Acceptance sampling is an important field of statistical quality control that was popularized by Dodge and Romig and originally

applied by the U.S. military to the testing of bullets during World War II. Dodge reasoned that a sample should be picked at random from the lot, and on the basis of information that was yielded by the sample, a decision should be made regarding the disposition of the lot. In general, the decision is either to accept or reject the lot. This process is called Lot Acceptance Sampling or just Acceptance Sampling.

Acceptance sampling is "the middle of the road" approach between no inspection and 100% inspection. There are two major classifications of acceptance plans: by attributes ("go, no-go") and by variables. The attribute case is the most common for acceptance sampling, and will be assumed for the rest of this section. Important point -A point to remember is that the main purpose of acceptance sampling is to decide whether or not the lot is likely to be acceptable, not to estimate the quality of the lot. Scenarios leading to acceptance sampling -Acceptance sampling is employed when one or several of the following hold:

Testing is destructive The cost of 100% inspection is very high 100% inspection takes too long

A lot acceptance sampling plan (LASP) is a sampling scheme and a set of rules for making decisions. The decision, based on counting the number of defectives in a sample, can be to accept the lot, reject the lot, or even, for multiple or sequential sampling schemes, to take another sample and then repeat the decision process. Types of acceptance plans to choose from -LASPs fall into the following categories:

Single sampling plans:. One sample of items is selected at random from a lot and the disposition of the lot is determined from the resulting information. These plans are usually denoted as (n,c) plans for a sample size n, where the lot is rejected if there are more than c defectives. These are the most common (and easiest) plans to use although not the most efficient in terms of average number of samples needed. Double sampling plans: After the first sample is tested, there are three possibilities: 1. Accept the lot 2. Reject the lot 3. No decision If the outcome is (3), and a second sample is taken, the procedure is to combine the results of both samples and make a final decision based on that information.

Multiple sampling plans: This is an extension of the double sampling plans where more than two samples are needed to reach a conclusion. The advantage of multiple sampling is smaller sample sizes. Sequential sampling plans: . This is the ultimate extension of multiple sampling where items are selected from a lot one at a time and after inspection of each item a decision is made to accept or reject the lot or select another unit. Skip lot sampling plans:. Skip lot sampling means that only a fraction of the submitted lots are inspected.

Definitions of basic Acceptance Sampling terms -Deriving a plan, within one of the categories listed above, is discussed in the pages that follow. All derivations depend on the properties you want the plan to have. These are described using the following terms:

Acceptable Quality Level (AQL): The AQL is a percent defective that is the base line requirement for the quality of the producer's product. The producer would like to design a sampling plan such that there is a high probability of accepting a lot that has a defect level less than or equal to the AQL. Lot Tolerance Percent Defective (LTPD): The LTPD is a designated high defect level that would be unacceptable to the consumer. The consumer would like the sampling plan to have a low probability of accepting a lot with a defect level as high as the LTPD. Type I Error (Producer's Risk): This is the probability, for a given (n,c) sampling plan, of rejecting a lot that has a defect level equal to the AQL. The producer suffers when this occurs, because a lot with acceptable quality was rejected. The symbol is commonly used for the Type I error and typical values for range from 0.2 to 0.01. Type II Error (Consumer's Risk): This is the probability, for a given (n,c) sampling plan, of accepting a lot with a defect level equal to the LTPD. The consumer suffers when

this occurs, because a lot with unacceptable quality was accepted. The symbol is commonly used for the Type II error and typical values range from 0.2 to 0.01. Operating Characteristic (OC) Curve: This curve plots the probability of accepting the lot (Y-axis) versus the lot fraction or percent defectives (X-axis). The OC curve is the primary tool for displaying and investigating the properties of a LASP. Average Outgoing Quality (AOQ): A common procedure, when sampling and testing is non-destructive, is to 100% inspect rejected lots and replace all defectives with good units. In this case, all rejected lots are made perfect and the only defects left are those in lots that were accepted. AOQ's refer to the long term defect level for this combined LASP and 100% inspection of rejected lots process. If all lots come in with a defect level of exactly p, and the OC curve for the chosen (n,c) LASP indicates a probability pa of accepting such a lot, over the long run the AOQ can easily be shown to be:

where N is the lot size.

Average Outgoing Quality Level (AOQL): A plot of the AOQ (Y-axis) versus the incoming lot p (X-axis) will start at 0 for p = 0, and return to 0 for p = 1 (where every lot is 100% inspected and rectified). In between, it will rise to a maximum. This maximum, which is the worst possible long term AOQ, is called the AOQL. Average Total Inspection (ATI): When rejected lots are 100% inspected, it is easy to calculate the ATI if lots come consistently with a defect level of p. For a LASP (n,c) with a probability pa of accepting a lot with defect level p, we have ATI = n + (1 - pa) (N - n) where N is the lot size.

Average Sample Number (ASN): For a single sampling LASP (n,c) we know each and every lot has a sample of size n taken and inspected or tested. For double, multiple and sequential LASP's, the amount of sampling varies depending on the number of defects observed. For any given double, multiple or sequential plan, a long term ASN can be calculated assuming all lots come in with a defect level of p. A plot of the ASN, versus the incoming defect level p, describes the sampling efficiency of a given LASP scheme.

The final choice is a tradeoff decision -Making a final choice between single or multiple sampling plans that have acceptable properties is a matter of deciding whether the average sampling savings gained by the various multiple sampling plans justifies the additional complexity of these plans and the uncertainty of not knowing how much sampling and inspection will be done on a day-by-day basis.

UNIT 3 Lean management is an important part of lean thinking. As we implement lean in any organization the traditional way of managing does not guarantee right focus nor help sustaining lean initiatives. If no action is taken to change the way we manage process, people and products we are likely to see failure of lean implementations. Many people on lean journey fail to apply lean in a holistic manner. Usually they start with applying tools without proper guidance and leadership the company cannot move to the next level. Thus a management system that specifically meets the needs of a transforming organization is very much essential. What is lean Management? Lean is all about customer focus. Value is defined by the customer and we develop and maintain processes to provide this value. Processes are run by people. Only support and proper leadership and guidance you can drive your people to continuously improve the processes that add value to the customer. The management system that helps you to achieve this is a Lean Management system. Lean Management system uses various tools to connect the purpose (Providing value to customer) to the process and people. Some of the lean management tools which are commonly used are Leader standard work, visual control boards, and daily accountability. The tools itself are not effective unless used with right mindset. There is a lot of work needed to be done at individual level for the mangers to become lean managers. To start with lean management we have to start developing managers in to Lean Managers. What are you doing to become a lean manager?

Lean manufacturing, lean enterprise, or lean production, often simply, "Lean," is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. Working from the perspective of the customer who consumes a product or service, "value" is defined as any action or process that a customer would be willing to pay for. Essentially, lean is centered on preserving value with less work. Lean manufacturing is a management philosophy derived mostly from the Toyota Production System (TPS) (hence the term Toyotism is also prevalent) and identified as "Lean" only in the 1990s.[1][2] TPS is renowned for its focus on reduction of the original Toyota seven wastes to improve overall customer value, but there are varying perspectives on how this is best achieved. The steady growth of Toyota, from a small company to the world's largest automaker,[3] has focused attention on how it has achieved this success.

Lean management is usually fully realized in the final state of lean transformation. If you are trying to implement tools of lean management and do not have a culture that support lean thinking, your success may be very limited. What are some of the cultural enablers that help you build the foundation for lean transformation and ultimately lead to lean management?

