Week 6 Final Paper

Must have scholarly sources and reference textbooks and answer all questions. ABSOLUTELY NO PLAGIARISM

Vonderembse, M. A., & White, G. P. (2013).

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Operations management

[Electronic version]. Retrieved from https://content.ashford.edu/

Required Resources

Text

Vonderembse, M. A., & White, G. P. (2013).

Operations management

[Electronic version]. Retrieved from https://content.ashford.edu/

· Chapter 11: Just-In-Time and Lean Systems

· Chapter 12: Scheduling

Recommended Resources

Multimedia

Educatevirtually. (2009, June 18).

Pull system and kanban demonstrated (Links to an external site.)

. [Video file]. Retrieved from http://www.youtube.com/watch?v=w3Ud7pEhpQM

July, E. (Producer) & Rodrigo, J. M. (Director). (2003).

Business is blooming: The international floral industry (Links to an external site.)

[Video file]. Retrieved from the Films On Demand database.

· Watch the following segments:

· Delivering Flowers for Valentine’s Day

· Future of Floral Design

LeanSystems. (2007, December, 2).

No kanban cards (Links to an external site.)

[Video file]. Retrieved from http://www.youtube.com/watch?v=VaOUWsZl6So

Week 6 – Final Paper

Space Age Furniture Company

Read “Space Age Furniture Company” in Chapter 9 of your text. Respond to the following and include any Materials Requirement Planning (MRP) calculations:

· Develop an MRP for Space Age Furniture Company using the information in the case including the production of sub-assemblies in lot sizes of 1,000.

· The lot size of 1,000 for sub-assemblies has produced a lumpy demand for part 3079. Suggest ways for improvements over sub-assemblies in lot sizes of 1,000.

· Analyze the trade-off between overtime costs and inventory costs.

· Calculate a new MRP that improves the base MRP.

· Compare and contrast the types of production processing—job shop, batch, repetitive, or continuous—and determine which the primary mode of operation is and why.

· Describe ways that management can keep track of job status and location during production.

· Recommend any changes that might be beneficial to the company and/or add value for the customer.

The final case study should demonstrate your understanding of the reading as well as the implications of new knowledge. The paper should integrate readings, scholarly sources, and class discussions into work and life experiences. It may include explanation and examples from previous events as well as implications for future applications.

The purpose of the final case study is for you to culminate the learning achieved in the course by describing your understanding and application of knowledge in the field of operations management.

Writing the Final Paper

The Final Paper:

· Must be 10 to 12 double-spaced pages in length (not including the title and reference pages) and formatted according to APA style as outlined in the Ashford Writing Center.

· Must include a title page with the following:

· Title of paper

· Student’s name

· Course name and number

· Instructor’s name

· Date submitted

· Must begin with an introductory paragraph that has a succinct thesis statement.

· Must address the topic of the paper with critical thought.

· Must end with a conclusion that reaffirms your thesis.

· Must use at least five scholarly sources.

Must document all sources in APA style, as outlined in the Ashford Writing Center.

· Must include a separate reference page, formatted according to APA style as outlined in the Ashford Writing Center.

Carefully review the

Grading Rubric (Links to an external site.)

for the criteria that will be used to evaluate your assignment.

©Thinkstock/iStockphoto

Just-in-Time and Lean Systems

Learning Objec�ves
A�er comple�ng this chapter, you should be able to:

Understand the rela�onship among just-in-�me, lean systems, and the Toyota Produc�on System.
Explain the basic concepts of just-in-�me (JIT).
Describe the “pull” system.
Explain how JIT simplifies a firm’s opera�ons.
Discuss the rela�onship between JIT and planning.
Apply the concept of JIT to service opera�ons.
Discuss strategic planning and JIT.

11.1 Foundations of Just-in-Time and Lean

The Japanese automaker Toyota is o�en credited with the conceptual development of just-in-�me (JIT) produc�on, but the roots of this system can be found in the development
and applica�on of the assembly line where work is organized in a con�nuous flow, and inventory and wasteful ac�vi�es are removed. Toyota claims that the original concept of JIT
was used by Henry Ford, who applied these concepts to improve automobile assembly more than 100 years ago. While the United States grew lax in its applica�on of these
concepts a�er World War II, the Japanese grasped these ideas, merged them with Deming’s (1986) and Juran’s (1988) quality management, and incorporated this approach into its
supply chains. This was called the Toyota Produc�on System, and it is the basis for JIT. JIT is used by many organiza�ons throughout the world, including GM, Apple, and IBM. The
basic techniques underlying JIT have now evolved into the concept known as lean systems, which was conceptualized by Womack and Jones (1990). It is reasonable to argue the
development of JIT and lean stand on the shoulders of the Toyota Produc�on System and the Ford Motor Company. Today, JIT and lean systems are being implemented through the
en�re supply chain, making these techniques powerful tools for cu�ng costs, reducing �me, and improving quality.

When the success of Japanese companies first brought a�en�on to JIT, many people outside of Japan immediately classified it as an inventory control system. JIT was o�en referred
to under other names, including “stockless produc�on” and “zero inventories.” Lowering levels of inventory is one possible approach to implementa�on, but JIT can also be much
more than another system for controlling inventory. Some companies that are strong believers in the en�re JIT philosophy find it amounts to a philosophy of how an en�re company
should operate. Thus, JIT is defined as a philosophy of opera�on that seeks to maximize efficiency and eliminate waste in any form. In its broadest sense, JIT influences all parts of a
company, including purchasing, engineering, marke�ng, personnel, and quality control, and can determine the rela�onships among the company, its suppliers, and its customers. The
benefits of JIT can carry far beyond cost savings due to reduced inventories, extending into a company’s strategic planning. Today, this broader view of JIT is o�en referred to as lean
manufacturing, lean thinking, lean systems, or, simply, lean.

Oil refineries use a con�nuous flow process in which work-in-process inventories are kept to a
minimum, and material flows smoothly from one processing step to the next.

©Digital Vision/Thinkstock

11.2 Fundamental Concepts of JIT

Experts disagree on the key components of JIT because implementa�on can range from a very narrow emphasis focusing on inventory control or shop floor scheduling to a broad
organiza�onal philosophy. The following items are generally accepted components of JIT.

Generating Flow

Inventory represents a huge capital investment that �es up money a company could put to other uses. By decreasing inventory investments, a company could free up capital to
purchase be�er equipment, develop new product lines, or give its employees raises. Any unnecessary inventory deprives a company of more beneficial ways to use the money.

For an automobile manufacturer, elimina�ng unnecessary inventory may mean that
no inventory of �res would be kept in stock. Instead, the four �res for a car would
arrive at the moment they must be mounted on the rims, just before being put on
the car as it rolls down the assembly line. No inventory of �res is required. Further,
there would be no inventory of any other parts for the car. Instead, parts would be
delivered from suppliers or from the manufacturing opera�on for those parts only
when needed and only in the quan�ty needed for that car. Throughout the en�re
opera�on, there would be no unnecessary inventory—only work-in-process
inventory des�ned for immediate use at the next processing opera�on.

How would this work in theory? A worker finishes a radiator part and immediately
hands it to another worker, who combines that part with others to produce an
assembled radiator. As soon as the radiator is finished, it gets handed to another
worker, who puts it on an automobile rolling down the assembly line. All along the
way, the same thing happens as parts and subassemblies are produced only when
needed and only in the quan��es needed for immediate use.

JIT allows materials to flow in an assembly process similar to a con�nuous flow
process, such as at an oil refinery. At a refinery, work-in-process inventories are
kept to a minimum, and material flows smoothly from one processing step to the
next. The difference is that a company’s objec�ve with JIT is to make this smooth,
uninterrupted flow move from the last �er in the supply chain to the final
customers.

Figure 11.1 presents a useful analogy. In this figure, parts, materials, subassemblies,
and final products are likened to water. If there are many pools in which this water
can collect as inventory, then the flow will not be smooth and swi�, but will be like

a series of quiet, stagnant ponds, as shown at the top of Figure 11.1. An objec�ve of JIT is to eliminate these ponds and produce a smooth, rapid flow—like the mountain stream
shown at the bo�om of the figure.

Figure 11.1: Water analogy of JIT

This same concept applies to most service opera�ons. For example, when a university processes an applica�on to its graduate school, the paperwork, whether it is paper or
electronic, follows a path for review and approval. In a poorly designed process, the paperwork suffers delays wai�ng for addi�onal informa�on or decisions to be made. In a well-
designed flow process, the parts of the organiza�on work together in a coordinated manner to make this decision quickly. There are only a few hours of real work to process,
review, and approve or reject an applica�on. In a poorly designed process, this can o�en take months from the �me the applica�on is received un�l the decision is made.

Simplified Production Processes

Elimina�ng inventory is o�en much more difficult than it may seem. A certain machine may take five hours to readjust (set-up �me) whenever the company switches from making
one part to making another. If only one unit is made at a �me, more �me will probably be spent readjus�ng the machine than making parts. The answer to this problem is to

simplify—either by buying a more general-purpose machine that can easily be changed from making one part to making another, or by simplifying the readjustment process in some
way. Companies that use JIT o�en have many general-purpose machines and have developed simple ways of switching them from making one part to making another. O�en, this
set-up �me can be reduced to less than a minute. Some companies have eliminated set-up �me altogether by using one simple machine for each part, instead of trying to do all
parts on one complex, mul�purpose machine.

Another problem encountered in JIT has to do with the movement of materials. In the previous sec�on, one worker handed a finished radiator part to another worker, who
assembled the finished radiator. But, what if those workers are on opposite sides of the plant and an elaborate automated handling system has been used to move the radiator? A
large amount of inventory builds up in the factory. Again, the answer is to simplify the process by moving the workers so they are in close proximity. This eliminates the need for an
expensive material handling system and reduces the level of inventory. Many companies implemen�ng JIT have eliminated complex material-handling systems and rearranged the
plant so that workers could simply move parts by hand from one opera�on to the next.

Most companies using tradi�onal purchasing methods will buy large quan��es from their suppliers once every month or every couple of months. These transac�ons usually involve
much paperwork, such as purchase requisi�ons, packing slips, bills of lading, and invoices for each order. A company using JIT, which some�mes places orders with suppliers several
�mes per day, would be deluged in paperwork under this tradi�onal approach to purchasing. Many companies have used blanket purchase requisi�ons, which authorize a vendor to
supply a certain total quan�ty spread out over a certain �me to avoid such a problem. Individual orders may be ini�ated by phone calls, electronic data interchange, or by some
other method.

Uncovering Problems Buried by Inventory

While inventory reduc�on is the most obvious aspect of JIT, its most valuable benefit is that it forces a company to uncover problems and inefficiencies in its opera�ons. To see why,
consider the electric power supplied to a home. The flow of electricity occurs only in response to a need for power, such as turning on a light. There is no inventory of electricity
anywhere between the house and the genera�ng plant; the electricity is supplied just in �me. Now suppose that something occurs between the genera�ng plant and the house—
maybe a wire goes down or a transformer malfunc�ons. No ma�er what the problem, the homeowner becomes aware that something is wrong when there is no electricity. If this
happens to enough people, the electric company will be deluged with calls; a crew will be dispatched immediately to find the problem and remedy it. The situa�on is very similar
for a company opera�ng under JIT. With li�le or no inventory, any problem that disrupts the flow of work will become immediately obvious to everyone as work centers must shut
down for lack of materials. A�en�on will immediately focus on the problem, and all effort will be devoted to solving that problem. In addi�on, because it is realized that produc�on
will again be disrupted if the problem re-occurs, effort will be devoted to providing a long-term solu�on, not just a quick fix.

The water analogy used in Figure 11.1 also illustrates this point. As before, parts and materials are represented by water. But in this example, poten�al problems are the rocks below
the water, as shown in Figure 11.2. Some of these rocks may be barely visible from the surface of the water. These are the problems that are present in the plant today. Other rocks
may be totally obscured by the water. These rocks may represent quality problems, machine-breakdown problems, or any other problem that can disrupt produc�on. If the water
level is lowered, that is if inventory is removed, the rocks become visible, which means that these problems surface, and disrupt the flow in the plant. It is best to iden�fy the
problems first, remove them, and then decrease inventory.

Figure 11.2: Problems hidden by inventory

An Emphasis on Quality

Quality is one problem that can be especially disrup�ve in a JIT system. Refer to the example of the radiator assembly opera�on in an automobile factory. Suppose the worker
making radiator parts turns out a defec�ve part. When the next worker tries to assemble that part on the radiator, it won’t fit. This immediately causes a problem because there will
now be no assembled radiator to put on the next car. The assembly line will come to a halt because of one bad part.

If these parts were produced in large batches, then the worker assembling radiators could place the bad part in the defec�ve pile with other bad parts and reach into the batch for
a good part. There would be no immediate signal that a problem exists and no incen�ve to change anything or to improve the process to avoid making defec�ve parts. Produc�on
decisions that generate large amounts of work-in-process inventory allow a company to con�nue producing and never realize a quality problem exists. The company does not realize
how much be�er and more efficiently it could be opera�ng.

Improvement as an Organizational Philosophy

The objec�ve of elimina�ng waste in any form is difficult to achieve. No company will ever reach the goal of elimina�ng all waste, but it remains a goal toward which companies
should con�nuously pursue. A company opera�ng under JIT is constantly working to improve efficiency, reduce waste, and smooth the flow of materials. When working toward
those ends, the company will uncover any problems and aim to find be�er ways to produce its products.

Companies that have been extremely successful with JIT have not stopped trying to improve. These companies extend some aspects of JIT to their suppliers—and to their customers
—once their own systems have been put in place. Addi�onally, efforts have been undertaken to keep demand at the constant, uniform rate that is needed for a smooth flow from
supplier to customer. Con�nuous improvement is also a component of total quality management.

Instead of pushing materials through processing based on a preplanned
schedule, JIT uses a “pull” system moving parts and materials based on
actual needs at successive work centers.

©Tim Hawley/Photodisc/Ge�y Images

11.3 The JIT “Pull” System

Although the differences and similari�es between material requirements planning (MRP) and JIT are discussed in
detail later in this chapter, there is one very important difference that is relevant here. Most tradi�onal produc�on
systems, including MRP, use what is called a schedule “push” approach to move materials through the system. A
push system moves materials through the processing opera�ons based on a schedule. An order to produce a part
or product enters the system at a scheduled �me, and is pushed from one work center to another according to
that schedule.

MRP is an improved push system in the sense that each order release is based on requirements generated by the
master schedule. Thus, materials are pushed through the system in an effort to meet that schedule. With MRP,
decisions are made to ensure that the outcomes on the master schedule, which occur at some future �me, are
actually achieved.

JIT uses a “pull” system to move parts and materials. Instead of pushing materials through processing based on a
preplanned schedule, a pull system moves materials based on actual needs at successive work centers. Thus, if
work center A provides parts to work center B, work center A will produce only in response to an actual need for
more parts at work center B. This pull system concept starts with customer demand, which pulls finished products
from the company. As those finished products are made, they pull the appropriate materials through processing.
Materials and parts are also pulled from vendors and suppliers.

One way of comparing a push system and a pull system is with the analogy of a rope. The material moving
through the various produc�on processes is considered the rope. Under MRP, coils of rope (batches) are created at
various machines and work centers throughout the plant. MRP is used to ensure that all coils of the rope are
moved forward through the processes at the appropriate �me, preven�ng the coils from building up at any one
spot. With JIT, the rope is not coiled, but remains as one long piece running through all processes. To move the
rope forward, one simply has to pull on the end; there is no need to coordinate movement of coils because there
are no coils, as shown in Figure 11.3. The key element of a pull system is some means for communica�ng
backward through the produc�on process whenever more parts or materials are needed at “downstream” work
centers. In some instances, workers can determine visually when the next work center needs to be supplied. Work
centers, however, are o�en too far apart physically for direct visual communica�on.

Figure 11.3: Push systems vs. pull systems

Kanban Systems

Within a JIT system, there are several ways that pull signals can be communicated. One of the best known is a method developed by Toyota based on cards, or kanban (con-bon), as
they are called in Japan. Kanban is a Japanese word that can refer to a sign or a marker and means “visible record.” (Note that the word kanban is like the word “sheep” in that the
plural has no le�er s on the end.) In the opera�ons context, the word kanban refers strictly to a card that is used to signal the need for more materials, parts, or subassemblies at
downstream opera�ons (see Figure 11.4).

Figure 11.4: Example of a kanban card

Standard Containers of Parts

Theore�cally, the ideal situa�on with JIT is to produce one unit at a �me. However, this usually is not possible. For instance, the travel �me to and from a supplier may be much
longer than the �me between requirements for the part from that supplier, or there may be an imbalance in the produc�on rate between a par�cular work center and the
preceding work center that supplies it. In these and other cases, it is necessary to move containers of parts rather than single units. A kanban is most o�en associated either with
the movement of a container of parts or with the produc�on of parts to fill an empty container. Accordingly, two types of kanban are generally used, the conveyance kanban and
the produc�on kanban.

Conveyance Kanban

The conveyance kanban, or C-kanban, is an authoriza�on to move a container of parts or materials. Without it, nothing can be moved. The way a C-kanban works is depicted in
Figure 11.5. As the figure shows, any container with parts in it cannot be moved without the C-kanban a�ached.

Figure 11.5: Single kanban system

Many companies, notably Kawasaki in the United States, use only the C-kanban. This single-card kanban system is s�ll an effec�ve way to control inventory. The number of full
containers is limited by the number of C-kanban, and inventory at the using work center (work center 2 in Figure 11.5) can be replenished only when a container is emp�ed. Thus,
that center 2 cannot possibly hoard extra parts. The feeding work center (work center 1) usually produces a schedule, which may be generated through MRP. This schedule is
generally based on the expected day’s requirements for work center 2. However, limited storage space at work center 1 is used to shut off produc�on at that work center if parts
are not being used at the expected rate (for example, if work center 2 is shut down for some reason). In order for the single-card kanban system to work, the following rules must
be observed:

1. Containers holding parts can be moved only when a card is a�ached.
2. Standard containers must always be used.

Highlight: ProMedica Uses Kanban to Manage Inventory at its Hospitals

ProMedica manages approximately two dozen hospitals in the Midwest, and it uses a two-bin kanban system to manage much of its inventory. This system is used for
everything from bedding to bandage to surgical gowns. Pharmaceu�cals and high-cost surgical items such as hip sockets are not part of this system, at least not yet.

The process works in the following way. Each item is stored at the hospital in two bins. A quick glance at the bins tells the order taker whenever one bin is empty and an order
should be placed with Pro-Medica’s medical supplier, Seneca. The barcode on the bin is scanned, and the order is placed. The larger hospitals in the system receive two
shipments each day from its medical supplier. As a result, the amount of on-hand inventory at hospitals is kept low. This is an advantage not only because inventory investment
is reduced, but also because space is at a premium and the available space has very high opportunity costs. ProMedica is a good example of how JIT works in service
businesses.

Produc�on Kanban

Some companies use a two-kanban system that combines the conveyance kanban with a produc�on kanban. The produc�on kanban, or P-kanban, is used to authorize the
produc�on of parts or subassemblies. The two-kanban system, which combines the C-kanban and the P-kanban, is known as a dual-card kanban system. Its major advantage over
single-card kanban is that it allows greater control over produc�on, as well as over inventory, because both produc�on and withdrawal of inventory are directly connected to need.
In contrast, a single-card system bases produc�on on a plan, which may lead to excess inventory if actual need does not match the plan.

The flow within a plant can be compared to creeks that run into
streams and eventually converge into rivers. Using this analogy, streams
could be made up of processing opera�ons for individual parts that
flow together into subassemblies, which are then joined together as
finished products.

iStockphoto/Thinkstock

11.4 Effects of JIT on Production

The objec�ve of JIT is to eliminate the pools of inventory and obtain a smooth, steady flow of materials from supplier to customer. Within a plant, that flow is much like creeks and
rivulets that converge into streams—and streams that eventually converge into rivers. In this analogy, the streams could be made up of processing opera�ons for individual parts.
Those parts flow together into subassemblies, which are then eventually joined together as finished products. The objec�ve of JIT is to keep all those rivers and tributaries flowing
smoothly without any pools of inventory. The following sec�ons describe some ways to achieve that objec�ve.

Facility Layout

The top of Figure 11.6 shows each part moving from one machine area to another. This requires a lot of material handling and also encourages the produc�on of each part in large
batches. But when the machines are rearranged, as shown at the bo�om of Figure 11.6, each part can flow directly from one processing step to the next. This type of layout also
allows the produc�on of small batches because each group of machines is dedicated to just one part. Also, there will not be interference between two parts that must both be
processed on the same machine. It is this type of interference that leads to long queues of parts to be processed. McDonald’s, Domino’s Pizza, and many other fast-food restaurants
are organized as shown in the “A�er” part of the diagram in Figure 11.6. The key ac�vi�es—shaping the crust, adding the toppings, baking the pizza, and removing and boxing it—
flow smoothly with a minimum amount of set-up �me, handling, and movement. The process flows efficiently and without waste because of the layout.

Figure 11.6: Rearranging machine layout for smoother flow

Reducing Set-up Time

Set-up �me is the �me it takes to readjust a machine or group of machines a�er making one par�cular part un�l
acceptable units of another part are produced. Set-up �me may involve changing the tooling, adjus�ng the
equipment, checking that the new part is being made to specifica�ons, and then readjus�ng the equipment if it is
not.

Set-up �me is an important considera�on in JIT because it may disrupt the smooth flow of materials. For example,
a group technology (GT) produc�on system may be used to make several different, but related, parts. The idea
behind GT is that each part follows the same essen�al processing sequence. However, each part may require
different tooling in the machines or a different machine se�ng. By keeping similar parts together, set-up �me is
reduced and the flow of materials is not interrupted. If excessive �me is taken for the set up, then the flow of
materials will be stopped—causing downstream processing opera�ons to pause un�l the flow resumes. If
“upstream” opera�ons con�nue unchecked, unnecessary inventory will build up in the system, much as water
builds up when a dam is placed across a river.

Thus, another objec�ve in a JIT system is to reduce set-up �me as much as possible. Companies should:

Closely examine each set up to determine steps that can be eliminated or improved by changing the process.
Prepare as much ahead of �me as possible. All tools and equipment needed for the set up should be readily
available in predetermined loca�ons.
Try to do as much set up as possible with the machine running. Stop the machine only when absolutely
necessary.
Use special equipment to shorten down�me whenever possible.
Prac�ce and refine the set-up procedures.
Mark machine se�ngs for quick adjustment.

Table 11.1 indicates the set-up �me reduc�ons that several companies have been able to achieve by using the
procedures described above. These changes did not occur overnight, but their effects were drama�c. Some
companies felt ini�ally that it was not possible to reduce set-up �mes by such a large amount, but Table 11.1
shows what can be achieved with hard work and dedica�on.

Table 11.1: Set-up �me reduc�ons

Many fast-food companies empower and engage employees by training
them to do a variety of tasks in order to meet shi�ing demand
pa�erns.

©Photodisc/Thinkstock

Company Machine Original Set-up Time Reduced Set-up Time

Toyo Kogyo Ring-gear cu�er 8 hrs. 10 min.

Hitachi Die-cas�ng machine 1.5 hrs. 5 min.

Omark Industries Punch press 4 hrs. 3 min.

General Electric Stamping press 50 min. 2 min.

Black & Decker Punch press 1 hr. 1 min.

