200 200 200 200 200 230 1230
Inventory
Week 0 1 2 3 4 5 6
Product A 350 310 270 230 190 150 125
Product B 100 160 220 280 340 345 340
Product C 50 70 90 110 130 150 160
Total Planned 500 540 580 620 680 640 625 158
Developing a MPS-2.
(Textbook example problem)
159
 HotshotCo manufacturers two products, H and I. The aggregate sales forecasts and that of
products H and I are given below.
Sales forecasts
Aggregate 300 350 300 250 1200
Product H 200 300 100 100 700
Product I 100 50 200 150 500
 Develop a Master Production Schedule (MPS) for Product H and I. Keep the aggregate
production level constant at 250 units.
 The opening inventory of Product H is 200 units and that of Product I is 300 units. The company
wants to reduce inventory of Product H to 100 units and that of Product I to 200 units at the end
of 4 months.
MPS
Product H ? ? ? ? ?
Product I ? ? ? ? ? 160
Sales forecast
Given:
Week 0 1 2 3 4 Total 1. Sales forecast of H and I.
Aggregate 300 350 300 250 1200 2. The opening inventory of Product H is 200 units and
Product H 200 300 100 100 700 that of Product I is 300 units. The company wants to
Product I 100 50 200 150 500 reduce inventory of Product H to 100 units and that
of Product I to 200 units at the end of 4 months.
Master Production Schedule (MPS)
Product H 250 250 100 600 A solution. Other solutions are also possible.
Product I 250 150 400
Inventory /Projected Available

Week 0 1 2 3 4
Product H 200 250 200 100 100
Product I 300 200 150 200 200
161
Developing a MPS-3.
(Lot size)
162
 The sales forecasts of a product is given below,

 Develop a Master Production Schedule for the product.
 The product is made in lots of 100 units.
 The opening inventory of the product is 80 units and the company wants to reduce it to 20 units
after 6 periods.
Period 0 1 2 3 4 5 6
Projected Available 80 ? ? ? ? ? 20
MPS ? ? ? ? ? ?
163
 MPS. Production lot size=100 units

Period 0 1 2 3 4 5 6
Given:
1. Sales forecast
Projected Available 80 20 60 0 40 80 20 2. The opening inventory of the
MPS 100 100 100 product is 80 units and the
company wants to reduce it to 20
units after 6 periods.
 MPS if Production lot size=150 units

Period 0 1 2 3 4 5 6
Sales forecast 60 60 60 60 60 60 Closing inventory in period t+1 =
Projected Available 80 20 110 50 140 80 20 Closing inventory in period t + Production in t – Sales in t
MPS 150 150
164
165
 Establishes whether critical resources are available

 Critical labor resources
 Critical material resources
 Bottleneck operations
 Often uses a resource bill for a single product
166
 Labour is a critical resource at ComputerCo. The labour resource bill to produce 4 models of a
computer are given below.
 What will be the total labour required to produce-

 100 units of Model D27.
167
Total Standard hours =

Standard Production Standard hours *
Model hours Units Production Units
Model D24 0.203 200 40.60
Model D25 0.300 250 75.00
Model D26 0.350 400 140.00
Model D27 0.425 100 42.50
Total 298.10
168
MPS at what level?
(Raw Material, Component, or End
product?)
169
MPS at what level?
Production environments
 Make-to-Stock
 Limited end-products, many materials.
 Make-to-Order
 Many end-products, few materails.
 Assemble-to-Order
 Many end-products, combination of
components and subassemblies.
FAS: Final Assembly Schedule
170
Master Schedule decisions
* FAS- Final Assembly Schedule
 Prepare Master Schedule where variety is lowest.
171
172
 MPS can be used to make delivery promises.
173
Delivery promises
Capacity
Units
Booked Orders Available to Promise
Time
174
 Confirmed orders for a product and its MPS are given below.
 Inventory available at the end of period 0 is 100 units.
 How many units are Available-to-Promise (ATP)?
Period 0 1 2 3 4 5
Customer Orders 80 10 10 30
MPS 100 100
ATP ? ? ? ? ?
175
Period 0 1 2 3 4 5
The available inventory at the
Customer Orders 80 10 10 30 end of period 0 is 100 units.
MPS 100 100
ATP 20 80 70
For period 1 = On hand + MPS - Customer orders due before next MPS = 100- 80= 20 units.
For period 2 = MPS - Customer orders due before next MPS = 100- (10+10) = 80 units
For period 3 = MPS - Customer orders due before next MPS = 0-10= -10 units. Since negative, no
units available for ATP.
For period 4 = MPS - Customer orders due before next MPS = 100- 30= 70 units
176
Data requirements and Time frames
for MPS.
177
Data requirements for MPS
 Sales forecasts
 Actual customer orders
 Inventory levels
 Production Plan data
 Capacity constraints
178
Time frames
•Planning horizons in the MPS

 Frozen Zone (closest to current date)
 Capacity and materials committed to customer orders, forecast generally ignored
 Senior management approval for changes
 Slushy Zone
 Less commitment of materials and capacity
 Tradeoffs negotiated between marketing and manufacturing
 Liquid Zone – All changes allowed within limits of the Production Plan
179
Thank you
Next Chapter: 4. Material Requirements Planning
180
Sandeep Kayastha
181
Topics
Chapter No Topic
3 Master Scheduling
7 Purchasing
10 Order Quantities
12
Management
Eighth Edition.
Chapter 4
Material Requirements Planning
Sandeep Kayastha
183
Topics
1. Levels of planning
2. MRP in a Nutshell
3. Bill of Materials (BOM)
4. Developing MRP
5. MRP- an example
6. MRP process
184
Levels of planning
185
Strategic

Plan
Master Production

Control
Control (PAC)
186


Plan


Purchasing and
• Buy (0.5L),
Production Activity
manufacture
Control
(1.5L) engines
187
188
Balancing at each level
Demand Capacity
 What to produce or procure?  Resources- Machines, Manpower

 Time- No. of shifts, No. of days a week
 How much?
 When?
189
Relation of MRP to other MPC functions
Objective of MRP:
To determine requirements of the
components and materials to meet
product requirements defined in the
MPS
190
MRP in a Nutshell
191
Timelines-1
Production/Delivery Lead time
Order Release Order Receipt Net Requirement
Net Requirement = Gross Requirement – Inventory – Scheduled Receipts

192
Timelines-2
Production/Delivery Lead time
Order Release Order Receipt Net Requirement
In this course we
want receipt of the
Order Release Net Requirement order when there is a
Order Receipt requirement
Net Requirement = Gross Requirement – Inventory – Scheduled Receipts

193
Key terms
 Gross Requirements – Total of a component needed to meet

requirements not taking any existing inventory into account.
 Net Requirements – Actual amount of a component needed to
meet requirement after existing requirements taken into
account.
 Scheduled receipts – Open orders released for processing
(production or purchase) scheduled to be received at a defined
time.
194
In a Nutshell- MRP Record-1/2
1729, Engines
Supply lead time=1 week

What to order: Engines
How much to order: 5 Engines
When to order: Week no 4
When to schedule delivery: Week no 5
195
In a Nutshell- MRP Record-2/2
1729, Engines
Supply lead time=1 week

From MPS and Bill of Materials
Item to be received, that were ordered earlier
Inventory status What to order: (1729, Engines)
Net requirement of the item How much to order: 5 Engines
When and how many to receive the ordered items
When to order: Week 4
When and how many to order
When to schedule delivery: Week
196 5
Remaining chapter will be covered in the next
lecture.
197
Lecture-5 2 Feb, Saturday 10 am-12 noon
198
Today’s lecture

No
4 Material Requirements Planning 20 Jan, 2 Feb
5 Capacity Management 2 Feb
7 Purchasing
10 Order Quantities
16 Lean Production
199
Chapter 4
Sandeep Kayastha
200
Topics

4. Developing MRP
5. MRP- an example
6. MRP process
201
Bill of Materials (BOM)
202
Parts of a product- pictorial
203
Parts of a product- table
 BOM shows all parts to make one of

the item.
 Each part has one, and only one,

part number, even if the part is used
in different products
 A part is defined by form, fit, and

function – any change requires a
new part number.
204
Parts of a Table- does not show how the product
will be assembled
205
Bill of materials (BOM) vs. List of parts
List of Parts: Parts used to make

the product
BOM = List of Parts + Structure
Structure shows how the

product will be assembled.
206
BOM- Multilevel
Shows how the product will be assembled.
207
BOM- Indented table
Indented BOM is used in the computer
208
Uses of BOM
 Production – Parts needed to assemble a product

