Operation Management

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Production Planning and Control

UNIT III

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Operations Management

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LESSON
6
PRODUCTION PLANNING AND CONTROL

CONTENTS
6.0 Aims and Objectives
6.1 Introduction
6.2 Meaning of Production Planning
6.3 Functions of Production Planning and Control
6.4 Aggregate Planning
6.4.1 Various Steps involved in the Aggregate Planning
6.4.2 Objectives of Aggregate Planning
6.4.3 Various Strategies involved in Aggregate Planning
6.4.4 Varying Workforce Level to Meet Demand
6.5 Master Production Schedule
6.6 Material Requirement Planning (MRP)
6.6.1 Assumptions and Pre-requisites
6.6.2 Material Planning
6.6.3 MRP Process
6.6.4 MRP System
6.6.5 Benefits of MRP System
6.6.6 Outputs The Materials Requirement Plan
6.6.7 Priority Planning
6.7 Bill of Materials (BOM)
6.7.1 Costing Bill of Materials
6.7.2 Planning or Modular Bill of Materials
6.7.3 Phantom Bill of Materials
6.7.4 Engineering Bill of Materials
6.7.5 Pseudo Bill of Materials
6.7.6 Features of Bill of Materials
6.8 Capacity Requirement Planning
6.9 Techniques of CRP
6.10 Problems in MRP and CRP
6.10.1 Material Requirements Planning (MRP) Problems
6.10.2 CRP Problems

Contd

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6.11 Maintenance Management Concepts
6.12 Business Process Re-engineering
6.13 Total Productive Maintenance
6.14 Let us Sum up
6.15 Lesson End Activity
6.16 Keywords
6.17 Questions for Discussion
6.18 Suggested Readings

6.0 AIMS AND OBJECTIVES
After studying this lesson, you will be able to:
Define production planning and control and its functions
Explain production planning problems in job shop and continuous production
systems
Define plant capacity and apply capacity planning to real business situations
Know MPS and BOM
6.1 INTRODUCTION
The conversion of a customers order to a finished product needs generally the
organization and planning of the manufacturing process. The overall objective of any
organization is to improve its profitability through productivity i.e. by employing
various inputs (Men, Machines, Materials, Money & Management) effectively so as to
bring about the desired manufacturing results in terms of quality, time and place.
6.2 MEANING OF PRODUCTION PLANNING
Production Planning: It is concerned with the planning of various inputs (Men,
Machines, Materials, etc.) for a given period of time so that the customer could get the
right quality of products at right place, price and in time. Production Planning may be
done as:
Long-term Planning: Strategic Planning normally more than an years time.
Medium-term Planning: Aggregate Planning up to an years time.
Short-term Planning: Routine Planning monthly/weekly.
Production Planning alone is not sufficient to achieve the objective of any
organisation.
Production Control: It measures the actual performance of the production units and
taking remedial action called for to see that the production actually achieved is not
less than the target or standard set in advance.
Thus Production Planning and Control is to set the realisation targets in terms of
Standard Output, measure the actual production performance against the target set in
advance and take remedial action as and when necessary.

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6.3 FUNCTIONS OF PRODUCTION PLANNING AND
CONTROL
Following are the main functions performed by a PPC department:
Order Preparation
Once an order, through the sales department, is received for execution, activities like
preparation of the work-order, converting the same into shop-order and then releasing
the same to various departments for planning action at their end for their concerned
activities get started.
Materials Planning
Material Requirement Planning (MRP) is based on the orders on hand, the inventory
position of the finished goods & raw materials; the expected demand from
marketing/sales department, the capacity of various production shops and bills of
materials, the lead time and constantly following up of the status with purchase and
stores departments against specific shop orders is done.
Routing (or Process Planning)
Process Planning means fixing the process of manufacturing/sequence of operations,
the tools, and fixtures required and also the measuring instrument and gauges for
inspection/quality control so as to produce the right quality of products at the most
economical cost and for delivering the product timely to a buyer.
A well equipped PPC department also works out for their periodical replenishment of
worn-out tools, etc.
Scheduling
Scheduling of manufacturing order takes care of the following:
Preparation of machine loads.
Fixation of calendar dates of various operations/sequence of operations to be
performed on the jobs & follow-up the same.
Coordination with sales to confirm delivery dates of new items and keeping them
informed about the periodical dispatch schedules.
Dispatching
Dispatching concerns preparation and distribution of show orders and manufacturing
instructions to the concerned departments. The instruments and show orders received
by various departments is an authority for them to perform the work according to that
schedule.
Progressing
Progressing means control, i.e., collection of data from various manufacturing shops,
recording the progress of work and comparing progress against the plan.
Expediting
Expediting means chasing intensively the bottle neck areas causing delays/
interruptions in carrying out smooth production and taking appropriate actions from
time to time and keeping the concerned authorities well informed about the progress
of planned targets. Also to communicate the sales department promptly about the
failure in delivering commitments, if any.

