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