Inventory in Manufacturing System

Inventory & Manufacturing
System
www.themegallery.com
Contents
Flow of Information in MS
MRP
Just In Time
Overhead Cost Impact
Costs Charge to Product
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Content
Flow of information system in Inventory

and Manufacturing System
Advantage of JIT manufacturing system
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Inventory Transaction in Simplified MS
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Principle of Control
Output: to measure the performance of

the system.
Feedback: to collect the output
Control rule: to decide strategy which
controll the system
Control rule System Output
Feedback
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Disadvantages
No information about any scrap
No information about how much inventory
is actually in stock.
The purchasing department staff can order
inventory whenever they want and in any
quantities
The inventory accountant cannot assign
production costs to inventory, because
there is no device for tracking the status of
inventory through production
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Improve Physical Control
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Disadvantages
R/M: raw material inventory
WIP: work in process inventory
F/G: finished goods inventory
Abundant information of the location of
and quantity of the inventory.
Lack of control block.
The feedback and information is available
but no action is done
To improve the system, control blocks
must be added in some stages.
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Disadvantages
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MRP system
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Advantage of MRP
Reduce heavy manual computation

Ensuring the information accessibility and
transparency
Shifted from simple material planning to
ensuring shipments on the promised
dates.
Customers could be told at or near the
time of order placement when their orders
could be shipped.
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Disadvantage of MRP
Designed to track and plan for existing

manufacturing practices
NOT attempt to impose a new method for
production onto a company
It still allows suppliers to ship in low-
quality goods, requires periodic quality
inspection points, allows work-in-process
to build up, scrap to occur, and machines
to have excessively long setup times
Requires database with high accuracy (95-
98%)
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Just In Time
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Just In Time
 A complete JIT system begins with

 production at supplier facilities,
 deliveries to a company’s production facilities,
 continues through the manufacturing plant.
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Just In Time
Must ensure that on time suppliers ‘

deliveries when they are needed.
Deliveries will be sent straight to the
production floor for immediate use.
No time to inspect incoming parts for
defects.
The engineering staff must visit supplier sites
and examine their processes,
To check if they can reliably ship high-quality
parts, and provide them assistance to bring
them to a higher standard of product quality
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Advantages of JIT
Eliminate work-in-process inventory which

build up in front of the slowest machine
Soon discover and eliminate the defective
parts from the upstream machine.
Applied “Kanban Card” or “work cell”
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Kanban Card
Notification card that a downstream

machine sends to each machine that feeds
it parts
Upstream will manufacture enough parts
only to fulfill the production requirements of
the down stream
No work-in-process inventory to build up in
the production system, because it can only
be created with a kanban authorization.
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Work Cell
A small cluster of machines that can be

run by a single machine operator
This person takes each part from machine
to machine within the cell, so there is no
way for work-in-process to build up
between machines.
Easier to maintenance and reconfigure.
Require prepare and implement training
classes for employees
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Employee
Traditional: one worker maintain one machine
-> feel boring and less responsibility
Work cell : one worker maintain several
machine -> more interested, and increase his
responsibility
Perform limited maintenance without calling in
the maintenance staff
Spot product errors, understand the entire
system flows, and when to stop the machine
to fix problems.
The workforce must be completely retrained
and focused on a wide range of activities
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Scrap is spotted by the production staff -> no

separate quality assurance function is needed
No transaction to move goods into WIP area,
because there is assumed to be too little
inventory
Primary transaction occurs immediately after
production is completed while finished good
are shifted to a final storage area
The other required transaction is for shipment
of the goods to customers.
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JIT cost reduction
Labor cost of reworks

By clustering machines into cells, the
materials handling costs among widely
scattered machines can now be eliminated
Reducing floor space, since no large isle is
required for driving forklip.
Reducing the quality inspections cost in
many machines. Under the JIT system,
machine operators conduct their own
quality checks,so there is less need for a
separate group of inspectors;
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Overhead cost impact
Shift from the overhead cost pool to direct

costs when machine cells are introduced.
Machine cell generally produces only a small
range of products, which makes it easy to
assign the entire cost of each machine cell to
them.
The depreciation, maintenance, labor, and
utility costs of each cell can be charged
straight to a product.
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Better allocation cost bases available

For example, based on the amount of time
that a product spends in each work cell or
the amount of space taken up by the work
cells for allocating costs
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Cost charge directly to product

Depreciation: depreciate a machine based on
its actual usage, this allocation variation more
accurately shifts costs to a product.
Electricity: The power used by the machines
in a cell can be separately metered and then
charged directly to the products that pass
through that cell.
Materials handling: Only materials handling
costs between cells should be charged to an
overhead cost pool for allocation.
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Cost charge directly to product

Operating supplies: Supplies are mostly
used within the machine cells, so most items
in this expense category can be separately
tracked by individual cell and charged to
products.
Repairs and maintenance: By having the
maintenance staff charge their time and
materials to these cells, their costs can be
charged straight to products.
 Supervision: If supervision is by machine
cell, then the cost of the supervisor can be
split among the cells supervised.
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Backflushing in a JIT System

A traditional system: traces inventory as it
moves :warehouse, production process, and
to the shipping dock.
Requires one to record a transaction for
every physical inventory movement.
Back flushing system: no transaction entry is
made until a product has been completed
The computer system takes the final
production figure entered, breaks it down
into its constituent parts, and removes these
items from the warehouse records.
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Accurate final production counts, because

miscounts result in incorrect changes to
warehouse records.
accurate systems in place to trace any
fallout from the production process, such
as for scrap or rework.
Finally, the production process must be a
short one, preferably completing products
in a single day. If not, backflushing of
components from stock may not occur for
some time, which renders the inventory
database inaccurate
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The total production figure that is entered

in the system must be absolutely correct,
or the wrong component types and
quantities will be subtracted from stock.
Lot tracing. Lot tracing is impossible under
the backflushing system.
Lot tracing is needed when a
manufacturer needs to keep records
regarding which production lots were used
to create a product, in case all items in a
lot must be recalled.
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Inventory in Manufacturing System

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Inventory & Manufacturing

Overhead Cost Impact

Costs Charge to Product

Flow of information system in Inventory

Inventory Transaction in Simplified MS

Output: to measure the performance of

Control rule System Output

Improve Physical Control

R/M: raw material inventory

Reduce heavy manual computation

Designed to track and plan for existing

 A complete JIT system begins with

Must ensure that on time suppliers ‘

Eliminate work-in-process inventory which

Notification card that a downstream

A small cluster of machines that can be

Scrap is spotted by the production staff -> no

JIT cost reduction

Labor cost of reworks

Overhead cost impact

Shift from the overhead cost pool to direct

Better allocation cost bases available

Cost charge directly to product

Cost charge directly to product

Backflushing in a JIT System

Backflushing in a JIT System

Accurate final production counts, because

Backflushing in a JIT System

The total production figure that is entered

Add Your Text

Text Cycle name

Add Your Add Your

•Text 1 Text •Text 1

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Add Your Text

Add Your Text

Add Your Text Add Your

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ThemeGallery is ThemeGallery is ThemeGallery

Add Your Title

Add Your Text

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Add Your Text E D Add Your Text

2001 2002 2003 2004

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Add Your Title ThemeGallery is a

Company History 2003

2002.10 Add Your Text

2001.10 Add Your Text

Title Title Title Title Title

3-D Pie Chart

Add Your Text

Add Your Text

concept Concept Concept Concept

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