 Provides method for design change control
 Planning – What is needed and when
 Order entry – Order configuration and pricing
 Costing – Material cost of goods
209
Developing Material Requirements
Plan (MRP)
210
Sample MRP record- for one item
1729
Delivery lead time=1 week.
211
Sample MRP record- product has multiple items
Item C is required by Product

A and assembly B.
For B
For A
212
MRP- examples
213
Example- 1/2 (From textbook p.86)
The Gross Requirements of a product are- 50 units in Week 1, 250 in Week 2, 100 in Week 3 and
50 in Week 4. Scheduled receipts are 200 units in week 2 and Projected Available in Week 0
(opening inventory) is 150 units). Lead time to procure the item is 2 Weeks.
Determine Net Requirements, Projected Available (inventory), Planned Order Receipt and
Planned Order Release.
Week
Item 0 1 2 3 4
Gross Requirements 50 250 100 50
Scheduled Receipts 200
Projected Available 150
Net Requirements
Planned Order Receipt
Planned Order Release 214
Example- 2/2 (From textbook p.86)
Solution:
Week
Item 0 1 2 3 4
Gross Requirements 50 250 100 50
Scheduled Receipts 200
Projected Available 150 100 50 150 100
Net Requirements 50
Planned Order Receipt 200
Lead time to procure the item is 2 Weeks.
Net Requirements = Gross Requirements – (Scheduled Receipts + Projected Available in previous Week), if > 0; else 0.
Projected Available = Projected Available in previous week + Scheduled Receipts + Planned Order Receipt - Gross Requirements
215
Develop MRP- 1/2 (From Textbook p. 83)
• Product A is produced from assembly B and part C,

and assembly B is produced from parts D and E. The
product tree is as shown on the right.
• Each parent requires one item of its each child.
• Lead time to produce each lot of A from B and C is 1
week; Lead time to produce each lot of B from D and E
is 2 weeks; and Lead time to procure each lot of C, D
and E is 1 week.
• Product A required in Week-5 is 50 units Week-6 is 100
units.
• When and how many number of C, D and E should be
ordered for purchase; when and how many number of
D and E should be taken up for assembly to produce
B, and when and how many number of B and C should
be taken up for assembly to produce A.
Item
Part No. Week 1 2 3 4 5 6
A Requirement 50 100
216
Develop MRP- 2/2 (From Textbook p.83)
There is no inventory of product A, assembly B, part C, part D, or part E.
Part No. Item Week 1 2 3 4 5 6

A Gross Requirement 50 100
Part No. Item Week 1 2 3 4 5 6

A Planned Order Receipt 50 100
Solution:
LT=1w Planned Order Release 50 100
Order 50 units of D and
B Planned Order Receipt 50 100 50 units of E in week 1;
LT=2w Planned Order Release 50 100 order 100 units of D and
C Planned Order Receipt 50 100 100 units of E in week 2.
Start assembling 50 units
D Planned Order Receipt 50 100 of B and C in week 4 , and
LT=1w Planned Order Release 50 100 100 units of B and C in
E Planned Order Receipt 50 100 week 5 to produce A.
217
Another MRP problem- 1/2 (From Textbook p. 85)
• Product A is produced from assembly B and part C,

and assembly B is produced from parts D and E. The
product tree is as shown on the right.
• Each parent requires one item of its each child.
• Lead time to produce each lot of A from B and C is 1
week; Lead time to produce each lot of B from D and E
is 2 weeks; and Lead time to procure each lot of C, D
and E is 1 week.
• Opening Inventory of A is 20 units and B is 10 units.
• Product A required in Week-5 is 50 units.
• When and how many number of C, D and E should be
ordered for purchase; when and how many number of
D and E should be taken up for assembly to produce
B, and when and how many number of B and C should
be taken up for assembly to produce A.
Part No. Item Week 1 2 3 4 5
A Requirement 50
218
Another MRP problem- 2/2 (From Textbook p. 85)
Part No Item Week 1 2 3 4 5

Gross Requirement: 50 units of A is required in week 5.
A Gross Requirements 50
LT=1w Projected Available 20 20 20 20 20 0 Inventory available: A=20, B=10, C=0, D=0, and E=0 units.
Net Requirements 30
B Gross Requirements 30
LT=2w Projected Available 10 10 10 10 0
Net Requirements 20
C Gross Requirements 30
LT=1w Projected Available 0
Net Requirements 30
D Gross Requirements 20
LT=1w Projected Available 0 0
Net Requirements 20
Planned Order Receipt 20 Order 30 units of C in week 3, 20 units of D in week 1,
Planned Order Release 20 and 20 units of E in week 1.
E Gross Requirements 20
Net Requirements 20 Start assembling 30 units of B and 30 units of C in week
Planned Order Receipt 20 4 to produce A.
Planned Order Release 20 219
MRP process
220
MRP process
1. Exploding the BOM
2. Gross and Net Requirements

3. Offsetting Net requirements by the lead time
4. Releasing orders for production or purchase
221
Remaining chapter will be covered in the next lecture.
Remaining slides are appended.
222
MRP explosion for two products
Component F is required by two products B and C.
Product B requires 1 F and 1 G.

Product C requires 2 E and 2 F.
Planned Order Release for B and C are given.
Gross Requirement of F?
223
Key terms
 Exploding – process of multiplying requirements by usage to get BOM requirements
 Lead time – span of time to produce a lot or procure from the supplier.
 Offsetting – Placing requirements in the proper period based on lead time.
 Planned orders – Orders planned during the explosion, but not yet released for processing
 Low-level code – a part is given lowest level if it appears on multiple levels in the Bill of
Materials.
 Firm Planned orders – Orders not yet released, but “frozen” in quantity and time to reduce
system “nervousness”
 Bottom-up replanning – actions to correct for changed conditions made as low as possible in
the product structure.
224
Thank you
Next Chapter: 5. Capacity Management
225
Lecture-8 17 Feb, Sunday 10 am-12 noon
226
Today’s lecture

No
4 Material Requirements Planning 20 Jan, 2 Feb, 9 Feb, 16 Feb
5 Capacity Management 16 Feb, 17 Feb
6 Production Activity Control 17 Feb
7 Purchasing
10 Order Quantities
16 Lean Production
227
Chapter-5
Capacity Management
Sandeep Kayastha
228
Topics
1. Capacity planning
2. Measuring capacity
3. Capacity required (Load)
4. Scheduling the orders
229
Scheduling the Orders
230
 Back scheduling (the typical approach)

 Start with the due date, use manufacturing lead time to find
the proper start date for each operation.
 Forward scheduling
 Launch the order into the first work center, then use the lead
times to find when the order will be completed at each work
center.
231
Example- 1/3 (Textbook p.122, 123)
Problem
There is an order for 150 nos. of gear shaft. The due date is day 135. The route sheet-
giving details of the operations to be performed, the work center on which each operation
will be performed, and the setup times and run times- is given below.
The work center file- giving details of the queue time, wait time, and move time- for each
work center is also given below.
Calculate the start and finish dates for each work center.
Work center details

Work Center Queue Time, Wait Time, Move Time,
no. days days days
12 4 1 1
14 3 1 1
17 5 1 1
03 8 1 1
232
Computing the Operation time for Order size of 150 pieces
Operation 10 at work center 12: 1.50 + 0.20 * 150 = 31.5 hrs ... 4 days.
Operation 20 at work center 14: 0.50 + 0.25 * 150 = 38 hrs… 5 days.
Operation 30 at work center 17: 0.30 + 0.05 * 150 = 7.8 hrs… 1 day.
Operation 40 at work center 03: 0.45 + 0.10 * 150 = 15.45 hrs... 2 days.
Operation time = Setup time + Run time * Order size

233
Example- 3/3 (Textbook example- p. 122, 123)
Creating work schedule
Operation Work Center Arrival Queue, Operation, Finish Wait, Move,

no. no. Date days days date days days
10 12 95 4 4 103 1 1
20 14 105 3 5 113 1 1
30 17 115 5 1 121 1 1
40 03 123 8 2 133 1 1
50 Stores 135
Given: Arrival (delivery) date at Stores: 135

