CPIM DSP
inventory status data
includes on-hand balance, allocations, and scheduled receipts
scrap
material that is outside of specifications and that is not practical to rework
fixed safety stock
a manual override of safety stock quantity for items that require special oversight; used when a new part is being phased in, or when a part is being phased out
specific identification (inventory valuation)
a means of tracking the specific cost of each item, using lot or serial number identification.
risk pooling
a method to manage inventory risk in which manufacturers and retailers that experience high variability in demand for their products can pool together common inventory components
days of supply
a metric evaluating how many days of inventory is being carried, as measured by (inventory on hand) ÷ (average daily usage)
inventory turns
a metric indicating inventory turnover ratio, as measured by (annual cost of goods sold) ÷ (average inventory in $)
single-level pegging
a process than only identifies demand to the direct parent one level up
full pegging
a process that identifies demand for a component up to the end item
random location storage
a stock location system in which items are stored randomly in order to better utilize space
fixed location storage
a stock location system in which the items are always stored in the same place
inventory carrying costs
all costs attributable to the volume of inventory on hand in a designated time period; includes capital costs, storage costs, and risk costs
last in, first out (LIFO)
an inventory valuation method that assumes the newest items are sold first
first in, first out (FIFO)
an inventory valuation method that assumes the oldest items are sold first
action message
an output of an MRP system that identifies a problem and the necessary action to fix it: 1. expedite or de-expedite released orders 2. planned order due for release 3. cancel order
inventory buffer
any inventory, including safety stock, held to prevent stockouts or downtime in production
process and procedure of cycle counting
need consider: 1. Method of counting 2. Frequency of Counting 3. Item to be counted 4. Timing of the cycle counts 5. Reconciliation process and sign-off policy
visual review
order method in which one takes a visual look at inventory and places orders on what is needed accordingly; when the minimum quantity is reached, inventory is replenished to the maximum level; also known as min-max system
non-meaningful part identification
1. Shorter codes are faster to input or write 2. Numerical codes are easier and faster input 3. Random or sequential number assignment is better at accommodating the growth of item numbers 4. Can be auto-generated by software
Factors affecting the material plan
1. Update of MPS for new orders 2. Receipt of parts or completion of production 3. Changes to customer due dates and quantities 4. Changes to scheduled receipts for purchase and manufacturing orders 5. Inventory balance corrections 6. Engineering changes
Item Numbering Principles
1. Use unique item numbers 2. Use only one set of item numbers within an organization 3. Assign responsibility for item number creation 4. Do not reassign item numbers no longer in use 5. Use short item numbers 6. Keep item numbers uniform 7. Avoid confusing characters, such as I and 1, 0 and O 8. Allow room for expansion
Lean production tools
1. Value Stream Mapping 2. Pull System 3. Set-up reduction 4. Total productive maintenance
lot-sizing decision factors
1. order quantity constraints and modifiers 2. inventory carrying cost 3. ordering costs
Material planning in process flow environment
Characteristics: 1. Demand is stable and continuous; volume is high, variety is low 2. Production is usually MTS 3. All products have similar routings 4. Products tend to be commodities 5. Plants are designed for a specific throughput and require specialized equipment --> MRP generally is used with an optimizer scheduling software.