As companies have sought ways to reduce set-up �mes, one area that is receiving more a�en�on is product design. In the past, design engineers tended to worry li�le about how
the product was made. However, challenges concerning the ease of produc�on have begun to a�ract the a�en�on of designers, and set-up �me reduc�on is one of those
challenges. It is may be possible to reduce set-up �me, or even eliminate set ups altogether. A company can reduce the number of different parts used to produce a piece of
equipment by using the same parts in different final products. For example, Black & Decker might use the same electric motor in several different drills and power saws. A company
can also reduce differen�a�on among parts so the set-up �me is greatly reduced.

Motorola and other companies that manufacture electronic products have found that set ups can be eliminated by using a common circuit board for different products. Previously,
the automated equipment that inserts parts into the circuit boards needed an extensive set up every �me it processed the board for a different product. These companies need to
change only the components and inser�on pa�ern, both of which are easy to modify, by using one common board with different components.

One ques�on that may be asked at this point is: “How short must set-up �me be?” The answer is that it depends. Some opera�ons may have enough slack that the exis�ng setup
�me is not disrup�ng material flow. In those cases, nothing needs to change. In other opera�ons, set-up �me may cause problems. The goal is to try to understand what problems
would surface if inventory is removed from the system. If those problems involve set-up �me on a machine, then that set-up �me should be reduced.

Total Preventive Maintenance

Equipment failure is another possible source of disrup�ons to the smooth flow in a JIT system. Machines that are not properly lubricated or maintained can produce defec�ve parts
without breaking down. To prevent either of these results from occurring, companies have adopted total preven�ve maintenance (TPM), also called total produc�ve maintenance.

TPM involves three main components:

1. An emphasis on preven�ve maintenance: Efforts are undertaken to avoid equipment breakdowns by frequent inspec�on, lubrica�on, and the use of proper opera�ng techniques.
2. The alloca�on of �me each day for maintenance: Companies some�mes allow one en�re shi� for maintenance, or set aside specific �me during each shi�.
3. Operator responsibility for maintenance: Instead of assigning this responsibility to a maintenance department, operators are trained to perform all but the most complicated

maintenance on the machines they operate.

Employee Empowerment

Many companies, especially those that are highly unionized, find their workforce management procedures
complicate the opera�ons func�on. Empowering employees to take more responsibility and exercise more
authority in the workplace can eliminate many workforce management problems. For example, if employees are
able to perform more than one job, resources can be shi�ed as needed or one employee can operate several
machines. Many fast-food restaurants use this approach to meet shi�ing demand pa�erns.

Employee empowerment also means training employees to work in small problem-solving groups and allowing
those groups to solve problems associated with the produc�on process. If the employees who must produce a
good or service are the same employees who work to improve the produc�on process, then the process is
greatly simplified and be�er solu�ons will result.

11.5 Planning in JIT Systems

It may seem that JIT is a complete departure from the planning concepts introduced earlier in this text. Actually, companies that use JIT successfully follow most of the planning
steps that were men�oned previously, from strategic planning to master scheduling. In addi�on, it is possible to combine JIT and MRP; but some changes must be made in the MRP
planning and scheduling process under JIT.

Operations Planning and Master Scheduling

Planning and scheduling are easier with JIT because requirements for parts and materials can be �ed directly to each unit of the end item. If 50 units of the end item will be made
during a given day, then enough parts and subassemblies must be ordered for that day to make the 50 units. Because JIT requires having only what is needed when it is needed,
parts are usually not ordered in large batches. Instead, a steady stream of material in small batches is maintained at a rate that will match the produc�on of end items.

The Aggregate Plan

The aggregate produc�on plan for a company using JIT is nearly the same as that for any other company that doesn’t use JIT, except that the JIT planning horizon may be somewhat
shorter. Produc�on is generally planned by product families on a monthly basis for about one year into the future. This plan is used for determining general workforce requirements
and overall capacity needs, as well as for ordering any parts or materials that have extremely long lead �mes.

The Master Schedule

The details of a master schedule for a company using JIT will be the same as that for most other companies that follow a master schedule. That is, planning is usually done in
weekly �me buckets and by individual end items or product op�ons. The master schedule is usually developed with a 2- to 3-month planning horizon instead of the 6- to 12-month
horizon used for MRP. The master schedule is also frozen for approximately one month into the future under MRP, whereas this �me period may be less with JIT due to the shorter
lead �mes.

In an MRP environment, the master schedule is what drives the MRP deriva�on of planned order releases. However, in JIT, the pull system o�en eliminates this need for order
release planning because parts and materials will be produced only in response to a downstream signal. The master schedule is used only when items with long lead �mes must be
ordered. Thus, in a JIT system, the master schedule is primarily an intermediate step in reaching the final assembly schedule.

The Final Assembly Schedule

The final assembly schedule is an exact statement of the final products that are to be assembled. The final assembly schedule is stated on a daily basis, but most o�en goes only
about a week into the future. The final assembly schedule indicates the quan��es of component parts that will be made each day, because lead �mes are usually short in a JIT
environment. The JIT philosophy of elimina�ng unnecessary inventory has a major impact on the final assembly schedule. In addi�on to elimina�ng work-in-process inventory, it is
important that any unnecessary finished-goods inventory be eliminated. However, this is hard to do when a company makes more than one finished product.

The approach that has been followed in tradi�onal manufacturing systems is to make a large number of one product before switching over to another. It means that the inventory
of each finished product will increase when that item is being produced, but then decrease again when other products are being made, as shown in Figure 11.7.

Figure 11.7: Finished-goods inventory with long produc�on runs

This approach is inefficient because it leads to high levels of finished-goods inventory at some �mes and very low levels—with the possibility of being unable to sa�sfy customer
demand—at other �mes. A be�er approach is to level the final assembly schedule. A level assembly schedule means that the number of units of each end product produced at a
�me is as small as possible, and that total daily produc�on of each matches average daily demand during the scheduling horizon. That is, if the scheduling horizon is 20 working
days, and demand during that period is expected to be 300 units, a level schedule would require that 15 units (300/20) be produced each day.

A level assembly schedule requires that the smallest reasonable number of units of each end product should be produced at a �me. Thus, if 15 units of a product are to be made
during a given day, those 15 units should be spread throughout the day. This even spread is achieved through mixed-model sequencing.

Mixed-Model Sequencing

Mixed-model sequencing is a procedure for maintaining the uniform produc�on required by a level assembly schedule. If a company makes several different end items (different
products or different models of the same product), it is desirable to spread the produc�on of each evenly throughout each day. However, in order to keep the system running as
smoothly as possible, there should be some con�nuity in the sequencing of those end items. For example, if four different products (A, B, C, and D) are produced, then the ideal

If a company makes several end items such as Apple’s different iPod models, it is desirable to
distribute the produc�on of each model evenly throughout each day.

Peter Belanger/PR NEWSWIRE/AP Images

schedule would produce them in some sequence such as A-B-C-D and to repeat that
same sequence throughout the day for each day in the planning horizon. But some�mes
demand for one product will be greater than for others. In that case, the sequence may
need to be varied somewhat.

Problem

A company produces three products. Expected demand for each during the next 20 working days is as shown below:

Product Expected Demand Daily Requirements

A 420 420/20 = 21

B 280 280/20 = 14

C 140 140/20 = 7

The daily requirements are obtained by dividing expected demand over the planning horizon by the number of working days in the �me horizon. To maintain a level schedule,
the company needs to plan so that each product’s daily requirements will be produced every day, and evenly spread throughout the day, if possible. It is also desirable that a
set sequence of products be made, and that this sequence be repeated throughout the day.

The trick in solving this problem is to find the largest integer that divides evenly into each product’s daily requirements. In this example, the number is seven. Thus, the
company should develop a sequence that will be repeated seven �mes each working day.

Product Daily Requirements/7

A 21/7 = 3

B 14/7 = 2

C 7/7 = 1

The result of dividing the daily requirements for each product by the largest integer that divides into each evenly is the number of �mes each product must be repeated in the
sequence. Thus, product A should appear three �mes, product B twice, and product C once. Developing the sequence takes some trial and error, but the following is one
possibility that would sa�sfy the company’s objec�ves:

A-B-A-B-A-C

This sequence would be repeated seven �mes each day to produce the required 21 units of product A, 14 units of B, and seven units of C, while s�ll leveling the assembly
schedule.

It should be noted in the above example that the mixed-model sequence produced is not the only one possible. Such a sequence would smooth out the produc�on, but could
also cause problems due to excessive changeovers. When the cycle �me is short, it may be desirable to produce more than one unit of each end product at a �me. Thus, the
following sequence would also be acceptable for short cycle �mes:

A-A-A-B-B-C

There may be restric�ons that jus�fy producing even more units of each product at a �me. For example, these products may be packed 10 per carton for final shipping. In such
a case, it could be more efficient to produce 30 of A, 20 of B, and 10 of C at a �me, instead of allowing par�ally filled shipping cartons sit idle. Regardless, the objec�ve is to
smooth out produc�on by producing each item in the smallest reasonable quan��es, given exis�ng constraints.

Calcula�ng Cycle Times

The purpose of obtaining a level assembly schedule is to smooth out the produc�on of each end item so that it will closely match demand. A level schedule also smoothes out the
requirements for component parts that go into each finished product. This smoothing makes the pull system work be�er because demand for each part will be fairly uniform
throughout the day, instead of occurring in batches, as if each finished product were made in large batches.

The flow of component parts must be adjusted to match the rate at which finished products will be produced. For example, if one unit of product C is made every hour, it is not
helpful to have a machine that makes parts for product C turning out one every two hours—or even one every half hour. The goal is to match the produc�on rate of all components

to the final assembly schedule. This is done through cycle �mes. Cycle �me is a measure of how o�en a par�cular product is made. For example, automobile assembly lines usually
have a cycle �me of approximately one minute. One new car rolls off the line every minute. The cycle �me of any product can be calculated as follows:

Cycle �me = working �me per day/units required per day

Problem

For the preceding example, the cycle �me is calculated by using the formula given above. Suppose the plant is in produc�on for seven hours (420 minutes) each day, and it
must produce a total of 42 units each day (21 of A, 14 of B, and 7 of C) to match daily demand. The cycle �me will be:

420 minutes/42 units = 10 minutes/unit

This calcula�on can be extended to each of the individual products in order to determine how o�en each unit will be produced, based on a mixed-model sequence.

Product Daily Requirements Cycle Time

A 21 420/21 = 20 minutes

B 14 420/14 = 30 minutes

C 7 420/7 = 60 minutes

This means that one product A will be produced every 20 minutes, on the average, throughout the day by using the completely level sequence developed in the preceding
example. In order to make this possible, the people and machines that supply parts and subassemblies for product A must also be balanced to produce with a cycle �me of 20
minutes. Likewise, the en�re system must be coordinated to produce one product—either A, B, or C—every 10 minutes. In some cases, this may mean that set-up �mes must
be reduced, or that more machines must be added. It can also mean that some machines will not produce at their capacity. It is much more desirable in a JIT system for
machines to sit idle than to produce inventory that is not needed. Ideally, all resources should be used as efficiently as possible, which may mean finding ways to use the same
machine to make several different parts. This increases the efficiency of the machine.

11.6 JIT in Service Operations

Although JIT originated in manufacturing, and most of the ini�al implementa�ons occurred there, service organiza�ons are now widely adop�ng many of its basic ideas. In fact,
service organiza�ons may have an advantage because of their lack of work-in-process and finished goods inventories. For example, retailers are focusing on maintaining smaller
inventories by being able to replenish their inventory more quickly and in smaller quan��es. Insurance companies are finding ways to eliminate unnecessary steps in their claims
processing procedures so that customer claims are processed more quickly. Airlines are using yield management to level the demand for their flights. The JIT techniques that are
most immediately relevant to services include elimina�on of waste in any form, such as unneeded steps in a process to review applica�ons for insurance or improving the
produc�vity of people who are reviewing mortgage applica�ons.

Simplified Production Process

Service opera�ons o�en differ from manufacturing because customers are more directly involved, and are o�en ac�ve par�cipants, in the produc�on process. For example, ATMs
allow customers to enter transac�on informa�on formerly entered by bank tellers. Because most customers are not trained employees, the process must be as simple and obvious
as possible.

Uncovering Problems Buried by Inventory

Despite that services o�en have no finished-goods inventory, they s�ll may have inventories of supplies or even work-in-process, as with loan applica�ons in a bank. Those
inventories can hide problems just as easily as inventory in a factory can. In fact, recent studies have shown that responding quickly to customer requests is becoming an important
order winner for service opera�ons. Service organiza�ons can work toward providing the service when the customer wants it by uncovering problems through reduced inventory.
Progressive Insurance has made great strides by reducing the �me it takes to apply and receive approval for insurance. Quickly responding to the customer with a decision means a
higher yield from the total number of applica�ons because customers do not become disillusioned by the process and do not have as much �me to consider other op�ons. The
forms, either paper or electronic, wai�ng to be processed are the service opera�ons equivalent to inventory.

Value Stream Mapping

Value stream mapping is a technique used to analyze the flow of materials, ideas, and informa�on to understand how processes func�on. Each ac�vity in the process is defined as
value-added or non-value-added. For example, in health care, performing an ultrasound that is needed to diagnose an illness adds value, or in a restaurant, grilling the main course
adds value. Alterna�vely, if the person performing the ultrasound or preparing the food must make a trip to the storage closet or the refrigerator to secure items that should be
available, those ac�vi�es do not add value. That is, the pa�ent or customer is willing to pay for the tes�ng or the grilling because it has value for them. They see no value in taking
the �me to find items that are needed to do the work. Value stream mapping allows the organiza�on to iden�fy the non-value-adding ac�vi�es or items and reduce or eliminate
their impact on cost and �me required to deliver the service, thereby delivering greater value to the customer.

Value stream mapping is useful for both manufacturing and service opera�ons. In service opera�ons, it allows organiza�ons to understand how many different people and
departments are involved, what their roles are, and how long tasks take to perform. The value stream map of the admissions process at a hospital could be an important tool for
understanding the cost, efficiency, and customers’ sa�sfac�on with this process. The basic steps are to:

1. Iden�fy the product or service that should be mapped.
2. Draw a rough, current state, value stream map, which shows the current steps, delays, and informa�on flows required to deliver the target product or service.
3. Es�mate the cost and �ming at each point, as well as the value added.
4. Assess the current-state value stream map to understand its flow and points where waste occurs to determine where processes can be improved.
5. Create a future-state value stream map using a team of people.
6. Prepare a plan to implement these improvements.
7. Work toward this future state.

Strategic planning is based on a firm’s strengths and weaknesses, the threats and opportuni�es in the
external environment, and the type of product the company produces.

iStockphoto/Thinkstock

11.7 Strategic Planning and JIT

Strategic planning is a vital element for any organiza�on. The strategy is based on the firm’s strengths and weaknesses, the threats and opportuni�es in the external environment,
and the type of product (goods and services) the company produces. The products are created by using the firm’s strengths in ways to cope with the threats and take advantage of
the opportuni�es present in the environment. However, JIT offers some very special compe��ve opportuni�es to the company that uses it. Within this process, the firm a�empts to
mi�gate its weaknesses or to transform them into strengths. The implementa�on of JIT or lean thinking is a way to help an organiza�on build its capabili�es, in many cases
transforming weaknesses into strengths. The following list notes some of the opportuni�es:

Elimina�on of waste
People u�liza�on
Cost reduc�on
Quality and reliability
Product flexibility
Volume flexibility
Delivery dependability

Elimination of Waste

Elimina�ng waste is a predecessor to JIT and lean thinking, and a fundamental
component of JIT (as well as the Toyota Produc�on System). An important step
when elimina�ng waste is to iden�fy which steps add value and which do not. One
simple way to do this is to ask the customer which ac�vi�es are valuable. A
customer may be willing to pay a lawn care company for an extra service such as
edging the driveway, or a manufacturer that adds a power wash cycle to its
dishwashers. Customers are not willing to pay for delays when an employee is late
and the rest of the lawn crew must wait or for building and storing dishwasher
inventory.

Waste can be categorized in two ways as necessary, but non-value-added or pure
waste. It is always difficult to determine the exact amount of each. For example,
with current technology some inventory is needed to make the system work. The
dishwasher manufacturer will have some work-in-process inventory that is ac�ve in
its assembly line because the dishwasher moves from sta�on to sta�on so that the
line is filled with par�ally completed dishwashers. Also, some finished goods
inventory is needed at the retail level so customers can evaluate the product and
goods in transit between the manufacturer and the retailer. Companies must
determine how much inventory is needed to make the current system work, and
how the system can be changed to reduce the amount of inventory even further.

The following list includes seven areas of waste to consider:

1. Over-Produc�on: producing more than customers demand. The most common cause is produc�on of large batches of products because set-up �me and costs are high. Rather than
address the root cause and lower set-up �me and costs, firms produce more than they currently need and store the rest for future use. This leads to all of the costs associated with
storing inventory. In addi�on, the firms run the risk of storing inventory that is defec�ve because the batch was not produced according to specifica�ons. Inventory may become
obsolete when a part design changes before that inventory is consumed.

2. Wai�ng: occurs when a good is not being transported or processed. In manufacturing opera�ons prior to JIT, it was common for a part to be wai�ng for processing more than 90% of
the �me. In service opera�ons, for example, pa�ents wait for treatment in a medical center or emergency room, or customers wait for paperwork to be processed at an insurance
company.

3. Transporta�on: moving a product or a pa�ent from one point to another. Some part of transporta�on is essen�al, such as moving the par�ally completed dishwasher from one point
in the assembly process to the next, or moving a pa�ent to a treatment center or surgery. While it does not make sense with current technology to complete surgery in a pa�ent’s
room, there are ways to bring some treatments to the pa�ent that lower costs and increase customer sa�sfac�on.

4. Over-Processing: occurs when more work is done than is required by the customer. This includes using tools that are more precise, complex, or expensive than required. Customers
are unwilling to pay for this extra service so they are either forced to pay more or to accept more than they want. One example is cable services that offer groups of channels that are
bundled. People are forced to pay for channels they do not watch. Why should customers who don’t like or watch sports be required to pay for sports channels?

5. Inventory: represents items that are stored for future consump�on. Much has already been discussed about inventory in this chapter and throughout the book.
6. Mo�on or Movement: ac�vi�es that do not add value, such as excessive walking by a manufacturing employee or a service worker, or searching for items that are lost, such as

paperwork. The �me a machine operator wastes walking to the tool room or storage area for a fixture or a component could be far be�er u�lized. Keeping needed items nearby
helps to reduce this form of waste.

7. Defects: things such as scrap or rework that add cost, but no value. Defects can include goods or services that do not meet specifica�ons, such as a house entry door that does not
close without s�cking, or a carpet cleaning company that must return because the job was not completed properly.

People Utilization

Companies using JIT depend heavily on their employees to solve problems, but u�liza�on of people extends even further. For instance, maintaining the smooth flow of materials
o�en means that one employee may have to operate several different machines. This cross training leads to greater worker u�liza�on. Likewise, companies using JIT examine closely
any areas where waste may be present. One such area in many companies is the office staff. Efforts are usually made to find ways that managerial jobs can be combined or even
eliminated—something few companies have done in the past.

Cost Reduction

The JIT philosophy of avoiding waste leads logically to cost reduc�on. Although the cost savings associated with inventory reduc�on have o�en received the most no�ce, other
savings may be more substan�al. For instance, total quality control can reduce material costs substan�ally and save on the labor costs that may have been used to make defec�ve
products. A level schedule avoids costly over�me by evenly loading the plant. Likewise, extensive machine maintenance means that down�me will be eliminated, repair costs will be
lower, and equipment will last longer. Overall, companies using JIT have been able to achieve much lower costs than their compe�tors.

Quality and Reliability

Total quality management is something that can have several payoffs. In a JIT system, the goal is to eliminate all defects, which means lower costs because scrap is nearly
eliminated. At the same �me, customers will be happier because they will be ge�ng higher quality products that are likely to last longer. Producing higher quality products also
means fewer returned items and fewer warranty repairs, which also will result in reduced costs. The goal of constant improvement will eventually lead to produc�on of a product
that gives the customer greater value at a lower price.

Product Flexibility

JIT produc�on provides a company considerable flexibility in several ways. Producing to a level schedule means that each product is produced each day. Changes in customer
demand can usually be accommodated quickly because the system is already designed to change from making one product to making another quite easily. Such is o�en not the
case with companies that make long produc�on runs of each product. Low work-in-process inventories also provide added flexibility. With minimal inventories in the pipeline,
companies can quickly switch to making different parts.

Volume Flexibility

It may seem contrary to the goal of using a level assembly schedule to smooth produc�on to argue that companies using JIT have more flexibility to change their volumes.
Successful JIT implementa�on leads companies to a posi�on in which they have greater capability to respond to sudden surges or drops in demand. Part of this flexibility is related
to low inventories. A company with very li�le work-in-process inventory can quickly stop its produc�on in response to a drop in demand. The ability to respond when demand
increases is a result of the smooth material flows in a JIT system. Smooth flows generally mean that machines and people are being employed at a steady, uniform pace. When it is
necessary to increase output, it is possible to quicken that pace.

Delivery Dependability

All of the strategic aspects of JIT men�oned in this text help contribute to delivery dependability. Improved quality will mean that shipments to customers are not delayed because
of quality problems in the product or because of delays caused by defec�ve parts. Product and volume flexibility means that the company is be�er able to respond when customers
suddenly change the size or product mix of their orders.

11.8 Lean Systems

The term lean systems is o�en used to describe many of the aspects of JIT. In fact, many people view JIT and lean systems as interchangeable terms that mean the same thing.
Others tend to view JIT as a component of lean systems. One reason for the la�er viewpoint is that JIT o�en is defined narrowly as consis�ng of only the pull (kanban) system
described in this chapter. However, if one takes a broader view of JIT, then it is similar to lean systems.

Current trends tend to view lean systems as extending beyond JIT, and encompassing the en�re supply chain. While JIT was ini�ally applied to a company and its immediate
suppliers, lean systems extended many of the basic concepts of JIT over the en�re supply chain. This is primarily a ma�er of perspec�ve and applica�on. Both lean systems and JIT
can focus on elimina�ng non-value-added ac�vi�es from the en�re supply chain. The series of ac�vi�es that add value, through the en�re supply chain from raw materials to the
final consumer, are referred to as the value stream. Lean systems focus on applying the basic ideas of JIT to this en�re value stream.

Chapter Summary

JIT and lean are closely related ideas that were built on the Toyota Produc�on System and Ford Motor Company’s efforts to apply the assembly line concepts to car produc�on
more than 100 years ago.
JIT is a philosophy of constant effort to eliminate waste and reduce costs.
JIT is classified as a “pull” system because materials are pulled through processing opera�ons as they are needed. This includes standardizing containers and using kanban.
The fundamental concepts of JIT include implemen�ng flow produc�on, simplifying processes, uncovering problems hidden by inventory, emphasizing quality, and con�nuous
improvement.
There are many ways to simplify the produc�on process using JIT including reorganizing the facility layout, reducing set-up �me, applying total preven�ve maintenance, and
empowering employees.
Planning the JIT system requires organiza�ons to produce each product frequently rather than to produce them in large batches and sa�sfy demand from inventory.
JIT is very useful in service opera�ons. Some service opera�ons such as restaurant and wholesale and retail opera�ons have a great deal of inventory and can benefit from that
facet of JIT. Other service providers have limited inventory, mostly as secondary items such as supplies. These firms can benefit from other aspects of process improvement. Value
stream maps show the points where value is added.
JIT is related to the strategic planning process because JIT can eliminate waste as well as improve produc�vity, people u�liza�on, cost compe��veness, quality and reliability,
product flexibility, volume flexibility, and delivery dependability. These are important strengths that should be considered as the strategic plan is developed.