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Miscellaneous Functions
In addition to above usual functions of PPC, they are also helping in cost estimation,
fixation of standards through Industrial Engg, capacity planning, make or buy
decisions, projection of companies product market on long terms basis.
6.4 AGGREGATE PLANNING
Aggregate Planning may be defined as Intermediate Planning which is normally
done for a period of up to one years time. The word Aggregate symbolises that the
planning is done at the broadest level. The details of the individual product
requirements and the detailed scheduling of various resources (men/machines) and
other facilities is normally not done and left to the individual at lower level to carry
out the same.
6.4.1 Various Steps involved in the Aggregate Planning
The first step involved is the forecast of resource for a reasonable period
(normally up to a years time).
The state of the system at the end of last period.
Once these two factors are decided, the decision for the upcoming period about
the size of the workforce and production rate can be known.
Also, the decision made may call for having or laying of personnel thereby
expanding or contracting the effective capacity of the productive system.
Special techniques available for Aggregate Planning are:
Graphical Method
Linear Decision Rule (LDR)
6.4.2 Objectives of Aggregate Planning
The various objectives of aggregate planning are:
To make use of the available facilities and resources to ensure their optimum use.
Aggregate Planning increases the range of alterations for capacity use through
various techniques viz., hiring of additive manpower or laying out of personnel
thereby fixing the size of the workforce and the production rate.
Inventories for work-in-progress and finished goods is made during the loan
demand so as to use the same to meet the peak demand.
More time is devoted to produce more from the same machinery capacity through
properly employing the sequencing and scheduling techniques.
The following variables are studied under the Aggregate Planning:
Production Rate
Labour Employment
Inventories
Sub-contracting (if permissible)
If the production rate and labour employment are fixed, the Inventories &
Sub-Contracting can be derived there from. However, Aggregate Planning is not
long-term planning.

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Conversion of an Aggregate Plan into a Master Schedule
Month Apr. May Jun. Jul. Aug. Sept.
Units Reqd. 4000 3000 5000 5000 6000 3000
Month Oct. Nov. Dec. Jan. Feb. Mar.
Units Reqd. 3000 4000 5000 6000 5000 4000
Master Schedule
Month Rating Apr. May Jun. Jul. Aug. Sept.
6A 2000 2000 3000 3000 4000 2000
16A 1200 500 1000 1000 1000 -
20A - 200 - 500 - -
25A - - 500 - 500 500
32A 500 - 500 200 200 200
40A 200 - 500 100 100 100
63A 100 - 500 100 100 100
4000 2700 5500 5000 6000 3000

Month Rating Apr. May Jun. Jul. Aug. Sept.
6A 2000 3000 4000 4000 3000 3000
16A 500 500 - 500 500 500
20A 500 - 500 500 500 -
25A - 500 500 500 500 500
32A - - - 200 200 -
40A - - - 200 200 -
63A - - - 100 100 -
3000 4000 5000 6000 5000 4000
6.4.3 Various Strategies involved in Aggregate Planning
The objective of the various strategies of Aggregate Planning is to smooth out the
peaks and voltages of the demand during the Planning horizon. This is achieved
through actions briefed below:
Without changing production output rate.
Varying production output rate.
Appropriate Inventory Level.
Sub-contracting.
Capacity Utilisation.
Without Changing Production Level
During periods of low demand, the increase of sales of goods can be done through
special discount schemes/cutting prices etc.
During periods of high demand, the method of back logging orders can be adopted
but depends upon the willingness of the customer if he could wait for that much
time. However, backlogging of orders is not without danger of loosing goodwill.

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Change in Production Level
The change in production level is done to the extent possible to contain the fluctuation
in demand. This is achieved as follows:
When demand is on the increasing side, the output rate can be changed by hiring
workers temporarily. Wherever, it is possible to increase production through
change in workforce or by keeping workers on over-time (OT) or through some
special Incentive Schemes by altering the capacity through increase of a few
equipments/machinery or sometimes by changing the planned plant shut downs.
When demand is decreasing, changing the output rate by logging off
Casual/Temporary Workers/by paying full salary to employees but reducing
output rate for a short period Without demoralising/demotivating the workforce
or by reducing capacity by switching off part machinery whenever possible.
By Appropriate Inventory Level
Inventory of furnished goods is increased during periods of low demand and the same
can be used to meet high demand/seasonal demand in other periods. Manufacturing
firms can use this strategy very well.
Sub-contracting
Sub-contracting means meeting demand through acquiring part of goods from other
manufacturers/producers rather than making in-house. House benefits must be
weighed against cost and quantity.
Capacity Utilisation
Capacity utilisation is very common to service industries, organisations or companies
which cannot store products or services. They must arrange to meet peak load through
sharing capacity utilizations. Example: Telephone Companies, Electric Power
Companies & Computer Time Sharing Companies.
Examples on Aggregate Planning
Problem 1: The forecasted demand of an item, influenced by seasonal factors is given
below:
April 200 Oct 260
May 81 Nov 176
June 210 Dec 84
July 560 Jan 108
Aug 805 Feb 190
Sept 100 March 450
The Number of working days in the financial year is given below:
April 20 Oct 20
May 27 Nov 22
June 27 Dec 28
July 28 Jan 27
Aug 23 Feb 19
Sept 25 March 25
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Show the daily requirement and cumulative demand graphically and determine the
production rate to meet the average demand.
Solution: The production requirements are tabulated hereunder:
Month Forecasted
Demand
No. of Production
Days Available
Demand
per day
(2/3)
Cumulative
Production
Days
Cumulative
Demand
(units)
1 2 3 4 5 6
April 200 20 10 20 200
May 81 27 3 47 281
June 210 27 10 74 551
July 560 28 20 102 1111
August 805 23 35 125 1916
Sept 100 25 4 150 2016
Oct 260 20 13 170 2276
Nov 176 22 8 192 2452
Dec 84 28 3 220 2536
Jan 108 27 4 247 2644
Feb 190 19 10 266 2834
March 450 25 18 291 3224
3224 291
Total Demand 3224
Average Demand = =
Total Production Days 291