Finish date at work Center no 03: Arrival date at Stores- Wait time at 03 - Move time from 03, 135 – 1 - 1 = 133.
Arrival date at 03: Finish date at 03- Operation time at 03 – Queue time at 03 = 133 – 2 - 8 = 123.
Similarly compute for for Work Center 17, 14, and 12. Dates-->
Work Centre No 12
9
5
1
0
5
1
1
5
1
2
3
1
3
5
Work Centre No 14
Work Centre No 17
Work Centre No 03
Stores
Queue
Operation
Wait
Move
234
Graphical work schedule
1 1 1 1
9 0 1 2 3
Dates--> 5 5 5 3 5
Work Centre No 12
Work Centre No 14
Work Centre No 17
Work Centre No 03
Stores
Queue
Operation
Wait
Move
235
Thank You!
Next chapter: 6. Production Activity Control and Purchasing
236
Modules
Chapter No Topic
3 Master Scheduling
7 Purchasing
10 Order Quantities
12
Management
Eighth Edition.
Chapter-6
Production Activity Control
Sandeep Kayastha
238
Topics
1. Production Activity Control in manufacturing systems

2. Scheduling
3. Load Leveling
4. Scheduling
5. Theory of Constraints
6. Sequencing
7. Control
8. Production Reporting
239
PAC in manufacturing systems
240
Components of PAC
Production
Planning
Master
Production
Scheduling
Material
Requirements
Planning
Operation
Sequencing
Production
Purchasing Activity
Control Input/Output
Control
241
Activities
 Release work orders.
 Schedule start and completion times for each shop order and
develop load profiles for the work centres.
 Control work orders to complete on time.
 Ensure materials, tooling, personnel.
Objectives
 Maintain customer service- meeting the due dates.
 Make good use of labor, machines and materials.
 Minimize work-in-process inventory.
242
Manufacturing systems
 Flow manufacturing
 Process manufacturing
 Project manufacturing
243
Flow manufacturing
Routings are fixed and Work centers arranged according to the

routing.
244
Flow manufacturing
In Flow manufacturing
 Routings are fixed and Work centers are arranged according to
the routing.
 For High volume and Standard products
 Repetitive (Automobiles, TVs) or Continuous (Cement, Refinery).
 Specifically designed equipment is used- Dedicated to produce
a limited range of products.
 Use of mechanical transfer devices- Low WIP and short
throughput times.
 Capacity is fixed by the line.
 Production Activity Control is relatively simple.
245
Intermittent manufacturing
Similar Work centres are at one place and Routings are not fixed.
246
 Similar Work centres are at one place and Routings are not fixed.
 For low volume, high variety products- job shops, furniture, garments.
 Many variations in product design, process requirements, order quantities.
 Flow of work is varied - work flow not balanced.
 Machinery and workers are flexible, Grouped according to function.
 Throughput times are generally long.
 Capacity required depends on product mix.
Production Activity Control is a major activity; it is also complex due to large

number of products made, variety of routings, and scheduling problems.
 Controlled through shop orders for each batch.
247
Project manufacturing
Project manufacturing
• One time activity- high variety
• Ship building, Bridges, Roads, Power plants….
• Mostly sourcing, little manufacturing
• Fabrication and assembly at site
• Several vendors- Close coordination required.
248
Scheduling
249
Scheduling techniques
Scheduling- what to do, when to do, and where to do.
 Forward Scheduling
 Backward Scheduling
250
Forward and Backward scheduling- Infinite load
Order Order Due

Received Date Date
1 2 3 4 5 6 7 8 9
Forward Scheduling
Material 1st 2nd 3rd
Ordered Operation Operation Operation
Backward Scheduling
Infinite load: Scheduling is done without considering the capacity.

251
Scheduling techniques
Forward Scheduling
 Start when the order is received.
 Gives the earliest completion date; Determine promise dates.
 The order may finish early.
 Finished goods inventory builds up if completed before the
promised date.
Backward Scheduling
 Schedule last operation to be completed on the due date. Then,
schedule previous operations back from the last operation.
 Uses MRP logic.
 No build up of finished goods inventory.
252
Load profile
Capacity Overload
Capacity
Load
Load
Capacity Underload
Load profile without considering the capacity. Load profile after considering the capacity.
253
Load profile
Capacity
Load
Smoothed Load
Load rescheduled after considering the capacity.

254
Forward and Backward scheduling- Finite load
Order Order Due

Received Date Date
1 2 3 4 5 6 7 8 9
Forward Scheduling
Backward Scheduling
255
Scheduling bottlenecks
256
Scheduling bottlenecks
Bottleneck: A facility, function, department, or resource whose

capacity is equal to or less than the demand put upon it.
Process 1 Process 2 Process 3 Process 4

5 per hour 7 per hour 4 per hour 9 per hour
257
Throughput
Throughput
 The total volume of product passing through a facility- nos/shift.
Bottlenecks control the throughput

 Work centers feeding bottlenecks will build inventory.
 Work Centers fed by bottlenecks have their throughput
controlled by the bottleneck.

258
Example-1/2 (Textbook p.144)
A manufacturer makes wagons composed of a box body, a handle assembly,

and two wheel assemblies. Demand for wagons is 500 nos. a week.
The wheel assembly capacity is 1200 sets a week, the handle assembly
capacity is 450 a week, and a final assembly can produce 550 wagons a week.
a. What is the capacity of the factory?

b. What limits the throughput of the factory?
c. How many wheel assemblies should be made?
d. What is the utilization of the wheel assembly?
e. What happens if utilization is 100%?
(Each wagon requires two sets of wheel assembly).
259
A manufacturer makes wagons composed of a box body, a handle assembly, and two
wheel assemblies. Demand for wagons is 500 nos. a week.
The wheel assembly capacity is 1200 sets a week, the handle assembly capacity is 450
a week, and a final assembly can produce 550 wagons a week.
a. 450 units per week

a. What is the capacity of the factory?
b. What limits the throughput of the factory? b. Throughput is limited by the handle assembly operation
c. How many wheel assemblies should be made? c. 900 wheel assemblies per week
d. What is the utilization of the wheel assembly?
d. Utilization of the wheel assemblies = 900 ÷ 1200 = 75%
e. What happens if utilization is 100%?
e. Excess inventory of wheel assemblies.
(Each wagon requires two sets of wheel assembly).

260
Bottleneck principles
1. Utilization of a non-bottleneck resource is not determined by its potential, but

by another constraint in the system.
2. Utilization of a non-bottleneck 100% of the time does not produce 100%
utilization.
3. The capacity of the system depends on the capacity of the bottleneck.
4. Time saved at a non-bottleneck saves the system nothing.
5. Capacity and priority must be considered together.
6. Loads can and should be split.
7. Focus should be on balancing the flow in the shop.

261
Managing bottlenecks
1. Establish a time buffer before each bottleneck.

2. Control the rate of material feeding the bottleneck.
3. Do everything to provide the bottleneck with capacity.
4. Adjust loads.
5. Change the schedule.
Back schedule before the bottleneck; forward schedule after the

bottleneck.

262
Theory of constraints
263
Theory of constraints-1/3
1. Identify the constraint

Marketing sells
5 per hour?
264
Theory of constraints-2/3
2. Exploit the constraint.
3. Subordinate everything to the constraint.
4. Elevate the constraint.
5. Once the constraint is a constraint no-longer, find the new one and repeat the steps.
265
Drum-Buffer-Rope analogy
Drum
 Pace of production set by the constraint
Buffer
 Inventory established before the constraint
Rope
 Coordinated release of material
266
Drum
267
Input-Output control
268
Control
Input/output control
 Control the work going into and out of a work center.
 Set the priority of orders to run at each work center.
Difference between what was planned and what was achieved.