Case Studies

Southern Gear Company

The Southern Gear Company manufactures transmissions and speed reducers used in various farm machinery and industrial equipment. The company has been working on
implemen�ng MRP for the past three years, but has not achieved the success for which it had hoped. It is now Monday morning as we join the company’s execu�ve commi�ee
during its weekly mee�ng.

Barry Renter (vice-president of manufacturing): “Look, I know we haven’t achieved the results with MRP that we had expected. But, I think that’s because we haven’t been able to
bring inventory under control. We s�ll don’t have more than 90% accuracy in our inventory records, and that means that we’ve run out of parts when the MRP said we should have
had enough. That’s why I think JIT can help us. It’s a way to eliminate the need to maintain accurate inventory records.”

Dave Ashley (vice-president of marke�ng): “But Barry, how can we possibly change to JIT when our customer orders jump all over the place? You know as well as I do that one
problem we’ve had in implemen�ng MRP is freezing the master schedule. Our customers expect us to meet their every whim, and they expect to be able to change their orders at
the last minute. I just don’t think we can achieve the level schedule that I understand JIT requires.”

Al Simone (president and CEO): “Dave’s got a point, Barry. I think one of our strong points has been that we’re willing to respond quickly to customer demand even though we
haven’t always been able to do so because of parts shortages. In any case, with 20 different products and 200 possible varia�ons of those products, I think we’re forced to s�ck with
MRP. We’re ge�ng some significant offshore compe��on that’s offering lower prices than we are. I’m not sure I want to scrap a $1 million MRP system to try JIT.”

Barry: “I don’t think we have to scrap MRP. All I’m sugges�ng is that we con�nue using MRP for planning, but implement some aspects of JIT such as the kanban system. I also think
we could benefit from changing to group technology. I’ve been looking at the bills of materials and rou�ngs. Even though we produce 200 different possible end items, we make
those from only 50 different main parts, and many of those parts follow the same processing sequence. Part of our problem in controlling inventory has been tracking it through the
long queues in the job shop. Group technology could simplify things for us.”

1. Based on the informa�on given, would JIT be appropriate for Southern Gear?
2. Could JIT help to alleviate the problem of being unable to sa�sfy customer orders on short no�ce?
3. Is Barry Renter correct to suggest that MRP can be used in conjunc�on with JIT? If so, how would MRP func�on?
4. What addi�onal informa�on would you like to have before making a decision?
5. Which step should Southern Gear undertake first if it decides to implement JIT?

Steel Office Products

Steel Office Products makes four different types of steel filing cabinets: a 3-drawer le�er size, a 5-drawer le�er size, a 3-drawer legal size, and a 5-drawer legal size. The company
currently uses the layout shown in the first illustra�on below to make these products. However, plans are under way to switch to JIT produc�on.

Each filing cabinet is assembled from three basic parts: cabinet, the drawers, and the guides on which the drawers slide, as shown in the second illustra�on below. All cabinets use
the same guides. Both le�er-size cabinets use the same drawers, as do both legal-size cabinets. However, each product has its own cabinet.

Basic Parts for Filing Cabinet

The guides (two per drawer) have rollers (two per guide) on which the drawers slide. These rollers are purchased from an outside supplier, but all other component parts are made
internally, using sheet steel that is purchased from a supplier. The sequence of processing opera�ons for each part is listed below. There is no difference in produc�on �mes
between legal-size and le�er-size, or between 3-drawer and 5-drawer cabinets, but a set up must be performed each �me the switch is made from one to the other. The following
tables show the opera�on sequence and the processing �me for each part in minutes per unit.

CABINET

Opera�on Set up Run

Shear 5 0.5

Press 60 1

Weld 20 3

Paint 45 3

DRAWER

Opera�on Set up Run

Shear 3 0.4

Press 50 0.8

Weld 10 2

Paint 45 1

GUIDES

Opera�on Set up Run

Shear 2 0.3

Press 20 0.5

Assemble 5 2

The plant operates five days per week, eight hours per day, and expects to con�nue this schedule. Weekly demand for the products is fairly constant at an average rate of 80
fivedrawer le�er-size units, 50 three-drawer le�er-size units, 40 five-drawer legal-size units, and 30 three-drawer legal-size units.

1. What mixed-model sequence should be used to con�nue this average?
2. What is the cycle �me for each product?
3. Based on these cycle �mes, will there be any problems with the processing �mes shown above? If so, what changes must be made?
4. Can you iden�fy any other changes that should be made to help implement JIT?

Discussion Ques�ons

Click on each ques�on to reveal the answer.

1. List the aspects of JIT that result from elimina�on of excess inventory.
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The elimina�on of excess inventory provides a situa�on where any problem that disrupts the flow of work will become obvious to everyone as work centers must shut down
for lack of materials. A�en�on is focused on a problem and all effort is devoted to solving that problem. However, because it is realized that if the problem recurs produc�on
will be disrupted again, effort is devoted to a long-term problem solu�on. Thus problem-solving by employees and preven�ve maintenance are necessary components of JIT.
Quality control is another important aspect in a JIT system. With JIT, poor quality parts become immediately apparent. Without a backup of batched parts, a defect will result in
stopped produc�on. The person making the part will immediately become aware of the problem so correc�ve measures can be taken.

2. Which aspects of a fast-food restaurant are done just-in-�me? Which are func�ons similar to batch produc�on?
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In many fast food restaurants sandwich prepara�on operates on a JIT system, preparing the sandwich as the customer orders it to their specifica�ons. Func�ons similar to batch
produc�on include: chopping le�uce, slicing tomatoes, preparing salad bar items such as gra�ng cheese, cu�ng up cauliflower and green peppers.

3. In general, would you say that service organiza�ons operate in a just-in-�me mode? Why or why not?
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In general a service organiza�on does operate in a just-in-�me mode. A service organiza�on’s primary func�on requires the presence of the customer before it can be
accomplished. For example, a physician’s office is able to prepare examining rooms ahead of �me by checking supplies and cleanliness, but the func�on of administering the
doctor’s services cannot be done un�l the pa�ent is present.

4. Define a pull system and a push system, and explain their differences.
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A push system is based on the idea that materials get pushed through the processing opera�ons based on a schedule. Under this system, an order to produce a part or product
gets “launched” into the system at a scheduled �me and is pushed from one work center to another according to that schedule. Each successive work center usually has no
idea whether the next work center really needs that order right away or not, but they keep pushing the material through anyway. In contrast, a pull system moves materials
based on actual needs at successive work centers. The pull system concept actually starts with customer demand, which pulls finished products from the company. As those
finished products are made, they pull the appropriate materials through processing. Materials and parts are also pulled from vendors and suppliers.

5. Develop a list of companies or industries that may best benefit from the results that JIT produces.
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Those companies or industries that have repe��ve assembly opera�ons are generally most likely to benefit from JIT. Some examples are: automobile industry, electronics,
furniture producers, motorcycle industry, power tool companies, and home appliance manufacturers. However, opera�ons that have a job shop process have started applying
some of the JIT concepts with beneficial results. Elements of quality improvement and flexibility can be applied to service opera�ons such as healthcare.

6. Are there any companies or industries for which JIT would be totally inappropriate? Why?
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Companies or industries that operate without any kind of repe��ve processing cycle, such as manufacturers of custom or specialized products, probably would not benefit fully
from a JIT system. In par�cular the kanban system with p-cards and c-cards is designed for repe��ve produc�on. Without a produc�on process that is repe��ve, the company
wouldn’t know what materials are needed ahead of �me. However, some of the fundamental principles of just-in-�me including quality improvement efforts, system reliability,
and opera�onal flexibility are valuable.

7. Explain the use of the C-kanban in a single-card system and the use of the C-kanban and the P-kanban in a dual-card system.
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In a single-card system the C-kanban is used as an authoriza�on to move material. Thus, the C-kanban limits inventory because new parts and materials cannot be obtained
from suppliers (either internally or externally) without one.

The one weak link in the single-card system is that producing work centers may not have a clear-cut signal to produce more. Thus, in a dual-card system, the P-kanban is added
to authorize produc�on while the C-kanban is s�ll used to authorize only conveyance.

8. What are some ways a produc�on process can be simplified? Explain each.
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Plant Layout – Simple flow pa�erns and machines in close proximity to one another can simplify a process. This allows part to move short distances and workers to spend more
�me doing value-added work rather than walking or wai�ng.

Group Technology – By making families of parts or products with similar processing opera�ons, it is possible to simplify opera�ons.

Reduced Setup Times – With very low setup �mes it is possible to easily switch from making one part or product to another with li�le disrup�on of flow.

Total Preven�ve Maintenance – Once again, a process is simplified if a smooth flow can be maintained. This is done by ensuring that machines will operate as expected.
Preven�ve maintenance ensures that the machines are properly adjusted and lubricated and that parts are replaced before they become likely to break.

9. Describe at least two ways that quality control is important in JIT.
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The first way quality control is important is in elimina�ng waste. If defec�ve parts or products are produced then the labor and materials in them has been wasted. Second,
defects disrupt the smooth flow of materials and, therefore, are to be avoided. A third aspect is that by collec�ng quality control data a company has informa�on it can use to
constantly improve its produc�on process.

10. Find an ar�cle about a company outside Japan that uses JIT, and determine whether any modifica�ons have been made to fit local culture or business prac�ces.
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The answer to this ques�on will depend upon the ar�cle found. In many cases, U.S. companies have made modifica�ons in JIT to fit local circumstances.

11. Discuss how the lean manufacturing concept of a value stream may relate to the water analogies of JIT.
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There are similari�es. In both instances we are using the analogy of flowing water to represent undisrupted flow of materials and products. In both instances we also can think
of pools (inventory) as being something that really does not contribute to a smooth flow. However, the value stream concept goes beyond the JIT water analogy to get us
thinking about the fact that this stream can provide value for all those who are involved with it. Using this thinking we can begin focusing on how to maximize that value for
everyone (suppliers, manufacturers, customer, etc.).

12. The term lean manufacturing appears to indicate that related ideas are not applicable to services. Is that true?
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No, that is not true. Because JIT was first developed for manufacturing, the lean system concept naturally was applied to manufacturing first. However, just as JIT use has now
extended to services, lean systems concepts are also now being applied widely in service opera�ons.

13. What is the rela�onship between strategic planning and JIT?
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JIT offers some very special compe��ve opportuni�es to the company that uses it that allows the firm to improve its compe��ve posi�on. Within a well done strategic planning
process, the firm a�empts to mi�gate its weaknesses or to transform them into strengths. The implementa�on of JIT or lean thinking is a way to help an organiza�on build its
capabili�es, in many cases transforming weaknesses into strengths. Following are some of those opportuni�es: elimina�on of waste, produc�vity improvements, be�er people
u�liza�on, cost reduc�on, quality and reliability improvements, product flexibility, volume flexibility, and delivery dependability.

14. Explain value stream mapping.
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Value stream mapping is a technique used to analyze the flow of materials, ideas, and informa�on to understand how processes func�on. Each ac�vity is defined as value
added or not value added. Value stream mapping is useful for both manufacturing and service opera�ons. In service opera�ons it allows organiza�ons to understand how many
different people and departments are involved, what their roles are, and how long things take. The basic steps are to:

• Iden�fy the product or service that should be mapped.

• Draw a rough current state value stream map, which shows the current steps, delays, and informa�on flows required to deliver the target product or service.

• Es�mate the cost and �ming at each point as well as the value added.

• Assess the current state value stream map to understand its flow and points where waste occurs to determine where the process can be improved.

• Create a future state value stream map using a team of people.

• Prepare a plan to implement these improvements.

• Work toward this future state.

Problems

1. A manufacturer of televisions produces three different models: X, Y, and Z. Demand over the next month is expected to be 400 units for model X, 200 units for model Y, and 100 for
model Z. There will be 20 working days in the month. Develop a mixed-model sequence.

2. Refer to Problem One. Suppose that the company has eight working hours each day. Calculate cycle �mes for the three different television models.
3. An automobile manufacturer makes two-door sedans, four-door sedans, conver�bles, and sta�on wagons. Customer demand for the next 25 produc�on days is expected to be 400

two-door sedans, 300 four-door sedans, 300 conver�bles, and 200 sta�on wagons. Develop a mixed-model sequence that will level the assembly schedule and sa�sfy daily demand.
4. Refer to Problem Two. If the automobile manufacturer runs the plant seven hours each day, calculate cycle �me for each type of car.

Click here to see solu�ons to the odd-numbered problems.
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Key Terms

Click on each key term to see the defini�on.

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conveyance kanban (C-kanban)
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A kanban that authorizes the movement of materials from one loca�on to another.

cycle �me
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A measure of how quickly a product is made. It is the amount of �me from the start of a task un�l the worker or machine is ready to start the next task. In an assembly, it is the
�me between the nth vehicle being produced and the nth+1 vehicle.

dual-card kanban system
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A pull system that uses both C-kanban and P-kanban to carefully control WIP inventory.

just-in-�me (JIT)
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Can be used as a basis for planning and scheduling, yet is more properly viewed as a strategy for designing manufacturing systems that are responsive to customer requirements.
Applying JIT forces a re-examina�on of opera�ng philosophy. The JIT philosophy focuses on reducing lead �mes, reducing set-up �mes and improving product quality to minimize
raw material, work-inprocess and finished goods inventory.

kanban
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A Japanese word meaning “visible record.” In manufacturing, it is a card or marker that is used to indicate when more materials are needed in a pull system.

lean systems
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Lean systems extends many of the basic concepts of JIT over the en�re supply chain. While both lean systems and JIT can focus on elimina�ng non-value-added ac�vi�es from the
en�re supply chain, lean systems focuses on applying the basic ideas of JIT to the en�re value stream.

level assembly schedule
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A final assembly schedule that involves producing a specified sequence of products so that produc�on of each is matched with expected daily demand.

mixed-model sequencing
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The produc�on of different products in small batches on the same equipment following a repea�ng cycle.

produc�on kanban (P-kanban)
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A kanban that authorizes the produc�on of more parts in a pull system.

pull system
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An approach to manufacturing in which materials are pulled through processing based on actual requirements for those materials.

push system
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An approach to manufacturing that forces materials through processing based on a schedule.

set-up �me
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The �me needed to prepare a machine to process a job.

single-card kanban system
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A pull system that uses only the C-kanban. Actual produc�on may be scheduled using MRP.

total preven�ve maintenance
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An approach to equipment maintenance that emphasizes preven�on of breakdowns, maintenance each day, and operator responsibility for maintenance.

value stream mapping
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A technique used to analyze and design the flow of materials, ideas, and informa�on to understand how processes for making products func�on.

©Greg Dale/Na�onal Geographic Society/Corbis

Scheduling

Learning Objec�ves
A�er comple�ng this chapter, you should be able to:

List the six criteria for scheduling and discuss the trade-offs involved with each.
Provide an overview of the scheduling process including data requirements, order informa�on, sequencing,
and dispatching.
Describe how scheduling for services differs from manufacturing.
Discuss issues of concern that can occur when scheduling an assembly line.
Use dispatching rules to schedule jobs and discuss each rule.
Discuss how priori�es are determined in MRP systems.
Understand forward and backward scheduling with finite and infinite capacity.
Schedule employees for service opera�ons.

Processing math: 0%

12.1 Introduction to Scheduling

Scheduling is coordina�ng work tasks, people, materials, facili�es, and equipment needed to create goods and services at a specific point in �me. Scheduling is required for making
goods and for providing services successfully. There are many different approaches to scheduling; some of the most common are discussed in this chapter.

Scheduling is the last step in the process that begins with strategic planning and proceeds through increasingly detailed stages. Each successive stage of the planning process builds
on its preceding stage. Proper planning in the earlier stages increases the likelihood that a schedule can be created that will meet customer demand at a reasonable cost and
without delays.

Scheduling can be one of the most challenging areas of opera�ons management. As many companies have found, scheduling presents many day-to-day problems because there may
be changes in customer orders, equipment breakdowns, late deliveries from suppliers, and a myriad of other disrup�ons. Techniques are very sophis�cated mathema�cally because
scheduling problems are o�en very detailed, have lots of informa�on to consider, and have many possible solu�ons. This chapter focuses on scheduling rules that can lead to good
solu�ons as well as some rela�vely simple applica�on techniques.

To begin the discussion of scheduling, the master schedule in Figure 12.1 calls for the produc�on of two different products during a par�cular �me period. Using material
requirements planning (MRP), it has been determined that certain parts for each of those finished products must be started in the produc�on process during week 20, as shown by
the circled figures in Figure 12.1.The rou�ngs for these two parts are shown in Figure 12.2. Capacity requirements planning (CRP) has been used to determine that insufficient
capacity will exist in week 20 on the lathe, which is the “gateway,” or first work center, for both parts. Management inves�gated both short-run and long-run solu�ons to this
capacity problem, but has decided that it will follow a short-run strategy and schedule over�me to alleviate the capacity problem in the lathe department.

Figure 12.1: Produc�on plan for two products

Figure 12.2: Rou�ng for two parts

Processing math: 0%

In this example, there are two scheduling problems. One involves scheduling employees, and the other with scheduling the two parts. It is necessary to schedule employees to work
during the over�me used in the lathe department. The second scheduling problem, scheduling the parts, occurs because both parts will be released to the lathe department at the
same �me. This second scheduling problem is one of sequencing—determining which part to produce first.

Scheduling is a complex process that involves many different steps. This sec�on summarizes those steps before describing scheduling techniques.

Data Collection

Collec�ng the data needed for scheduling begins with orders from the customer. These orders iden�fy which product the customer wants, special features, and the product due
date, among other things. When data from order entry is combined with process data, the following informa�on about the jobs, ac�vi�es, employees, equipment, and facili�es are
available to prepare a schedule.

Jobs Due dates, rou�ngs, material requirements, flexibility of due dates

Ac�vi�es Expected dura�on, required ac�vi�es that precede this ac�vity, desired �me of comple�on

Employees Availability, capability, efficiency, wage rates

Equipment Machine or work center capaci�es and capabili�es, cost of opera�on, availability

Facili�es Capaci�es, possible uses, cost of use, availability

Order Entry

Order entry drives the scheduling process. Orders may originate with the customer, but they may also be generated by internal or company orders that are given to create inventory.
For a make-to-order company, one that produces only to customer orders or that provides services, this occurs when a customer places an order. Given exis�ng produc�on
schedules, capacity available, and the customer’s desired due date, the order can be scheduled. This order scheduling will be an es�mate based on capacity requirements to
produce the customer’s order. Producing the order will require further scheduling of the individual parts and components for a product or the employees and facili�es for a service.

In a make-to-stock company, one that produces for inventory and meets customer orders from inventory, produc�on orders are entered by the company based on the inventory
level of each item in stock, and the expected future demand of that item. In general, a make-to-stock company has a somewhat easier job of scheduling because it has some control
over which products will be made. However, unlike a make-to-order company, which must produce whatever is demanded by the customers, the make-to-stock company will have
excess inventory if it produces something that customers do not want. This increases costs and may lead to discoun�ng to increase sales of an item.

In an MRP environment, the MRP system will generate planned order releases based on the master schedule. This is another form of order entry—in this case, for individual parts
or subassemblies.

Orders Released for Production

The planning process involves a con�nual movement from strategic plans for the distant future toward more detailed plans for the less-distant future. As �me frames diminish, plans
become more precise and detailed un�l each order is released for produc�on. At that point, the schedule is implemented.

Scheduling addresses the very near future because it is the last step in produc�on planning. Plans are made to schedule a par�cular job, ac�vity, or employee, but those plans are
not converted into a detailed schedule un�l the last possible moment. The earlier planning stages determine what level of resources is needed to meet the produc�on plan.
Scheduling allocates those resources.

Processing math: 0%

Many car manufacturers use a make-to-stock inventory system. If a make-to-stock company produces
something that customers do not want, it will have excess inventory of that item, which is one
downside to this type of system.

iStockphoto/Thinkstock

When working with such minute details, such as individual machines, parts, or
employees, it is always possible that changes will occur. An employee may become ill or
quit, a machine may break down, or the raw materials for a part may not arrive on
�me. Because of these possibili�es, scheduling must usually wait un�l the exis�ng
condi�ons are known with rela�ve certainty. Even then, last minute changes must o�en
be made, which is what makes scheduling so challenging.

As �me passes and the scheduled star�ng �me for a job or order is reached, that job or
order is released for produc�on. That step starts the job on its way through the
processing opera�ons. The final scheduling steps are the sequencing of ac�vi�es, jobs,
or parts in the order they should flow through processing, and then the dispatching of
those jobs. Dispatching is the assignment of priori�es and the selec�on of jobs for
processing at a work center or facility. For example, a customer order for a made-to-
order product must be sequenced with other orders. When the �me comes for work to
begin on that order, it will be dispatched at the first work center according to its priority
at that �me.

Managerial Considerations

Scheduling is an a�empt to allocate scarce resources efficiently. Machine �me may be a
scarce resource that is allocated to different jobs, employee �me is allocated to different
ac�vi�es, and facili�es are scheduled for a given ac�vity at a par�cular �me period. In
all of these scheduling tasks, different criteria may be used when deciding which of
several schedules will work best. Those criteria may relate to the amount of �me equipment may sit idle, the importance of a certain order or a certain customer, or the level at
which a resource is u�lized.

The task of scheduling can be quite complex; what appears to be an op�mal schedule from one viewpoint may be far from op�mal from another. For example, a certain schedule
may u�lize one machine very efficiently, but may mean idle �me for machines farther along in the processing opera�ons. Another schedule might mean that an important
customer’s order will not be delivered on �me. These six criteria may be used when evalua�ng possible schedules:

Provides the good or service when the customer wants it
Length of �me it takes to produce that good or service (flow �me), which includes both processing and wai�ng �me
Level of work-in-process (WIP) inventories
Amount of �me that equipment is idle
Amount of �me that employees are idle
Overall costs

The rela�ve importance of each factor depends on the product or service being produced, a company’s par�cular industry, and, especially, the organiza�on’s compe��ve strategy.
Different produc�on processes will also incur different problems, and certain criteria will, therefore, be more important. It may be impossible to sa�sfy all of the six criteria listed
above at one �me. Instead, management must choose among the various trade-offs (see Table 12.1).

Table 12.1: Factors and trade-offs

Factor Trade-off

Providing the good or service
when the customer wants it

Requires flexibility. Can lead to large inventories and excess capacity during periods of low demand.

Minimizing flow �me Requires flexibility, short set-up �mes, and fast produc�on rates. Can require having excess capacity available.

Minimizing WIP inventories May require excess capacity or the use of a pull system. Can lead to high machine or employee idle �me.

Minimizing machine idle �me O�en means keeping capacity low, producing product for inventory, or accep�ng any customer orders whether the order is profitable
or not. Can result in high inventories, high costs, the overloading of equipment, and late orders.

Minimizing employee idle �me O�en means keeping workforce size low, producing product for inventory, or accep�ng any orders. Can result in employee discontent,
late orders, and high inventories.

Minimizing costs O�en requires compromises on the preceding criteria. All relevant costs must be properly defined and measured. Can result in poor
customer service—a cost that is difficult to measure.

When determining which criteria to use, a company must carefully consider its corporate objec�ves, compe��ve strategy, and capabili�es. The company’s scheduling decisions will
have a great impact on facility design, the type of equipment used, and the workforce requirements. Each of these will, in turn, influence its compe��veness in terms of cost, speed,
and delivery reliability.