Leaders should show humility and respect their subordinates and peers. Senior leadership should be willing to accept lean as a philosophy and not just another project for cost cutting Managers be trained and committed to solving problems People in the organization should feel secure about their job Daily informal/formal feedback should be facilitated at team and individual level to align the performance Suggestion system for all employees to provide feedback and ideas for improvement All information required to make decision or track performance should be shared with people who need it People need to be empowered to make decisions and solve their problems Training should not be done only once but should be conducted on regular basis Senior leaders needs to be trained for mentoring young and future leaders People need to be trained to use visual controls Leaders need to be trained to use Gemba walks as mentoring / training tool and also as a tool to find waste and problems related with flow of materials and information

Lean management derives its values from 2-key principles of lean; Respect for People and Continuous Improvement. Continuous Improvement:

A lean manager is focused on solving problems incrementally. Each solution is an experiment which helps in the learning process and paving the path to the next level.Small improvements followed by time of stability and then again a small improvement , is a cycle that is preffered in a lean environment . this form of small changes are easier to manage without much disruption to the suppoorting proceses like material supply to the line. Respect to People : As easy as it seems this by far has been the most difficult things to understand . It has often been described as an important quality that any lean manager should posses . A lean manager respects people by giving them the authority to solve their problems .This way lean manager uses the knowledge of the people who actually add value to the process and also able to get buy in by engaging all the employees . This does not mean that a lean manager completely disconnects himself from problem solving. He guide his people to solve their problems by asking the right questions ,till they find the root cause. A Lean Manager is a person who has trained himself at lean thinking by practicing the principles of lean manufacturing. He has developed the right mindset which is essential for the developing and sustaining the lean initiatives of the company. The Lean Manager is the key for the Lean Management to evolve organically within the organization. Here is a list of Qualities that I think any Lean Manager should have: 1. Lean Manager is a problem solver; he always tries to solve the problem in scientific way 2. He does not like to sit at his desk but when the problem arises he goes the source (Gemba) and finds the root cause by asking questions 3. A lean manager does not randomly use tools; he chooses the right tool for the means of solving a problem on gemba 4. A lean manager always shows respect to all people 5. A Lean manager is not a treat lean as a project, but as something to be practiced daily in search of perfection. 6. Lean Manager is not afraid of failure, he treats each solution as an experiment to learn more and get one more step closer to the ideal state 7. Lean Manager always questions the status quo, he tries to rethink problems and learn by practicing 8. Lean Manger uses Socratic Method to stimulate lean thinking in others
THEORY OF CONSTRAINTS: Theory of Constraints (TOC) is a technique which tunes the planning to the bottlenecks. The course covers the TOC philosophy and the concepts of TOC, which can be condensed into 10 rules. The participants will experience the drum-buffer-rope - principle during the bottleneck game. The goal of this game is to optimize the output of a production line. This interactive exercise shows that management of your buffers guarantees a smooth flow of material and controls the work-in-process.

The theory of constraints (TOC) is a management paradigm that views any manageable system as being limited in achieving more of its goals by a very small number of constraints. There is always at least one constraint, and TOC uses a focusing process to identify the constraint and restructure the rest of the organization around it.

TOC adopts the common idiom "a chain is no stronger than its weakest link". This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the outcome. A constraint is anything that prevents the system from achieving more of its goal. There are many ways that constraints can show up, but a core principle within TOC is that there are not tens or hundreds of constraints. There is at least one but at most only a few in any given system. Constraints can be internal or external to the system. An internal constraint is in evidence when the market demands more from the system than it can deliver. If this is the case, then the focus of the organization should be on discovering that constraint and following the five focusing steps to open it up (and potentially remove it). An external constraint exists when the system can produce more than the market will bear. If this is the case, then the organization should focus on mechanisms to create more demand for its products or services. Types of (internal) constraints

Equipment: The way equipment is currently used limits the ability of the system to produce more salable goods/services. People: Lack of skilled people limits the system. Mental models held by people can cause behaviour that becomes a constraint. Policy: A written or unwritten policy prevents the system from making more.

The concept of the constraint in Theory of Constraints is analogous to but differs from the constraint that shows up in mathematical optimization. In TOC, the constraint is used as a focusing mechanism for management of the system. In optimization, the constraint is written into the mathematical expressions to limit the scope of the solution (X can be no greater than 5).
The Theory of Constraints states that constraints determine the performance of a system. A constraint is anything that prevents a system from achieving a higher performance relative to its goal. A system is any collection of interconnected parts sharing a common goal. The Theory of Constraints was first applied to business systems.

The theory of constraints is an important tool for improving process flows. The implications of the theory are far reaching in terms of understanding bottlenecks to a process and better managing these bottlenecks to create an efficient process flow.

The theory of constraints is an important tool for operations managers to manage bottlenecks and improve process flows. Made famous by Eliyahu M. Goldratt in his book The Goal, the implications of the theory are far reaching in terms of understanding bottlenecks to a process and better managing these bottlenecks to create an efficient process

flow. Simply put the theory states, the throughput of any system is determined by one constraint (bottleneck). Thus to increase the throughput, one must focus on identifying and improving the bottleneck or constraint.

Goldratt in another book, Theory of Constraints, outlines a five-step process to applying the theory:

1. 2. 3. 4. 5.

Identify the process constraints Decide how best to exploit the process constraints Subordinate everything else to the above decisions Evaluate the process constraint Remove the constraint and re-evaluate the process

Synchronous manufacturing embodies various concepts related to focussing and synchronising production control around bottleneck resources. These concepts are more commonly known as Theory Of Constraints (TOC), bottleneck management, or the goal system. The main focus of synchronous manufacturing is efficient utilisation of those resources that are most constraining and prevent additional production. Synchronous manufacturing coordinates the production process, improves workflows, thereby, reducing operating costs, inventory, and lead times. As a "pull-type" system, synchronous manufacturing offers several advantages in a repetitive manufacturing operation, such as for automobiles, computers, consumer products, or integrated circuits (ICs). For instance, the IC fabrication processes involves many steps with long cycle times. This makes them vulnerable to production-rate variations, which in turn generates inventory waves or bubbles even in a "balanced" operation. Synchronous manufacturing helps to reduce such unexpected inventory- and operating-expense fluctuations. It also carries the benefits of higher throughputs and better customer service
Definition of Synchronous Manufacturing

Synchronous manufacturing is a manufacturing management philosophy that includes a consistent set of principles, procedures, and techniques, where every action is evaluated in term of the global goal of the system. Synchronous manufacturing uses TOC as a way to incorporate forward scheduling. It focuses on critical resources so that time-wise forward scheduling is done. Non-bottleneck or non-critical resources are used to resolve critical constraint. Process-batch size and transfer-batch size are charged in synchronous manufacturing to reduce lead time and WIP. A backward scheduling technique, such as MRP, cannot perform this task. Synchronous manufacturing is a relatively newer approach, which uses forward scheduling to manage the production/manufacturing system. Just-intime (JIT)-based system of kanban-approach and Drum-buffer-rope (DBR)-based system of TOC-approach are the two common types of forward scheduling approaches. MRP, on the other hand, is a backward scheduling approach. In synchronous manufacturing, production occurs in different production centers; some centers have constraints that limit the rate of production and some centers do not. Both types of centers must focus on using raw materials to produce goods that are nearly ready for shipment to customers, with the production schedule closely following the level of customer orders. The manufacturer saves money on the cost of transporting raw materials to production centers and by preventing the storage of raw materials near production centers that aren't required for satisfying actual customer orders.