 Inputs
 Outputs
 Backlogs
Cumulative difference
 Cumulative variance = Previous cumulative variance + actual - planned
269
An Input-Output report
Work Center: 201

Capacity per period: 40 standard hours
Period 1 2 3 4 5 Total
Planned Input 38 32 36 40 44 190
Actual Input 34 32 32 42 40 180
Cumulative Variance -4 -4 -8 -6 -10 -10
Planned Output 40 40 40 40 40 200

Actual Output 32 36 44 44 36 192
Cumulative Variance -8 -12 -8 -4 -8 -8
Planned Backlog 32 30 22 18 18 22
Actual Backlog 32 34 30 18 16 20
Cumulative variance = Previous cumulative variance + actual - planned 270

271
Today’s lecture

No
6 Production Activity Control 17 Feb, 23 Feb
7 Purchasing 23 Feb
10 Order Quantities
16 Lean Production
272
Chapter-6
Sandeep Kayastha
273
Topics
1. Production Activity Control in manufacturing systems

2. Scheduling
3. Load Leveling
4. Scheduling
5. Theory of Constraints
6. Control
7. Sequencing
274
Input-Output control
275
Control
Input/output control
 Control the work going into and out of a work center.
 Set the priority of orders to run at each work center.
Difference between what was planned and what was achieved.

 Inputs
 Outputs
 Backlogs
Cumulative difference
 Cumulative variance = Previous cumulative variance + actual - planned
276
Operation sequencing
277
Operations sequencing
A technique for short term planning of actual jobs to be

run in each work center based on capacities and
priorities.
Priority: The sequence in which jobs should run at a work

center.
278
Dispatching rules
FCFS - First come, first served

EDD - Earliest job due date
ODD - Earliest operation due date
SPT - Shortest processing time
CR - Critical ratio
CR = due date - present date

lead time remaining
279
The Processing times, Arrival dates, Due dates, and Operation Due dates of
four jobs is given in the table below. In what sequence should the four jobs
be processed on a machine for FCFS, EDD, ODD, and SPT sequencing
rules.
Job Processing Arrived Due Operation FCFS EDD ODD SPT
time (days) date date Due date
A 4 223 245 233
B 1 224 242 239
C 5 231 240 240
D 2 219 243 242
280
The Processing times, Arrival dates, Due dates, and Operation Due dates of
four jobs that will be arriving is given in the table below. In what sequence
should the four jobs be processed on a machine for FCFS, EDD, ODD, and
SPT sequencing rules.
Job Processing Arrived Due Operation FCFS EDD ODD SPT
time (days) date date Due date
A 4 223 245 233 2 4 1 3
B 1 224 242 239 3 2 2 1
C 5 231 240 240 4 1 3 4
D 2 219 243 242 1 3 4 2
FCFS: based on column Arrival date EDD: based on column Due date
ODD: based on column Operation Due date SPT: based on column Processing time
281
Example-1/2 Textbook p.155
Todays date is 175. Orders A, B and C have following due dates and
lead time remaining. Calculate actual time remaining and critical ratio
of each order.
Order Due date Lead time

remaining (days)
A 185 20
B 195 20
C 205 20
Lead time remaining is remaining manufacturing time (= queue + setup + processing + wait + move time).
282
Critical ratio
CR = due date - present date

lead time remaining
= actual time remaining

lead time remaining
CR < 1 Behind Schedule

CR = 1 On Schedule
CR > 1 Ahead of Schedule
CR < 0 Already late
Lead time remaining is remaining manufacturing time (= queue + setup + processing + wait + move time).
283
Example-2/2 Textbook p.155
Today’s date is 175. Orders A, B and C have following due dates and
lead time remaining. Calculate actual time remaining and critical ratio
of each order.
Order Due Lead time Actual time Critical Status

date remaining remaining Ratio (CR)
(days) (days)
A 185 20 10 0.5 Behind schedule
B 195 20 20 1.0 On schedule
C 205 20 30 1.5 Ahead of schedule
Actual time remaining = Due date – Today’s date.

Critical ratio (CR): Actual remaining time/Lead time remaining.
284
Thank You!
Next chapter: 7. Purchasing
285
SANDEEP KAYASTHA
286
Chapters
Chapter No Topic
3 Master Scheduling
7 Purchasing
10 Order Quantities
12
Management
Eighth Edition.
Chapter-7
Purchasing
288
Chapter
1. Levels of planning and Purchasing cycle

2. Quantity requirements
3. Functional specification
4. Selecting suppliers
5. Price determination
6. Value analysis
7. Purchasing and Supply chain management
289
Levels of planning and Purchasing
cycle
290
Strategic

Plan
Master Production

Control
Control (PAC)
291


Plan


Purchasing and
• Buy (0.5L),
Production Activity
manufacture
Control
(1.5L) engines
292
Purchasing cycle
1. Receiving and analysing requisitions
2. Select suppliers, issue quotations
3. Determine the right price
4. Issue purchase orders
5. Follow-up to assure correct delivery

 Quantity requirements
6. Receive and accept the goods  Functional specification
 Selecting suppliers
7. Approve invoice for payment  Price determination
 Value analysis
 Supply Chain management 293
Quantity requirements
294
Quantity requirements
 Quantities
 From customer orders and forecasts- products.
 Bill of Materials (BOM) and MRP- components and materials.
 Quantities has impact on

 Produce in-house or Outsource.
 Purchase price when outsourced.
295
Functional specification
296
Functional specification description
Methods
1. Engineering drawings.
2. Physical and chemical specifications, Material and
method of manufacturing, and Performance.
3. Brand.
4. Miscellaneous methods.
297
Engineering Drawings
 Detailed description of the parts

 Finish, tolerances, material and method of production.
 Engineering drawings are expensive to produce.
298
Description by specification
Defined by the buyer

 Physical and chemical specifications defined by the buyer.
 Material and method of manufacture
 Environmental or food issues.
 Performance specifications- pumps, gensets
 What the item is supposed to do.
 Supplier’s expertise may be sought.
Standard specifications
 BIS/ISI, SAE standards for motor oil, Underwriters Laboratories (UL) for electrical
items, ASME steel standards.
 Widely known and accepted, Lower price.
299
Description by brand
 Specified “by brand or equivalent”

 Examples- SKF bearing, Exide battery, MRF tyre, UltraTech cement…
 The item is patented.

 Special expertise of the supplier - MICO’s fuel injection pumps, spark plugs.
 Preferred by the customer- Tata steel, Intel microprocessor, ….
 Small quantity- Not worth the effort of developing specifications.
 Disadvantage- Higher price due to absence of competition.

 Advantage- Warranty.
300
Miscellaneous specifications
Samples are given to the supplier

 When it is expensive to make engineering drawings.
 When specification are difficult to specify- colors.
 Garment and Jewellery industry.
301
Selecting suppliers
302
Sourcing
 Sole sourcing
 When only one supplier is available.
 Multiple sourcing
 More than one supplier is available.
 Single sourcing- Source only from single supplier even
when several suppliers are available.
303
Factors in supplier selection
 Technical ability- R&D facilities, product development capability.

 Manufacturing capability- Capacity, ISO certifications, quality systems.
 Reliability- reputation of delivery.
 Supplier location- affects inventory and delivery lead time.
 Price
 Other considerations
 Credit terms, willingness to hold inventory, JIT, information technology,
financial strength, after-sales service network, etc.
304
Weighted-Point plan
305
Weighted-Point plan- the steps
Factors:
 Identify factors that are important
Weights
 The relative importance of each factor
Rating
 How well each supplier compares on each factor
Ranking
 Based on the weight times the rating
306
Price determination
307
Basis of pricing
 When several suppliers- Competitive bidding.

 When single supplier
• Commodities- contracts for future prices.
• Standard products- little room for negotiation.
• Items of small value- reduce ordering cost.
• Made-to-order items- negotiate hard.
 Cost-based pricing
 Material and production cost + 20% profit (for example).
308
• Remaining slides will be covered in the next
lecture.
309
Value analysis
310
Value analysis
 Redesign products to reduce cost- material cost, processing

cost, transportation cost, storage cost, assembly cost, etc.
 Also called, Value Analysis, Value Management, Value

Planning.
 Developed during WW-II.
 Lawrence Miles at General Electric, USA.
 Shortage of raw materials and skilled labour.
311
Value analysis- Example
312
Value analysis
 Focus on “Function” Cost-1

Design-1
Cost-2 Same
 Function is a Verb- Design-2 Function
• to hold, to move, to cut, to protect, to support, to Cost-3
mix, to heat, to conduct electricity, …. Design-3
 How to get the Function with cheapest cost?
 Use different material, design, or process.
313
Value Engineering
314
Purchasing and Supply Chain
Management
315
Supply chain management
 Supply chain
 Supply chain for Materials Mgt = Purchasing + Incoming logistics +

Warehousing.
 The bullwhip effect:
 Supplier Relationship Management (SRM), akin to Customer Relationship

Management (CRM) in marketing. 316
Vendor Managed Inventory (VMI)
 Supplier maintains an inventory of certain items at the customer’s plant.

