Planning for Material and Resource Requirements

9
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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.

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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, …
12
©Greg Dale/Na�onal Geographic Society/Corbis
Scheduling

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
Processing math: 0%
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.
Processing math: 0%
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
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.
Processing math: 0%
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 …
11
©Thinkstock/iStockphoto
Just-in-Time and Lean Systems

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.
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 …
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.

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