Highlight: Tim Horton’s

Tim Horton’s sells coffee, pastries, breakfast, sandwiches, and other items. It responds to customer demands quickly using a combina�on of make-to-order and make-to-stock.
Their coffee is pre-made, that is, made-to-stock, but it has a �me limit. If not used within a certain �me, it must be thrown out. The donuts and bagels are make-to-stock, but
sandwiches are make-to-order with components including bread, meat, and cheese, and prepared for further processing and assembly. Tim Horton’s relies on fast delivery, low
cost, and good quality. The store managers must an�cipate demand each day, even for each por�on of the day, in order to schedule the right people at the right �me and

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without idle employees, which increases costs. They must consider the wait �me at the drive up window. Cross training is important so that if there is slack at the front
counter, employees can be shi�ed to other jobs where demand exceeds the restaurant’s ability to serve its customers. Managers must order the materials, such as coffee,
pastries, and sliced meat, so the shop has neither too li�le (so customers cannot get what they want), nor too much (so there is waste). Long term, managers should measure
equipment use and iden�fy bo�lenecks to determine if the number of coffee machines, warming ovens, and other items are sufficient for demand. Should these be increased
or possibly reduced? A manager would examine the facility to see how it might be altered to be�er serve customers. Scheduling is cri�cal to Tim Horton’s success.

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An ice cream company must decide which flavors it should make, in what order, and how many
gallons should be produced to op�mize profit and efficiency while reducing waste.

altrendo images/Stockbyte/Thinkstoc

iStockphoto/Thinkstock

12.2 Techniques for Successful Scheduling

When scheduling, two key ques�ons are:

1. When should a given job, order, or product be processed?
2. How many units should be processed at one �me?

The answers to these ques�ons impact the way a processing opera�on is run. For instance, a company that makes ice cream must decide which flavors should be made and when.
If chocolate is made before vanilla, there may be extensive �me spent cleaning the equipment before switching to vanilla. Conversely, producing vanilla before vanilla-fudge marble
may mean no cleanup between runs. In addi�on, the company must decide how many gallons of one flavor to make before it starts making another. The company does not want to
produce so much of a given flavor that the ice cream deteriorates before it is sold. At the same �me, producing small quan��es at one �me will mean excessive �me spent cleaning
and refilling the equipment between batches.

Different scheduling techniques are appropriate for different opera�on processes. Line flow, batch, and flexible manufacturing process have similari�es, and are discussed together in
the next sec�on. The job shop process, which is quite different, is discussed in a later sec�on in this chapter.

Continuous Flow Processes

A con�nuous flow process is one in which materials flow in a con�nuous, or nearly
con�nuous, stream from beginning to end. A good example of a con�nuous flow
process is an oil refinery. Such produc�on processes are generally characterized by
a few different finished products, only a few possible rou�ngs, and low work-in-
process inventories.

Under such condi�ons, the relevant scheduling criteria become somewhat limited.
For example, flow �me is determined by the produc�on process, rather than by a
schedule because a con�nuous flow system operates with a defined sequence and
that is difficult to interrupt. Generally, it is neither economical nor technically
desirable to perform step one in the refining process, then place the output in
inventory for a long period of �me. Work-in-process inventory is also not a major
problem because it is generally quite low for con�nuous flow processes. Thus, the
scheduling problem in a con�nuous flow process requires determining when to
change from making one product to making another. The relevant criterion is
usually minimizing cost, although minimizing the �me the facility is idle during
changeover could also be important. When refining oil, a con�nuous flow process
makes adjustments to make more hea�ng oil in the fall for the coming winter, and
adjus�ng again to make gasoline in the late spring for the summer driving season.

Balancing an Assembly Line

An assembly-line process is similar to con�nuous flow, but instead of the products flowing con�nuously, such as a stream of gasoline or a roll of paper, the products are discrete,
individual items, such as automobiles.

One of the best examples of an assembly-line process is the automobile assembly line. In this example, the product follows a fixed path. Like the con�nuous flow process, an
assembly-line process usually produces a limited number of products, and the rou�ngs are the same. Work-in-process inventory is also typically small. Thus, the same basic
techniques used for scheduling in con�nuous flow can also be used for assembly-line process scheduling. There are, however, two par�cular problems unique to assembly-line
scheduling that are described next.

It is cri�cal to assign the same amount of work to each sta�on because assembly lines
are usually a series of worksta�ons with one worker assigned to each sta�on. If the line
is unbalanced, meaning that one sta�on has more work than the others, then one
worker will be rushed and unable to complete the work while the others will have idle
�me, thereby genera�ng waste. Successful assembly line balancing depends on having
the op�mal number of appropriate worksta�ons so that idle �me is zero or close to
zero. The right number of worksta�ons is also important because it helps to determine
the cycle �me. The cycle �me is the amount of work assigned to the sta�on with the
most work and �me. Cycle �me controls the flow of product along the line, and
therefore determines the capacity of the assembly. Mathema�cally, the cycle �me for
the assembly in minutes per unit of product is the inverse of the produc�on rate, which
determines capacity. Assembly-line balancing provides the framework for scheduling.
Assigning tasks to worksta�ons allows the material flow and job assignments to be
specified by the line balance.

Assembly-line balancing is not a perfect science because people with different abili�es
will be assigned to the worksta�ons. The result may be that a perfect balance was
achieved theore�cally, but it will not be perfect in prac�ce. Some employees will
complete their tasks in less than the average �me. Others will take longer. The end
result is that a theore�cally balanced line may be unbalanced in prac�ce.

Processing math: 0%

Assembly lines are comprised of a series of worksta�ons with one or more workers assigned to each
sta�on. Successful assembly lines depend on balancing the line so that idle �me is minimized.

Scheduling is one approach to overcoming this problem. A skillful supervisor will know
which employees can work faster and will assign those to the sta�ons with more work.
Tasks may also be shi�ed from one worksta�on to another as trouble spots appear.
Thus, assigning employees to worksta�ons or tasks to employees is an integral part of
fine-tuning the balance of a line through scheduling.

The details of assembly-line balancing involve complex mathema�cal problems that are beyond the scope of this book.

Sequencing

Sequencing an assembly is determining the order for making different products. In some cases, the differences are small, such as pain�ng a car red versus silver, or moun�ng 16-
inch steel wheels versus 17-inch aluminum wheels. But, in other cases, the differences are very different, such as making a conver�ble versus a hardtop, or making different car
models on a different pla�orm within the same produc�on line. In these cases, sequencing is very important. Assembling a conver�ble, for example, requires more �me at some
worksta�ons, so it is be�er not to put those sta�ons back-to-back. This gives the workforce �me to catch up before the next conver�ble arrives.

Scheduling Batch Processes

In batch processes, the number of possible products is greater than can be produced in line-flow processes. As a result, each product is made in a group or batch. The process is
stopped; the equipment is changed over, and the next product is made. The produc�on volume of each product is usually less than when made by a line-flow process. As a result,
the same resources are used to produce at least several different products, producing a batch of each product at one �me. Because of this, determining the number of units to
produce in one batch and the sequence of batches becomes important. The criterion of cost minimiza�on is usually used to determine produc�on quan�ty. Because each product is
produced only intermi�ently, it must be produced o�en enough to avoid running out of inventory.

Note that many batch opera�ons use con�nuous flow or assembly-line processing. The difference is that a batch has a defined star�ng and ending �me with a setup or changeover
between different batches. From a cost perspec�ve, it would be lower cost (lower set-up costs, less inventory, and higher equipment u�liza�on) to avoid batching by making the
same or very similar product without an abrupt change. The problem with this approach is that customer demand requires a greater variety than the produc�on system can deliver
without the abrupt change. The ideal, over �me, is to find a technology that can eliminate or greatly reduce the changeover so the opera�ons can make smaller batches and
eventually run con�nuously.

The ice cream example described earlier is one example of a con�nuous flow process that has many op�ons and rela�vely small batches. There are hundreds of ice cream flavors
available, and more are being developed every year. Determining the sequence and batch size for ice cream produc�on is cri�cal to effec�vely and efficiently schedule produc�on.
Other examples of con�nuous flow process that are run in batches include paint, pharmaceu�cals, and breakfast cereals. Assembly lines can also operate in a batch mode. Appliance
assembly lines that make air condi�oners and refrigerators are o�en batched to increase efficiency. Once demand is large enough for a par�cular model, or the changeover �me
declines because of technology, the batch size can be greatly reduced or eliminated and the assembly lines can flow smoothly.

Run-Out Time

*Throughout this text, to enlarge the size of the math equa�ons, please right click on the equa�on and choose “se�ngs” then “scale all math” to increase the viewing percentage.

The ques�on of batch size only addresses how much to produce; it does not indicate which product should be produced next. One method that can be used to determine which
product should be produced next is called run-out �me. This is simply a calcula�on of how long it will take for the company to run out of each product at current usage rates. Run-
out �me is determined as follows:

Table 12.2 indicates current inventory and demand rates for five different products made by a process. Run-out �me calcula�ons are shown for each of the five different products.
Based on those calcula�ons, product E should be produced next because it will run out first—in two weeks.

Table 12.2: Run-out �me calcula�ons

Product Current Inventory Demand Rate (Units per Week) Run-Out Time (Weeks)

A 1,000 200 1,000/200 = 5

B 500 150 500/150 = 3.3

C 2,000 500 2,000/500 = 4

D 2,500 500 2,500/500 = 5

E 600 300 600/300 = 2

Flexible Manufacturing Systems

Chapter 10 discussed the trade-off between product changeover costs (or set-up costs) and inventory carrying costs. When the cost of changeover becomes extremely small, the
ques�on of how many products to produce at one �me is less important. Flexible manufacturing systems (FMS) have been able to reduce changeover costs so much that it is
economical to produce just one product or part at one �me. The challenge then becomes one of sequencing to keep the changeover �me—and consequently the cost—low enough.

Group technology is an important aspect of any FMS. By grouping similar products into families, a group technology cell within a FMS only makes products that have similar
characteris�cs, which tends to reduce sequencing challenges. Because computerized control is an important part of a FMS, the computer can be used to evaluate different possible
sequences and determine the best one for each cell.

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Airline carriers have different boarding procedures; however, most board passengers based on some
measure of customer importance, such as groups or priority status.

Creatas/Thinkstock

12.3 Job Shop Scheduling

There are few sa�sfactory scheduling techniques for job shop processing. Unlike con�nuous flow, assembly line, or batch processes, a job shop has many different and intersec�ng
rou�ngs. A job shop is fundamentally different from these con�nuous flow processes because it is arranged with similar machines in one loca�on or work center. The part being
produced or the pa�ent in a hospital, moves to the various work centers as needed. Each part or pa�ent may have a different path through the factory or hospital. This is called a
process layout. Con�nuous flow and assembly lines are organized around a common sequence of steps, so that the path through the facility is the same. This is called a product
layout.

What makes job shop scheduling more challenging is that different jobs are vying for �me on the same machines. Deciding which job to process first on a given machine or work
center can have a major impact on what happens at other machines or work centers—possibly overloading some, while leaving others idle. The flow of product and the demands on
the work centers in a job shop are different and uneven, which makes scheduling a challenge.

Dispatching Rules

One of the earliest approaches to job shop scheduling focused on the criteria for sequencing the jobs that are compe�ng for �me at the work center. Those criteria could be used
to generate dispatching rules to be used at a machine or work center. A rule such as “first-come, first-served” is commonly used in retail opera�ons because it is perceived as fair. A
rule like first-come, first-served with priority for pa�ents with severe problems is used in emergency rooms. This is called triage, where a medical professional makes an ini�al
screening to see if a pa�ent’s injuries are life threatening.

An important advantage of these rules is that they are easy to use. The informa�on is readily available, and it is not necessary to know what is happening at other work centers. As
with many things that are simple, the rules can some�mes lead to poor performance. Five of the most common dispatching rules are described below.

Earliest Due Date

The earliest-due-date rule focuses on the criterion of providing the product when a customer wants it. The ra�onale is that whichever job is due first should be started first. The
advantage of this approach is that some jobs may meet their due dates. This rule is popular with companies that are sensi�ve to due date changes. However, finishing one job on
�me may make many others late. This method also does not consider how long it will take to process a job.

Shortest Processing Time

With the shortest-processing-�me rule, the ra�onale is to get the most work done as quickly as possible in order to minimize the level of WIP inventory. Unfortunately, jobs with
long processing �mes may be made quite late as they wait for shorter jobs to be finished. Otherwise, this rule o�en works best on most measures. One way this rule has been
modified is to make an adjustment for long-running jobs that have been wai�ng for a long �me by moving them to the front of the line.

Having determined that there are advantages to using the shortest-processing-�me rule, it is s�ll necessary to use good judgment before applying any rule. For example, the
shortest- processing-�me, including adjustment for long wai�ng jobs, works poorly in an emergency room. A pa�ent with a severe problem that requires a long �me at a work
center will be delayed while other pa�ents needing less care are serviced first. For example, using this rule, pa�ents with minor fractures would move ahead of a pa�ent with a
severe compound fracture.

Longest Processing Time

The longest-processing-�me rule uses a different strategy—to get the jobs that will take longest done first, leaving �me at the end to do the short-processing-�me jobs. The
ra�onale behind this rule is that jobs with long processing �mes may be more likely to miss their due dates than jobs with short processing �mes are. The great disadvantage of this
approach is that many short jobs may also miss their due dates because of one long job. This rule also tends to result in an increase in WIP inventory. It may be used when a cri�cal
job has a long lead-�me.

First-Come, First-Served

This rule is o�en used in service facili�es because customers usually see this as the
fairest method. However, it ignores due date, processing �me, or the importance of
one job over the other; therefore, it does not perform well on such measures. The
emergency room example is only one place where this rule performs poorly. In
manufacturing, machining a part that is needed to repair a city’s water supply
system should have a greater priority than making a part so that an amateur stock
car racer can repair her car. A few years ago (despite that seats were pre-assigned)
airplanes were loaded first-come, first-served for fairness; or from back-to-front for
loading efficiency so that the planes could be loaded faster. Now, most airlines
board their passengers based on some measure of customer importance. Airlines
use priority status and zones to let passengers know when they can board.

Cri�cal Ra�o

The cri�cal-ra�o rule is an a�empt to combine aspects of the preceding rules into
one that considers both due date and processing �me. It is based on calcula�ng the
cri�cal ra�o (CR), which is

Processing math: 0%

This rule is implemented by first scheduling those jobs that have the lowest cri�cal ra�o. Values of CR below one mean the job will be past due. A nega�ve value means it is already
past due. Thus, an advantage is that those jobs scheduled first are the ones that have the lowest chance of missing their due dates.

It should be noted that the cri�cal-ra�o rule differs from the other dispatching rules in that it is dynamic. That is, a job’s cri�cal ra�o will change over �me as the number of days
un�l the due date changes and the processing �me remaining changes. Thus, the cri�cal ra�o must be updated constantly.

Highlight: Airlines Use Dispatching Rules to Load Passengers

Several years ago, most airlines boarded their airplanes by row. A�er the first-class passengers and those needing extra �me were boarded, the last few rows would be allowed
to board. Next, the rows just prior to the last few rows were loaded. This boarding pa�ern was repeated from back to front of the airplane. This was done for efficiency,
increasing the ability to rapidly load the airplane; if passengers in the front of the airplane load first, they would tend to block the aisles, slowing down boarding. Loading the
airplane from back to front reduces this conges�on. This approach worked well. Today, airlines o�en board based on status. If passengers fly the airline o�en, they earn gold,
silver, or other status, which allows them to board early. Remaining passengers use a “zone” boarding process, which is unrelated to the area of the airplane, and instead based
on the passengers’ frequent flier miles. This is important to passengers who want to carry on luggage for convenience, or to avoid checked baggage fees.

Problem

The Hillside Machine Corpora�on has four jobs wai�ng to be run on its lathe. Figure 12.3 shows the days un�l due date and the processing �me remaining for each job.
Hillside wants to see which sequences will be generated by using each of the five dispatching rules. Figure 12.3 shows these sequences. It is interes�ng to note that in this
example, the longest-processing-�me and cri�cal-ra�o rules produce the same sequence of jobs—although that result will not always occur.

Figure 12.3: Comparison of dispatching rules

Sequencing Jobs on One Machine

Flow �me is the amount of �me it takes to produce a product. If the product spends a large amount of �me wai�ng to be processed, then its flow �me will be long. Average flow
�me will be minimized by processing as many jobs as possible during a given period of �me. The way to achieve this result is by using the shortest-processing-�me rule, which has
been proven to always minimize average flow �me.

Problem

Refer to the Hillside Machine Corpora�on data in the previous example. Suppose the company tracks the number of days each job requires un�l comple�on, using the cri�cal-
ra�o and shortest-processing- �me rules. As the results in Figure 12.4 indicate, all four jobs are finished within 20 days, regardless of which rule is used. However, with the
cri�cal-ra�o rule, the average �me each job spends before comple�on is 15.75 days. With the shortest-processing-�me rule, the average �me is only 9.25 days.

Figure 12.4: Comparison of average flow �mes for two
sequencing rules

Processing math: 0%

Johnson’s Rule

When there are two successive machines or work centers through which a group of jobs must all be sequenced, Johnson’s Rule can be used to minimize total processing �me for
the group of jobs, which is called the makespan �me. The method u�lizes the following steps:

1. List the jobs and the �me each job requires at each work center.
2. From the list, select the job with the shortest �me at either work center (if two or more jobs in the list have the same �me, one is selected at random). If the �me is for the first work

center, proceed to step 2a. If it is for the second work center, proceed to step 2b.
a. Place the job as close to the beginning of the sequence as possible without replacing other jobs. Go to step 3.
b. Place the job as close to the end of the sequence as possible without replacing other jobs. Go to step 3.

3. Eliminate the job just scheduled from your list. Return to step 2.

Note that this rule requires all jobs to follow the same sequence through both work centers. The sequence cannot change at the second work center.

Problem

University Data Services has five computer payroll jobs wai�ng to be processed before Friday a�ernoon. Each job requires compu�ng and then prin�ng, in that order. Based on
past experience, the company es�mates each job will take the following �me:

Processing Time (Hours)

Job Compu�ng Prin�ng

A 1.5 1.0

B 1.0 0.75

C 0.5 1.25

D 2.0 1.5

E 0.75 0.5

Using Johnson’s Rule, proceed as follows.

Two jobs, C and E, have the shortest processing �mes, 0.5 hours. Job C is selected arbitrarily. Because its shortest �me is for the first opera�on, Job C is scheduled at the
beginning of the sequence.

Job C is eliminated from further considera�on, and the process returns to step 2. Now Job E has the shortest processing �me. Because that �me is for the second opera�on
(prin�ng), Job E is scheduled at the end of the sequence.

Job E is now eliminated from the list. Therefore, Job B has the shortest processing �me, which is for the second opera�on. Job B is scheduled as close to the end of the
sequence as possible.

A�er elimina�ng Job B, of the remaining two jobs, A has the shortest processing �me. Because that �me is for the second process, job A is scheduled as close to the end as
possible, which, in this example, is the third posi�on.

The last remaining job, job D, is placed in the remaining slot in the schedule, producing the following sequence:

This sequence of jobs produces the processing sequence for each opera�on shown in Figure 12.5. This method completes all jobs within 6.25 hours and leaves only 0.5 hour of
idle �me for the printer at the beginning of the sequence and 0.75 hour between Jobs C and D.

Figure 12.5: Processing of computer jobs based on sequencing
by Johnson’s Rule

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12.4 Dispatching in MRP

The rules men�oned above are limited because they only consider the condi�ons that exist for a given point in �me and a given work center. By and large, they ignore that a given
part may be part of a subassembly that must be complete before the final product can be assembled.

MRP takes into account lead �mes. As long as the planning lead �mes used in MRP are valid, then the priority of each item should be based on the MRP lead �mes. Therefore, in
an MRP system, priori�es are determined by referring to the planned order releases and lead �mes. Thus, the dispatching rules are irrelevant to MRP systems. Instead, MRP works
from the order due dates, scheduling order releases far enough ahead of �me that the due dates should be met. Unfortunately, there s�ll may be conflicts at machines and work
centers that need to be addressed.

Machine Loading

The dispatching rules previously described a�empt to determine a schedule based on the a�ributes, such as due date or processing �me, of each job. However, the �me it takes for
a job to be processed consists of the following five components:

1. Wait �me
2. Move �me
3. Queue �me
4. Set-up �me
5. Run �me

Wait �me is the �me a job spends wai�ng before it is moved to the next work center. Move �me is the material-handling �me between work centers. Queue �me is the �me a job
spends wai�ng to be processed at a work center. Set-up �me is the �me to prepare a machine to process that job, and run �me is actual processing �me.

In general, all of these components—except queue �me—will be nearly fixed. Queue �me really depends to a large extent on the workload that has been scheduled for each work
center. If a machine’s capacity is being used extensively, then it is more likely that many jobs will be wai�ng for processing at that machine. When the capacity of a work center is
exceeded, lines of work (queues) will build up in front of that work center.

Loading is an approach to scheduling that a�empts to take capacity u�liza�on into account. There are several different approaches to loading, but loading begins with scheduling.

Forward Scheduling

Suppose scheduling begins immediately so that each job starts at the earliest possible moment. This is called forward scheduling. As jobs progress through a produc�on facility, each
work center will have a certain workload placed on it from the jobs assigned to that work center. Figure 12.6 illustrates the schedule that could be generated by forward scheduling
four jobs (A, B, C, and D) through three work centers (lathe, mill, and drill). This schedule assumes six hours for wait and move �me between machines. Note that the jobs use the
same three work centers, but use them in different orders, so Opera�on l for Job A uses the lathe, but Opera�on l for Job D uses is the drill. Also note that Job B and Job D do not
use the lathe and the mill, respec�vely.

Figure 12.6: Forward schedule for four jobs with finite loading

Work Center Sequence and Processing Time

(Number Is Sum of Set-up and Run Times in Hours)

Job Opera�on I Opera�on II Opera�on III

A Lathe 3 Drill 2 Mill 4

B Mill 4 Drill 3

C Lathe 2 Mill 3 Drill 4

D Drill 5 Lathe 4

In a forward schedule shown in Figure 12.6, each job begins as close to �me zero as possible, and each job is scheduled similarly through the successive opera�on, allowing six
hours for wait and move �me between machines. Some jobs have been delayed (queue �me) at certain work centers because another job had already started at that work center.Processing math: 0%

For example, Job C had to wait three hours before it could start on the lathe because Job A was s�ll being processed on that machine. This approach of making one job wait if
another has been scheduled on the same machine is called finite loading because it takes into considera�on the limited capacity on each machine. Another approach uses infinite
loading, which does not take capacity considera�ons into account. Infinite loading assumes that there is unlimited or infinite capacity.

Backward Scheduling

Backward scheduling starts from a desired due date and works backward. The informa�on for the four jobs and three work centers previously presented is used again, but the
following due dates are added:

Job Due Date

A Hour 24

B Hour 16

C Hour 24

D Hour 16

In this case, infinite loading will be used, elimina�ng the problem of more than one job at the same work center at the same �me. The resul�ng schedule is shown in Figure 12.7.
Backward scheduling begins by scheduling the last opera�on for each job so that it would end at the �me due, and then works backward through each opera�on. As a result of
infinite loading, some work centers have been scheduled to do more than one job at one �me. This may not be a problem if more than one machine is available. Actually, either
finite or infinite loading can be used with either forward or backward scheduling.

Figure 12.7: Backward schedule for four jobs with infinite
loading

Either of the preceding schedules can also be used to generate a load profile for each work center. A load profile indicates the workload being placed on that work center. Figure
12.8 shows the load profiles for the backward schedule of Figure 12.7 at an hourly rate. These load profiles were obtained by adding up the number of jobs scheduled during each
hour for each machine. No�ce that any hour in which more than one hour of machine �me is scheduled could present a problem if only one of each machine is available.