This concept of synchronous manufacturing was started in 1984. It has been defined as: an all-encompassing manufacturing management philosophy that includes a consistent set of principles, procedures, and techniques where every action is evaluated in terms of the common global goal of the organisation. A set of seven principles are associated with synchronous manufacturing: 1. Do not focus on balance idle capacities; focus on synchronizing the production flow. 2. The marginal value of time at a bottleneck resource is equal to the throughput rate of the products processed by the bottleneck. 3. The marginal value of time at a non-bottleneck resource is negligible. 4. The level of tilization of a non-bottleneck resource is controlled by other constraints within the system. 5. Resources must be utilized, not simply activated. 6. A transfer batch may not, and many times should not, be equal to the process batch. 7. A process batch should be variable both along its route and over time. According to synchronous manufacturing principles 2 and 3, the return on improvements at a bottleneck resource is very high. But the return on improvement made at non-bottlenecks is marginal at best. The synchronous manufacturing philosophy required managers to focus on those areas of operations where there exist potential global improvements.

Material Requirement Planning ( MRP-I )

It is a part of production operation system. Management has to develop a lot of strategies for production plan. In early 1960s a material acquisition plan was first introduced known as Material Requirement Plan ( MRP-I ). MRP-2 is latest allround development of that plan.

A brief history of MRP 1

Material requirement planning is a computerized production scheduling system which takes the forward schedule of final product requirements (the master production schedule) and translates it progressively into the numbers of subassemblies, components and raw materials required at each stage of the manufacturing cycle. It is a management information system providing a basis for production decisions when what is manufactured has a composite structure and when lead items are important features. Obviously, the ability of the system to deliver what is required in the correct place at the correct time will be dependent on the quality of information which is put into the computer model.

Aims of material requirement planning:

1. Determine for final products namely, what should be produced and at what time. 2. Ascertaining the required units of production of sub-assemblies. 3. Determining the requirement for materials based on an up-to-date bill of materials file (BOM). 4. Computing inventories, WIP, batch sizes and manufacturing and packaging lead times. 5. Controlling inventory by ordering bought-in components and raw materials in relation to the orders received or forecast rather than the more usual practice of ordering from stock-level indicators.

Benefits : Detailed forecast of the inventory position is highlighted period by period.

What is MRP-II (Material requirements planning)?

A material requirements planning (MRP) system is a computer based inventory information system which is used to plan and control raw material and component parts inventories.

Pre-requisites for successful operation of MRP:

1. Strict adherence to the schedule : The successful operation of MRP system requires a strict adherence to the latest production and purchasing schedules. Workers must be educated to understand the importance of schedule adherence, and controls should be in place to ensure this adherence. 2. Accurate data base : Data accuracy is vital to the system. If a plan is based on inaccurate data it may be impossible to adhere to the schedule. For example, if the bill of materials file is not updated to reflect any changes in product composition it will be impossible to adhere to the schedule.

MRP II is the extension of MRP I

When the scope of MRP-1 is developed further which includes 1. Planning of raw material 2. planning of component & subassemblies 3. Compute the other resources e.g. machine or labour capacity 4. to create a full integrated plan for management then it is known as Manufacturing resources planning ( MRP-II) MRP II (also written MRP-2 ) adds the MRP schedule into a capacity planning system and then builds the information into a production schedule. It is also seen

as a link between strategic planning and manufacturing control. The sequence of events is as follows : A manufacturing, plan is developed based upon inputs from purchasing & production. Adjustments may be necessary to allow for production rates. Possible inventory levels in seasonal trades & the size of the workforce. The manufacturing plan leads into a detailed master production schedule which is akin to the original philosophy of MRP already outlined. If correctly applied, MRPII provides a common data base for the different function units such as manufacturing, purchasing and finance within a firm.

What are needed to operate MRP successfully?

A material requirements planning (MRP) system is a computer based inventory information system which is used to plan and control raw material and component parts inventories. Like all computer-based information system, MRP systems can be divided into following: i) Pre-requisite information ii) System input iii) System processing, iv) System output.

Material Requirements Planning:

MRP calculates and maintains an optimum manufacturing plan based on master production schedules, sales forecasts, inventory status, open orders and bills of material. If properly implemented, it will reduce cash flow and increase

profitability. MRP will provide you with the ability to be pro-active rather than reactive in the management of your inventory levels and material flow. Implementing or improving Material Requirements Planning can provide the following benefits for your company:
Reduced Inventory Levels Reduced Component Shortages Improved Shipping Performance Improved Customer Service Improved Productivity Simplified and Accurate Scheduling Reduced Purchasing Cost Improve Production Schedules Reduced Manufacturing Cost Reduced Lead Times Less Scrap and Rework Higher Production Quality Improved Communication Improved Plant Efficiency Reduced Freight Cost Reduction in Excess Inventory Reduced Overtime Improved Supply Schedules Improved Calculation of Material Requirements Improved Competitive Position

The consultants at Inventory Solutions can provide an un-biased review of your operations and make suggestions on how you can improve your process. If you want the productivity improvements that MRP can deliver, contact Inventory Solutions today. MRP uses the following elements to plan optimal inventory levels, purchases, production schedules and more:
Master Production Schedule (MPS) Bill of Materials (BOM) Quantity on Hand (QOH) Part Lead Times Sales Order Quantities / Due Dates Scrap Rate Purchase Order Quantities / Due Dates Lot Sizing policies for All Parts Safety Stock Requirements

Success of an operation department of any organization is dependent upon an efficient production plan. One of the key essential of a production plan is material and manufacturing planning system. Material requirement planning plays a pivotal role in assembly-line production. Material requirement planning is a system based approach, which organizes all required production material. Material requirement planning is an information system for production planning based on inventory management. The basic components of material planning are:

Material planning provides information that all the required raw material and products are available for production. Material planning ensures that inventory level are maintained at its minimum levels. But also ensures that material and product are available whenever production is scheduled, therefore, helping in matching demand and supply. Material planning provides information of production planning and scheduling but also provides information around dispatch and stocking.

Objective of Material Requirement Planning

Material requirement planning is processed which production planning and inventory control system, and its three objectives are as follows:

Primary objective is to ensure that material and components are available for production, and final products are ready for dispatch. Another primary objective is not only to maintain minimum inventory but also ensure right quantity of material is available at the right time to produce right quantity of final products. Another primary objective is to ensure planning of all manufacturing processes, this scheduling of different job works as to minimize or remove any kind of idle time for machine and workers.

Advantages and Disadvantages of Material Resource Planning

As with every system based process, material resource planning also has its advantages and disadvantages, and they are as follows:
Advantages of Material Resource Planning

It helps in maintain minimum inventory levels. With minimum inventory levels, material planning also reduces associated costs. Material tracking becomes easy and ensures that economic order quantity is achieved for all lot orders. Material planning smoothens capacity utilization and allocates correct time to products as per demand forecast.

Disadvantages of Material Resource Planning

Material planning is highly dependent on inputs it receives from other systems or department. If input information is not correct than output for material planning will also be incorrect. Material planning requires maintenance of robust database with all information pertaining inventory records, production schedule, etc. without which output again would be incorrect. Material planning system requires proper training for end users, as to get maximum out of the system. Material resource planning system requires substantial investment of time and capital.

Material Resource Planning Inter dependency of Business Function

Material planning not only benefits operation department but is also beneficial to the other department of organization. They are as follows:

Material planning is useful in determining cash flow requirement based on material requirements and final dispatch schedules. It helps procurement team in scheduling purchase of necessary material. It helps the sales team in determining delivery dates for final products.

