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Source : Quick Response Inc.
Production Management Research
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Executive Summary
Introduction
Primarily due to rapid development of technology in the past thirty years, the market structure
throughout the world has changed considerably. Local markets have become accessible to
foreign manufacturers, who are able to perform well in their newly established territories in part
due to their superior application of technology. In this light, most companies, including small and
medium size, have embedded globalization in their expansion strategies, consistently seeking for
new markets abroad. Consequently, local manufacturing companies are facing global
competition, forcing them to adopt new concepts with respect to people, process and
technologies.
In 1972, the American Production and Inventory Control (APICS) strongly promoted material
requirements planning (MRP) an effort to strengthen the American manufacturing industry and
its position in international arena. MRP was hoisted to be the most prevalent production control
system on a national level. Only after the success of Just-In-Time (JIT), MRP´s dominant position
in manufacturing industry was questioned. For example, with the help of JIT, Japanese
manufacturers introduced superior products resulting in their dominance of global market in
manufactured products industries.
As a result, North American industry directed enormous amount of research resources towards
the new production systems giving rise to a rich body of literature documenting various planning
approaches. These approaches include:
- Push System (MRP, MRPII)
- Pull System (Kanban and Constant Work in Process - CONWIP)
This document describes these approaches to production planning in detail as well outlines a
software solution. The software solution (Production/3) combines both pull and push techniques
and enables small to medium size organizations to fully automate their production system while
retaining their investment in their legacy ERP Systems.
Planning Approaches
Push System
MRP: MRP provides a simple method of ordering materials based on order due dates
(customer orders and/or orders required to maintain certain inventory level). The
computation is primarily based on master production schedule, inventory on-hand and bill
of materials.
MRPII: MRPII essentially takes the same approach as MRP but, in addition, it provides a
general control structure that breaks the production control problem into a hierarchy
based on time scale and product aggregation. MRPII brings together many functions to
generate a truly integrated manufacturing management system including demand
management, forecasting, capacity planning, rough-cut capacity planning, dispatching
and input/output control.
Pull System
Kanban: In a Kanban system, production is triggered by demand. When a part is
removed from final inventory point, the last workstation in the line is given authorization to
replace the part. This workstation in return sends an authorization signal to the upstream
workstation to replace the part it just consumed. This process continues upstream,
replenishing the downstream void by requesting material from the antecedent
workstation. To control production, the operator requires both input raw materials and an
authorization signal, a card, to work.
CONWIP: Conwip is a special case of Kanban. In this system the entire line constitutes
one workstation. Departing jobs send production cards back to the beginning of the line
to authorize release of new jobs. The production line consists of a single routing, along
which all parts flow and work in process can be measured in units i.e., number of work
orders or parts on the line.
Production Planning Execution and Control
Production Planning Execution and Control
Production Planning Execution & Control
(Production/3 system is a web based software solution that
integrates the principles of both push and pull system. Its configurable unique algorithm takes
advantage of the strengths of push and pull approaches while simultaneously minimizes their
weaknesses by providing real-time execution and control.
Production/3 system addresses the fundamental features of production planning system
including decisions on the acquisition, utilization and allocation of production resources to satisfy
customer requirements in the most efficient and effective way. It provides sufficient information to
effect decisions in the area of work force level, production lot sizes, assignment of overtime,
sequence of production runs and automatic adjustments to short term disruptions in
manufacturing operations i.e. equipment failures etc. Furthermore the information system
facilitates the creation of effective change programs to capitalize on:
- Reduction in cycle time
- Elimination of non-value added tasks
- Increase in capacity availability
- Improvement in labor productivity
- Reduction in required plant space
- Improvement in product quality
- Creation of flexible and agile workforce
- Decision accountability at all levels
Return on Investment
Return on investment is based on a typical manufacturing plant that employs roughly 100
production staff and value of
shipment is approximately
$20 million per year excluding
the cost of raw materials.