 Customer only pays for the inventory when it is actually used.
 Usually for standard, small value items
 Fasteners, Electrical components.
 Walmart-P&G.
317
Contract buying
 Long term contract with the supplier, especially for small

volume items.
 Authorize releases against the contract when goods
are needed.
 The buyer assures a certain amount of business to the

supplier, and the supplier assures that capacity or items
will be available when needed.
 Requires close coordination and sharing of MRP and

production plans with the supplier.
318
Environmentally responsible purchasing
 Reduce
 Buy from eco-certified suppliers.
 Reuse
 Especially packing materials.
 Recycle
 Buy refurbished machines.
319
Thank you
Next Chapter: Forecasting and Demand Management
320
Lecture-10 24 Feb, Sunday 10 am-12 noon
321
Today’s lecture

No
7 Purchasing 23 Feb, 24 Feb
8 Forecasting and Demand Management 24 Feb
10 Order Quantities
16 Lean Production
322
Chapter-7
Purchasing
323
Chapter
1. Levels of planning and Purchasing cycle

2. Quantity requirements
3. Functional specification
4. Selecting suppliers
5. Price determination
6. Value analysis
7. Purchasing and Supply chain management
324
Value analysis
325
Value analysis
 Redesign products to reduce cost- material cost, processing

cost, transportation cost, storage cost, assembly cost, etc.
 Also called, Value Analysis, Value Management, Value

Planning.
 Developed during WW-II.
 Lawrence Miles at General Electric, USA.
 Shortage of raw materials and skilled labour.
326
Value analysis- Example
327
Value analysis
 Focus on “Function” Cost-1

Design-1
Cost-2 Same
 Function is a Verb- Design-2 Function
• to hold, to move, to cut, to protect, to support, to Cost-3
mix, to heat, to conduct electricity, …. Design-3
 How to get the Function with cheapest cost?
 Use different material, design, or process.
328
Value Engineering
329
Purchasing and Supply Chain
Management
330
Supply chain management
 Supply chain
 Supply chain for Materials Mgt = Purchasing + Incoming logistics +

Warehousing.
 The bullwhip effect:
 Supplier Relationship Management (SRM), akin to Customer Relationship

Management (CRM) in marketing. 331
Vendor Managed Inventory (VMI)
 Supplier maintains an inventory of certain items at the customer’s plant.

 Customer only pays for the inventory when it is actually used.
 Usually for standard, small value items
 Fasteners, Electrical components.
 Walmart-P&G.
332
Contract buying
 Long term contract with the supplier, especially for small

volume items.
 Authorize releases against the contract when goods
are needed.
 The buyer assures a certain amount of business to the

supplier, and the supplier assures that capacity or items
will be available when needed.
 Requires close coordination and sharing of MRP and

production plans with the supplier.
333
Environmentally responsible purchasing
 Reduce
 Buy from eco-certified suppliers.
 Reuse
 Especially packing materials.
 Recycle
 Buy refurbished machines.
334
Chapter-8: Forecasting
335
Demand forecasting
A projection of past information into expectation of

demand in the future. Levels of detail may include:
 Individual products/Product families/Product categories
 Market sectors
 Resources
Demand management includes-

 Forecasting
 Order promising
 Making delivery promises
336
Some forecasting techniques
Qualitative
 based on judgment, intuition, and informed opinions
Quantitative
 Extrinsic – based on external indicators that relate to
demand. Regression.
 Intrinsic – the use of historical data to create
forecast. Time series forecasting.
337
Typical demand patterns
 Trend (upward or downward, linear or non-linear)

 Cyclicality
 Seasonality (cyclicality with of less than 1 year)
 Random variations
338
Components of a time series
Level Cyclic
Trend Random
339
Time series examples
340
Demand example
341
Simple moving average…1
 Take the average demand for a defined

2 month
number of past periods. Month Demand MA
 See the table- 2 period moving average Jan

Feb
10
16
Mar 12 13.0
Apr 18 14.0
May 20 15.0
Jun 18 19.0
Jul 16 19.0
Aug 16 17.0
See Excel file- “Forecasting” in Taxila Sep 18 16.0
Oct 22 17.0
Nov 24 20.0
Dec 20 23.0
Jan Forecast 22.0
342
Simple Moving Average..2
Use Simple Moving Average when the data has level (but no
trend or seasonality) and has random random fluctuations.
Simple moving average removes random fluctuations
(smoothens the data) leaving only the level.
343
Simple Moving Average…3
How to choose the moving period- 2, 3, 4 or X days?
1. Make forecast with 2, 3, 4 and X days.

2. Choose that period which gives least MAD (Mean
Absolute Deviation).
344
Mean Absolute Deviation (MAD)
Absolute
Period Forecast Actual Deviation deviation
Mar 62 66 -4 4
Apr 67 74 -7 7
May 70 75 -5 5 See Excel file- “Forecasting” 9
Jun 75 84 -9 9 in Taxila.
Jul 80 84 -4 4
Aug 84 81 3 3
Sep 83 75 8 8
Oct 78 63 15 15
Nov 69 91 -22 22
Dec 77 84 -7 7 MAD = (Sum of absolute deviations)/(Number of deviations)
Sum 84
MAD 8.4
345
Exponential smoothing
• Basic Formula:
New Forecast = α * Latest Demand + (1 – α ) Previous Forecast
• α is a smoothing constant, always between 0 and 1 in value
• See Excel file- “Forecasting” in Taxila.
346
Exponential Smoothing..2
Use Exponential Smoothing when the data has level (but no

trend or seasonality) and has random random fluctuations.
Exponential Smoothing removes random fluctuations
(smoothens the data) leaving only the level.
Unlike Simple Moving average- which gives equal weightage

to all past data points, Exponential gives higher weightage to
recent past data points.
347
Exponential Smoothing…3
• How to choose the smoothing constant- 0.1, 0.2, 0.3 or 0.X?
1. Make forecast with 0.1, 0.2, 0.3 and 0.X days.

2. Choose that smoothing constant which gives least MAD (Mean
Absolute Deviation).
348
Seasonal index…1
 For each season, can compute a seasonal index:
Seasonal Index = (Period average demand)/(Average

Demand for all periods)
 Index can be used as a multiplier for future seasons
349
Seasonal Index…2
Quarter
Year 1 2 3 4
140
Period Demand 120
1 122 108 81 90
1 122 100 2 130 100 73 96
Demand
2 108 80
60 3 132 98 71 99 Total
3 81 40
4 90 20 Average 128 102 75 95 400
0
5 130
Quarter
6 100 Seasonal
7 73 Index 1.28 1.02 0.75 0.95 4.0
8 96
9 132
10 98
11 71
12 99
350
Basic principles of forecasting
 Forecasts are usually incorrect – most demand is

dependent on so many variables it is impossible to capture
the impact of all.
 Forecasts are more accurate

 For families or groups of products
 For time periods closer to the present
 Every forecast should include and estimate of error
351
Mean Absolute Deviation (MAD)
• MAD = (Sum of absolute deviations)/(Number of deviations)

• A positive number that indicates the average value of forecast
error during the time of evaluation
352
Forecast Bias
 Systematic error in which the actual demand is

consistently above or below the forecasted
demand.
 A good forecasting method should not have

forecast bias.
 When forecast bias exists, change/improve the

forecasting method.
353
Tracking signal
• TS = sum of forecast errors/MAD
• High TS value (positive or negative) means that the forecast method is biased, hence it needs
correction.
Cumulative Tracking
Period Forecast Actual Deviation deviation signal
5 2.5
1 100 96 -4 1 0.5
2 100 98 -2 -1 -0.5
3 100 104 4 3 1.5
4 100 110 10 13 6.5
MAD= 2.0 given

Cumulative deviation till period 0=5, given
354
P/D Ratio
• P- Production lead time

• D- demand lead time
• Aim to keep low P/D ratio.
355
Thank You!
Next chapter: 9. Inventory
356
357
Today’s lecture

No
5 Capacity Management 16 Feb
7 Purchasing
10 Order Quantities
16 Lean Production
358
Chapter 4
Sandeep Kayastha
359
Topics
4. Developing MRP
5. MRP- an example
6. MRP process
360
MRP process
Part No Item Week 1 2 3 4 5

1. Exploding the BOM A Gross Requirements 50
LT=1w Projected Available 20 20 20 20 20 0
2. Gross and Net Requirements Net Requirements 30
3. Offsetting Net requirements by the lead time Planned Order Release 30
B Gross Requirements 30
4. Releasing orders for production or purchase LT=2w Projected Available 10 10 10 10 0
Net Requirements 20
C Gross Requirements 30
LT=1w Projected Available 0
Net Requirements 30
D Gross Requirements 20
Net Requirements 20
E Gross Requirements 20
Net Requirements 20
361
MRP explosion for two products
When same component is required by other products.
Here component F is required by two products B and C.
Product B requires 1 F and 1 G.