Implementation of Material Resource Planning

Implementation and success of material resource planning dependent on following factors:

Acceptability of by top management about advantages and benefits Proper training and participation of all workers and personnel Precision and accuracy of input data for accurate and reliable results

MRP will plan production so that the right materials are at the right place at the right time. MRP determines the latest possible time to product goods, buy materials and add manufacturing value. Proper Material Requirements Planning can keep cash in the firm and still fulfill all production demands. It is the single most powerful tool in guiding inventory planning, purchase management and production control. MRP is easy to operate and adds dramatically to profits. Material requirements planning (MRP) is a production planning and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, while it is possible to conduct MRP by hand as well. An MRP system is intended to simultaneously meet three objectives:

Ensure materials are available for production and products are available for delivery to customers. Maintain the lowest possible level of inventory. Plan manufacturing activities, delivery schedules and purchasing activities.

Contents

1 History 2 The scope of MRP in manufacturing 3 Problems with MRP systems 4 Solutions to data integrity issues 5 See also 6 References 7 External links

History
Prior to MRP and before computers dominated the industry, reorder-point/reorder-quantity (ROP/ROQ) type methods like EOQ had been used in manufacturing and inventory management. In the 1960s, Joseph Orlicky studied the TOYOTA Manufacturing Program and developed Material Requirements Planning (MRP), and Oliver Wight and George Plossl then developed MRP into manufacturing resource planning (MRP II).[1]. Orlicky's book is entitled The New Way of Life in Production and Inventory Management (1975). By 1975, MRP was

implemented in 150 companies. This number had grown to about 8,000 by 1981. In the 1980s, Joe Orlicky's MRP evolved into Oliver Wight's manufacturing resource planning (MRP II) which brings master scheduling, rough-cut capacity planning, capacity requirements planning and other concepts to classical MRP. By 1989, about one third of the software industry was MRP II software sold to American industry ($1.2 billion worth of software).[2]

The scope of MRP in manufacturing

The basic function of MRP system includes inventory control, bill of material processing and elementary scheduling. MRP helps organizations to maintain low inventory levels. It is used to plan manufacturing, purchasing and delivering activities. "Manufacturing organizations, whatever their products, face the same daily practical problem that customers want products to be available in a shorter time than it takes to make them. This means that some level of planning is required." Companies need to control the types and quantities of materials they purchase, plan which products are to be produced and in what quantities and ensure that they are able to meet current and future customer demand, all at the lowest possible cost. Making a bad decision in any of these areas will make the company lose money. A few examples are given below:

If a company purchases insufficient quantities of an item used in manufacturing (or the wrong item) it may be unable to meet contract obligations to supply products on time.

Data requirements to operate material requirement planning system:

1. The master Production schedule: This schedule specifies the quantity of each finished unit of products to be produced, and the time at which each unit will be required. 2. The Bill of material file: The bill of material file specifies the sub-assemblies, components and materials required for each finished good. 3. The inventory file: This file maintains details of items in hand for each subassemblies, components and materials required for each finished goods. 4. The routing file: This file specifies the sequence of operations required to manufacture components, sub-assemblies and finished goods. 5. The master parts file: This file contains information on the production time of subassemblies and components produced internally and lead times for externally acquired items.

Kanban control A lean manufacturing system is one that meets high throughput or service demands with very little inventory. Despite its significant success, kanban control is not a perfect mechanism to control a lean system. Kanban control uses the levels of buffer inventories in the system to regulate production. When a buffer reaches its preset maximum level, the upstream machine is told to stop producing that part type.

This is often implemented by circulating cards, the kanbans, between a machine and the downstream buffer. The machine must have a card before it can start an operation. It can then pick raw materials out of its upstream (or input) buffer, perform the operation, attach the card to the finished part, and put it in the downstream (or output) buffer. The number of cards circulating determines the buffer size, since once all cards are attached to parts in the buffer, no more parts can be made. When the machine picks up raw materials to perform an operation, it also detaches the card that was attached to the material. The card is then circulated back upstream to signal the next upstream machine to do another operation. This way, a demand for a unit of finished goods percolates up the supply chain.

Kanban control. Movement of parts shown in blue, circulation of kanban in red. Machines are shown as circles and buffers as triangles. The last buffer is the finished goods (FG) inventory.

Kanban control ensures that parts are not made except in response to a demand. The analogy is to a supermarket: Only the goods that have been sold are restocked on the shelves. However, it has a major drawback: It uses the parts themselves as carriers of information. A machine is told to stop production when its output buffer is full. This requires that a number of parts sit in the buffer without serving any apparent purpose but to block the upstream machine. That's not quite right, though. The parts waiting in a buffer do serve a purpose: They act as a buffer inventory, partially decoupling the operation of downstream machines from any interruptions of upstream production. If a machine fails, the machine downstream of it can continue production by consuming the parts that are already in the buffer. With luck, the upstream machine will be repaired before the buffer is empty, and the failure will not affect the downstream machine (or the customer on the downstream end of the chain). But we can do this in a better way.

CONWIP control CONWIP stands for Constant Work-In-Process, and designates a control strategy that limits the total number of parts allowed into the system at the same time. Once the parts are released, they are processed as quickly as possible until they wind up in the last buffer as finished goods. One way to view this is that the system is enveloped in a single kanban cell: Once the consumer removes a part from the finished goods inventory, the first machine in the chain is authorized to load another part.

CONWIP control. Movement of parts shown in blue, circulation of release authorizations in green.

This leads to subtly different behavior from a kanban control. First of all, like kanban, the CONWIP system only responds to actual demands that have occurred, so it is still a ``pull'' type system. But unlike kanban, the resting state of the system has all buffers empty, except finished goods, which is full. This occurs because any part released to the system will move to finished goods. New parts will not be released if the finished goods buffer is full. The inventory in finished goods is now available to serve the customer, and there is no internal inventory to collect dust. But what about the buffer inventories and the decoupling against failures? Something subtle called ``part/hole duality'' is happening. It is true that inventory in a buffer protects the downstream portion of the line against the consequences of failures upstream. But it does not protect the upstream portion of the line against failures downstream. If a buffer is full, and the machine downstream of it fails, a kanban line will stop production upstream of the failure, no matter how many raging customers line up at the end. When the failed machine is repaired, it will suddenly impose an increased workload on the upstream portion of the system, since it needs to catch up with the demand. The mostly empty buffers in a CONWIP line contain valuable (but cheap) empty space. This space is used to decouple the upstream portion of the line against failures downstream. If the last machine in the line fails, the customers will be served from the finished goods buffer, while new parts will be released to the line as usual and proceed to the buffer in front of the failed machine. There they wait for the repair. When the machine is repaired, it has a sufficiently large number of parts in its input buffer to catch up with demand and replenish the finished goods buffer.

Empty buffer space acts to decouple the machines also in a kanban line. But there, the control policy is to fill up the buffers whenever possible. And this is possible most of the time, unless the demand rate is greater than the system capacity. Something remarkable just happened: We separated the flow of parts and information. Then we got a control policy that allows the same throughput and service levels as kanban, but at lower inventories. Intuitively, the advantage over kanban will be larger for systems with more stages (since there will be more internal buffers), and for systems with more process variability (since that requires larger buffer inventories to achieve the same throughput). As an added bonus, the CONWIP control is even simpler to implement than kanban, since just one set of cards is circulating. But we can do even better than this.
Hybrid control

Sometimes, if the system is very heavily utilized or there is a bottleneck in the line, the buffers towards the upstream end of a CONWIP line will have quite high levels. On the other hand, kanban control was designed to prevent individual buffer levels from exceeding designated limits. Therefore, we construct a hybrid control policy where the CONWIP control is supplemented with secondary kanban cells. These detect problems in the line, and block release of parts to the line if they cannot be processed further. We do not need a separate kanban cell to block the last machine, since any material that has gotten this far surely will reach the finished goods buffer if the machine can do an operation. The resulting control policy acts mostly like CONWIP, but at decreased inventories when trouble occurs.