Figure 12.8: Load profiles for backward schedule

Forward and backward scheduling are both widely used—and many companies use both. Forward scheduling is useful for jobs that need to start immediately. Backward scheduling
works well when a desired due date is specified. Both finite and infinite loading can be used with forward and backward scheduling. Finite loading requires much more effort for
companies to keep track of which jobs are scheduled for which machines and at what �me. Unforeseen problems, varia�ons in processing �me, and other factors can combine to
make this a wasted effort. Therefore, most companies use infinite loading and then address over-loaded work centers a�er examining the load profile.

This approach to scheduling helps to point out the importance of capacity requirements planning and its �e-in with both the medium-range produc�on plan and the master
schedule. While capacity requirements planning is only a rough es�ma�on, it s�ll helps to ensure that sufficient capacity will be available. If the master schedule indicates a realis�c
capacity, then infinite loading does not o�en produce too many problems.

Sequencing
Processing math: 0%

When using a forward schedule with finite loading, two jobs are not allowed to be in the same work center at the same �me. Thus, if Job 1 had been started at work center A, Job
3 had to wait. But, would it have been be�er to start Job 3 on work center A first and make Job 1 wait? To answer that ques�on, it is possible to use a tool to schedule each work
center— the Gan� load chart.

Each work center can be indicated by one bar on the Gan� load chart. The job being processed at each work center and its processing �me can also be indicated. Figure 12.9 shows
the Gan� load chart that corresponds to the forward finite load schedule of Figure 12.6. The primary difference between the forward schedule shown in Figure 12.6 and the Gan�
load chart in Figure 12.9 is that the former is organized by job and �me, and the la�er is organized by opera�on and �me. The Gan� load chart is very useful for finite scheduling
because it allows only one job to be run on each machine or work center at one �me. Any conflicts will immediately become apparent.

Figure 12.9: Gan� load chart for forward schedule

Input/Output Control

Input/output control is a simple method for managing work flow and queue lengths. If work is put into a work center faster than it comes out, a queue will build up. If work is put
in at a slower rate than it comes out, the work center may run out of work.

Figure 12.10 shows the input/output report for a work center. The cumula�ve devia�on of actual input from planned input, and cumula�ve devia�on of actual output from planned
output are recorded each week. Further, the cumula�ve change in backlog is determined each week by comparing actual input to actual output. For example, in week 43, actual
output exceeds actual input by 30 hours. Therefore, the cumula�ve backlog decreases by that amount. In week 45, actual input exceeds actual output by 20 hours, therefore,
backlog increases by 20 hours.

Figure 12.10: Input/output report in standard hours

Simulation in Developing Schedules

Scheduling and sequencing can be rather difficult in some situa�ons. This is especially true in job shops where many different end products require different opera�ons.
Unfortunately, manually developing schedules in such situa�ons can be extremely �me consuming and difficult because there are too many combina�ons to consider.

Computers help to address this difficulty. Using simula�on techniques, it is possible to develop a trial schedule on the computer and then test that schedule without actually
processing the jobs. Through this simula�on, poten�al problems can be iden�fied and an improved schedule can be developed. Today, more companies are developing computer
simula�on programs to help solve their scheduling problems.

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12.5 Special Problems in Scheduling Services

One major difference between scheduling the produc�on of goods and scheduling the produc�on of services is that a service cannot be inventoried. For example, a company that
manufactures air condi�oners can build up its inventory during the winter months in prepara�on for peak summer demand. But a hospital cannot build up an inventory of
emergency room services in advance. Unlike goods, services can be produced only at the �me of demand, which means that the strategies for mee�ng that demand are more
limited than for goods. When scheduling some services, such as phone service or public transporta�on, there is less concern with sequencing and more concern with capacity and
service delays or wai�ng �me. Because most service opera�ons cannot store finished goods, they try to resolve excess demand problems with extra capacity or by ra�oning capacity.
These firms provide incen�ves for people to use services in off-peak �mes, such as traveling to Hawaii in the summer or offering discounts to seniors for shopping at non-peak
�mes. These efforts to shi� demand are tools that service industries use to manage capacity.

Sequencing rules are usually applied to situa�ons in which parts or products are wai�ng to be processed. In the service industry it may be customers who are wai�ng. In general,
companies o�en apply the first-come, first-served rule in such situa�ons. Of course, that can be frustra�ng for those of us who, for example, simply want to just cash a check at the
bank and must wait for someone with a �me-consuming transac�on. Banks have adjusted by crea�ng a single wai�ng line to serve mul�ple tellers rather than a line for each teller;
one person with a very long transac�on does not impact everyone wai�ng in line because that person is free to go to any of the other available tellers. ATMs are widely available so
that a simple transac�on can be handled many places outside of the bank branch. Some banks have found ways to assuage those callers who must wait to speak with an employee.
For example, frequent messages alert wai�ng customers that their calls will be answered shortly.

Services offer some unique challenges for scheduling. The following sec�ons discuss some of the more common approaches to scheduling for services.

Schedule for Peak Demand

One possible approach to scheduling for services is to schedule for peak demand. That means that sufficient capacity will be available at any �me to meet the peak expected
demand. The advantage of this approach is that it allows for demand to be met at all �mes under normal condi�ons. Its greatest disadvantage is that a large por�on of capacity
may be idle a large percentage of the �me.

U�lity companies like electricity providers face this problem because they are required by government regula�on to meet the demand of its consumers. Electrical power genera�on
systems are very expensive, so idle equipment becomes very expensive. In response, some u�li�es have offered homeowners a free programmable thermostat with the caveat that
the u�lity can turn up the thermostat by a couple of degrees on days when demand for air condi�oning is high in order to reduce usage during a power peak. The u�lity companies
offer discounts to manufacturing companies who use power during low-demand �mes, like at night. Electric u�li�es can also buy power from another u�lity that is nearby when
extra power is needed.

Chase Demand

There are two methods that companies can use to adjust produc�on rates to match demand—varying the workforce and using over�me. Either of these strategies can be very
useful for service companies if they can es�mate expected demand with reasonable accuracy. For example, Burger King fast-food restaurants maintain extensive records of historical
demand during various days of the week and hours of the day. Each restaurant uses this informa�on to determine how many employees it will need to schedule during each hour.

This approach works best if the employees are willing to work on a part-�me basis. Fast food is one industry that is able to schedule its employees in this way. The primary
advantage of this approach is that it costs less than scheduling for peak demand, while it enables the organiza�on to meet its an�cipated demand. The disadvantages are that it
requires an extremely flexible workforce, and demand forecasts must be accurate.

Other Approaches

Other methods for coping with uneven demand include scheduling appointments or reserva�ons for service, increasing consumer self-service, crea�ng adjustable capacity, sharing
capacity, and cross-training employees.

The reserva�on strategy is commonly used by restaurants, hotels, and airlines. Reserva�ons allow an organiza�on to determine the advance demand for its service while also
limi�ng access to that service. Airlines, in par�cular, have used reserva�ons to control access to their lowest fares. Those travelers who are willing to book their flights far in advance
and sa�sfy certain length-of-stay criteria receive the best fares; those who book only hours before the flight, when space may be limited, must pay the highest fares. Conversely,
when demand for a par�cular flight is light, late booking may pay dividends with a low-cost fare.

Fast-food restaurants have successfully used consumer par�cipa�on, such as allowing customers to serve themselves from the salad bar or pour their own drinks, as a way to reduce
staffing requirements. This strategy considerably reduces workforce scheduling problems because fewer people are needed. Self-service gas sta�ons also use this technique. The
single employee who takes the customers’ money can usually handle any level of demand because the most labor-intensive part—pumping the gas—is done by the customers.

Adjustable capacity involves the ability to use only part of the facili�es or available employees at any given �me. For example, restaurants can close off sec�ons when demand is
low. The wait staff who serve those sec�ons can fill saltshakers and perform other ac�vi�es to prepare for peak demand. As demand increases, those waiters and waitresses can be
moved to wait on tables as sec�ons are opened.

Cross-training employees also provides similar advantages. If employees are trained to perform more than one ac�vity, then they can be shi�ed from one to another as demand
changes, as when employees in a supermarket stock shelves when not working as checkers or baggers. Sharing capacity is a way that different organiza�ons, or different parts of the
same organiza�on, with different demand pa�erns can use the same facili�es, and, possibly, the same employees. For example, many churches have found that their Sunday school
facili�es, which are idle during the week, can be put to good use as day-care centers. On the weekend, when day care is not in session, the church will use those facili�es for other
ac�vi�es. Airlines share gates, check-in facili�es, and even ground crews.

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Reserva�ons allow an organiza�on to determine the advance demand
for its service, while also limi�ng access to that service.

Tetra Images/Ge�y Images

Chapter Summary

There are a wide variety of criteria considered for scheduling, including due date, flow �me, WIP inventory,
equipment idle �me, employee idle �me, and costs. Performing well on some criteria can mean performing
poorly on others.
Scheduling involves obtaining the right data about orders (jobs), ac�vi�es, employees, equipment, and
facili�es.
Scheduling a con�nuous flow process and an assembly line are based on knowing how that facility is organized
and what work is assigned to each worksta�on or department.
Scheduling a batch process, where different products with similar processing requirements share the same
equipment, involves determining the load on the equipment and the sequence that provides the best
outcome.
Some of the most commonly used dispatching rules for scheduling job shops and some service opera�ons are
the earliest due date; shortest processing �me; longest processing �me; first-come, first-served; and cri�cal
ra�o.
Johnson’s rule is a way to schedule a set of jobs across two departments. This provides an op�mal result based
on flow through �me.
Forward and backward scheduling allows organiza�ons to assign tasks to machines to finish as early as possible
to give maximum assurance that due dates will be met (forward scheduling), or as late as possible to avoid
holding extra inventory (backward scheduling). These can be done with finite loading, which assumes limited
capacity, or infinite loading, which assumes unlimited capacity.
Priori�es are set in an MRP system by considering the due dates and lead �mes of jobs.

Case Study

Central Electronics Company

The Central Electronics Company makes electronic chassis that are used to hold the components of electronics such as televisions and microcomputers. Central has just received an
order from a large microcomputer manufacturer with whom Central would like to develop a long-term rela�onship. If this order can be completed by the due date, such a
rela�onship is almost assured. However, the chances of mee�ng that due date do not look good.

Each chassis in this order consists of four parts. Each part has the rou�ng and the run �mes given below. In addi�on, there is a one-hour set-up �me on each machine whenever it
is changed from making one part to another, or from performing one opera�on to another on the same part. The following table shows the run �me in minutes per unit for each
part.

Rail Bracket A
Press—2 mins. Shear—1 min.
Drill—1 min. Press—1 min.
Press—2 mins. Press—3 mins.
Shear—1 min. Drill—5 mins.

Bracket B Shield
Shear—1 min. Shear—6 mins.
Press—2 mins. Press—1 min.
Drill—1 min. Drill—1 min.

Shear—2 mins.
Drill—4 mins.

Central has only one press, one drill, and one shear, and each is available only eight hours per day. The order for 150 units must be completed within five days. Each machine must
be set up at the start of processing, and again each �me a different opera�on or part is processed on it. There is no assembly �me, as the individual parts are shipped to the
customer, which assembles them. However, 150 units of each part must be completed within five days for the order to be filled.

1. If the parts are made in batches of 150, will it be possible to meet the deadline? (Hint: Develop a Gan� load chart for each machine.)
2. Can you iden�fy one machine that has the heaviest load (the bo�leneck machine)?
3. What should your strategies be for scheduling produc�on on that bo�leneck machine?
4. How can you schedule other machines to be sure that the bo�leneck is not idle?

Discussion Ques�ons

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1. Discuss the ways in which flexible manufacturing systems may alter the ac�vi�es of produc�on scheduling.
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A flexible manufacturing system allows for a greater flexibility in scheduling because of the system’s ability to change easily. In an FMS there is no backlog of parts wai�ng to be
processed. The flow of materials in the flexible manufacturing system operates on an instantaneous movement basis, for example, through the use of conveyor belts. Thus,
there may be less concern about sequencing in an FMS. At the same �me, there is also less flexibility in sequencing because a large backlog of jobs does not exist.

2. List the six criteria that can be used for scheduling.
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The six criteria that can be used for scheduling are:
1) Providing the good or service when the customer wants it
2) Minimizing the length of �me it takes to produce that good or service (called flow �me)
3) Minimizing the level of work-in-process inventories
4) Minimizing the amount of �me that equipment is idle
5) Minimizing the amount of �me that employees are idle
6) Minimizing costs

3. Which scheduling criterion do you think is most relevant for a fast-food restaurant? For a physician’s office? For a hospital emergency room?
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In a fast-food restaurant the most relevant scheduling criteria is that which will minimize the �me it takes to prepare a customer’s order (flow �me). A physician’s office will use
scheduling criteria that will result in minimal idle �me for the doctor, keeping a steady stream of pa�ents throughout the day. An emergency room, however, is most concerned
with scheduling so that those pa�ents with the most severe problems are seen first.

4. Which of the dispatching rules do you use to decide which homework assignment to do first?
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The answer to this may be unique for each student. However, the more likely choices will be either shortest processing �me, longest processing �me, or earliest due date.

5. Explain why scheduling a con�nuous flow produc�on process involves different methods than those used for scheduling a job shop process.
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In a high volume produc�on process there are a small number of products and usually only one or two possible rou�ngs. Thus, the scheduling problems in this process include
when to change from making one product to another and assembly line balancing for smooth materials flow.

A job shop on the other hand has a large number of products with varying produc�on sequences. The scheduling problems become more complex with so many products vying
for �me on the same machines. A decision on which job to process first will impact other machines or work centers with possible overload or idle �me.

6. Which service opera�ons may use the scheduling methods tradi�onally used for job shops?
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Service opera�ons that might use job shop scheduling methods include: physicians, accoun�ng firms, hospitals, and print shops.

7. For each of the dispatching rules, indicate which scheduling criteria will be sa�sfied, as well as the advantages and disadvantages of that rule.
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8. List the data needed for scheduling, and indicate the usual sources.
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9. How does dispatching differ from sequencing?
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Sequencing is determining the order in which jobs should be processed beforehand. Dispatching is the selec�on of jobs in real �me. This o�en involved a priority rule such as
earliest due date.

10. How are priori�es set for jobs in an MRP system?
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Priori�es in MRP are based ini�ally on the planned order releases and lead �mes. Thus, an order that is released earlier will have higher priority than one released later. If jobs
get behind schedule then priori�es can be set again by referring to due dates and lead �mes.

However, there may s�ll be conflicts. In that case, either backward or forward scheduling can be used to determine job priori�es so due dates can be met.

11. Explain the purpose of using input/output control.
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The purpose of input/output control is to ensure that work centers are neither overloaded nor starved for work. The idea is simply to balance input and output so that work
backlog does not become excessively long if input exceeds output or disappear if output exceeds input.

12. How can computer simula�on be used for scheduling?
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Computer simula�on can be used to simulate various schedules. Thus, it is possible to es�mate rapidly the outcomes of many possible schedules and determine the one that
best meets the company’s objec�ves.

13. Discuss different scheduling procedures that might be used for various types of service opera�ons, such as a restaurant, a hospital, or an airline.
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For service opera�ons there may be several different aspects that o�en must be scheduled. These may include scheduling the employees, scheduling the use of resources, and
scheduling the customers. For example, in a restaurant, the restaurant’s opera�ng hours will determine the availability of facili�es to customers. The pa�ern of demand at
different �mes during the day and on different days of the week will determine the requirements for employees, who must be scheduled for their working �mes. If the
restaurant takes reserva�ons, then customers are also scheduled into various �me periods. For a hospital, some parts of its services may resemble those of a restaurant. For
example, elec�ve surgeries can be scheduled in advance when the facili�es are available, with each pa�ent having a reserved �me. However, emergencies may resemble a
restaurant that does not accept reserva�ons, but must serve anyone who shows up. Airlines probably have the most fixed scheduling systems as flights are scheduled well in
advance and each flight has a predetermined passenger limit. Flight crews are scheduled to match the flights.

Problems

1. A company produces four types of paper in batches. Based on the following informa�on, which product should be produced next according to the run-out �me criterion?

Product Demand Rate (1,000 �. per
Month)

Current Inventory (1,000 �.)

Kra� paper 30,000 80,000
Duplicator bond 20,000 40,000
Regular bond 60,000 150,000
Carbon �ssue 10,000 40,000

2. The David-Harleyston Bicycle Company produces its two models of bicycles, the Avenger and the Hawk, in batches. Based on the following informa�on, which model should be
produced next?

Model EOQ Current Inventory Monthly Sales
Avenger 2,000 10,000 30,000
Hawk 5,000 6,000 20,000

3. A consultant must complete four reports. She es�mates that report A will take four hours, report B will take three hours, report C will take six hours, and report D will take two hours.
In what sequence should she complete the reports, using the shortest-processing-�me rule?

4. A job shop has four jobs wai�ng to be processed on its computer numerically controlled (CNC) lathe. Determine the sequence of these jobs by using each of the five dispatching
rules. Assume today is day 107, jobs arrived for processing in the order listed, and the following informa�on is given:

Job Due (Day) Process Time on CNC
Lathe (Hours)

Total Processing Time
Remaining (Days)

A 120 4 12
B 113 8 5
C 125 2 7
D 115 10 10

5. Late Wednesday a�ernoon, Data Processing Associates had four jobs wai�ng to be processed the next day. Each of these jobs requires keying in the data and then processing it on
the company’s computer. The DPNs data entry clerks, who work from 8:00 a.m. to 5:00 p.m., with an hour for lunch at noon, complete the data entry. The computer will be available
con�nuously beginning at 9:00 a.m. on Thursday. Jobs may be processed immediately a�er being entered, or held for processing later.

Job Data Entry Time (Hours) Processing Times (Hours) Time Due
A 1 1 3:00 p.m.
B 1 2 12:00 noon
C 2 0.5 2:00 p.m.
D 2 2 5:00 p.m.

a. Develop schedules using the shortest-processing-�me, longest-processing-�me, and earliest-due-date rules, and draw Gan� load charts for data entry and processing, based on
each rule.

b. Evaluate each of the schedules in part a to accommodate for customer service by calcula�ng average past due hours per job for each scheduling rule.
6. Bill Berry, the heat trea�ng department’s second shi� foreman at Ace Machine Tool Company, wants to become foreman on the first shi�. To look good, Bill wants to keep queues in

his department to a minimum, so he has been using the shortest-processing-�me rule to schedule work. The assembly department, which usually receives jobs a�er they have been
processed in Berry’s department, is complaining they o�en do not get jobs early enough to meet the due dates.

The following jobs are currently in queue at the heat trea�ng department and must all be processed through the heat trea�ng department and then through the assembly
department. Develop a schedule based on the shortest-processing-�me rule, and draw a Gan� chart for each department.

Processing Time (Days)

Job Heat Trea�ng Assembly Days Un�l Due
317 3 1 12
318 1 3 4
324 2 3 10
326 4 2 8

a. Determine whether there is a schedule that can meet all the due dates.
b. Comment on the implica�ons of allowing each machine or work center to schedule its own work.

7. Dr. Houseworth, an orthopedic surgeon, likes to be kept busy during his office hours. All pa�ents scheduled must first have X-rays before they see the doctor. On a certain Monday
morning, Dr. Houseworth arrives at his office, and the following three pa�ents are wai�ng to be X-rayed before seeing him. Determine the sequence in which the pa�ents should be
X-rayed to minimize the �me Dr. Houseworth is idle.

Pa�ent Time to X-Ray (Min.) Time with Doctor (Min.)
Mrs. Green 5 10
Mr. White 15 20Processing math: 0%

Ms. Gray 10 20

8. The following jobs are wai�ng to be processed on one machine. Determine the sequence that will minimize average flow �me.

Job Processing Time (Days)
A 4
B 2
C 6
D 3
E 5

9. The following jobs are wai�ng to be processed through two work centers.
a. Use Johnson’s Rule to determine a sequence.
b. Draw a Gan� load chart for each work center.

Processing Time (Hours)

Job Work
Center 1

Work
Center 2

A 3.0 2.0
B 2.4 3.2
C 1.8 4.0
D 2.2 3.5

10. A printer has six prin�ng jobs. Each job requires typese�ng and prin�ng.
a. Use Johnson’s Rule to sequence the jobs based on the following expected processing �mes.
b. Draw Gan� load charts for prin�ng and typese�ng.

Processing Time (Hours)

Job Typese�ng Prin�ng
1 2.00 3.00
2 3.00 4.00
3 2.50 1.75
4 1.25 2.00
5 3.50 2.50
6 2.25 3.00

11. A city government requires that all new construc�on projects be reviewed by an architect, a city planner, and an environmental engineer (in that order). Four different construc�on
projects are wai�ng to be reviewed, and the review �me of each has been es�mated as shown in the following.

Project Architect City Planner Environmental
Engineer

A 3 hrs. 2 hrs. 4 hrs.
B 2 hrs. 3 hrs. 2 hrs.
C 4 hrs. 1 hr. 3 hrs.
D 2 hrs. 1 hr. 3 hrs.

If the four projects must be processed in the order A, B, C, D by each person, use forward scheduling with finite loading to develop a Gan� load chart for each person.

12. Five parts must be processed through the following opera�ons, and each has the due date shown. The following table shows the �me required for each processing opera�on:

Part A Part B Part C Part D Part E
Lathe (2 days) Lathe (1 day) Mill (1 day) Mill (3 days) Drill (1 day)
Mill (3 days) Grind (1 day) Drill (1 day) Grind (1 day) Mill (3 days)
Drill (1 day) Mill (2 days) Lathe (2 days) Grind (1 day)

Drill (1 day) Drill (1 day)
Due at end of day 8 Due at end of day 6 Due at end of day 5 Due at end of day 10 Due at end of day 6

Use backward scheduling with infinite loading to develop a schedule for each part.

13. Develop a load profile for the city planner in Problem 11.
14. Develop a load profile for the milling opera�on in Problem 12.

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Key Terms

Click on each key term to see the defini�on

backward

scheduling
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An approach to scheduling that starts from a desired due date and works backward.

Processing math: 0%

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cri�cal-ra�o rule
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A measure of the ra�o between �me un�l an order is due and the processing �me remaining.

dispatching
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Assigning priori�es and selec�on of jobs for processing at a work center.

dispatching rules
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Rules used for assigning processing priori�es to jobs for scheduling.

finite

loading
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An approach to machine loading that considers available capacity.

forward scheduling
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An approach to scheduling that starts from the present �me and schedules each job to start at the earliest possible moment.

Gan� load chart
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A graphic device for indica�ng the schedule of jobs on equipment or facili�es.

infinite loading
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An approach to machine loading that does not take capacity considera�ons into account.

input/output control
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A method for managing work flow and queue lengths by comparing input to a machine with output from it.

load profile
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A diagram that indicates the work load being placed on each work center.

An approach to scheduling that tries to take capacity u�liza�on into account.

makespan �me
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The total �me required to complete a set of jobs.

make-to-order company
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A company that produces only to customer orders.

make-to-stock company
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A company that produces for inventory and meets customer orders from inventory.

move �me
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The material handling �me between work centers.

peak demand
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The highest level of demand that can be expected during a specific �me period.

queue �me
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The �me a job spends wai�ng to be processed at a work center.
Processing math: 0%

run-out �me
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The period of �me before a company will run out of a par�cular product.

run �me
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The actual processing �me for a job.

A final, detailed determina�on of the �mes employees will work, the sequence in which goods or services will be provided, and the opera�ng �mes for machines.

sequencing
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A step in the scheduling process in which the ordering of jobs or work is determined.

wait �me
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The �me a job spends wai�ng before being moved to the next work center.

