ISE 411 – 142 Chapter 15 PDF

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MATERIAL BASED PRODUCTIVITY IMPROVEMENT TECHNIQUES

CHAPTER 15

INVENTORY CONTROL  Inventory control is concerned with two basic questions: when to order and how much to order. An effective inventory control system will accomplish the following: 1.

Ensure that sufficient goods and materials are available

2.

Identify excess as well as fast and slow-moving items

3.

Provide accurate, brief, and timely reports to management

4.

Maintain the least amount of cost in accomplishing the first three tasks

 A comprehensive inventory control system involves the following areas: 1.

Development of demand forecasts

2.

Selection of inventory models

3.

Measurement of inventory costs (carrying, shortage, order)

4.

Methods to record and account for items

5.

Methods for receipt, handling, storage, and issue of items

Types of Inventory Control Systems

 The most commonly used are classified as

Perpetual inventory system.  Under this system, whenever the stock drops to the reorder level or below, an order is activated for a quantity equal to the economic order quantity (EOQ).

The advantages of this system are as follows: 1. Efficient, meaningful order size 2. Safety stock needed only for the lead time period 3. Relative insensitivity to forecast and parameter changes 4. Less attention for slow-moving items 5. Excellent for high-cost items needing close control

Two-bin inventory system.  This system is a simplified version of the perpetual inventory system , and has the following advantages: 1. Paperwork is reduced to a considerable amount. 2. Records are not maintained for each transaction. 3. The system can be operated even with one bin by using appropriate markings. 4. Well suited for items of low value, fairly reliable usage, and short lead time - for example, office supplies, nuts, bolts, washers, etc.

Periodic inventory system .  The inventory position is checked only at specified time intervals, unlike the perpetual inventory system.

The advantages of this system follow: 1.

Since items are processed under a single order, a reduction in ordering cost may be possible.

2.

Shipping costs may be significantly reduced through bulk-ordering .

3.

Well suited when the supply sources are few or the source is a central warehouse.

Optional replenishment inventory system.  This system is a hybrid of the perpetual and periodic systems.  In this system, stock levels are reviewed at regular intervals, but orders are not placed until the inventory position has fallen to a predetermined reorder point. The advantages of this system are as follows: 1.

Orders can be placed in efficient quantities, thereby reducing ordering costs.

2.

The best features of both perpetual and periodic systems are incorporated .

Materials requirements planning (MRP) inventory system.  This system functions by working backward from the scheduled completion dates of end products or assemblies to determine the dates and quantities of the various component parts and materials that are to be ordered .  The system works well when a) a specific demand for an end item is known in advance b) the demand for an item is attached in a predictable fashion to the demand for other items.

The ABC Analysis  Since there may be as many as several hundreds of thousands of inventory transactions each year in even medium-sized companies, it is uneconomical, and perhaps unproductive to apply a detailed inventory control system to all the items carried in inventory.  The ABC analysis helps classify the items into three categories – A, B, and C, where A equals high-value items, B equals medium-value items, and C equals low-value items.

 Figure shows typical ABC analysis.  The A items represent a bout 15 to 20 % of the total items, while accounting for 75 to 80 % of the value of the total inventory.  The B items account for about 10 to 15 % of the value of the inventory, while representing 20 to 25 % of the items.  The C items account for only 5 to 10 % of the inventory value, but 60 to 65 % of the inventory items.

MATERIAL REQUIREMENT PLANNING (MRP)  MRP is a management planning and control technique.  Its initial processing function is to work backward from planned quantities and completion dates for end items on a master production schedule to determine what and when individual parts should be ordered.  M R P is sometimes referred to as "time-phased requirements planning" because "time phasing" involves working the material requirements backward based on the lead time for each item.  While any company that wants to do a better job of controlling material priorities and capacity can employ MRP, companies that manufacture complex assemblies are ideal for M R P.  While MRP can be effective in pharmaceutical, food , textile, and chemical companies, which are not "assembly" operations, the technique can be extremely powerful in automotive, electronic, and other assembly oriented companies.

MATERIALS MANAGEMENT  Materials management is broader in scope the at just inventory control or MRP.  Materials management is concerned with controlling the kind, amount, location, movement, and timing of the various commodities used and produced by the industrial enterprise, and this specifically includes material handling.  The complexity of today's products and processes necessitates a formal technique such as materials management for improving the total productivity in manufacturing plants, suppliers' facilities, and distribution warehouses.  The broad scope of materials management helps to integrate the purchasing, storing, manufacturing, and distributing functions by computer controlled information systems.

MATERIALS MANAGEMENT continue ……  The complexity of the materials management process in a company depends upon the  type of product,  quality and reliability levels demanded,  percentage of the product manufactured within the company  percentage of the product acquired from suppliers,  storage capabilities for purchased and manufactured parts, subassemblies and finished products,  material-handling systems available,  manufacturing and distribution processes,  level of knowledge of the users of the materials management system, and so on.

QUALITY CONTROL  Quality control (QC) is concerned with the design, measurement and control of the quality of raw materials, component parts, subassemblies, and finished products or services.A more formal definition is  Quality Control is an effective system for the growing quality development, quality maintenance, and quality improvement efforts of the various groups in an organization so as to enable production and service at the most economical levels which allow for full customer satisfaction. Three aspects of quality are important: 1.

Quality of design

2.

Quality of conformance

3.

Quality of performance

 Quality of design for a product or service is established by the specification of quality level, grade, or standard. It is dependent upon the intended use of the product or service. All products or services are not designed at a high quality level because of the cost value exchange involved.  Quality of conformance refers to the degree to which the specified quality of design is satisfied in producing a product or in delivering a service.  Quality of performance, or reliability, is controlled by using life tests on a sample of production. Defense equipment, such as missiles, rockets, and space vehicles, are the most commonly known items that are subjected to intensive life tests.

MATERIAL – HANDLING – SYSTEMS IMPROVEMENT  The movement of raw materials, purchased parts, own manufactured components, subassemblies, and finished products to the right location at the right time is the primary objective of an efficient material-handling system. Material handling applies in any type of operation, not just manufacturing. For example, in a hospital prescriptions from physicians are moved by such material handling systems as pneumatic chutes; linen is washed, cleaned, and transported on conveyors; food items are brought in and out of the kitchen on monorail systems; and so on.

 For many products and services, the material-handling costs form a substantial fraction of the total costs. Put another way, the total productivity of an operational unit may be affected quite a bit by the way the material-handling systems are designed, installed, and maintained.  The three M's of material handling are: material, move, and method. Material handling involves the movement of material by some method.  Material handling and plant layout are closely interrelated. Therefore, whenever productivity improvement is required by improving the present material handling system, care must be taken to evaluate the expected changes in the facility’s layout configuration that might in turn affect one or more of the five basic input factors in the total productivity expression....