Product C requires 2 E and 2 F.
Planned Order Release for B and C are given.
Gross Requirement of F?
362
Key terms
 Exploding – process of multiplying requirements by usage to get BOM requirements.
 Lead time –time required to produce a lot or procure from the supplier.
 Offsetting – Placing requirements in the proper period based on lead time.
 Planned orders – Orders planned during the explosion, but not yet released for
processing.
 Firm Planned orders – Orders not yet released, but “frozen” in quantity and time to reduce
system “nervousness.”
 Low-level code – a part is given lowest level if it appears on multiple levels in the Bill of
Materials.
 Bottom-up replanning – actions to correct for changed conditions made as low as possible
in the product structure.
363
Thank you
Next Chapter: 5. Capacity Management
364
Chapters
Chapter No Topic
3 Master Scheduling
7 Purchasing
10 Order Quantities
12
Management
Eighth Edition.
Chapter-5
Capacity Management
Sandeep Kayastha
366
Topics
1. Capacity planning
2. Measuring capacity
3. Capacity required (Load)
4. Scheduling the orders
367
Capacity planning
368
Capacity definition
Capacity is defined as the output rate of a machine or a group of

machines (workshop, factory, etc.).
• Sorting machine- letters/hour

• Drilling machine- parts/minute
• Drilling work centre- parts/day
• Car production- numbers/month
• Brewery- litres/hour
• Refinery- tonnes/day
• Textile mill- square meters/month
• Port cargo handling- tons/day
• Toll gate- vehicles/hour
369
Planning levels
Production Plan Resource Planning:

(Aggregate/ Sales and Linked to production plan
Operations Plan)
Planning Master Production Rough-Cut Capacity Plan:

Schedule To check feasibility of MPS
Material Requirements Capacity Requirements Plan (CRP):

Plan Work center capacity plan
Implementation Purchasing and Production Capacity Control

Activity Control
370
Inputs for Capacity Requirements Planning (CRP)
• Open order
• A released order for a quantity of a part to be manufactured and completed
on a specific date. An open shop order appears as Scheduled Receipt on
MRP.
• Planned Order Release
• Planned orders are determined by MRP logic based on Gross
Requirements, Inventory, and Manufacturing lead-time.
• Work center
• A work centre is a group of machines or workers capable of doing the
same work.
• Data required on manufacturing lead-times.
• Routings
• A routing is the path that work follows from one work center to another as it
is completed.
371
Manufacturing Lead time
Manufacturing lead time is sum of-

 Queue time- time spent waiting before the work center.
 Setup time- time to prepare the work center.
 Run time- time required to make the product.
 Wait time- time spent after the operation, waiting to be moved.
 Move time- transit time between work centers.
372
Routing
Routing is the sequence of operations that will done on a

part or material.
Example
• Operation 1: Rough cutting
• Operation 2: Milling-1
• Operation 3: Drilling-2
• Operation 4: Drilling-3
• Operation 5: Milling-2
• Operation 6: Grinding
• Operation 7: Polishing
373
Routing file- a sample
Routing file has following data-

• Operations to be performed.
• Work centre required for each Operation.
• The sequence in which Operations will be done.
• Standard setup time and run time.
374
Measuring capacity
375
Output rate of a work center depends on
Capacity is defined as the output rate of a machine or a group of machines (workshop, factory, etc.)
 Product specification
 Types of operation- drilling, cutting, welding, packing.
 A long cut takes longer than a short cut on a milling machine.
 Product mix
 Single or Multiple products produced on the same machine.
 A plant can manufacture more number of single model of a car than
total number of 3 models of a car.
 Method used to make the product
 Manual, semi automatic, or automatic.
 Machine with auto-feed has higher output than one with manual feed.
 Pace of work
 Slow or fast.
 A faster machine process more number of parts.
376
Output and Input capacity
 Units of output- tons/hr, cars/day

 Called output capacity.
 Output capacity is used when the variety of products produced is
narrow. Examples: Refinery, Automobile factory.
 Standard time- hours

 Called input capacity.
 Input capacity is used when the variety of outputs produced is large.
Examples- General purpose machine, Job shops, Consultants.
 Capacity of work centres is usually measured in Standard time.
377
Rated capacity
Rated Capacity = Available time x Utilization x Efficiency
 Available time = number of hours the work centre can be used

 hours in day (8, 16 or 24), no. of days in a week (5, 6 or 7).
 Utilization = hours worked/available hours

 Deduct- maintenance, lack of material, absenteeism, etc.
 Utilization is computed from past data, also called demonstrated capacity.
 Efficiency = actual production rate/standard production rate

 Working faster or slower than the standard pace.
 Standard production rate is estimated by Work study.
378
Example-1 (Textbook p.118)
A work center consists of 4 machines and is operated 8 hours per day for 5
days a week. Historically the utilization has been 85% and efficiency 110%.
What is the rated capacity of work center?
Available time = 4 x 8 x 5 = 160 hours per week.

Rated capacity = Available time x Utilization x Efficiency
= 160 * 0.85 * 1.10 = 149.6 standard hours per week
379
Example-2 (Textbook p.119)
• Over a 4-week period, a work center produced 540 standard hours of work.
The work center was available for work for 640 hours but it actually worked
for 480 hours. Calculate utilization and efficiency of the work center.
• Utilization = hours actually worked/ available hours x 100

= 480/640 x 100 = 75%
• Efficiency = Standard hours of work produced/hours actually produced x 100

= 540/480 x 100 = 112.5%
380
Basic capacity definitions
 Capacity Required (or Load)– capacity needed to produce desired

output in a given time period.
 Capacity Planning– determining the resources and methods needed to

meet the priority plan.
 Capacity Control– monitoring production, comparing with the capacity

plan, and taking appropriate corrective actions.
 Capacity Management– determining capacity needed as well as

providing, monitoring, and controlling the capacity.
 Capacity Management = Capacity Planning + Capacity control.
381
Capacity required (Load)
382
Capacity Required (Load) for an order
Capacity required to process an order on a machine depends on
• Run time,
• Time required to process a single unit.
• Order size
• Number of units to be produced.
• Setup time (also called changeover time)

• Time required for changing the dies, tools, and adjustments.
• Setup time is does not depend on number of units to be produced.
Capacity Required (Load) = Setup time + Run time x Order size
383
Example (Textbook p.119)
An order has been released to process 150 nos. of a part on a work center.
The setup time of the machine is 1.5 hours and the run time is 0.2 hours per
piece. What is the standard time needed for the order?
Total standard time = Setup time + Run time x Order size

= 1.5 + 0.2 *150
= 31.5 standard hours.
If the work center efficiency is 120% and utilization is 80%, how much actual
time is needed to run the order?
Actual time = Capacity required/(Efficiency x Utilization)

= 31.5 / (1.2 x 0.8) = 32.8 hours.
384
Work center load over a single week
A work center has following released orders and planned orders for Week
no. 20. Calculate total standard time on this work center.
Order
Order quantity, Setup time, Run time, Total time,
No. nos. hours hours/piece hours
Released Load 222 100 0 0.2 20.0
Released Load 223 150 1.5 0.2 31.5 Total time = Setup time + Run time * Order size
Planned Load 444 200 3 0.25 53.0
Planned Load 445 300 2.5 0.15 47.5
Total 152.0
Total Released Load is 20 + 31.5 = 51.5 hours