Processing math: 0%

©iStockphoto/Thinkstock

Planning for Material and Resource
Requirements

Learning Objec�ves
A�er comple�ng this chapter, you should be able to:

Describe the rela�onships among forecas�ng, aggregate planning, master scheduling, MRP, and capacity
planning.
Show how a master schedule is developed from an aggregate plan.
Use the method of overall factors to es�mate capacity requirements based on a master schedule.
Explain the difference between independent and dependent demand, and indicate the type of demand for
which MRP is appropriate.
Use MRP to develop planned order releases for items at all levels of the bill of materials.
Develop a load report and load profile based on MRP output, rou�ngs, and labor standards.
Describe the characteris�cs of MRP II.

The planning process begins with the crea�on of a compe��ve strategy, which is then converted into
a business plan—a blueprint for implemen�ng the strategic plan.

©iStockphoto/Thinkstock

9.1 Role of Planning

Planning is one of the most important, yet least understood, jobs that a manager performs. Poor planning can hinder a company’s ability to handle unexpected occurrences. Good
planning can place a company in an extremely strong compe��ve posi�on, one that prepares the organiza�on to deal with any event. All parts of the organiza�on—marke�ng,
opera�ons, finance—must work together in the planning process to ensure that they are moving in harmony with one another.

The start of the planning ac�vity is the development of a compe��ve strategy. In today’s extremely compe��ve global marketplace, organiza�ons cannot afford to go forward
without a well-planned strategy, which includes the opera�ons func�on as well as every other part of the organiza�on. The strategy is then converted into a business plan—a
blueprint for implemen�ng the strategic plan. Based on a forecast and the business plan, each part of an organiza�on must then develop its own plans that describe how the
various parts will work to implement the business and strategic plans. Forecasts of demand and other important business factors, such as costs, are vital if an organiza�on wants to
create an effec�ve plan. This series of planning stages is shown in Figure 9.1.

Figure 9.1: Opera�ons planning ac�vi�es

As part of this overall planning effort, firms develop opera�onal plans that extrapolate across different �me periods. Long-range opera�ons planning addresses facili�es and
resources including the number of facili�es to build, the loca�on(s), the capacity, and the type of process technologies. Long-range planning is o�en considered to be five years, but
could be longer or shorter depending on the industry, For example, if an industry such as electric power genera�on requires 10 years to build a facility, a 5-year plan would be too
short. The industry must be able to plan far enough into the future so it can make the changes needed to respond to growth in demand.

Medium-range opera�ons planning develops ways to u�lize resources to meet customer demand. The �me horizon for medium-range planning is generally from 6 to 18 months in
the future, but may vary outside of this range. The decisions that are usually made as part of medium-range opera�ons planning include the following:

Workforce size
Opera�ng hours of the facili�es
Levels of inventory that will be maintained
Output rates for the processes

Medium-range opera�ons plans must be well coordinated with the marke�ng plans and
the financial plans created by the organiza�on, because these help the firm to develop
the aggregate plan. See Figure 9.1.

Aggregate planning is the combining of individual end items into groups or families of
parts for planning purposes. For instance, an appliance manufacturer may begin
medium-range planning by determining produc�on rates for each broad product family,
such as refrigerators, stoves, and dishwashers. The aggregated plan is a statement of
planned output by product groups on a monthly basis. It provides enough informa�on
to make decisions about important opera�ng decisions such as se�ng contracts for
materials, hiring and training employees, and inventory.

There must be enough flexibility in the contracts with suppliers as well as the
capabili�es of the employees and facili�es so the firm can produce what the customer
demands because the aggregate plan does not provide sufficient details. When actual
produc�on takes place, the appliance company must specify the number of each model
to be produced. For a refrigerator, the model would iden�fy the size in cubic feet,
energy efficiency, and layout (side-by-side or over-under). This more detailed plan, called
the master produc�on schedule, is based on the aggregate plan.

If sufficient quan��es of required resources and materials are not available when needed, customer service will suffer. When developing a master produc�on schedule, a company
must ensure that the schedule is realis�c in terms of its resource and material requirements. This chapter explains how to develop a master produc�on schedule, and how an

organiza�on can determine the resource and material requirements to produce the goods and services for that master produc�on schedule. This leads to a plan that will ensure the
appropriate quan�ty of materials and resources available at the right �me and place.

Highlight: PC Manufacturing

An aggregate plan for a PC manufacturer will state the number of units it intends to produce, but it will not provide the number of each model or type the firm intends to
produce. The aggregate plan will not iden�fy the amount of memory each unit will have or the type of video card. The aggregate plan helps the company and its suppliers to
plan for produc�on over the next few weeks, months, or possibly one year. As each �me period, say one month, passes, the aggregate plan is refreshed to account for more
recent informa�on about demand. A func�onal short-term aggregate plan will ensure that the firm and its suppliers have enough flexibility to respond to customer demand as
it is reported in the very short term so that each PC has the features that customer wants. This final step involves scheduling so that the right material and the right employees
with the right skills come together at the right place and �me with the right equipment to make the product. This is the final, essen�al step when crea�ng and execu�ng an
opera�onal plan. It involves the crea�on of a master produc�on schedule.

9.2 Master Production Schedule

The master schedule—or master produc�on schedule (MPS)—is based on the “aggregated” plan. The master produc�on schedule “disaggregates the aggregate plan” because it is a
specific statement of exactly what will be produced and a specific date for produc�on. The master produc�on schedule usually states individual end items or product models. The
master schedule is, therefore, a detailed extension of the medium-range opera�ons plan, or aggregate plan.

Planning Horizons

The aggregate plan is o�en developed for one year into the future. The master schedule, however, does not need to extend that far, especially because it becomes more difficult to
manage as �me increases. As a general rule, companies use six months or less for their master schedule. However, an important rule is that the master scheduling horizon should
be at least equal to the longest cumula�ve lead �me of any product and its component parts. In other words, enough �me must be allowed from the �me a master schedule
quan�ty is entered for all parts and raw materials to be ordered from suppliers, component parts to be manufactured, and the final product to be assembled and shipped.
Otherwise, the master schedule will not be able to sa�sfy the demand for those products with long cumula�ve lead �mes.

MPS Development Process

The master schedule is a statement of exactly what will be produced. It must simultaneously sa�sfy the needs of sales and marke�ng and be feasible in terms of opera�ons.
Developing a master schedule that is close to the aggregate plan, yet s�ll sa�sfies marke�ng and opera�ons, is not an easy task. The aggregate plan was developed based on a
strategy that maintained acceptable inventory and workforce levels. The master schedule should s�ll be based on that strategy, but must now do so for individual end items. In
addi�on, the master schedule must not place more capacity demands on any machine or work center than can reasonably be met by exis�ng capacity. Due to the difficul�es
involved in developing a good master produc�on schedule, the job is usually done by experienced individuals called master schedulers.

Maine Woods Company produces wooden toys using a labor-intensive produc�on process relying heavily on skilled woodworkers to make most of the parts that are used for the
company’s finished products. The company’s aggregate produc�on plan is developed on a monthly basis for one year into the future. For planning purposes, the company’s 48
different products are grouped by product characteris�cs into three product families: wheel goods, blocks, and baby toys. It is these families that are reflected in the aggregate plan.
Table 9.1 shows that plan for the wheel-goods products only.

Table 9.1: Maine Woods Co. aggregate plan, wheel-goods product group

Month Demand Forecast Regular-Time Produc�on Over�me Produc�on Beginning Inventory Ending Inventory

January 1,800 2,000 0 200

February 1,700 2,000 200 500

March 1,800 2,000 500 700

April 1,500 2,000 700 1,200

May 1,800 2,000 1,200 1,400

June 1,900 2,000 1,400 1,500

July 2,000 2,000 1,500 1,500

August 2,500 2,000 1,500 1,000

September 2,500 2,000 1,000 500

October 2,900 2,000 400 500 0

November 2,400 2,000 400 0 0

December 2,000 2,000 0 0

The company has developed an aggregate plan that emphasizes maintaining a constant workforce. Due to the high skill level required of its employees, Maine Woods does not want
to hire or lay off personnel. Instead, inventory is built up in an�cipa�on of high demand during late summer and fall when the retail stores that sell Maine Woods’ toys order in
prepara�on for Christmas. Over�me has been planned only as a necessity in October and November when no inventory will be available.

Matching the Schedule to the Plan

Refer again to the Maine Woods aggregate plan shown in Table 9.1. Produc�on exceeds demand during the early part of the year, thus increasing inventory. During that �me period,
the company’s objec�ves for the master produc�on schedule will be to:

Produce quan��es that will match the aggregate plan
Produce each individual product in propor�on to its expected demand
Schedule produc�on so that available capacity is not exceeded

The wheel-goods product group consists of three products: tricycles, toy wagons, and scooters. Past experience indicates that orders for these items will be divided so that
approximately half are for tricycles and the remaining orders are equally divided between wagons and scooters. Thus, in January, the planned produc�on of 2,000 units should be
divided so that 1,000 tricycles, 500 toy wagons, and 500 scooters are produced. The same should also be done for February and March.

Figure 9.2 shows one possible master schedule that sa�sfies the preceding requirements. No�ce that the total produc�on of all three products in each month matches the aggregate
plan for that month. Further, produc�on of each individual product is distributed evenly so the produc�on facili�es will not be overloaded in some weeks and under loaded in
others.

Figure 9.2: Maine Woods Co. master produc�on schedule, wheel-goods product group:
Constant planned produc�on

The master schedule shown in Figure 9.2 could be extended across the first nine months of the year because planned produc�on during each of those months is the same. But, in
October, planned produc�on increases to 2,400 units. To meet this increase, the difference can be spread evenly across that month, keeping each product’s propor�on of the total
the same as before. Figure 9.3 shows the master schedule with increased output for October.

Figure 9.3: Maine Woods Co. master produc�on schedule, wheel-goods product group

Accounting for Customer Orders

The master schedule shown in Figure 9.3 is based on the aggregate plan and historical informa�on about demand for each product. However, customer orders must become part of
the process; otherwise, the company may be producing based on a plan that is no longer valid because demand has changed.

To show how a master schedule that takes demand into account can be developed, remove inventory buildup from the picture by concentra�ng on the months of November and
December when inventory is not available and demand must be met from current produc�on. The example will concentrate on just one product—the toy wagon.

Suppose it is the last week of October, and the forecasts s�ll indicate that 600 toy wagons (one-fourth of 2,400) will be ordered during November and another 500 (one-fourth of
2,000) during December. We can enter this informa�on in Figure 9.4 in the “Forecast demand” row. Actual customer orders may, however, differ from the forecast. Therefore, the
next row in Figure 9.4 indicates actual orders booked. No�ce how the actual number of orders received decreases farther into the future because there are fewer known orders. As
the future �me periods draw closer to the present, customer orders should increase, coming closer to the forecast.

Figure 9.4: Maine Woods Co. master produc�on schedule based on demand forecast and
booked customer orders for toy wagons

Projecting On-Hand Inventory

Because Maine Woods produces toy wagons only every other week, a key to mee�ng customer orders will be inventory. For example, no�ce that the company has 100 toy wagons
in inventory at the end of October. However, customer orders for the first week of November are 170. Therefore, unless more wagons are produced, demand cannot be met. To
avoid this problem, Maine Woods has already scheduled another batch of 300 wagons for produc�on during the first week of November, as shown in Figure 9.4.

To plan addi�onal produc�on of toy wagons, which will be scheduled in the “Master schedule” row of Figure 9.4, it will be necessary to calculate the projected on-hand inventory.
This is referred to as “projected” because it is only based on informa�on currently available. As new customer orders arrive, the actual on-hand inventory each week may change.

To determine projected inventory on hand for a specific week, execute the following steps:

1. Determine the amount available to meet demand: Add either actual inventory on hand from the preceding week or projected on-hand inventory from the preceding week to the
quan�ty shown in the “Master schedule” row for the week being calculated. If the master produc�on schedule is blank, then the amount is zero.

2. Determine demand: Select the larger of forecast demand or customer orders booked. This is done for two reasons. First, actual orders may exceed the forecast. Second, addi�onal
orders could be received in the future for periods in which customer orders booked are currently less than the forecast.

3. Calculate on-hand inventory: Subtract the amount determined in step 2 from the amount in step 1. The result is the projected on-hand inventory for the week.

Problem

Refer to Figure 9.4 for Maine Woods. The projected on-hand inventory for weeks 45, 46, and 47 is calculated as follows:

WEEK 45:

1. Actual on-hand inventory from the preceding week (last week of October) is 100 units.
2. The master schedule amount for week 45 is 300.
3. There are 170 customer orders booked during week 45, which is larger than the forecast for that week (150).

Projected on-hand inventory = 100 + 300 − 170 = 230

WEEK 46:

1. Projected on-hand inventory from the preceding week (week 45) is 230 units.
2. The master schedule amount in week 46 is 0.
3. There are 165 customer orders booked in week 46, which is larger than the forecast for that week (150).

Projected on-hand inventory = 230 + 0 − 165 = 65

WEEK 47:

1. Projected on-hand inventory from the preceding week (week 46) is 65 units.
2. The master schedule amount in week 47 is 0.
3. Forecast demand for week 47 is 150, which is larger than the customer orders booked for that week (140).

Projected on-hand inventory = 65 + 0 − 150 = −85

When projected on-hand inventory becomes a nega�ve number, as it has in week 47, the need for more produc�on is indicated. Thus, a master schedule quan�ty must be
entered for week 47. The exact quan�ty to schedule will be determined on the basis of produc�on capacity available, expected demand, and desired batch sizes. Following its
procedure of producing toy wagons every other week, Maine Woods would plan to produce enough to meet demand for the next two weeks, which would be 300, based on
the demand forecast shown in Figure 9.5. No�ce that the projected on-hand inventory balance for week 47 has been recalculated, based on the new master schedule quan�ty.

Figure 9.5: Calcula�on of available-to-promise for November and December for Maine
Woods Co.

A firm must be able to handle customer orders that may be received at
any �me. If a customer requests 50 toy wagons to be shipped in a
specified period of �me, the company must take ac�ons to ensure that
the order is met.

©Comstock/Thinkstock

Amount Available-to-Promise

In addi�on to scheduling produc�on to meet projected demand, it is essen�al to prepare for customer orders to
be received at any �me. The firm must be able to respond to these requests, and that is called “available-to-
promise.” For example, suppose a customer has contacted Maine Woods to request 50 toy wagons to be shipped
in week 46. Will the company have enough toy wagons available to meet this new order plus the exis�ng orders
for weeks 45 and 46 (which are 170 and 165, respec�vely) for a total of 335 toy wagons?

Companies calculate an available-to-promise quan�ty to determine whether new orders can be accepted within a
given �me period. This quan�ty represents the number of units that can be promised for comple�on any �me
before the next master schedule quan�ty.

The available-to-promise quan�ty is calculated as follows:

1. In the first �me period of the planning horizon, add actual on-hand inventory from the preceding �me period to
any master schedule quan�ty. Then subtract the sum of customer orders booked before the next master schedule
quan�ty.

2. For subsequent weeks, calculate available-to-promise only for those weeks when a master schedule quan�ty is
indicated. Subtract the sum of customer orders booked before the next master schedule quan�ty from the
master schedule amount for the given week. Do not include projected on-hand inventory, as that amount could
be used in preceding weeks if more orders are booked.

Problem

Referring to the Maine Woods example shown in Figure 9.5, we will determine available-to-promise quan��es for November.

WEEK 45:

Actual on-hand inventory from the preceding week (end of October) = 100. The master schedule quan�ty for week 45 = 300. The sum of customer orders booked before the
next master schedule quan�ty (week 47) = 170 + 165. The available-to-promise quan�ty = (100 + 300) − (170 + 165) = 65.

WEEK 46:

There is no master schedule quan�ty in this week, so it is skipped.

WEEK 47:

The master schedule amount = 300. The sum of customer orders booked before the next master schedule quan�ty (week 49) = 140 + 120. The available-to-promise quan�ty =
300 − (140 + 120) = 40.

This indicates that Maine Woods can promise another 65 units to its customers for comple�on in week 45 or 46. The word “or” is cri�cal because it means that there are only
65 units available across both weeks. So, Maine Woods cannot promise 65 in week 45 and 65 in week 46. The available-to-promise for week 47 or 48 is 40. Because the
calcula�on is step two assumes that the 65 available-to-promise in week 45 or 46 are consumed, these 40 units are in addi�on to the 65. So, if the 65 units are used, there are
s�ll 40 units available to promise in week 47 or 48. If some of the 65 available-to-promise in week 45 or 46 are not consumed, the available-to-promise in week 47 or 48 will
increase by the amount that is not used.

9.3 Master Scheduling in Practice

The discussion of master produc�on scheduling thus far provides basic informa�on. In actual prac�ce, the job is much more difficult and involved. The next sec�on discusses a few
key points that are important to understand.

Integration with Other Functional Areas

Although the master schedule relates primarily to produc�on, it also has significant implica�ons for marke�ng and finance. The number of units produced during each �me period
determines whether demand can be met for that �me period. Further, this produc�on will generate significant costs for labor and materials, while also determining the inflow that
comes from sales. Consequently, both marke�ng and finance must not only be aware of the master schedule, but also must give it their approval.

Marke�ng and sales may have special promo�ons or other plans that must be reflected in the master schedule. If the trial MPS does not sa�sfy marke�ng’s requirements, then it
must be redone. Mee�ng the various internal and external demands with available resources is what makes master scheduling so difficult.

In the past, developing the MPS was o�en an itera�ve process, frequently involving only marke�ng and opera�ons. But, with today’s emphasis on elimina�on of func�onal barriers,
some companies have formed inter-func�onal teams with representa�ves from opera�ons, marke�ng, and finance. Such a team works together to develop a master schedule that
meets all their needs. As a result, the schedule is completed more quickly. Further, through face-to-face discussions, each individual on the team can be�er understand the
challenges and constraints faced by the func�onal areas other team members represent.

The first version is a “trial” MPS, not necessarily the final one. As Figure 9.6 indicates, a�er the trial master schedule is developed, a determina�on must be made as to whether
sufficient capacity is available.

Figure 9.6: Itera�ve process for
developing a master produc�on
schedule

Approaches to Change

It is important to understand that these plans are not something a company can do only once each year. Planning is a con�nuous process that can be thought of as rolling out a
scroll. As �me passes, the scroll keeps ge�ng rolled up on the end closest to the present �me and unrolled at the other end, so that a new planning horizon comes into view. This
concept is called rolling through �me.

Forecasts far into the future are less accurate than nearer term forecasts. Thus, it may be necessary to make changes in planned produc�on as the planning horizon draws nearer.
For instance, a company might find that demand for one of its products is far exceeding the company’s forecasts. This organiza�on would be foolish not to alter its produc�on plans
to meet the increased demand. Thus, both the aggregate plan and the master schedule will change as �me passes. But, too much change can be disrup�ve. For example, a company
might have already hired employees and bought materials to meet its produc�on plan. Altering that plan could mean idle employees or inventories of unused materials. Many
companies “freeze” their master schedule for a certain �me into the future to avoid such problems.

Freezing the master schedule means that no further changes can be made a�er a certain �me. For instance, a company may indicate that the master schedule will be frozen for
one week into the future. Thus, no changes may be made once a plan is within one week of its execu�on date. This is depicted in Figure 9.7. The master schedule is commonly
frozen for a few weeks, although longer and shorter periods are used, depending on how easily a company can change its plans.

A company may find that demand for one of its products far exceeds its forecasts. This was the case
for the Furby, which was the “must have” toy for the 1998 holiday season.

©Damian Dovarganes/Associated Press/AP Images

Figure 9.7: Freezing the master schedule

Accounting for Demand

When developing a master produc�on schedule for the Maine Woods Company, two approaches were used. The first was based on producing to inventory, while the second was
based on producing to customer orders. In actual prac�ce, both sources of demand must be considered. There are also other sources of demand. For example, companies that
operate mul�ple plants o�en have one plant producing parts for another plant. Such orders would be iden�fied as interplant orders. Further, many companies produce replacement
parts for their products, such as starter motors for automobiles or blades for lawnmowers. These service parts requirements must also be considered. Such a process is depicted in
Figure 9.8.

Figure 9.8: Recognizing all sources of demand through demand management

9.4 Rough-Cut Capacity Planning

The aggregate plan is the first step to ensure that sufficient labor, capital, and machine �me will be available to meet customer demand. But, the aggregate plan accounts for the
totality of those resources, not for individual products. The technique of rough-cut capacity planning is a means of determining whether sufficient capacity exists at specific work
centers to execute the master schedule, which is based on specific products.

Overall Factors

The purpose of rough-cut capacity planning is to determine whether enough capacity will be available to meet the master produc�on schedule. Many companies use the method of
overall factors because of its simplicity and ease of calcula�on. This method relies primarily on historical accoun�ng informa�on to determine how many standard hours are
required per unit of each product. Mul�plying this figure by the number of units planned for produc�on each week determines the overall capacity requirement. This requirement
can then be broken down by individual work centers based on historical data.

Problem

Consider the produc�on plan for Maine Woods’ wheel goods, which is given in Figure 9.2. An aggregate produc�on of 2,000 units has been planned for January. When
developing the master schedule of Figure 9.2, Maine Woods has converted that planned produc�on into the detailed schedule for its three wheel-goods products—toy wagons,
tricycles, and scooters.

Based on historical accoun�ng informa�on, each tricycle required 0.6 standard hours to produce, each toy wagon required 0.3 standard hours, and each scooter required 0.2
standard hours. This informa�on can be used, as shown in Figure 9.9, to calculate capacity requirements for each product. The total capacity requirements can be determined
by the sum of the weekly capacity requirements across all products as shown at the bo�om of Figure 9.9.

Figure 9.9: Calcula�on of total capacity requirements for a master schedule

Suppose Maine Woods is concerned about the high usage of its cu�ng and drilling opera�ons. Again, based on historical accoun�ng informa�on, 40% of all standard hours are
spent on cu�ng and 35% on drilling. The other 25% of standard hours is used for noncri�cal opera�ons that are not of concern.

This historical informa�on can be used to es�mate capacity requirements at each opera�on. For example, in week 1, a total of 225 standard hours is required. Of this, 90 hours
(40%) will be required for cu�ng and 78.75 hours (35%) will be required for drilling. Figure 9.10 shows the es�mated capacity requirements for each work center each week.

Figure 9.10: Calcula�on of es�mated capacity requirements for individual worksta�ons

Insufficient Capacity

Once a company has es�mated capacity requirements at each worksta�on or opera�on, those figures can be compared to capacity available. In some cases, excess capacity may be
available, which indicates the opportunity to book more orders or decrease working hours. In other cases, however, requirements may exceed capacity available.

If insufficient capacity is available to meet the master schedule, a company can either shi� some scheduled produc�on into an earlier �me period that has excess capacity, or
schedule over�me, if possible. If neither of these approaches is possible, more changes may have to be made in the master schedule.

Problem

Maine Woods has 100 hours of cu�ng �me available each week and 80 hours of drilling �me. Based on Figure 9.10, sufficient capacity is available to meet the master
schedule. In fact, weeks 2 and 4 have considerable excess.

However, an important customer has just asked whether an order for 75 tricycles could be completed in week 3. Although week 3 falls within the master schedule’s frozen �me
period, the vice-president of manufacturing has approved an override if capacity is available.