Cash Flow Projections graph
(all currency is in thousands
of dollars) depicts the total
cost of system ownership
including software, hardware,
support resources and
continuous training of
production staff as well as
quantifiable business benefits.
In this scenario, it is our estimate that system will generate a quantifiable net present value1
of
$826K in first three years.
Next Steps
If you are looking to acquire a new production planning system or would like to leverage the
existing legacy ERP system, we would highly recommend that you should discuss your needs
with our Production Planning, Execution and Control expert.
Current Planning Approaches
Introduction
In recent years, manufacturing industry has had severe impact due to improvements in
communication and transportation media that lead to rapid globalization. As a result, local
markets became integrated into global markets. The local manufacturers had to adopt leading
edge technology and processes in order to insure their long-term profitability.
During the 1980?s and 1990?s, all small, medium and global manufacturers invested tremendous
amount of capital in CNC, PLC and other automation technologies. As a result productivity,
quality and responsiveness of North American manufacturers witnessed double-digit
improvement. Along with investment in capital equipment, significant investment was directed
towards information technology as an attempt to provide appropriate information to appropriate
associate and at appropriate time.
During this time, success of Just-In-Time and Japanese Kanban Control System discredited MRP
and MRPII, which were developed by American Production and Inventory Control Society
(APICS). As a result, North American industry directed enormous amount of research resources
towards the new production systems giving rise to a rich body of literature documenting various
planning approaches.
The purpose of this paper is to compare the different production control systems with respect to
batch size, setup time and failures along with environments needed to execute and control. As
well as outline a practical solution that will capitalize on the strengths of each planning approach
and provide a control mechanism to manage their respective deficiencies.
Pull System
In pure pull system, production is triggered only in response to actual consumption of inventory.
The system imposes an upper and lower bound on the inventory of each product at each
workstation.
res that at least a minimum inventory of each product be maintained at each
machine for the system to function. This approach is most suitable for manufacturing
environments producing repetitive products with stable demand. Furthermore, this plan adjusts to
unpredictable demand disruptions due to equipment maintenance and/or breakdown as well as
human resource disruptions.
In this strategy, initially all kanban cards are attached to finished parts at the output buffer of each
machine. The production trigger originates at the end of the manufacturing line in response to an
actual customer demand. Customer demand is satisfied from the output buffer and this releases a
kanban card triggering production at the last machine. This triggers a sequence of releases of
kanban cards triggering production at all upstream machines. In this strategy, kanban card plays
the dual role of controlling inventory as well as triggering production and thereby determining the
throughput for different products.
Push System
On the other hand, the production triggers in the push strategy are based on due dates of
customer orders or desired inventory levels. Therefore this system appears to be better equipped
for environments with changing product mix, infrequent orders or custom jobs.
In push strategy; production is triggered in the form of raw material release at the beginning of the
line. The release rate of raw material is based on due dates of various orders or restocking to
desired inventory levels for different products. Once material is released into the system at first
machine, it is simply pushed through the subsequent machines. In the push strategy, therefore, it
is the release rate of the material that determines throughput of the line as well as the inventory of
various products at each machine.
In the following sections Kanban, CONWIP and MRP planning approaches will be reviewed in
detail along with their mechanism and characteristics. The comparative summary outlines the
effectiveness of each approach with respect to production planning, execution and control
functions. Finally, a software solution framework that incorporates the strengths of each approach
and simultaneously minimizes their respective weaknesses will be discussed. It is component-
based solution that could easily be configured to maximize on each manufacturing environment?s
unique characteristics while keeping the total cost of ownership low.
Kanban
Introduction
Mostly, the Toyota-style kanban system is discussed as a pull system and it is hardly surprising
that the term pull is commonly viewed as synonymous with kanban. There is an immense kanban
literature often comparing its performance to a push system. In a kanban system, production is
triggered by demand, as described above in Figure 1.0The Mechanism
A kanban pull system uses card sets to tightly control work in process (WIP) between each pair of
workstations. Total system WIP is limited to the summation of the number of cards in each card
set. Production occurs at a workstation only if raw material is available and the material has a
card authorizing production. Each kanban card set between workstations authorizes material to
be pulled into the upstream workstation for processing and delivery to the downstream
workstations. Figure 3.0 illustrates a serial kanban system.