Material planning in MRP environment
Characteristics: 1. demand is discontinuous, and lumpy 2. Low volume, high variety MTO job shop or batch shop 3. Medium to high volume, low to high variety in ATO, repetitive flow environment Can be either push or pull system
Material planning in lean environment
Characteristics: 1. demand is stable, continuous, and high 2. variety is low 3. process is repetitive 4. machinery and workers are flexible --> material planning: 1. frequently updating of forecast and adjustment 2. Suppliers are local, and long-term partnership
Methods for reducing lead-time, WIP
1. use pull system 2. determine strategic buffer (FG) 3. increase flexibility
Sources of problems for inventory accuracy
1. poor design of form 2. carelessness 3. inaccurate supplier receipts 4. inadequate storage space 5. timing for cut-off of transaction 6. untrained personnel 7. poor document control 8. items not identified properly 9. lack of discipline or accountability
Lean setup time reduction process
1) separate internal and external setup 2) convert internal setup to external 3) streamline internal setup 4) eliminate adjustments
when and what to perform cycle count
1. ABC classifications: A should be counted more frequently 2. A reorder point reached --> quantity is low 3. A replenishment lot is received 4. when the records indicate zero balance 5. when a record balance becomes negative 6. After a set number of transactions
Characteristics of CRP
1. Applicable to job shop, batch production 2. Plan materials first 3. Give high priority to due dates 4. Regard capacity as flexible 5. Capacity is infinite 6. Validate MRP 7. Ensure delivery reliability and due date are aligned
meaningful part identification
1. Easier to understand, work with, and recall 2. Easier recognition of part identification increases organization efficiency 3. Easier to detect miscoded items using size or color information 4. Easier to interpret using hyphens or symbols
Measurements for an MRP system
1. Manufacturing orders released on time 2. Data accuracy: Inventory, BOMs, Routing, and forecast 3. Purchased order released on time 4. Downtime due to shortage 5. Excess inventory 6. Number of changes to purchase order 7. Orders released to manufacturing without material shortages 8. Due dates of orders met 9. Action messages trends
MRP functions
1. Plan and control inventories: what, how much, and when to order 2. Plan and control order released to factory floor, supplier to meet due dates 3. Provide accurate planned order loading for use by capacity requirement planning, and constraint management
MRP outputs
1. Planned order releases for purchased items 2. Planned order releases for manufactured items 3. Exception, and actions messages to advise planner of significant events
MRP inputs
1. Planning factors: lot-size, lead-time, safety stock, scrap and yield 2. Inventory data 3. MPS 4. BOMs
Bin-Location Codes
1. Sequence bin codes so operators can gather materials using the shortest possible route 2. Identify the location for bin numbers where multiple storage sites exist 3. Include an aisle number on shelving or racking 4. Design a grid arrangement to point out cell location based on the bin codes
Material planning in ETO, Project environment
Characteristics: 1. Demand is lumpy; product volume is low 2. Projects often are unique, generally large, and lengthy Instead of MRP, using project planning tools such as nested hierarchical planning
pipeline visibility
RFID technology, wireless communication, and web-enables and global satellite tracking systems have joined to increase the visibility of pipeline inventory
period order quantity (POQ)
a lot-sizing technique in which the lot size is equal to the net requirements for a given number of periods; the time between orders is fixed, but the lot size is not; uses EOQ to calculate optimal POQ
order n periods of supply
a lot-sizing technique in which the quantity ordered equals the amount needed to satisfy demand over a number of periods
fixed order quantity (FOQ)
a lot-sizing technique that will always cause planned or actual orders to be generated for a fixed quantity; lot size is fixed, but frequency of orders is variable
total productive maintenance (TPM)
a Lean preventative maintenance system encouraging the machine operator having a sense of ownership
capacity requirements planning (CRP)
a check that validates the capacity available for MRP and the validity of the priority plan
production activity control (PAC)
a closed-loop system that monitors and controls the master production schedule and the orders placed by MRP
low-level coding
a coding of BOM levels that identifies items at the lowest level of any BOM at which they occur
project costing
a costing system that is generally used in industries where services are performed on a project basis; ex. shipbuilding
job order costing
a costing system used in engineer-to-order and make-to-order environments where each job will have a unique cost accumulation
process costing
a costing system used mostly in flow manufacturing, in which the cost of each item is captured due to the repeated nature of the manufacturing process
value stream mapping
a graphical representation of the process steps from raw material to finished goods
statistical safety stock
calculated using standard deviation or mean average deviation of variations in demand; used in independent demand items (finished goods stock). = Standard deviation x Safety factors x square root of (lead time/forecast period)
cycle counting
daily counting of parts, and investigation of root causes of errors
aggregate inventory
establishing the overall level (dollar value) of inventory desired; aggregate inventory measures indicate how well inventory is being managed from a business perspective
aggregate inventory management
establishing the overall level of inventory desired (in $) and implementing controls to achieve this goal
periodic inventory
full count of everything; end of year physical inventory
strategic buffer
in TOC, the quantity of raw materials or WIP that is maintained at a constrained work center in order for the work center to achieve desired throughput and does not run short of materials
service requirements planning (SRP)
in service management, a process similar to MRP; uses BOMs to determine materials, and bills of labor to determine how much and what type of labor is needed to meet the demand
rolling schedule
in the MPS, when the current time bucket expires and the next time bucket becomes the current one, all time buckets shift to the left
inventory planning factors
inventory data that influences planning; includes lot size, lead time, safety stock, and scrap/yield factor
service inventory
inventory held by companies in the service industry; is not part of the transformation from raw materials into finished goods
hard goods
inventory in the service industry that does not perish
order (reorder) point system
inventory method that places an order for a lot whenever the quantity on hand is reduced beyond a certain point (set as the 'order point'); the order point should be equal to the demand during the lead time for the next lot to arrive, plus safety stock; lot size is constant. - best use when demand is stable and continuous, not for class A item
inactive inventory
inventory that has not been used for a defined period of time
distressed goods
inventory that is close to expiration or damaged and cannot be sold for full price
obsolete inventory
inventory that is no longer produced or supported
perishable goods
inventory that is only useable for a period of time; can be food products, newspapers, or event tickets
average cost (inventory valuation)
inventory valuation method based on the average of the actual costs paid.