Seventy-five tricycles would require an addi�onal 45 standard hours (75 × 0.6) in week 3. Of these addi�onal hours, 18 (40%) would be used for cu�ng and 15.75 (35%) would
be used for drilling. Figure 9.11 indicates the capacity requirements for cu�ng and drilling if this new order is accommodated. Unfortunately, with only 100 hours of cu�ng
�me and 80 hours of drilling �me, sufficient capacity will not be available.

Figure 9.11: Proposed master schedule requiring over�me in week 3

Maine Woods has several op�ons, including turning down the order for week 3. One op�on is to schedule over�me as necessary in week 3 for cu�ng and drilling. The
customer may be charged a higher price to cover the added cost.

Another op�on is shown in Figure 9.12. In this case, produc�on for the 75 tricycles has been distributed among weeks 2, 3, and 4 (35 in week 2, 5 in week 3, 35 in week 4) to
u�lize available regular�me capacity. In this case, all of the customer’s order could not be completed in week 3, but perhaps enough could be finished to sa�sfy the customer.

Figure 9.12: Proposed master schedule with changes to avoid over�me

A bill of materials is like a recipe, lis�ng the materials needed and the quan��es of each. It also
provides informa�on about how the materials combine to create the final product.

©iStockphoto/Thinkstock

9.5 Material Requirements Planning

One approach that has been used in the past for material planning is to stock all items at all �mes (some�mes called just in case inventory control). This approach requires that
huge inventories be maintained, resul�ng in extensive warehouse space and a large amount of money invested in that inventory. Even then, many companies found that certain
crucial items used in many of their products always seemed to run out at the wrong �me. No ma�er how much inventory is kept, a large demand for certain parts can deplete
supplies quickly.

Independent Versus Dependent Demand

Inventory can also be classified according to the type of demand it intends to serve. The type of demand determines which methods are used to manage inventory. Independent
demand is demand that is not controlled directly by the company, such as demand from customers. Independent demand items usually include finished products, such as the
completed tricycle or replacement parts sold to customers. Demand for such items is generally independent of a company’s produc�on plans. Chapter 10 will discuss procedures for
managing this type of inventory.

Dependent demand is usually demand for an item that is generated by a company’s
produc�on process. One example would be the wheels for tricycles that a company
produces. Each tricycle has three wheels; if the company plans to produce 200 tricycles
in a given week, it will need 600 (200 × 3) wheels that week. Thus, the demand for
wheels depends on the produc�on of tricycles. To manage inventory for dependent
demand items, companies o�en use material requirements planning (MRP).

The idea behind MRP is simple; it is like planning a meal. A few days before preparing
the meal, a decision is made about what to serve. The person who will prepare the
meal examines the recipe to determine what ingredients are required to make the meal,
checks the pantry to determine which ingredients are on hand, and makes a list of the
ingredients that need to be purchased. A trip to the store is made to secure items that
are not currently in stock. The same basic approach is used in material requirements
planning.

The master schedule is analogous to the menu, which states what will be served for the
meal. Recall that the master schedule indicates which items and how many of each item
to produce. A bill of materials is like the list of ingredients in the recipe, which tells the
cook the amount required of each. The bill of materials (BOM) lists the materials
needed and the quan��es of each. Like the recipe, it also provides informa�on about
how the materials come together. Inventory records will show how much is on hand.
From this, it can be determined which parts or materials will come up short and how
much more of each item is needed.

Data Files Used by MRP

For companies today, MRP is a computerized informa�on system. As such, it requires data to provide the informa�on needed for decision making. The three most important data
requirements of MRP are the master produc�on schedule, bill of materials, and inventory records.

1. Master Schedule File
For MRP purposes, the master schedule is what “drives” the system and generates material requirements. As men�oned earlier, this master schedule may be at the finished-
products level for companies such as Maine Woods that manufacture standard products. However, for companies making customized products, the master schedule may be at the
level of components or subassemblies.

2. Bill of Materials File
A bill of materials serves two purposes. First, it lists all the components of a product and the quan��es needed to make the product. Second, it shows the rela�onships among those
components, which indicates product structure, or how the items fit together. For example, Figure 9.13 shows an exploded view of the tricycle produced by Maine Woods. In
manufacturing the tricycle, the front wheel, its supports, the axle, and the steering column are sub-assembled before the en�re tricycle is put together. Likewise, the seat and rear
axle supports are sub-assembled before final assembly.

One way to indicate these subassemblies is through a product structure tree diagram, as shown in Figure 9.14. No�ce that all the parts brought together at final assembly are listed
together on level 1. Any parts that are components of subassemblies are listed on level 2. Connec�ng lines indicate which parts belong to which subassembly.

Figure 9.13: Exploded view of Maine Woods’ tricycle

Figure 9.14: Product structure tree for Maine Woods’ tricycle

An indented bill of materials is another way to provide structure to the bill of materials. A tree diagram is visually appealing, but is difficult to use in computerized MRP systems. An
indented bill of materials is used by MRP to provide informa�on about product structure. Each item is iden�fied with a level, as shown in Figure 9.14. An indented bill of materials
illustrates each level indented from the one above it. Table 9.2 is the indented bill of materials for Maine Woods’ tricycle.

Table 9.2: Indented bill of materials for Maine Woods’ tricycle

Level Part no. Quan�ty Descrip�on

0 127 1 Tricycle

1 3417 1 Handle

1 2973 1 Rear axle

1 463 1 Front assembly

2 3987 2 Axle support (front)

2 5917 1 Wheel

2 2673 1 Front axle

2 3875 1 Steering column

1 5917 2 Wheel

1 587 1 Seat assembly

2 4673 1 Seat

2 3965 2 Axle support (rear)

3. Inventory File
In order for MRP to work, accurate inventory records must be kept. For most companies, this accuracy requires con�nually upda�ng inventory records as items are withdrawn or
added. To automate this func�on, many use bar codes, which are similar to the universal product codes (UPCs) you see on items at a grocery store; however, mistakes can be made

despite automa�on. Cycle coun�ng is a way to reconcile inventory records and correct errors, and many companies using MRP also employ cycle coun�ng. Using this method, a
physical count of each part is made at least once during its replenishment cycle, which is the period between orders to replenish inventory.

Displaying MRP Data

The objec�ve of MRP is to ensure that the correct quan��es of component parts are available at the proper �me to produce finished products according to the master produc�on
schedule. This sec�on describes how that is done for items that appear immediately below the finished product in the product structure tree diagram.

The informa�on obtained from bills of materials, inventory records, and the master schedule can be shown together in the diagram of Figure 9.15, which is the table commonly
used to calculate and display MRP informa�on.

Figure 9.15: Table for MRP

The table in Figure 9.15 illustrates �me periods across the top. These represent �me periods for planning purposes, or �me buckets. The �me buckets correspond to the master
product schedule, which is usually set in weeks. The purpose of using these �me periods is to state the total quan�ty requirements for component parts and materials needed
during each �me bucket. This process of sta�ng requirements by �me bucket is o�en called �me phasing.

The first row in Figure 9.15 is labeled gross requirements. Gross requirements represent the total quan�ty needed of a par�cular item in each �me bucket, based on the master
produc�on schedule and the bill of materials, regardless of current inventory of that item. The second row, scheduled receipts, shows whether any orders for that item have been
placed previously, but not yet received. Entries in this row indicate when the order should arrive and how many units should be enclosed. Projected ending inventory shows the
planned number of units that should remain at the end of each �me bucket a�er all transac�ons of that period are complete. If the number of units available during a period
(projected ending inventory from the previous period plus receipts) is not sufficient to cover gross requirements, then the row labeled net requirements indicates the number of
units the company is short. An entry in net requirements indicates that a replenishment order will need to be placed. Thus, the last two rows show planned receipts and planned
order releases. The planned receipts row shows when orders must arrive in order to avoid a shortage of necessary parts or materials, as indicated by the net requirements row. The
planned order releases row indicates the �me periods in which those orders must be released (or placed) to arrive at the correct �me. The difference between scheduled receipts
and planned receipts is that scheduled receipts correspond to orders that have actually been placed some�me in the past, but not yet received. Planned receipts correspond to
orders planned for release, but not yet released. Both scheduled receipts and planned receipts are included as units available in the MRP record.

MRP Logic

The informa�on in Figure 9.15 may be completed for each part of raw material as follows:

1. Obtain the bill of materials for the appropriate end product.
2. Begin with a level 1 item from the bill of materials.
3. Mul�ply the number of units of the level 1 item needed per unit of finished product (from the bill of materials) by the master schedule quan�ty for each �me bucket. Insert this as

gross requirements for the appropriate �me bucket. Ordinarily, the master schedule indicates the number of units of finished product to be produced in each �me period, so the
appropriate �me bucket will be that same �me period. In some cases, however, the master schedule indicates comple�on of produc�on. If so, the �me period when produc�on
begins is the appropriate �me bucket for gross requirements.

4. Enter any scheduled receipts of the item, based on lead �me and orders previously released, in the appropriate �me buckets.
5. Determine how many units should be in inventory at the start of the first �me bucket. Enter this number in the square to the le� of the first �me bucket.
6. Perform the following steps for each �me bucket, beginning with the first, un�l the end of the planning horizon is reached. Add projected ending inventory from the preceding �me

bucket to scheduled receipts for the present period. If this total equals or exceeds gross requirements for the present period, go to step a. If not, go to step b.
a. If gross requirements in the �me bucket being planned are less than or equal to the sum of projected ending inventory from the preceding �me bucket and scheduled receipts

for the current �me bucket, enter the difference as projected ending inventory in the current period. Leave net requirement blank, and repeat this step for the next �me bucket.
b. If gross requirements are greater than the sum of projected ending inventory from the preceding �me bucket and scheduled receipts for the current �me bucket, enter the

difference as net requirements. Leave projected ending inventory blank for the present �me period un�l the following sub-steps have been performed.
i. For any period in which net requirements appear, plan an order release and corresponding receipt to cover the net requirement. (This ordering approach is termed lot-for-

lot. Net requirements from several periods may be combined into one planned order release using other lot sizing methods.)
ii. Subtract net requirements from planned receipts, and enter the total as projected ending inventory for the current �me bucket. Proceed to step a for the next �me bucket.

Problem

Consider the Maine Woods Company. The bill of materials for tricycles, shown in Table 9.2, indicates the front assembly (part #463) is a level 1 item. The inventory file for this
item shows 100 units are expected to be in inventory at the end of December. Produc�on lead �me, the �me it takes to receive front assemblies a�er more are ordered into
produc�on, is two weeks. An order for 500 front assemblies was released earlier and is scheduled for receipt during week 1 of January. Using the master schedule for tricycles
of Figure 9.12, determine planned order releases for front assemblies. The produc�on for weeks 5 and 6 is set at 250 units each.

Step 1. The bill of materials (Table 9.2) indicates one front assembly is needed for each tricycle.

Step 2. Front assemblies are a level 1 item, so begin planning with them.

Step 3. The master produc�on schedule during weeks 1 through 6 is shown at the top of Figure 9.16. Because one front assembly is needed for each tricycle, and the master
schedule shows units to be produced during each week, the gross requirements for front assemblies in each week will be the same as the master schedule quan��es of
tricycles.

Step 4. The scheduled receipt of 500 units is entered for week 1.

Step 5. The 100 front assemblies projected to be in inventory at the end of December are entered in the projected ending inventory box to the le� of week 1.

Step 6. Week 1: Gross requirements in week 1 are less than projected ending inventory from the previous week, plus scheduled receipts for week 1. The difference is entered
as projected ending inventory for week 1, as shown in Figure 9.16.

(100 + 500) − 250 = 350

Week 2: Gross requirements in week 2 are less than projected ending inventory from week 1. Projected ending inventory for week 2 is:

350 − 285 = 65,

as shown in Figure 9.17.

Figure 9.16: MRP for front assemblies

Figure 9.17: Par�ally completed MRP: Front assemblies

Week 3: Gross requirements in week 3 are greater than projected ending inventory from week 2 by 190 units. This difference is entered as net requirements for week 3.

1. An order for week 3 net requirements must be planned for receipt in week 3. Because the lead �me is two weeks, the order must be planned for release in week 1 (week 3
minus 2 weeks lead �me = week 1).

2. The planned receipts for week 3 are 190 units, and net requirements are 190 units. Therefore, the projected ending inventory for week 3 will be zero.

Weeks 4 through 6 are completed in the same way, producing the results shown in Figure 9.18.

Figure 9.18: Completed MRP: Front assemblies

In this example, the planned order releases were determined for front assemblies, which are a level 1 item. The gross requirements for all level 1 items will be determined
from the master produc�on schedule. But items that are level 2 in the bill of materials will be used in making level 1 items. Thus, their gross requirements will be determined
from planned order releases for level 1 items, not from the master schedule. For example, the front assemblies that were just planned using MRP are a level 1 item. However,
the front axle supports used in that assembly are level 2. Therefore, the gross requirements for front axle supports will be determined by the planned order releases for front
assemblies, as shown in Figure 9.19.

Figure 9.19: MRP for a level 2 item: Front axle supports

Coordinating Purchasing

Many �mes, one par�cular part or subassembly will be used in more than one product. In such cases, the gross requirements for that part must take into account all planned
produc�on of products or subassemblies that use that part.

Problem

The front wheel in the Maine Woods tricycle is exactly the same as the two rear wheels. However, the front wheel is part of a subassembly, while the rear wheels are not.
Furthermore, the wheels on Maine Woods’ scooter are also the same as the wheels used on its tricycle. Therefore, gross requirements for wheels (part #5917) will be the sum
of planned order releases for tricycle front assemblies (Figure 9.18) plus the master schedule quan��es for tricycles (Figure 9.12), mul�plied by two, and scooters (Figure 9.12),
also mul�plied by two, as shown in Figure 9.20.

Figure 9.20: Combining demand from mul�ple sources and levels

MRP Coordinates Purchasing and Operations

The output from MRP is a schedule of planned order releases. There are two types of orders. A shop order authorizes produc�on to make certain component parts or
subassemblies. A purchase order is an authoriza�on for a vendor to supply parts or materials. If the orders request component parts or subassemblies made by the company itself,
then a shop order will be released. If the planned order release is for a part or raw material that is purchased from an outside vendor, then a purchase order will be released.

The opera�ons part of a company is usually the department responsible for running MRP. Thus, opera�ons are aware that the release of a shop order means that a certain part or
component should be started in produc�on because a need will exist for it some�me in the near future. Because opera�ons generated the shop order release, they will be aware
that it is a valid order and that it should be produced in the quan�ty indicated. Purchase orders are usually handled by a purchasing or procurement department. If the order
releases generated by MRP are to be carried out, then the purchasing department must be aware of what the MRP system is doing and trust in the output it generates. Close
coordina�on between the opera�ons and purchasing departments is essen�al.

9.6 Extensions of MRP

The discussion of MRP thus far has focused on the basics, o�en referred to as “li�le MRP.” It is important to understand how MRP can be extended to make it more useful and
applicable to areas of the business beyond opera�ons.

Capacity Requirements Planning

As men�oned previously, the master schedule is developed from the aggregate plan. Thus, the master schedule can provide much more exact measures of the capacity requirements
than the aggregate plan can. As the master schedule is developed, rough-cut capacity planning is used to check capacity requirements against capacity availability. Rough-cut
capacity planning does not take into account lead-�me offse�ng, or the amount ahead of �me that component parts must be made to meet the master schedule for end items.
MRP can form the basis for much more detailed capacity calcula�ons because MRP performs lead-�me offse�ng when it generates planned order releases. For parts made in-
house, the planned order releases generated by MRP indicate exactly when certain parts must be made and in what quan�ty. Those planned order releases will ini�ate a series of
produc�on requirements on the machines and equipment used to produce those parts and subassemblies. These demands consume a por�on of capacity of the machines and
equipment. Using a rou�ng sheet, which indicates the sequence of machines or work centers through which a part must pass during processing and the labor standards, it is
possible to determine capacity requirements at each opera�on.

Figure 9.21 shows planned order releases for tricycle axle supports, along with informa�on contained in the rou�ng sheet for that part. In each week, the run �me on each machine
is mul�plied by the order quan�ty for that week and then added to set-up �me to get capacity requirements. This procedure is done for each work center and each week.

Figure 9.21: Capacity requirements planning for tricycle axle
supports

The informa�on generated in Figure 9.21 is only for one part. Many other parts would also generate capacity requirements at the same work centers. By adding together all the
capacity requirements for each work center in each week, a total figure for capacity requirements will be generated. The total capacity requirements placed on a work center during
a given �me period are called the load. The output of capacity requirements planning (CRP) is usually in the form of a load report, or load profile, which is a graphical
representa�on of the load on each work center by �me period. An example of a load report is shown in Figure 9.22.

Figure 9.22: Drill work center load report

Closed-Loop MRP

Capacity requirements planning is of significant benefit in ensuring that a company’s plans are realis�c and can be implemented. However, MRP can only project what should
happen if demand is as forecasted on the master produc�on schedule. In reality, machines may break down, deliveries from suppliers may be delayed, or some other calamity may
occur. If these events are not reflected back in the MRP plan, then that plan will be invalid.

Closed-loop MRP provides feedback about the execu�on of produc�on plans. By tracking what actually happens on the shop floor and then reflec�ng that informa�on in the MRP
record, plans can be kept valid. Instead of “launching” orders with no informa�on about comple�on, closed-loop MRP provides the feedback loop necessary to keep informa�on up
to date.

Manufacturing Resource Planning (MRP II)

Many companies have found that material requirements planning can greatly improve their opera�ons through be�er planning. MRP also forces companies to be�er coordinate the
ac�vi�es of opera�ons, marke�ng, and purchasing. The master schedule will have implica�ons for finance, personnel, workforce requirements, and purchases of materials. A
company must be sure that its opera�ons plan fits appropriately with the business plan. All func�onal areas must base their ac�vi�es on the plan. To do that, an extension of MRP
has been developed called manufacturing resource planning.

Manufacturing resource planning, or MRP II, as it is commonly called to differen�ate it from material requirements planning (MRP), is a way of tying all parts of an organiza�on
together to build on the strategic plan. The strategic plan is an overall blueprint that specifies the company’s objec�ves and how it plans to reach them. The opera�ons func�on will
develop its own goals and plans to help achieve the corporate objec�ve, as will the marke�ng, finance, and all other departments of the organiza�on. The ac�ons of one func�onal
area, however, will have an impact on the other areas. For instance, if marke�ng plans a promo�onal effort that will greatly increase sales, then opera�ons must be ready and able
to produce enough product to meet that increased demand. Hiring more employees or buying addi�onal equipment, which will, in turn, have a major impact on the financial area,
may be necessary. Because the opera�ons ac�vity is such an integral part of any organiza�on, it can be especially vulnerable to the ac�ons taken by other departments, and will
have a large influence on other areas of the company through its ac�ons.

Planned orders can also provide informa�on about expected expenditures. Purchase order releases can be used to es�mate future payments to suppliers. Shop order releases will
generate needs for machine �me and labor, so that they can also be used to es�mate future expenses. Before the development of MRP II, companies used cost accoun�ng primarily
as a way to determine success a�er the fact. It was a way to find out what it had cost to do what was already done.

MRP II can change the way companies operate. By genera�ng cost projec�ons, it is possible to plan for produc�on costs ahead of �me and then compare actual costs to these
projec�ons. Any major devia�ons can be spo�ed and inves�gated. A related advantage with MRP II is that it can be used to answer what-if types of ques�ons. Using MRP II, a
company can es�mate the effect of a supplier cost increase and develop strategies to address it, instead of trying to respond a�er the fact. Figure 9.23 shows how MRP II connects
all parts of the organiza�on.

Figure 9.23: MRP II

MRP in Service Organizations

Although MRP was originally developed for manufacturing companies, it can also be applied to service organiza�ons. Instead of the master schedule represen�ng goods to be
produced, it can represent services to be provided.

For example, an airline’s master schedule could show the number of flights from different ci�es each week. In this case, the materials required to provide that service include fuel
for the airplanes, meals for the passengers, and other related items. Likewise, hospitals can develop a master schedule showing the number of different types of surgeries each
week.

Materials required include various surgical supplies. This is a variant of MRP, known as hospital requirements planning (HRP).

When airlines create a master schedule they also compile a list of materials needed to provide that
service such as fuel for the airplanes and snacks for the passengers.

Although some surgeries are emergencies, many others are scheduled in advance.
Historical informa�on about emergency surgeries can be combined with those that are
scheduled to develop a master schedule. MRP can then be used to convert the master
schedule into requirements for medical equipment, instruments, supplies, opera�ng
rooms, and staff. Houston’s Park Plaza Hospital has used this approach to improve
management of expensive inventory.

Distribution Requirements Planning (DRP)

In the retail se�ng, the MRP approach has been applied so widely that a variant of
MRP, called distribu�on requirements planning (DRP), has been developed. In this way,
the MRP planning logic is applied to requirements for retail outlets or warehouses.

Distribu�on networks o�en consist of local outlets or service centers that are supplied
from local distribu�on centers. In turn, these distribu�on centers may be fed by a
regional or na�onal warehouse. By thinking of each level in the distribu�on network as
a level in a bill of materials, it is possible to see that orders placed by the service
centers will generate gross requirements at the regional warehouses. Figure 9.24 shows
an example of distribu�on requirements planning.

Giant Food Company, a supermarket chain, uses DRP as part of its ECR (efficient
consumer response) approach to supply chain management. DRP allows the company to
connect its POS (point-of-sale) informa�on from stores to inventory levels throughout
the supply chain, making that informa�on available to all supply chain partners. DRP then “pulls” items through the system based on customer demand, facilita�ng one of the basic
ideas behind ECR.

Figure 9.24: Distribu�on requirements planning

Role of Management Information Systems in Planning

MRP is usually calculated on a computer because of the large volume of computa�ons that must be performed and because much of the informa�on, such as bills of material and
inventory records, is stored on computerized databases. MRP II, by including more organiza�onal func�ons within its scope, further increases the need for computerized informa�on.
As a result, companies very o�en use computerized informa�on systems for opera�ons planning and control ac�vi�es. One such system and the data files that it works with are
shown in Figure 9.25. Enterprise resource planning (ERP) uses a single integrated database for the en�re organiza�on. In this way, each part of the organiza�on is connected, and
efforts to break down barriers within the organiza�on are facilitated.

Figure 9.25: Informa�on system for managing and controlling
opera�ons

Chapter Summary

The produc�on planning process leads from an aggregate plan to a master schedule to MRP.
The master schedule is a more detailed version of the aggregate plan that includes produc�on for individual end products and the specific week in which the produc�on will take
place.
The method of overall factors uses historical informa�on to make a rough-cut capacity requirements es�mate from the master schedule.
Material requirements planning (MRP) uses the master schedule, bills of materials, and inventory records to plan orders for subassemblies and parts.
Capacity requirements planning uses rou�ng sheets and labor standards to develop �me-phased es�mates of capacity requirements based on planned order releases.
Manufacturing resource planning (MRP II) provides cost informa�on and other data that can be shared throughout the organiza�on.

Case Studies

Able Electronics Company

Mike Lanier, produc�on manager for the Able Electronics Company, has just sat through another frustra�ng mee�ng with the company’s marke�ng manager, Pam Brandt. Pam has
been receiving complaints from customers that their orders are not being delivered on �me. Mike had to admit that the company’s on-�me delivery record of 53% was not very
good. But Mike felt that it was partly the fault of Able’s salespeople. In their efforts to make a sale, the company’s salespeople o�en promised delivery within a period of �me that
they knew would be difficult, if not impossible, for produc�on to meet. Many �mes, these orders were for special, customized products that required different parts or different
processes than Able used on its standard products.