Characteristics
As the amount of material in the system is limited to the number of cards assigned, there is
natural upper bound of material in process.
Due to the presence of cards, operator involvement in controlling the flow of the material is
enhanced. This involvement and active participation paired with a proactive thinking and reward
system enables continuous improvement. The push system on the other hand does not
necessarily facilitate this environment.
A kanban system best suits a stable material flow where the product mix is fairly stable and not
too large, as the card sets are unique to each product and very expensive to manage.
Kanban is not useful in an environment with expensive items that are rarely ordered, since it
would require at least one of each kind of item to be in inventory at all times.
The performance of the system is very sensitive to the number of cards assigned to the system
and their specific allocation
In most kanban systems, the number of kanban cards assigned to a specific workstation is fixed
resulting in blockages or starvation. Blocking occurs when all the cards are attached to full
container in the outbound stock point, while starvation occurs when at least one production
kanban is in the hold box waiting for a container from the upstream workstation while the machine
at that station is idle.
Constant Work in Process (CONWIP)
Introduction
A CONWIP pull system uses a single global set of cards to control total work in process (WIP).
Material enters the system only when demand occurs, and raw material receives a card
authorizing entrance; the same card authorizes the material to move through the system to
complete production. When the final product leaves the system, the card is released, allowing the
new material to enter the system. In this system, the WIP is not controlled at individual
workstation. The total WIP in the system however is constant. The kanban system pulls the work
everywhere (between each pair of workstations), while the CONWIP system only pulls the work at
the beginning of the line.
The Mechanism
Once the raw material is authorized to enter the CONWIP "Black Box", the material flows freely
as if it was in a push system. Inside the "Black Box", WIP naturally accumulates in front of the
bottleneck station. CONWIP system handles a mix of parts having different bottlenecks with more
ease than kanban system. If the bottleneck shifts as the mix of parts changes, there may be an
opportunity to reduce WIP by reducing total number of cards allocated for product flow.
Conversely, cards may need to be added to increase WIP and ensure a desired throughput.
CONWIP systems are easy to manage, for there is only one set of cards that require review and
adjustment for the entire production line. Kanban system is difficult to manage but on the other
hand, tightly controls WIP since card control is implemented at each workstation. If a product mix
change shifts the bottleneck in a kanban system, the number of cards allocated to each card set
may require adjustment to ensure desired throughput.
Characteristics
As does Kanban, CONWIP controls the total amount of work in process in the system. The WIP
is limited to the number of cards assigned to the entire line instead of to the individual machine.
If a machine fails in a CONWIP line, the amount of material downstream of it will eventually be
flushed out of the system by the demand process. These demand events will cause the release of
new material to the system. If a machine fails for a long period of time, the new material along
with material already upstream of failed machine will accumulate in buffer. This implies that all the
WIP could accumulate at the failed machine. This will tie up all material bins thus further
complicating the production line restart process.
There is no blocking in CONWIP line since the buffers are assumed to be large enough to hold
the total WIP.
The demand is sent directly from the last to the first workstation. The entity goes through all the
workstations in the line carrying the information about necessary production.
MRP
Introduction
The Material Requirement Planning (MRP) principles were incorporated in most production
planning systems. Only after the successes of just in time (JIT) and kanban, its dominant
presence in industry was questioned.
The Mechanism
MRP deals with two dimensions of production control: quantities and timing. The system must
determine appropriate production quantities of all types of items, from final products that are sold,
to components used to build final products including purchasing of raw materials. The second
dimension, production timing is developed by incorporating completed order due date and lead-
times.