Hybrid CONWIP/kanban control. Movement of parts shown in blue, circulation of kanban in red, and release authorizations in green.

Note how similar this is to a kanban control: We circulate cards between the machines and buffers. The sizes of the buffers are determined by the number of cards in circulation. The only difference is that cards detached from finished goods are passed

to the first machine instead of the last. From there, they follow the parts back to the finished goods buffer.
How big is the improvement?

In our simulation studies, we have seen service improvements of more than 40% (average backlog) combined with inventory decreases of about 25%, compared with the best possible kanban control of the line. This was a 10-machine line running at about 80% utilization, where the parameters were chosen such that 75% of the demand was served from stock in both cases. The advantage over kanban grows with the length of the process, the degree of process variability, and the service level target. The advantage of the hybrid policy over CONWIP grows with the system utilization.

Service level vs inventory for various parameter choices. Kanban in red, CONWIP/kanban hybrid in green.

This figure is generated from simulations of several hundred parameter configurations for each of the policies. For each choice of buffer sizes and inventory limits (when applicable), the system was simulated for two years, and the resulting service and inventory levels were recorded. The service level or fill rate is the fraction of demand for finished goods that is served from stock. The inventory is all material in the line and in the finished goods buffer. In this plot, leanness is indicated by high service

levels at low inventories, i.e., by points towards the lower right corner. Note that for any target service level, many parameter choices for the hybrid policy achieve the target with less inventory than the best kanban policy. For example, to achieve 98% fill rate in the six-machine line where these data are taken from, the best kanban policy has 66.6 units of inventory, and the best hybrid policy just 49.2. This is a 26% difference.
Kanban (()?) (literally signboard or billboard) is a scheduling system for lean and just-in-time (JIT) production.[2] Kanban is a system to control the logistical chain from a production point of view, and is not an inventory control system. Kanban was developed by Taiichi Ohno, at Toyota, to find a system to improve and maintain a high level of production. Kanban is one method through which JIT is achieved.[3] Kanban became an effective tool in support of running a production system as a whole, and it proved to be an excellent way for promoting improvement. Problem areas were highlighted by reducing the number of kanban in circulation.[4
Kanban Production Control System Kanban: Card or other device that communicates demand for work or materials from the preceding station. Kanban is the Japanese word meaning "signal" or "visible record". Paperless production control system. Authority to pull, or produce comes from a downstream process. Kanbans also govern the assembly or Parts' movement authorization Kanban Formula We can mathematically construct the Kanban Formula, If we designate the following alphabets N = Total number of containers ( Or Kanban Cards) D = Planned usage rate of using work center T = Average waiting time for replenishment of parts plus average production time for a container of parts

Kanbans maintain inventory levels; a signal is sent to produce and deliver a new shipment as material is consumed. These signals are tracked through the replenishment cycle and bring extraordinary visibility to suppliers and buyers.[1]

Purpose

Logistic control system

Implemented at

Toyota

Date implemented

1953

v t e

This article describes the 8 types of Kanban system available and what you need to do to choose, design, implement, and operate Kanban systems, size buffer stocks (the number of Kanbans), choose containers and signalling mechanisms. It shows the need to integrate the system with your planning systems. It includes the impact on people, accounting, materials handling systems and some important do's and don'ts. This type of system belongs to a category of materials management systems called "pull" systems. (See Materials Management & Stock Control.) Links on the left to related training and (for topics highlighted in red) further reading

Types of Kanban Systems

You may previously have thought that there was only one, or maybe two types of Kanban system! In fact there are 6 main types, (plus two significant variants), (excluding 2 bin & 3 bin systems) and here they are:

One card systems

In the above diagram: A signal is sent back from the consuming process to supplying process (or supplier). This is a signal: a. To send some more (a transfer batch), via a buffer stock. b. To produce some more (a process batch), at the supplying work centre. NB. Empty containers acting as a signal are a potential hazard as any empty container is a signal to fill it. Also occasionally containers have been known to go missing! Usually, for these reasons, the signal is separated from the container.

Input / Output Control Kanban (Two variants)

Sometimes called the ConWip (constant work in process) system, this type imposes input / output control, where the signal travels directly from the end of a line or section to the preceding section or raw material stores. In this case the supply chain is treated as one unit rather than a series of linked operations. So, as one transfer batch is completed (output) another is launched on the first operation (input), thus ensuring that work in process cannot build up. However there are some special considerations required in the operation of the system, to avoid hidden capacity problems, which are not so clearly visible when this method is used. We have used adaptations of this system to manage workflow and capacity rather than materials in a number of environments including job shop & clerical / technical process environments.

Kanban Accumulator
In this method Kanban signals are allowed to accumulate at the supplying work centre until the production batch size is reached. In this case buffers can be depleted or exhausted depending on the accumulation rules. Also because buffers can be exhausted, slightly higher mixes can be accommodated.

Dual Card System (2 Card System) (Two variants)

First used by Toyota, there are in fact now two types of two card system. The first method separates the replenishment (send some) signal, which is produced from the Kanban system, from the "produce" signal, which is produced by a scheduling system such as MRP. The purpose of each of the cards is as follows:

The scheduling system says which job is next. The Kanban says make it now. (I need some.)

The second variant of this method generates the second card (after authorisation) as a result of one or more replenishment requests in a similar way to Kanban accumulators above. These methods can deal with higher mixes. They can also deal with larger batch sizes, caused by long changeovers, where scheduling is necessary, although you should be trying to reduce batch sizes (See Previous Technique: T019 Avoiding set ups and Reducing Changeover Times). In this case the buffer is depleted, and can be exhausted. In addition a longer planning system such as MRP1 (See "Levels of Planning & Control") is also necessary to that the system is durable. Kanban systems operate at level 3 in this model.

Variable Quantity (fixed frequency) System

In some situations it is more convenient to replenish items used, by fixed frequency deliveries (or collections), rather than respond to fixed quantity replenishment requests. This method forms the basis of supplier "top up at point of use" systems, where a supplier visiting your point of use will top up stocks to a predefined maximum level. We have also used this method as the mechanism to drive "replacement systems" for maintaining stocks of critical spares items or maintaining "van stock" for on-the-road service engineers. (See Previous Techniques T015: Replacement Systems). Also it is often better from a capacity viewpoint to use level scheduling techniques, (see Previous Best Practice B005: Level Scheduling) to smooth demand, particularly in one-to-many supply chains (see below). (Also see Principle 4, of Lean Supply Chains: 13 Principles)

POLCA System
("Quick Response Manufacturing" Rajan Suri) This is mentioned for completeness only and is said to be prescribed for high-mix, variable-route, situations. However at this point, in our opinion, it is worth considering other simplification techniques (see "Organisational Redesign"), or as a last resort, the use of scheduling tools (See "Advanced Planning & Scheduling").

Attributes of Kanban Systems

Some champions of Kanban Systems suggest that the system is universally applicable and has no disadvantages. This is not true! There are some circumstances where they can be positively harmful. Also if they are not designed and managed correctly, disastrous! We have rescued several, and in two cases the system was responsible for accumulation of serious customer backlogs! The system does have advantages and disadvantages and some of these are:

Advantages

Low fixed stock (number of Kanbans in system) Low lead-time Quality problems visible Highly stable

Disadvantages

Inflexible (transfer batch fixed, except with "Variable Quantity Systems" above) Can cause stoppages (often viewed as an opportunity to solve a problem) Highly stable! (But you may need to change due to changes in demand for example, or it may be an unstable environment). Pull systems do not plan. They react!