standard cost (inventory valuation)
inventory valuation method in which a single value is selected for an inventory item based on historical or anticipated costs
actual cost (inventory valuation)
inventory valuation method in which there is a means of tracking the specific cost of each item due to serial number or lot control; used for expensive or custom items
automatic storage and retrieval systems (AS/RS)
items are put away and retrieved with robotic arms or other automated devices
cash-to-cash cycle
masures the timespan between paying for raw materials and getting paid for the product; cash-to-cash cycle time = days' supply of inventory + accounts receivable days - accounts payable days
excess inventory
materials procured or manufactured in excess of current operational needs
regeneration MRP
method for updating MRP in which the plan is regenerated by re-exploding the MPS down through all BOM levels to account for new planned orders and requirements
net change MRP
method for updating MRP in which the system calculates changes on a selective basis only for affected parts; MRP is continually retained in the computer, and whenever a change is needed in requirements, open order inventory status, or BOM, a partial explosion and netting is made for only those parts affected by the change
periodic review (fixed-interval order system)
ordering method in which an order is placed every n periods; the order is placed at a variable quantity, enough to last until the next review period plus the lead time for the shipment and safety stock. - best use: to combine shipment of multiple items, ordering cost is low, limited shelf-life item.
reverse logistics planning
planning done for the reverse flow of products and components through the supply chain; includes return goods handling, repair, remanufacture, and recycling
MRP II for service
planning structure for service industries similar to MRP II or MPC
synchronous flow
production, using a pull system, in which the velocity of the material flow is determined by takt time
time-period safety stock
provides an even amount of safety stock equal to the usage over a designated time frame. This method is useful for items with fluctuating demand; safety stock can increase or decrease as demand change
processor-dominated scheduling
scheduling technique that schedules equipment and labor before materials; used when capacity is relatively expensive, setups are expensive, and/or there is a bottleneck
material-dominated scheduling
scheduling technique that schedules material before equipment and labor; MRP is one such example; used when materials are expensive, excess capacity exists, setup costs are insignificant, and/or the process includes job shop-type operations
item historical demand and usage
shows month-to-month and year-to-date usage rates in order to evaluate order policies and methods, and improve planning decisions
pull system
system in which production reacts only to current demand from the customer or the next work station
consignment inventory
system in which the customer does not own the inventory until it is used or sold
replanning frequency
the amount of time between successive runs of the MRP model
visual control
the control of authorized levels of activities and inventories in a way that is instantly and visibly obvious
transfer cost and price
the cost/price of items when transferring ownership to a subsidiary, sister company, or division
storage costs
the costs of storing inventory: space, workers, equipment, counting and handling
manufacturing planning and control (MPC)
the full system used by manufacturers to recognize the demand for products, plan the resources required to produce them, and execute and control production
priority planning
the function of determining what material is needed and when; often uses MRP
capital (opportunity) costs
the opportunity cost of investing capital in inventory instead of other opportunities
risk costs
the possible costs of obsolescence, damage, pilferage, deterioration, and insurance
what-if analysis
the process of evaluating alternative strategies; planners use what-if simulations when considering alternative material plan scenarios
scrap factor (yield)
the quantity of material, in percentage terms, that need to be ordered/produced above what is needed due to the normal process producing scrap
takt time
the rate of production needed to meet customer demand yet avoid overproduction
horizontal dependency
the relationship between the components at the same level in the bill of material, in which all must be available at the same time and in sufficient quantity to manufacture the parent assembly
cost of goods sold
the total cost valuation of items sold by a business; subtracted from the selling price to determine profit
gross requirement
the total of independent and dependent demand for a component before the netting of on-hand inventory and scheduled receipts. Sources: 1. MPS 2. Service parts demand, interplant requirements
inventory valuation
the valuation of all owned inventory on the balance sheet: 1. Raw materials, WIP, FG are asset 2. MRO is expense
material requirements planning (MRP)
uses BOM data, inventory data, and the master production schedule to calculate requirements for materials; establishes due dates for components and sub-assemblies