The data from bill of materials (BOM) and master production schedule (MPS) is processed in
several steps to produce the planned order releases and notices such as change and exception
notices. The BOM describes the relationship between end items and lower level items while the
MPS gives the quantity and the due dates for all parts to obtain the gross requirements. The
schematic is presented to illustrate that all the information needed for the entire manufacturing
system originates from the MPS.
The order is released at raw material post as planned with the help of the MPS. The raw material
is released independent of the amount of the material in the buffer preceding workstation-A. The
buffer size, in part is constrained by the physical space on the factory floor. Workstation-A
processes the raw material to predefined specifications then the material is pushed to the next
workstation. This process continues downstream until the material exits the system at finished
goods post.
To be able to address the huge problem of coordinating large number of orders and large number
of tools and subsequent intermediate components, MRP II was developed. It provides a general
control structure that decomposes the production control problem into hierarchy based on time
scale and product aggregation, primarily by considering the capacity of manufacturing system.
MRP II brings together many functions to generate a truly integrated manufacturing management
system including demand management, forecasting, capacity planning, rough-cut capacity
planning, dispatching and input/output control.
Characteristics
MRP provides a simple method of ordering materials based on needs, as established by a master
production schedule and bill of material. As such, it is well suited for use in controlling the
purchasing of components. The deficiencies of this system are particularly highlighted in
manufacturing environments that require proper exploitation of capacity resources by taking
bottlenecks and other short-term disturbances into consideration.
It has been documented that real reason for MRP?s inability to perform well is that it has a faulty
underlying model that is based on too many assumptions that, in fact, are not true in real
production environment. The key calculations are performed by using fixed lead-times to derive
material releases from the due dates. These lead-times do not take into account the real-time
events of shop floor such as absenteeism, equipment breakdown, defective material, limited
quantity of bins or any other short-term uncontrollable event.
To ensure the coordination of parts at assembly, there is strong incentive to increase the lead-
times to provide a buffer against unforeseen obstructions. However, as inflating lead-times
introduces more material into the system, it increases congestion and consequently lead-time.
Instead of delivering on time, the products are delayed even longer.
Summary
In the light of material discussed in previous sections, it is true that neither production planning
strategy provides an efficient framework to control production management functions. However
with advances in information technology and its accessibility to shop floor personnel, a hybrid
solution that combines the merits of both push and pull has become practical and pragmatic.
Production Planning Execution & Control (Production/3)
Manufacturing organizations have commonly used some form of Material Resource Planning
(MRP II) and Just-In-Time (JIT) for production control system. Of course, the production control
mechanism chosen has far-reaching effect, affecting the entire replenishment, manufacturing,
inventory and distribution systems. MRP II and JIT are vastly different in their approach to
inventory management, customer service and information requirements. More specifically as
discussed in previous sections, MRP II is a push-type system that uses demand forecasts to
generate production plans, while JIT is a pull-type system that ideally depends on customer
demand to trigger production. Generally speaking, MRP II leads to higher inventory costs, but
higher levels of customer service, while JIT seeks to minimize the cost of holding inventory and
will typically suffer at least a minor negative effect on customer service. Production/3 System
combines various aspects of push and pull control to drive down the cost of inventory, while
maintaining a high level of customer service. As a result Production/3 builds on the strength of
MRP II and JIT, while simultaneously provide control mechanism to effectively manage their
deficiencies.
Business Architecture
As companies transform to meet or exceed customer expectation in e-business era, the
manufacturing line of business units in large enterprise play a critical role:
- Respond Instantly to Changing Demand
- Manufacture any item in any sequence
- Reduce manufacturing cycle time
- Produce quality custom products at mass production cost
- Drive Cost Out of the Process
- Reduce shop floor space requirement
- Reduce purchasing costs
- Reduce inventory of both work in process and finished goods
- Keep component material at its lowest cost level
- Deliver Best in Class Value
- Build quality into the product
- Create a balanced work environment
Production/3 system enables you to dramatically reduce production cycle times and inventory
investment, while increasing product quality and throughput. It helps to increase customer service
level, improve production efficiencies & effectiveness and asset utilization. It provides set of
processes and techniques to help streamline the production planning, execution and control
activities which when applied within Quick Response framework help manufacturers attain market
leadership.