Where appropriate
The technique can be applied to any pair of resources, or pairs in a series of resources (including clerical operations), where one feeds the other. It is important to choose suitable pairs. However you also need to be careful to select the appropriate Kanban system for your situation. Some systems are more appropriate to particular situations. In particular the mix, variability, and numbers of resources in the supply chain network (e.g. one-to-many, many-to-many, many-to-one) are key. Also there needs to be a method of handling small orders or prototypes (not difficult if thought about at the start). (See Previous Readers Question Q019: When is Kanban not Appropriate? Do I need extra equipment?). There are also some prerequisites which you need to consider such as having a planning process which is integrated with the Kanban system. (See " Participative Sales & Operations Planning"). If this is not done the system will eventually fail!
Note:

Just because your end product or service is not suitable, it is possible that some aspect or segment of your business may be suitable. It is quite possible and sensible to segment control systems to suit the needs of different parts of a business. The skill is in selecting suitable segmentation strategies. But we have seen a number of examples of the "one size fits all" philosophy being positively damaging! Kanban systems are one type of control system out of many, which may be appropriate for you. You can use our expert system to determine which you need, by completing our confidential free questionnaire in " What Control Systems do I need?". (This service is not available to consultants.)

Kanban System Design

Kanbans and Capacity
If the Kanban system is incorrectly designed it can significantly reduce output, by causing the system to stop unnecessarily even though there is still unsatisfied customer demand! (See the question at the end of the article on "Lean Manufacturing".) This can be avoided in a number of ways. Kanban systems if overloaded will simply not be able to service replenishment requests.

Supply Chain Design

Before attempting Kanban implementation in anything but the simplest situation the supply chain must be defined. Unless a fixed method comprising of stable relationships between supplying resources and consuming resources can be defined, there is no basis for a replenishment system based on Kanban. The first mistake made by early Business Process Reengineering (BPR) / cellular manufacturing exercises was to assume that the successive operations had to be physically relocated. They do not! Indeed in some circumstances it is counterproductive, and certainly an expensive exercise which is hard to justify and difficult, if not impossible, to implement in some circumstances. (See Previous Readers Question Q019: When is Kanban not appropriate? Do I need extra equipment?). However in a FMCG manufacturing plant implementation, a sophisticated overhead moving gantry system was replaced with work trolleys, a classic case of removing complexity. This was made possible by aligning the processes first so that materials movement was reduced. I.e. The need for transport & thereby the need for sophisticated materials handing was removed. The process of designing the supply chain follows the principles of BPR (see " Organisational Redesign"), but it is generally not a simple task.

Positioning of buffers
Buffers can either be:

Held at the supplying workstation Held centrally Held at the consuming work station

Economies of scale, numbers of supplying and receiving work centres, or simply available space, may need to be considered here.

Buffer sizing (Number of Kanbans in the system)

There are two schools of thought on Kanban buffer design: 1. To over-specify the buffers and remove Kanbans one at a time (in operation) to identify system constraints which need to be overcome.

2. To design the buffers to accommodate known constraints, and the observed statistical variation in supply and / or demand caused by variables whilst working on them. We subscribe to the latter approach having seen significant operational difficulties arising out of the former. One example was a new production line with only limited inter-operation space. Unfortunately the process capability was initially very poor resulting in large queues of work waiting for rework. The resultant chaos was an island of machines surrounded by a sea of WIP. Also if you remove one Kanban too many you can stop output unnecessarily. In another case we were implementing a Kanban system in a bicycle manufacturing company. We trained the shop floor supervisors in the technique one afternoon. The following day a supervisor came up to us and said "We have implemented that Kanban System you told us about yesterday, but there is a problem. Will you come to help us?" Amazed and intrigued by this statement we went to the section where the cycle frames were being welded. Each welding booth was in line for successive welding operations, with a chalk-mark square on the floor between each booth, which if empty was intended to signify that another frame was required by the downstream operation. The WIP present the previous week had gone and everyone was working very hard. "So what is the problem" I asked? "Well", replied the supervisor, "when the first operator puts the frame in the empty square the second operator burns his hand when he picks it up." This was a sobering lesson in correct buffer sizing. The solution in this case was to have two frames in the square, to allow each to cool before the next operation. A further popular misconception is that you only have to calculate the number of Kanbans at the outset of implementing your system. This is false! Kanban populations must be regularly reviewed and adjusted in all but the most stable situations.

Buffers and Bottlenecks

Bottlenecks have a significant effect on Kanban system design. In particular the position of the bottleneck in the supply chain is important to buffer size calculations.

Buffer Size Calculations

The buffer sizing calculation is governed by provisions for:

1. Variables still remaining in the system such as:

Demand changes Lead-time (see below) Breakdowns Preventative maintenance Absenteeism Quality problems (rework etc.)

And the risk of changes occurring at the same time, or in quick succession.

2. The mix
Higher mixes, if buffers are to be maintained, require higher buffers (to last while the item is not being supplied). The calculation is dependent on batch sizes, set up times, and the mix, but can be

minimised by employing the techniques described in " Organisational Redesign", and selecting the appropriate Kanban system, or the use of a combination of Kanban systems.

3. Transport time
This is the time from production of a batch at the supplying resource to the arrival at the consuming resource. You cannot operate "Just in Time" if your supplier is in Japan, and you are in the UK, or in Northern India if your factory is in the South in the monsoon season. This consideration on a smaller scale applies to all movements, but in particular applies to inter-site movement and other difficult transport situations.

4. Container fill-time
Small is beautiful as far as containers are concerned in Kanban systems. However it still may take some time to fill a container before supplying the consuming resource, for which time there needs to be a buffer.

5. Signal time
Slow signals require bigger buffers. However "electronic Kanbans" provided by some ERP software providers are rarely required except for inter-site transfers and even then they are hard to justify over fax, email, or other methods.

6. Automated materials handling systems

When calculating automated materials handling storage capacities & traffic rates managed by Kanban systems, further considerations are necessary, which we will not go into further here. Supplied as part of our training course M01 Designing, Implementing and Operating Kanban Systems is a Microsoft Excel Kanban calculator template, which you can use to help you to calculate the number of Kanbans required.

Container sizes (transfer batch sizes)

This is largely a question of convenience. Again, small is beautiful for containers in Kanban systems. However there is a trade off between small containers and traffic generated by the number of containers.

Prioritisation
It may be necessary to prioritise the work of the supplying resource(s), since they may receive replenishment signals from more than one consuming resource simultaneously. Prioritisation is possible using a Traffic Light (RAG) system. (See Previous Technique T036: Traffic Light (RAG) systems)

Signalling mechanisms
Almost every signalling mechanism devised by mankind has been used to signal a replenishment request. Ones we have used include: Coloured lamps, cards, "lego", "sticklebricks", faxes, electronic automated materials handling equipment, empty containers, chalk squares on the floor, in trays, magnetic blocks, coloured labels on a rack, rings on a peg, voice, EDI, kitting trolleys, work trolleys, kitting trays, potato hoppers, re-usable packaging, shipping containers and articulated trailers. The considerations in this decision include distance, speed, volume and complexity of the signals.

Sanity checking
When the design is mathematically complete it needs to be sanity checked. This can be done in varying degrees of sophistication from simply asking what could go wrong in this situation, through to sophisticated computer simulations, (which we have been generally able to avoid).