Total Planned Load is 53 + 47.5 = 100.5 hours
Total Standard time on this work center is 51.5 + 100.5 = 152 hours.
385
Work center load over several weeks
Load calculations for week 20 shown in previous slide. For remaining weeks the load is given.
Week
20 21 22 23 24
Released Load 51.5 45 30 30 25
Planned load 100.5 120 100 90 100
Total load 152 165 130 120 125
Rated Capacity 140 140 140 140 140
(Over)/Under capacity (12) (25) 10 20 15
Load in standard hours.
386
Load profile
Rated Capacity
387
Managing the capacity
If the load and capacity do not match-
 Adjust the load:

 Adjusting the load is not preferred because it may require
changing the schedule of other components.
 Adjust the capacity

 Schedule overtime or under-time.
 Adjust the level of workforce.
 Shift workers from underload to overload work centers.
 Use alternative work centers to shift the load.
 Subcontract the work when more capacity is needed.
388
• Remaining slides will be covered in the next lecture.
389
390
 Back scheduling (the typical approach)

 Start with the due date, use manufacturing lead time to find
the proper start date for each operation.
 Forward scheduling
 Launch the order into the first work center, then use the lead
times to find when the order will be completed at each work
center.
391
Problem
There is an order for 150 nos. of gear shaft. The due date is day 135. The route sheet-
giving details of the operations to be performed, the work center on which each operation
will be performed, and the setup times and run times- is given below.
The work center file- giving details of the queue time, wait time, and move time- for each
work center is also given below.
Calculate the start and finish dates for each work center.
Work center details

Work Center Queue Time, Wait Time, Move Time,
no. days days days
12 4 1 1
14 3 1 1
17 5 1 1
03 8 1 1
392
Computing the Operation time for Order size of 150 pieces
Operation 10 at work center 12: 1.50 + 0.20 * 150 = 31.5 hrs ... 4 days.
Operation 20 at work center 14: 0.50 + 0.25 * 150 = 38 hrs… 5 days.
Operation 30 at work center 17: 0.30 + 0.05 * 150 = 7.8 hrs… 1 day.
Operation 40 at work center 03: 0.45 + 0.10 * 150 = 15.45 hrs... 2 days.
Operation time = Setup time + Run time * Order size

393
Example- 3/3 (Textbook example- p. 122, 123)
Creating work schedule
Operation Work Center Arrival Queue, Operation, Finish Wait, Move,

no. no. Date days days date days days
10 12 95 4 4 103 1 1
20 14 105 3 5 113 1 1
30 17 115 5 1 121 1 1
40 03 123 8 2 133 1 1
50 Stores 135
Given: Arrival (delivery) date at Stores: 135

Finish date at work Center no 03: Arrival date at Stores- Wait time at 03 - Move time from 03, 135 – 1 - 1 = 133.
Arrival date at 03: Finish date at 03- Operation time at 03 – Queue time at 03 = 133 – 2 - 8 = 123.
Similarly compute for for Work Center 17, 14, and 12. Dates-->
Work Centre No 12
9
5
1
0
5
1
1
5
1
2
3
1
3
5
Work Centre No 14
Work Centre No 17
Work Centre No 03
Stores
Queue
Operation
Wait
Move
394
Graphical work schedule
1 1 1 1
9 0 1 2 3
Dates--> 5 5 5 3 5
Work Centre No 12
Work Centre No 14
Work Centre No 17
Work Centre No 03
Stores
Queue
Operation
Wait
Move
395
Thank You!
Next chapter: 6. Production Activity Control and Purchasing
396
Lecture-11 2 Mar, Saturday 10 am-12 noon
397
Today’s lecture

No
7 Purchasing 23 Feb, 24 Feb
8 Forecasting and Demand Management 24 Feb, 2 Mar
9 Inventory Fundamentals 2 Mar
10 Order Quantities
16 Lean Production
398
Chapter-8:
Forecasting and Demand Management
399
Topics
1. Components of a Time Series

2. Moving Average method
3. Tracking forecasts
4. Choosing Moving Average period
5. Exponential Smoothing method
6. Choosing Smoothing constant
7. Seasonality
8. Forecast bias
400
Forecast bias
401
Basic principles of forecasting
 Forecasts are usually inaccurate.

 Demand depends on several factors and in complex ways. It is not
possible to capture the impact of all.
 Forecasts are more accurate for-

 Families or groups of products than a specific model- demand for
motor cycles vs demand for Model-A motor cycle;.
 Short-time forecasts than long-term forecasts.
402
Forecast bias
 Forecasts are biased if they are consistently

above or consistently below the actual demand.
This is called forecast bias. Forecasts in the
adjacent figure has bias since forecasts are
always below the actual demand.
 A good forecasting method should not have

forecast bias. When the forecast bias is detected,
change/improve the forecasting method.
 The forecasting method should also be

changed/improved, if the forecast is found to
deviate a lot from the actual demand. In the
adjacent figure, forecasts deviate a lot from the
actual demand in period 8 and 9.
403
Tracking Signal (TS)
Tracking Signal (TS) = Cumulative Forecast Deviation/MAD
Cumulative MAD value is 2.0, given. Estimated

Forecast Tracking from previous data.
Period Forecast Actual Deviation deviation Signal (TS)
Cumulative deviation of forecast
0 5 from actual demand till period 0 is 5.
1 100 96 -4 1 0.5 Estimated from previous data.
2 100 98 -2 -1 -0.5
3 100 104 4 3 1.5
4 100 110 10 13 6.5
• High TS value (positive or negative) means that the forecast method is biased,
hence it needs correction. At period 4, TS is 6.5, more than 3*MAD= 3*2 = 6.
404
Dealing with inaccurate forecasts
 Production (or Delivery) lead time (P)

 Demand lead time (D).
To deal with inaccurate forecasts-

• Keep P/D ratio low.
• Make long duration forecasts- it increases D.
• Customise the product late, closer to the final
assembly- it reduces P.
• Contingency planning- keep safety stock to deal
with the situations when actual demand turns
out to be higher than the forecast.
405
Thank you
Next Module: Inventory Fundamentals
406
Chapter-9:
Inventory Fundamentals
407
Topics
1. Types on inventory
2. Functions and Objectives of inventory
3. Financial inventory performance measures
4. Inventory-related costs
5. ABC analysis
408
Types of inventories
409
Inventory
Mismatch between inflow and outflow rates changes inventory.

 Inflow rate > Outflow rate, inventory goes up.
 Inflow rate < Outflow rate, inventory comes down.
 Inflow rate = Outflow rate, no change in inventory.
410
Inventory- a classification
1. Raw materials
Factory
 Material not yet entered into the production process. Warehouse
2. Work-in-process (WIP) 2 4
 Material being processed. 1
3
3. Finished goods 5 5
 Product ready for sale/dispatch.
4. Distribution inventories
 Finished goods in the distribution system.
5. Maintenance, Repair, and Operational supplies (MRO)
 These items do not become part of the product.
411
High inventory…
Inventory Industry/Item
High RM inventory Agricultural products- Apples, Foodgrains, Wool, Cotton…
High WIP inventory Job shops, Construction, Shipping…
Refrigerators, ACs, Fashion Garments, Umbrellas, Crackers, Room
High FG inventory
heaters…
Low FG inventory Made-to-order goods- Wind mills, Industrial machinery…
High distribution inventory Groceries, Consumer goods….
High MRO Inventory Mining, Process Industry, Aviation, Power generation...
412
Functions and Objectives of
inventory
413
Functions of inventory
1. Cater to seasonal demand

 Anticipation inventory.
2. Buffer against quality, supply, equipment problems 10
Factory
10
Production rate Sales rate
 Safety Stock.
3. Reduce setup or purchasing costs.
 Lot-size inventory.
4. Protection against price changes
 Hedge inventory.
5. In transport
 Transportation inventory.
414
Objectives of inventory management
Customer service
 Short delivery period.
Operating efficiency
 Lower capacity requirement.
 Lower hiring, training, and firing costs.
 Lower production costs- long production runs.
 Decoupling the operations.
415
Financial inventory performance
measures
416
Financial measures of inventory
1. Average inventory= (Opening inventory + Closing inventory)/2
2. Inventory turns = (Annual cost of goods sold)/(Average value of inventory)