Business Interfaces
Production/3application will seamlessly interface either real-time or via batch with your legacy
ERP systems. It will collect and send necessary information from and to your existing Enterprise
Resource Planning (ERP), Warehouse Management System, General Ledger and Production
Machine Controls.
Bolt-On systems enhance the functionality of the Production/3 system on as required basis. A
comprehensive demand forecast module, management of engineered work standards via MOST
technique, interface to payroll and data for time and labor system.
Customers, Vendors and Contractors can seamlessly interact with your production planning
system via secure internet connection.
Business Map
Production/3 system is based on modular architecture. In addition to base product, each
customer could select only the modules required for immediate business need.
Production/3 analytics module provides comprehensive analysis capabilities that allow senior
managers and planners to pin-point the exact causes of production delays. This degree of control
promotes accountability for daily production floor decisions by line managers and production
workers.
Each manufacturing facility has unique production planning, execution and control needs. On
many occasion, these unique characteristics form the basis of their strategic advantage over their
both internal and external competition. The Production/3 system?s modular architecture allows our
engineers to configure the system to your specific needs. The "out-of-the-box" system provides
"customized" functionality at "off-the-shelf" price.
A controlled portal access allows vendors, customers and subcontractors to interface with the
system. This control is entirely managed by the system administrator without any changes to the
system.
Business Functions
White papers
Value Proposition
The cost of conversion or implementation of new Production/3 system can often be recovered by
the savings in inventory and manufacturing efficiency alone. However, the benefits are many
including:
- Shorter cycle time
- Elimination of non-value added tasks
- Increased capacity availability
- Increased labour productivity
- Reduction in plant space
- Improved product quality
- Agile workforce
Production/3 is the first system in the industry that implements hybrid of pull and push control
systems within eBusiness framework. This offering provides significant advantages that include -
increased responsiveness to customers? mass customized needs and keep customers informed
via real-time internet connectivity.
This provides capabilities that allow companies to be more aggressive about improvement targets
such as lowering costs, increasing customer service and shortening cycle times.
Technology Architecture
Production/3 system is built on Java 2 Enterprise Edition (J2EE) platform. This is a state of the art
technology that provides vendor flexibility and linear scalability as your business needs grow.
All users access the system through a web browser just like browsing through any web site. This
simplifies user training and at the same time significantly reduces the total cost of system
ownership. Behind the scene this technology provides rock solid security thus protecting your
information assets from intruders.
J2EE technology and Production/3 has very clearly defined API architecture that allows the
integration to external systems both effectively and efficiently.
Interfaces
The figure 9.0 provides a snap shot of interfaces to other systems. These interfaces, off-course
are optional. The system has the capability to operate within its own space.
System Architecture
The figure 10 describes the logical architecture of Production/3 system. This physical
implementation could be scaled to user requirements.
For example, for a production environment of less than 100 workers, the web server, application
server and database server could all reside on the same physical server. Under this scenario, the
cost of the infrastructure could be less than $10K.
Implementation
Production3 system and services are designed to help your company "Accelerate Vision to
Value". Whether you are considering, implementing, or operating a component of Production
planning, execution and Control solution, our service offerings will help you gain the maximum
value, in the minimum time, with minimum risk.
Value Discovery Services seek to find and prioritize opportunities for quickly creating value in
your manufacturing system, by helping to define the vision, quantify the value and map the
shortest path to that goal. These services address one or more opportunities around production
planning configuration, systems, and processes, but do not include solution implementation.