Implementation
Ring Fencing
It is possible to implement Kanban in a part of your process (first) perhaps as a pilot scheme. In which case you will need to buffer your Kanban system upstream & downstream from the (as yet) volatile remainder of your environment.

Priming the System

It is no good implementing from an unbalanced state. It is unlikely to recover. The system must be primed. On the other hand you may be overstocked, and need to segregate or drain out surplus stock. There are serious capacity considerations here! If your system is to retain its credibility it cannot be allowed to fail. So take the time to get the correct buffers in position.

People
Culture
Further information on culture and culture change can be found at "Focused Improvement Systems", "Culture Development Methods,", and Malpractice M004: "Creating the wrong culture". Kanban systems are one of the simplest systems to operate but they do require a change of mindset on behalf of the operator. Namely it is no longer acceptable to produce unwanted inventory or to leave the work at your workplace rather than where it is needed next. These simple rules are actually really difficult to implement. But once understood and in particular when the benefits of pull

systems over push systems are understood, they can become a way of life. Ignoring the human aspects of Kanban systems operation will doom your implementation to failure! The operator previously was used to operating in a sea of work in process and as such, he or she believed there was plenty of work about. The initial view of the workplace following implementation is that it is empty. This can be very disconcerting to the operator, who now thinks that there is no work about and is anticipating that redundancy notices will shortly appear! To overcome these problems education of all operators by something like our "M22 Kanban & Lean Enterprise Simulation Game" is essential and this must be a simulation to which your operators can readily relate. We feel the most powerful method of conveying this message is by allowing operators to discover for themselves the benefits of Pull systems in an environment which is relevant to their own, (mimicking your products and processes).

Incentives
Individual "piecework" type incentive systems are bad news for Kanban operation since they encourage activity rather than useful activity. These individual incentives can only be removed if the culture is sufficiently developed to overcome the issues that arise by removing them. (See Organisational Redesign, and Culture Development Methods.

Productivity measures
If you measure productivity by measuring activity you are heading for some difficulties since unneeded activity leads to unwanted stock and work in process. Again our Kanban & Lean Enterprise Simulation Game graphically demonstrates that "working smarter" is much more important. (See Previous Malpractice M006: "Hitting The Numbers".)

Accounting for value-added in short lead-time, low Work in Process (WIP) systems
It is a legal requirement to value stock at either its current value or net realisable value (if obsolescent). If WIP however is small and manufacturing lead-times are short, WIP accounting and WIP tracking can be reduced. Perhaps one of our most difficult and recurring implementation problems has been to persuade accountants to simplify their methods of productivity measurement and inventory valuation, so that shop floor data capture could be reduced! If you collect "profit" in stock "added value", you will make a "loss" in your first Kanban year, because WIP is usually dramatically reduced. Our view is that you only make a profit when you sell something. Until then it is a liability! However you can usually persuade your accountant to accept this loss by telling them how much cash will be released, and including them in the Kanban & Lean Enterprise Simulation Game.

Operating Kanban Systems

The general health of a Kanban system can be measured using "eyeball control". If there is an accumulation of unfulfilled Kanban signals, or no unfulfilled Kanban signals, you are heading for a crisis. Both of these situations indicate a supply chain problem. However the system can only operate within its design capacity. A forward looking planning system is still required. Common misunderstandings are that:

It is often (wrongly) assumed that implementing control systems is a one-off exercise. It is not! Kanban systems are complete within themselves. They are not!

Measures of Performance (MOPs)

Like all systems the Kanban system should be measured. Because stock is fixed (the number of Kanbans in the system), the main measurement is due date compliance, (see Previous Best Practice B045: "OTIF Measuring On-time Delivery"). However other measures will indicate the health of your system before it collapses, such as unfulfilled or filled Kanbans. Also it is critical to measure performance at the correct level. (See Focused Improvement Systems.)

Levels of Planning and Control

Significant complexity arises out of:

Confusing the roles of different levels of planning and control Confusing planning with control Choosing an inappropriate planning and / or control system

Systems such as MRP1, plan the materials. The Kanban system is one type of system from a choice of many, which controls the materials plan (and can control the capacity plan). (See Materials Management & Stock Control).

Kanban Interaction with Planning Systems

The Kanban system must be synchronised with the planning system, and the roles of the planning and Kanban systems defined, such that if they do conflict, the correct one is used (& the processes realigned). (See Materials Management & Stock Control)

Periodic Strategic Reviews

Finally, fluctuating or exceptional demand will kill your Kanban system stone dead unless you can see it coming. (See "Managing Demand"). So you need to document your design parameters so that

you recognise when your environment has subsequently exceeded the design, to trigger a strategic review. Participative Sales & Operations Planning should be designed to trigger this review. The second big mistake of early BPR exercises was to assume that they were permanent. They are not! Things change! We have seen Kanban systems die because they could not respond to change!

Aggregate (Production) Planning

Production planning is the means by which we prepare our production quantities for the medium term (generally one year). Aggregate planning refers to the fact that the production planning is usually carried out across product lines. The main difficulty is that demands vary from month to month. We want to keep production as stable as possible yet maintain no inventory and experience no shortages. We must balance the costs of production, overtime, subcontracting, inventory, shortages and changes in production levels. In some case aggregate planning problems might require the use of the transportation or linear programming modules.

The Model.

Production planning problems are characterized by a demand schedule, a corresponding production schedule and various costs. In addition, we have the following considerations. Shortage handling. In production planning there are two models for handling shortages. In one model shortages are backordered. That is, demands can accumulate and be met in later periods. In another model the shortages become lost sales. That is, if you can not satisfy the demand in the period in which it is requested the demand disappears. This option is above the data table. Initial Inventory. Often times we have a starting inventory from the end of the previous month

Costs

Production costs - regular time, overtime and subcontracting. These are the per unit production costs depending on when and how the unit is made. Inventory (Holding) cost. This is the amount charged for holding one unit for one period. The total holding cost is charged against the ending inventory. Be careful because while most

textbooks charge against the ending inventory some textbooks charge against average inventory during the period. Shortage cost. This is the amount charged for each unit that is short in a given period. It is assumed that the shortages are backlogged and satisfied as soon as stock becomes available in a future month or are lost sales as indicated by the option box above the data table. Shortage costs are charged against end-of-month levels. Cost to increase production. This is the cost due to having changes in the production schedule. It is given on a per unit basis. The cost for increasing production entails hiring costs. It is charged only against regular time production changes. If the initial production level is 0 then there will be no charge for increasing production in the first period. Cost to decrease production. This is similar to the cost of increasing production and is also given on a per unit basis. However, this is the cost for reducing production. It is charged only against regular time production changes.

Advantages and Disadvantages of Aggregate Production Planning

by Walter Johnson, Demand Media Economic planners use economic models and forecasting research to organize a firm's life to respond to the inevitable changes of the broader economy. Production planning does this in response to changes in demand. Changing a company's production schedule on a moments notice can be expensive and lead to insecurity and uncertainty. Planning for changes in demand months in advance ensures that the change of production schedules can occur with little effort. Aggregate production planning is a general approach to altering a company's production schedule to respond to forecasted changes in demand. Sponsored Link Sales not growing?www.bcoachindia.com Want to double your sales in 6mnth 100% money back guarantee. See how.

Resource Allocation
Aggregate production planning is really about the allocation of resources. Assuming that a plan is basically accurate, a production plan, usually stretching no more than a year into the future, will ensure the smooth transition of production capacity as demand changes over time. The significance of this is that once employees are habituated to these changes, they will alter their own schedules and work habits to reflect changes in demand. This means that the costs of changing work schedules will be minimized, increasing efficiency.