 Inventory turns = 1 means average inventory is 1 year’s of sales; Inventory turns =2 means
average inventory is 6 months’ of sales; Inventory turns of 52 means average inventory is one
week’s of sales. High Inventory turns indicates higher efficiency. Inventory turns is high in JIT
manufacturing systems.
3. Days of inventory = (Average value of inventory)/(Daily cost of goods sold)
417
Financial inventory measures of select companies
Rs crores
Crompton Tata Dr
Maruti Greaves Chemicals MRF Reddys Comments
Inventories- March'18 3,161 303 451 2,172 1,857 From Balance Sheet
Inventories- March'17 3,262 273 612 2,393 1,810 From Balance Sheet
Net Annual Sales- '17-18 79,763 4,080 3,466 14,822 9,359 From Profit & Loss Account
Average Inventory 3,212 288 531 2,282 1,833 =(Opening inventory + Closing inventory)/2
Inventory Turns 24.8 13.5 7.7 6.8 5.0 =Net Annual Sales/Average Inventory
Days of Inventory 14.7 25.8 55.9 56.2 71.5 =Average Inventory/(Net Annual Sales/365)
Carrying cost/year 642 58 106 456 367 0.20 *Average Inventory; 0.20 assumed.
Operating Profit-’17-18 12,062 531 922 2270 1330 From Profit & Loss Account
Ratio of Carrying cost/year
to Operating Profit *100 5 11 12 20 28 Carrying cost/Operating profit *100
418
Inventory valuation
A company has 20 units of an item in the stock- the items purchased in

different months and at different prices.
What is the current value of stocks?
Jan Feb March April Total

Cost, Rs/unit 10 15 20 25 -
In stock, units 5 5 5 5 20
419
Methods of evaluating inventory
 First-in First-out (FIFO): inventory valued at the oldest price.

 Last-in First-out (LIFO): inventory valued at newest price.
 Average cost: inventory valued at average cost.
 Standard cost: inventory valued on costing- material, labour and overhead costs.
Jan Feb March April Total

Cost, Rs/unit 10 15 20 25 -
In stock, units 5 5 5 5 20
Cost, In stock, Value,

Rs/unit units Rs
FIFO 10 20 200
LIFO 25 20 500 * Standard cost, used here Rs 12, has to be
Average price 17.5 20 350 estimated from material, labour, and
Standard cost * 12 20 240 overhead cost allotted to the item.
420
Inventory-related costs
421
Inventory-related costs
1. Item cost
2. Carrying cost
 Cost of capital invested in inventories.
 Storage costs.
 Risks, such as obsolescence, deterioration, pilferage, or damage.
3. Ordering cost
 Purchase order cost.
 Setup and teardown cost.
4. Capacity-associated costs
5. Stock-out costs
422
ABC Analysis
423
ABC analysis
 Factories keep inventories of hundreds of items.

 ABC analysis is used to classify the large number of items in
inventory into three categories- A-class, B-class, and C-class items.
The classification is based on annual usage in dollar value .
 Inventory of A-class items- which are few- is tightly controlled and
kept low. A-class items are purchased when required and in small
quantities.
 The inventory of C-class items- which are numerous- is not tightly
controlled. C-class items are purchased in bulk quantities.
 ABC analysis aims to reduce the cost of managing inventory-
focusing on controlling the inventory of few high value items.
424
ABC analysis, steps
1. Determine annual usage of each item in dollars

 Annual usage in dollars = annual usage, quantity * cost of the item.
2. Based on annual usage in dollars, classify the items into three

categories- A, B and C-class items.
 A- class items about 20% of items, 80% of value, annual usage in $.
 B-class items about 30% of items, 15% of value, annual usage in $.
 C-class items about 50% of items, 5% of value, annual usage in $.
3. Control the inventory-

 A-class items- Tight control. Order in small quantities.
 B-class items- Normal control.
 C-class items- Simple control. Order in large quantities.
425
ABC analysis example…1/2 (Textbook p.235)
Classify the 10 items held in a store as A, B Part Unit usage, Unit cost Annual
and C-class items. Part no., Unit usage and No. Nos. $ usage $
1 1100 2 2,200
Unit cost is given.
2 600 40 24,000
3 100 4 400
4 1300 1 1,300
 Compute Annual usage of each item in 5 100 60 6,000
dollars. 6 10 25 250
 Sort the table in decreasing order of 7 100 2 200
8 1500 2 3,000
Annual usage, see next slide.
9 200 2 400
10 500 1 500
426
ABC analysis example…2/2 (Textbook p.235)
Part Unit usage, Unit Annual Cumulative Cumulative

SNo No. Nos. cost, $ Usage, $ Usage, $ Usage, % $ Classification
1 2 600 40 24,000 24,000 62.8 A
2 5 100 60 6,000 30,000 78.4 A
3 8 1500 2 3,000 33,000 86.3 B
4 1 1100 2 2,200 35,200 92.0 B
5 4 1300 1 1,300 36,500 95.4 B
6 10 500 1 500 37,000 96.7 B
7 3 100 4 400 37,400 97.8 C A Class items- Part Nos 2 and 5.
8 9 200 2 400 37,800 98.8 C B Class items- Part Nos 8, 1, 4, and 10.
9 6 10 25 250 38,050 99.5 C C Class items- Part Nos 3, 9, 6 and 7.
10 7 100 2 200 38,250 100.0 C
Total 38,250
427
Thank you
Next Chapter: Order Quantities
428

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ET ZC343 Materials Management

Lecture-1 12 Jan, Saturday 10 am-12 noon

Sandeep Kayastha, at Hyderabad

Course Title:Materials Management

Lectures, and On Taxila

On WebEx- During the Lecture

Stephen N Chapman, JR Tony Arnold, Ann K

You need to buy this textbook.

 Three quizzes- weightage (3x5%=) 15%

 Assignments- (2x5%=) 10%.

 Mid-Semester Test- weightage-30%.

 End-Semester Examination- weightage- 45%.

 MS Excel software will be used for solving problems.

 Select case studies from the textbook will be discussed.

 Two individual assignments- from own company.

 Materials Management in Practice.

 In a Nutshell- summary of the entire chapter in a slide

1. Your company name

Chapter Topic Dates(s)

 Importance of managing materials

Maruti Suzuki- 47K cr, MRF- 8K cr Crompton- 2.8K cr

Profit = Revenue - Cost

 Reduction in Material cost increases profit.

Government Demanding Customers

Competition Order Winners

Sandeep Kayastha, at Hyderabad

Chapter Topic Dates(s)

 Importance of managing materials

• Engineer-to-order: Buildings, Ships, Garments…

Design Manufacture Assemble Store

Delivery Lead Time

Delivery Lead Time

Design Purchase Manufacture Assemble Ship Engineer-to-order

Delivery Lead Time

Delivery Lead Time

 Links many companies- including intermediaries such as wholesalers,

 Includes all activities and processes to supply a product or service to the

 Integrated systems (ERP) and the sharing of information.

 Mutual cost reduction

 Maximize profits- company

 Highest market share- marketing

 Physical supply and distribution

 Planning and policy activities

No of parts in a passenger car- 30,000

 Production plants- Two, Gurgaon and Manesar, Haryana

 IT- integration with suppliers

 Maruti Center for Excellence- advices suppliers on training, support and

CBO: Company-owned Bottling Operations

RGB: Regular Glass Bottle

 Importance of managing materials

2. Production (Aggregate/ Sales and Production Plan

5. Purchasing and Production Activity Purchasing and Production Activity Implementation

 Automobiles (30,000 Rs cr), Cement (800 Rs cr),

Production • Product category- Cars (5L) & Trucks

Master Production • Specific Models- Alto (2L), Dzire

Material • Parts- Tyres (10L),

 What to produce or procure?  Resources- Machines, Manpower

SALES AND OPERATIONS PLAN

Detailed Master Production

 What is a Master Production Schedule (MPS)?

2. Production (Aggregate/ Sales and Production Plan

3. Master Production Schedule (MPS) Master Production Planning