Value Delivery Services are designed to quickly deliver solutions that create lasting value for the
customer, leaving a lasting change on the organization. We achieve this by either providing "off-
the-shelf" production planning execution and control system or by configuring our system to your
exact needs.
Value Enhancement Services are targeted at increasing the value already created through
solutions already in place. Mostly appropriate for existing Quick Response customers, we help
identify and exploit additional opportunities.
Core components of these services are:
Education Services is a learning center providing education and training on production planning,
execution and control concepts. Our classes are offered in Quick Response training center,
mobile on-site classrooms, or through convenient distance learning programs via the internet.
Customer Support is equipped and dedicated to delivering resolution to customer issues. Our
maintenance programs provide the assistance and tools you need to ensure maximum quality,
security and performance of your Production/3 solution.
Timeline
A typical implementation of Production/3 system consists of 6 major milestones. The duration of
each milestone could vary depending on the organization preparedness and business complexity
Cost
The purpose of this cost statement is to allow the customer to determine the scope of
Production/3system implementation. The exact cost however will vary depending on size of the
organization, changes required to the system and integration points.
The cost benefit scenario outlined below is typical of manufacturing plant that has roughly 100
production workers and production output of $20 million per year (excluding raw material costs).
Benefits
While there are many tangible yet un-quantifiable benefits of an efficient production planning,
execution and control system, for Return on Investment exercise we only include quantifiable
benefits.
Return on Investment
The return on investment is a net present value calculation based on 3 + current years at 5% per
year real interest. The table below shows that system will generate $826K in first three years.
About QR Systems Inc.
QR Systems Inc., based in Toronto, Ontario is a premier solution provider to manufacturing and
distribution industries. We provide business and technology strategy, systems architecture and
design, application implementation, networks, systems and production work cell integration and
related services. We help clients capitalize on information technology to achieve their business
objectives and build real-time enterprises.
Enterprise Solutions
QR Systems has an experienced team of professionals with expertise in Quick Response
techniques and information technology. Our enterprise solutions consist of four interrelated
components. Together these components address many of the challenges that companies face
when implementing enterprise solutions. The components are:
Architecture: QR Systems primary focus is to help customers set a long ? term strategic vision
and help to achieve more immediate short-term goals. We have developed an architectural
framework to help customers understand their current situation, define their long-term vision,
identify the gap between the two and then develop the appropriate solutions to achieve that
vision.
Solutions: QR Systems has a set of enterprise solutions that includes: Production Planning,
Execution and Control System, Demand Forecast, Engineered Industrial Standards, Quick
Response Techniques and Continuous Improvement Systems.
Implementation: Enterprise Value Development is a systematic approach that identifies and
prioritizes changes in process and technology to meet specific strategic and tactical enterprise
goals critical to most companies as they balance their technology investment against cost and
risk.
Implementation Tools: QR Systems provides enterprise solutions that includes tools such as
SCRUM solution development methodology and KMProject (www.kmproject.com) that have been
developed to improve the efficiency and speed of implementation that insures Return On
Investment.
Table of Contents
- EXECUTIVE SUMMARY
- Introduction
- Planning Approaches
- Production Planning Execution and Contro
- Return on Investment
- Next Steps
- CURRENT PLANNING APPROACHES
- INTRODUCTION
- KANBAN
- Introduction
- Characteristics
- CONSTANT WORK IN PROCESS (CONWIP)
- Introduction
- The Mechanism
- Characteristics
- MRP
- Introduction
- The Mechanism
- Characteristics
- SUMMARY
- PRODUCTION PLANNING EXECUTION & CONTROL (PRODUCTION/3)
- BUSINESS ARCHITECTURE
- Business Interfaces
- Business Map
- Business Functions
- Value Proposition
- TECHNOLOGY ARCHITECTURE
- Interfaces
- System Architecture
- IMPLEMENTATION
- Timeline
- Cost
- One time Costs
- On Going Cost
- Benefits
- RETURN ON INVESTMENT
- ABOUT QR SYSTEMS INC