Overproduction Risk
This kind of planning reduces the risk of overproduction. During periods of demand slump, overproduction can waste resources, depress prices and oversaturate the market. It might also tax the ability of a firm to store and maintain the productions that have been produced with nowhere to go. Aggregate production planning reduces production at times of weak demand. This means that money will be saved when production is curtailed, since the firm will not have to pay for labor that, because of weak demand, has no purpose.

Data and Bias

Like with all plans, they are only as good as the people who make them. Planners often have biases, prejudices and habituation that derive from their experience and education. These, if unchecked, can lead to a plan that misreads economic indicators or relies on faulty data like economic forecasting models. A production plan cannot take shocks into consideration, such as a spike in oil prices, Federal Reserve policies, interest rate hikes or changes in consumer confidence. As the name suggests, these plans can only deal with aggregates or averages that are only a partially successful tool to predict fluctuations in demand.

Labor and Uncertainty

Labor remains one of the most serious problems of aggregate production planning. For example, a company plans to increase overtime hours and hire part-time workers for peak demand seasons. It will then cut hours and give unpaid furloughs during poor demand seasons. This implies that workers, especially long-term ones, will become increasingly dissatisfied and cynical about company policy and will not work up to capacity. Even more, well-qualified workers will choose other companies because of the constant insecurity of such a production policy. As most aggregate models forecast alternations in labor conditions, this can cause problems among full-time workers. It introduces insecurities and uncertainty into the workplace.

Aggregate production planning refers to the process of deciding the overall quantities of products to be manufactured or produced in a plant or other manufacturing facility during a medium term planning period such as a month, or a quarter. The aggregate plan output consist of the total quantities of each product or a group of product to be manufactured in the plan period of going into details of scheduling of different manufacturing activities required to achieve the planned production levels. The aggregate production will also not specify details such as the dates when material ordered against individual customer order will be ready for delivery. The aggregate production plan is prepared as a means of setting overall production targets and as input for planning availability of other inputs and supporting activities to meet the production targets. The aggregate plans then form the basis of more detailed production, including such as daily and weekly production schedules and customer delivery schedules. Such production plan are further detailed out as machine loading schedules. The production system design planning considers input requirements, conversion process and output. After considering the forecast and long-term planning organization should undertake capacity planning. Capacity is defined as the ability to achieve, store or produce. For an organization, capacity would be the ability of a given system to produce output within the specific time period . In operations, management capacity is referred as an amount of the input resources available to produce relative output over period of time. In general, terms capacity is referred as maximum production capacity, which can be attained within a normal working schedule. Capacity planning is essential to be determining optimum utilization of resource and plays an important role decision-making process, for example, extension of existing operations, modification to product lines, starting new products, etc.

Strategic Capacity Planning

A technique used to identify and measure overall capacity of production is referred to as strategic capacity planning. Strategic capacity planning is utilized for capital intensive resource like plant, machinery, labor, etc. Strategic capacity planning is essential as it helps the organization in meeting the future requirements of the organization. Planning ensures that operating cost are maintained at a minimum possible level without affecting the quality. It ensures the organization remain competitive and can achieve the long-term growth plan.
Capacity Planning Classification

Capacity planning based on the timeline is classified into three main categories long range, medium range and short range. Long Term Capacity: Long range capacity of an organization is dependent on various other capacities like design capacity, production capacity, sustainable capacity and effective capacity. Design capacity is the maximum output possible as indicated by equipment manufacturer under ideal working condition. Production capacity is the maximum output possible from equipment under normal working condition or day. Sustainable capacity is the maximum production level achievable in realistic work condition and considering normal machine breakdown, maintenance, etc. Effective capacity is the optimum production level under pre-defined job and work-schedules, normal machine breakdown, maintenance, etc. Medium Term Capacity: The strategic capacity planning undertaken by organization for 2 to 3 years of a time frame is referred to as medium term capacity planning. Short Term Capacity: The strategic planning undertaken by organization for a daily weekly or quarterly time frame is referred to as short term capacity planning.
Goal of Capacity Planning

The ultimate goal of capacity planning is to meet the current and future level of the requirement at a minimal wastage. The three types of capacity planning based on goal are lead capacity planning, lag strategy planning and match strategy planning.
Factors Affecting Capacity Planning

Effective capacity planning is dependent upon factors like production facility (layout, design, and location), product line or matrix, production technology, human capital (job design,

compensation), operational structure (scheduling, quality assurance) and external structure ( policy, safety regulations)
Forecasting v/s Capacity Planning

There would be a scenario where capacity planning done on a basis of forecasting may not exactly match. For example, there could be a scenario where demand is more than production capacity; in this situation, a company needs to fulfill its requirement by buying from outside. If demand is equal to production capacity; company is in a position to use its production capacity to the fullest. If the demand is less than the production capacity, company can choose to reduce the production or share it output with other manufacturers. An organization can finalize its business plans on the recommendation of demand forecast. Once business plans are ready, an organization can do backward working from the final sales unit to raw materials required. Thus annual and quarterly plans are broken down into labor, raw material, working capital, etc. requirements over a medium-range period (6 months to 18 months). This process of working out production requirements for a medium range is called aggregate planning.
Factors Affecting Aggregate Planning

Aggregate planning is an operational activity critical to the organization as it looks to balance long-term strategic planning with short term production success. Following factors are critical before an aggregate planning process can actually start;

A complete information is required about available production facility and raw materials. A solid demand forecast covering the medium-range period Financial planning surrounding the production cost which includes raw material, labor, inventory planning, etc. Organization policy around labor management, quality management, etc.

For aggregate planning to be a success, following inputs are required;

An aggregate demand forecast for the relevant period Evaluation of all the available means to manage capacity planning like sub-contracting, outsourcing, etc. Existing operational status of workforce (number, skill set, etc.), inventory level and production efficiency

Aggregate planning will ensure that organization can plan for workforce level, inventory level and production rate in line with its strategic goal and objective.

Aggregate planning as an Operational Tool

Aggregate planning helps achieve balance between operation goal, financial goal and overall strategic objective of the organization. It serves as a platform to manage capacity and demand planning. In a scenario where demand is not matching the capacity, an organization can try to balance both by pricing, promotion, order management and new demand creation. In scenario where capacity is not matching demand, an organization can try to balance the both by various alternatives such as.

Laying off/hiring excess/inadequate excess/inadequate excess/inadequate workforce until demand decrease/increase. Including overtime as part of scheduling there by creating additional capacity. Hiring a temporary workforce for a fix period or outsourcing activity to a sub-contrator.

Importance of Aggregate Planning

Aggregate planning plays an important part in achieving long-term objectives of the organization. Aggregate planning helps in:

Achieving financial goals by reducing overall variable cost and improving the bottom line Maximum utilization of the available production facility Provide customer delight by matching demand and reducing wait time for customers Reduce investment in inventory stocking Able to meet scheduling goals there by creating a happy and satisfied work force

Aggregate Planning Strategies

There are three types of aggregate planning strategies available for organization to choose from. They are as follows.
1. Level Strategy

As the name suggests, level strategy looks to maintain a steady production rate and workforce level. In this strategy, organization requires a robust forecast demand as to increase or decrease production in anticipation of lower or higher customer demand. Advantage of level strategy is steady workforce. Disadvantage of level strategy is high inventory and increase back logs.
2. Chase Strategy

As the name suggests, chase strategy looks to dynamically match demand with production. Advantage of chase strategy is lower inventory levels and back logs. Disadvantage is lower productivity, quality and depressed work force.

3. Hybrid Strategy

As the name suggests, hybrid strategy looks to balance between level strategy and chase strategy.