Able Electronics produces printed circuit boards and other electronic components that are sold to companies that use them to make a range of products from computer hardware to
televisions and radios. In the past, the company has produced some 2,000 fairly standard products. However, the compe��ve electronics business has increasingly required that Able
be willing to customize its products to customer needs as foreign compe��on has picked up the business in standardized products by offering much lower prices than Able. Able
now makes a total of approximately 3,600 different products, although only about 300 different components are used.

To meet this increased demand for customized products, Able has started increasing its levels of component-parts inventory. This has helped somewhat, but the company’s inventory
investment has increased dras�cally from $824,000 to $1,243,000 during the past year. This has also been partly due to efforts to increase the finished-goods inventory for standard
products, which would allow the company to meet standard orders from inventory, freeing up more �me to make special orders. Unfortunately, that has not worked. In fact, the on-
�me record for special orders has worsened.

At one �me, the company had considered using MRP, but that idea was abandoned because Able thought that, with the large number of different products it made, developing a
master schedule would be next to impossible. Now Mike Lanier wonders if he shouldn’t reconsider.

1. How might MRP help Able deal with some of its problems?
2. What approach could Able use to overcome the problem of master scheduling for customized products?
3. How would master scheduling improve the salespeople’s ability to give customers more realis�c delivery dates?
4. What aspects of MRP would be most useful to Able?

Space Age Furniture Company

The Space Age Furniture Company manufactures tables and cabinets to hold microwave ovens and portable televisions. These products are made in various sizes and with various
features, but all follow basically the same produc�on and assembly opera�ons. However, two of these products—the Saturn microwave stand and the Gemini TV stand—have a part
(no. 3079) that requires machining on a special lathe used only for making that part. At present the machine is run by Ed Szewczak, a machinist who also operates other machines
in Space Age’s shop. Once set up and started, the lathe can run nearly una�ended. However, the machinist must be present (even if not actually a�ending the machine) any �me
one of the machines, including the lathe, is in opera�on. At present, Ed works a regular 40-hour week. However, due to the workload for producing part 3079, it has been necessary
to schedule frequent over�me for him in order to finish the necessary parts on �me.

Coral Snodgrass, opera�ons manager for Space Age, has just heard from Ed’s foremen that Ed is becoming unhappy about so much over�me. As Coral knows, Ed has been with the
company a long �me and is an excellent, reliable employee. Skilled machinists with Ed’s experience and employment record are extremely difficult to find. Coral wonders what can
be done to alleviate this problem.

Recently, Space Age began using an MRP system that has helped reduce inventories greatly and improve on-�me deliveries. In fact, Space Age carries no finished-goods inventory.
Instead, everything in the master schedule is being produced for customer orders, so all products are shipped almost immediately. Previously Space Age had es�mated that it cost
$1.25 per week to store each Gemini and $1.50 per week to store each Saturn that wasn’t shipped immediately. The master schedule for producing these two items for the next six
weeks is shown below.

Master Schedule

Week

1 2 3 4 5 6

Gemini 600 400 700 500 400 600

Saturn 300 400 400 600 300 300

The part in ques�on, 3079, is used in two different subassemblies: no. 435, which is used in the Gemini TV stand, and no. 257, which is used in the Saturn microwave stand. One of
part 3079 is used in each subassembly, and one of each subassembly is used in each of the final products.

Part 3079 may be produced in any quan�ty since the lathe that makes it is not used for anything else. However, both of the subassemblies are produced using the same equipment.
To minimize change over �me, Space Age has decided that these subassemblies should be made in minimum quan��es of 1,000 at a �me, although there is no problem with
capacity on the equipment that makes them. In fact, an order for 1,000 of subassembly 435 is due to be received in week 1, as is an order for 1,000 of subassembly 257. Lead �me
for both these subassemblies is one week, and no inventory is expected to be on hand for either part at the beginning of week 1. There is not any on-hand inventory of part 3079,
and there are no orders in process.

Ed Szewczak earns $22 per hour and gets a 50% premium for any over�me work. Whenever part 3079 is made, there is no set-up �me, but processing takes 0.03 hour per unit. It
costs $0.25 per week to hold any of these parts over from one week to the next. The cost of holding each subassembly in inventory is $0.75 per unit per week.

1. What op�ons are open to Coral to address this problem?
2. How would reducing the minimum quan�ty of subassemblies help?
3. What are the costs of carrying excess items in inventory at each stage?
4. What is the trade-off between over�me costs and inventory costs?

Discussion Ques�ons

Click on each ques�on to reveal the answer.

1. Define the following terms:
a. Rough-cut capacity planning
b. Time bucket
c. Lead-�me offse�ng
d. Freezing the master schedule
e. Available-to-promise
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a. Rough-Cut Capacity Planning – used to es�mate whether sufficient produc�on capacity will exist at individual work centers to meet the master schedule.

b. Time bucket – Time periods for planning purposes, which correspond with the master schedule and are usually stated in terms of weeks. Their purpose is to state
requirements for component parts and materials in terms of the total quan�ty needed during each �me bucket.

c. Lead-�me offse�ng – the process of taking net requirements for component parts or raw materials and conver�ng the requirements into planned order releases by taking
produc�on or procurement lead �me into considera�on.

d. Freezing the master schedule – means that no further changes can be made a�er a certain point in �me (i.e., a month into the future). Though it is important to make
changes in planned produc�on as the planning horizon draws nearer, too much change can be disrup�ve. A company will freeze its master schedule to avoid idle employees or
unused inventory which would result from changes in the master schedule a�er the employees are hired or materials are purchased.

e. Available-to-promise – the number of planned produc�on units in a master schedule that are not yet commi�ed to customer orders before the next produc�on period.

2. Explain how a restaurant could use MRP. In what ways would its use in a restaurant differ from its use in a manufacturing organiza�on?
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Based on inventory, bills of material (recipes) and projected sales, the restaurant would order goods within an appropriate �me frame so they will have enough inventory on
hand to meet projected customer demand. The restaurant will differ from a manufacturing organiza�on in that the majority of its orders could be for perishable goods. The
restaurant is unable, therefore, to store inventory for very long periods of �me, thus making MRP a�rac�ve by tying ordering with expected demand. However, a restaurant
cannot control what customers order. Thus, actual orders may differ from the produc�on plan.

3. Describe the informa�on generated by MRP II and how it could be used by the following departments in a company:
a. Personnel
b. Finance
c. Marke�ng
d. Engineering
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MRP II is a way of tying all parts of an organiza�on together with the opera�ons ac�vity to build on the business plan. MRP II generates cost projec�ons through planned order
releases and provides informa�on on workforce and financial requirements. Each department might use MRP II informa�on in the following ways.

a. Personnel may use MRP II to determine the number of employees (human capacity) required to meet produc�on each month.

b. Finance could use MRP II to obtain informa�on on capital and cash requirements resul�ng from labor costs and inventory expenditures.

c. Marke�ng would find MRP II useful to determine the availability of resources. They must know how much product is available to sell and if any addi�onal capacity is
available for special orders or large accounts.

d. Engineering would be concerned about which parts and products the company is planning to make. Issues such as the following must be addressed by engineering: is the
current design sa�sfactory? are any changes in the design of parts being planned? are there new parts being considered that must be designed? The effect of any design
changes on the company’s plan must also be looked at.

4. Explain how MRP can decrease a company’s inventory while improving its customer service level.
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Through the use of MRP, a company can place orders for goods and materials to arrive as they are needed to meet the projec�ons of the master schedule. The company,
therefore, does not have to accumulate large inventories. The customer service level is also improved with the use of MRP. The company is planning ahead, ordering
components it will need to meet product demand, and therefore decreasing back orders to its customers.

5. Discuss the rela�onship between MRP and MRP II.
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Material Requirements Planning (MRP) facilitates be�er planning and forces companies to be�er coordinate the ac�vi�es of opera�ons, marke�ng, and purchasing.
Manufacturing Resource Planning (MRP II), is a way of tying all parts of an organiza�on together with the opera�ons ac�vity to build on the business plan. The results of MRP II
are stated in financial terms that can be used by the en�re organiza�on.

6. Why is it important for an organiza�on to plan and allocate resources?
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Any organiza�on needs to know where it wants to go and how it intends to get there. Addi�onally, an organiza�on must be sure that its plans are coordinated with the
organiza�on’s objec�ves and that resources are allocated appropriately to achieve those objec�ves. With limited resources, an organiza�on must be sure to make resource
alloca�ons in ways that will assure achievement of the organiza�on’s objec�ves.

7. Define the following terms:
a. Bill of materials
b. Net requirements
c. Gross requirements
d. Scheduled receipts
e. Planned receipts
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a. Bill of materials – a lis�ng of exactly what’s needed and in what amounts to produce a par�cular product.

b. Net requirements – In the table commonly used to calculate and display MRP informa�on, the row labeled as net requirements indicates the number of units short for the
�me period a�er scheduled receipts and inventory have been accounted for.

c. Gross requirements – In the table for MRP, gross requirements represents the total quan�ty needed of a par�cular item in each �me bucket, based on the master schedule
and bill of materials, regardless of current inventory of that item.

d. Scheduled receipts – is the number of units, indicated on the Table for MRP, that have been previously ordered and are expected to be received during the �me period.

e. Planned receipts – is the number of units that are expected to be received that correspond to orders planned for release but not yet released.

8. Why are there separate lines for planned receipts and scheduled receipts in the MRP table?
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There are separate lines for planned receipts and scheduled receipts in the MRP table because they correspond to different orders. Scheduled Receipts correspond to orders
that have actually been released some �me in the past, but not yet received. Planned Receipts correspond to orders planned for release but not yet released.

9. Describe how capacity requirements planning differs from rough-cut capacity planning.
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Rough-cut capacity planning is used to es�mate whether sufficient capacity will exist at individual work centers to meet the master schedule. However, it is based on the
master schedule and historical informa�on. Capacity requirements planning (CRP) is the process of es�ma�ng total capacity that will be required at each work center or
machine, based on the master schedule and material requirements planning (MRP). Because CRP includes the lead �me offse�ng of MRP it gives more accurate es�mates.

10. What informa�on is needed for capacity requirements planning, and how is that informa�on obtained?
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Informa�on that is needed for capacity requirements planning, obtained from management, includes planned order releases, which would usually be generated by the MRP
system, informa�on about the processing sequence and set up �mes of each component, usually obtained from the rou�ng sheets, and informa�on about the availability of
resources, which would be based on planned opera�ng hours.

11. The �me you have available for studying is a limited resource. For the next week, develop a load profile that compares the �me you have available (capacity) with the �me you
should devote to studying for all your courses. What are your op�ons if capacity is exceeded?
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The answer to this ques�on will be unique for each student. The “load profile” will show to the �me each student should study, which is usually two hours for each hour spent
in class, compared to studying �me available each day.

Op�ons available when capacity is exceeded include:

– Eliminate some ac�vi�es of lower importance (such as watching TV).

– “Offload” by ge�ng others to do some of your non-study ac�vi�es (such as doing your laundry).

– Reschedule some study �me to earlier or later in the week when extra capacity exists.

– Add capacity by pu�ng in an “all-nighter” (not recommended).

12. In what units might the capacity of a hotel be expressed, and what op�ons are available if it is expected that capacity will be exceeded?
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Capacity for a hotel could be expressed as either number of rooms or number of beds available per night. If it is expected that capacity will be exceeded, the op�ons are
somewhat limited. The most common op�ons are to either turn people away or find them rooms at other hotels.

13. What are some things a company can do when rough-cut capacity planning indicates insufficient capacity to meet the master schedule?
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Week

1 2 3 4 5 6 7 8 9

300 400 375 325 300 280 300 250 200

April Week

1 2 3 4 5

900 875 850 745 720

Product A Week

1 2 3 4 5 6 7 8

240 300 350 350 400 300 300 400

Product B Week

1 2 3 4 5 6 7 8

500 450 400 400 300 350 500 500

Week 1 2 3 4

Number of audits
requested

5 8 10 9

Number of tax
prepara�ons requested

10 8 9 7

The following are some things a company can do when rough-cut capacity planning indicates insufficient capacity to meet the master schedule:

1. Revise the master schedule by shi�ing planned produc�on to periods when capacity is available.

2. Schedule over�me or plan to add another shi�.

3. Do nothing and hope everything works out (not a recommended approach).

14. How is the master produc�on schedule modified for computerized MRP?
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There is really no major change made in the master produc�on schedule for computerized MRP, except that it is set up as a computer file. Of course this computer file must be
established in a way that will interface with the other MRP files such as BOM and inventory.

15. How does closed-loop MRP maintain the validity of a produc�on plan?
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Closed-loop MRP maintains the validity of a produc�on plan by feeding back execu�on informa�on to the MRP system. In this way informa�on can be updated and changes
made accordingly so the plan remains valid.

Problems

1. The aggregate plan for Brookline Clothing Company indicates 3,750 men’s pants are to be produced during March. Of these, 20% are style 493. Assuming there are five weeks of
produc�on in March, develop a master schedule for style 493 men’s pants if they are produced in a batch of 250.

2. A certain company has forecast demand during the first nine weeks of the year as 350 units per week for product A. Projected inventory of product A at the end of December is 800
units. If product A is produced in batches of 1,000, determine the master schedule and the available-to-promise quan��es, based on the following customer orders booked:

3. The Evans Spor�ng Goods Company has developed an aggregate plan to produce 5,000 units of its wood-products group during April. Baseball bats make up 80% of this product
group, based on past sales. At the end of March, the company expects to have 800 bats available in inventory. Customer orders booked in the five weeks of April are as follows:

If bats are produced in batches of 2,000, develop a master schedule, assuming forecast demand is expected to be uniformly distributed throughout the month.

4. A company has the following master schedules for two of its products:

Both products must be processed on the same cri�cal machine. Product A requires 0.2 hour of �me on this machine per unit, and product B requires 0.1 hour per unit. The machine
is available 120 hours per week. Use rough-cut capacity planning to determine whether sufficient capacity will be available on the machine. Suggest possible ways that any capacity
shortage may be solved.

5. The Ernie and Winnie Public Accoun�ng Company has only two employees (Ernie and Winnie). Ernie is available 30 hours per week for audi�ng and 20 hours per week for tax
prepara�on. Winnie is available 10 hours per week for audi�ng and 30 hours per week for tax prepara�on. Each audit requires five hours, and each tax prepara�on requires two
hours. The company has received requests to perform the following audits and tax prepara�ons each week during the next month.

Iden�fy possible problems that may occur if each employee’s audi�ng and tax prepara�on �mes are fixed. Can excess �me for one ac�vity be used for another ac�vity? Why or why
not?

Week 1 2 3 4

Surgeries Scheduled 30 60 55 60

Master Schedule—Coffee Tables

Week

32 33 34 35 36 37

500 400 450 300 450 400

Master Schedule—12 oz. Vegetable Beef Soup

Week

12 13 14 15 16 17

1,200 1,500 600 900 2,000 1,500

Item Lead Time
(Weeks)

On-Hand
Week 42

Scheduled Receipts

Quan�ty Week

A38 2 3,000 3,000 44

B493 1 3,000

1438 1 3,000

Master Schedule—5400s

Week

43 44 45 46 47

2,000 2,400 3,000 2,300 2,300

6. Referring to your answer in Problem 3, historical informa�on shows that two standard hours are required to produce each baseball bat. Further, 60% of all standard hours for wood
products have been for lathe �me and 40% for finishing. Es�mate the standard hours required in each opera�on to produce the bats scheduled in Problem 3.

7. Referring to Problem 6, suppose 2,000 standard hours of lathe �me and 1,500 standard hours of finishing �me are available each week. Determine whether sufficient capacity will be
available each week. If not, suggest ways to meet demand with available capacity.

8. Central Eye Hospital has scheduled the following number of cataract surgeries during each of the next four weeks. Each cataract surgery requires the use of five pairs of surgical
gloves. These gloves are ordered from a supplier in quan��es of 1,000 pairs at a �me. Ordering lead �me is two weeks. Inventory records indicate that there will be 200 pairs of
gloves in inventory at the start of week 1. An order for 1,000 more is expected to arrive during week 1.

Use MRP to schedule planned order releases for gloves.

9. A company that manufactures furniture produces a par�cular type of coffee table. As you may guess, each coffee table has four legs. The produc�on lead �me for these legs is two
weeks. Inventory records show that 2,500 of these legs will be available as on-hand inventory at the beginning of week 32. An order for 2,500 legs has already been released and is
scheduled to arrive in week 33. These legs may be produced in any quan�ty. Use MRP to schedule planned order releases.

10. A company that makes canned soups has developed the following master schedule for its 12-ounce cans of vegetable beef soup:

Each 12-ounce can of vegetable beef soup requires seven ounces of beef broth. The company currently has 9,000 ounces of beef broth that will be available in week 12. Produc�on
lead �me for beef broth is one week. Each ounce of beef broth requires three ounces of beef bones. These bones are ordered from a supplier in mul�ples of 32,000 ounces (2,000
pounds) and have a lead �me of two weeks. There will be 30,000 ounces on hand at the beginning of week 12, and another 32,000 ounces are scheduled for receipt during week 13.
Develop planned order releases for beef bones.

11. Referring to Problem 10, suppose that the supplier of beef bones has called to indicate that the delivery of 32,000 ounces for week 13 has been delayed un�l week 14. How do you
need to alter the master schedule for produc�on of vegetable beef soup to compensate for this change if it is uneconomical to produce less than 100 cans of soup at a �me?

12. An electronics manufacturer makes a product designated as 5400. Each 5400 is assembled from one of each of two subassemblies, A38 and B493.
Subassembly A38 requires two of part 1438 and two of component 1297.
Component 1297 in turn is made from one of part 6438 and five fasteners numbered 4217. Subassembly B493 consists only of two units of part 1395 and four fasteners numbered
4217.

a. Draw a tree diagram indica�ng the structure of product 5400.
b. Using low-level coding, at what level would fastener 4217 be coded in the BOM?
c. Develop an indented bill of materials for product 5400.

13. Referring to Problem 12, the master schedule for product 5400 is as shown below.

a. Determine gross requirements for A38 and B493 in each week.
b. Suppose that in addi�on to the informa�on provided, the MRP system’s item master file indicates the following lead �mes, and the inventory data file indicates the current

amounts on hand and the scheduled receipts shown below. Develop planned order releases for parts 1438 and 1395.

1297 1 4,500

1395 3 4,000 10,000 44

4217 2 60,000

6438 1 5,000

Week

Planned order releases 1 2 3 4 5 6

Part A 100 50 300 50 100

Part B 200 200 100 200 100

Setup (Hrs./Batch) Run (Hrs./Unit)

Part A 1 0.3

Part B 2 0.2

Transmission Repairs Scheduled

Monday Tuesday Wednesday Thursday Friday

1 3 2 2 3

c. Using the preceding informa�on, develop planned order releases for all parts and fasteners.

14. Referring to Problem 9, suppose the master schedule for coffee tables is altered, so that 500 tables are planned for produc�on in week 33. Change the planned order releases for
table legs accordingly.

15. The Skillful Machining Company makes two different parts, and both require milling. The planned order releases for these parts are shown below, alongside the mill �me required by
each. If the milling machine is available 60 hours per week, develop a load profile for the milling machine in each week.

16. The Davis Auto Center has scheduled the following numbers of transmission repairs on each day for the coming week. Each transmission repair requires two hours of transmission
specialist �me and four hours of general mechanic �me. The company has one transmission specialist who works eight hours per day and two general mechanics who each work
eight hours per day. Develop load profiles for the transmission specialist and the general mechanics.

Click here to see solu�ons to the odd-numbered problems.
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Key Terms

Click on each key term to see the defini�on.

aggregate planning
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Medium-range opera�ons planning. A first rough-cut approxima�on at determining how exis�ng resources of people and facili�es should be used to meet projected demand.

available-to-promise
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The number of units in a master schedule not yet commi�ed to customer orders.

bill of materials (BOM)
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The document that describes the type and quan�ty of each component part needed to build one unit of a product.

capacity requirements planning (CRP)
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A process for es�ma�ng total capacity that will be required at each work center or machine, based on the master schedule and MRP.

closed-loop MRP
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A varia�on of MRP in which feedback about execu�on of produc�on plans is provided so MRP can be updated to reflect reality.

cycle coun�ng
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A procedure in which inventory of an item is counted at least once during an order cycle.

https://media.thuze.com/MediaService/MediaService.svc/constellation/book/AUBUS644.13.2/%7Bpdf%7Dbus644_ch09_odd_problem_solutions

dependent demand
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The demand (usually for components or raw materials) that depends on produc�on of a finished product.

distribu�on requirements planning (DRP)
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A system for determining the quan�ty of products needed within the distribu�on system. DRP uses forecasts of customers’ orders to es�mate the quan�ty of materials to have
available at the distribu�on centers.

freezing the master schedule
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A policy that prevents changes in the master schedule within a certain �me period from the present.

gross requirements
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

In MRP, the total demand for an item during a �me bucket.

indented bill of materials
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A bill of materials in which components are indented from the item in which they belong.

independent demand
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The demand (usually from the consumer) for a part or product that is not dependent upon a produc�on plan.

load
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The total capacity requirements placed on a machine or work center during a specified period of �me.

A graphical representa�on of the load on a machine or work center over �me; also known as load report.

long-range opera�ons planning
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Ac�vi�es that are planned to occur five years or more in the future. It involves resources such as facili�es, people, and equipment that are needed to produce the goods and
services.

load report
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

See load profile.

lot-for-lot
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

An order release and corresponding receipt that covers the net requirement.

lot sizing methods
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Net requirements from several periods that are combined into one planned order release.

manufacturing resource planning (MRP II)
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

An integrated decision support system that connects departments such as engineering, finance, personnel, manufacturing and marke�ng via a computer-based dynamic simula�on
model. MRP II works within the limits of an organiza�on’s present produc�on system and with known orders and demand forecasts.

master produc�on schedule (MPS)
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A specific statement of exactly what, usually individual end items or product models, will be produced in each �me period. Usually these �me periods are weeks, although they may
be days or even hours.

medium-range opera�onal planning
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Ac�vi�es planned between six months and 18 months ahead. It involves how exis�ng facili�es are used to sa�sfy demand.

method of overall factors
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A procedure for rough-cut capacity planning that uses historical accoun�ng data to es�mate the number of standard hours required per unit.

net requirements
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The addi�onal number of units required in MRP during a �me bucket a�er inventory and scheduled receipts have been considered.

planned order release
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

An order to either the shop or a supplier, planned to be released for a given amount during a �me bucket in MRP.

planned receipts
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

In MRP, a quan�ty expected to be received in a given �me bucket based on an order that is planned, but not yet released.

product structure
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The way in which the component parts and subassemblies are used to build the product.

purchase order
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

An authoriza�on for a vendor to supply parts or materials.

rolling through �me
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A planning analogy that conceptualizes �me as a scroll. As �me passes, the scroll is rolled up on the end at the right and unrolled at the other end.

rough-cut capacity planning
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

Used to determine whether sufficient overall produc�on capacity will exist to meet the master produc�on schedule.

rou�ng sheet
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A document used in manufacturing to indicate the sequence of opera�ons, machines, or work centers that a part or product must follow.

scheduled receipts
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

In MRP, a quan�ty for which an order has already been released and which is planned for receipt during a given �me bucket.

shop order
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

An order for more parts to be produced in a company’s own fabrica�on facili�es.

�me bucket
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

A period of �me, usually one week, in which demand and requirements are grouped for master scheduling and material requirements planning.

�me phasing
(h�p://content.thuzelearning.com/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/sec�ons/cover/books/AUBUS644.13.2/

The process used in material requirements planning for determining requirements by �me period.

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