= 11.28 = 11 units (day)
6.4.4 Varying Workforce Level to Meet Demand
Problem 2: A company employs 20 persons at an average salary of 2000 per month.
Each unit of production requires 4 standard hours to produce. Hiring cost are
estimated at 1500 per month man, layoff cost are estimated at 1000 per man per
month. Given below, the forecasted demand, find the total cost.
Month Demand (Units) Working Days
April 1000 25
May 2340 26
June 864 24
July 1674 27
Aug 1408 22
Sept. 1512 18
Solution:
MONTH April May June July Aug Sept.
1. 1000 4
25 8

2340 4
26 8

864 4
24 8

1674 4
27 8

1408 4
22 8

1512 4
18 8

MEN REQD
= 20 = 45 = 18 = 31 = 32 = 42
2. 200020 200045 200018 200031 200032 200042

REGULAR
LABOUR
SALARY ( )
=40,000 =90,000 =36,000 =62,000 =64,000 =84,000

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3. NIL 251500 111500 121500 221500

HIRING
COST (`)
=37,500 =16,500 =18,000 =33,000
4. LAY-OFF
(`) REQD
21000
=2000

TOTAL (`) 40,000 1,27,500 38,000 78,500 82,000 1,17,000
Total Cost (`) = 4,83,000
Keeping Workforce Fixed
Problem 3: If in the above example, the number of men employed is 30, the inventory
carrying cost is ` 6/unit/month and the shortage cost is ` 100/unit/month. Then find
the total cost under this plan. Compare the two plans, which plan would you
recommend and why?
Solution:
MONTH April May June July Aug. Sept.
1. MEN REQD 30 30 30 30 30 30
2. 200030 200030 200030 200030 200030 200030

REGULAR
LABOUR
SALARY (`)
=60,000 =60,000 =60,000 =60,000 =60,000 =60,000
3. 1500 500 -280 296 242 154
1000 +1560 +1440 +1620 +1320 1080
2340 864 1674 1408 1512

INVENTORY
(Units)
= 500 = 280 = 296 = 242 = 154 = 278
4. 5006 2966 2426 1546

INVENTORY
CARRYING
COST (`)
=3000 =1576 =1452 =924
5. 280100 278 100

SHORTAGE
COST (`)
= 28,000 = 27,800
TOTAL (`) 63,000 88,000 61,576 61,452 60,924 87,800
Total Cost = ` 4,22,752
Comparison of Strategy I vs. Strategy II
The second strategy is more economical. Moreover, it is very advantageous
particularly from the following angles:
1. Manpower is fixed and no hiring and firing.
2. This keeps manpower motivated, consequently there is no demoralising effect.
3. Extra inventory in most of the months is good to meet extra demand.
4. However, shortage to the extent possible should be avoided even if men have to
be kept on Incentive/O.T./more men on extra duty have to be engaged.

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Check Your Progress 1
Arrange the following steps of aggregate planning process in the correct order
as presented to you earlier:
1. Analyze the system at the end of the last period
2. Special techniques for aggregate planning are used
3. Decide the production rate
4. Expand or contract workforce strength
5. Forecast for the upcoming year
6.5 MASTER PRODUCTION SCHEDULE
The master production schedule (also commonly referred to as the MPS) is effectively
the plan that the company has developed for production, staffing, inventory, etc.
The master production schedule provides details about the quantities ad delivery
timings of a product, but not the production plan. For example, if according to the
master production schedule, 1,200 cars of a particular model are to be delivered to the
customer in week 1 and 1,000 cars of the model are already in the inventory, then only
200 units have to be produced in this week. On the other hand, if there are 1,500 units
of this model of the car in the inventory, there may be no requirement of any
production in this week.

Figure 6.1: Master Production Schedule
The MPS gives details about the quantities and timings of the planned production of a
product. It is derived from the master schedule by taking into account the inventory
status of the product in a given period.
Anticipated build schedule for manufacturing end products (or product options)
A statement of production, not a statement of market demand
MPS takes into account capacity limitations, as well as desires to utilize capacity
fully
Stated in product specifications in part numbers for which bill of material exist

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Since it is a build schedule, it must be stated in terms used to determine
component part needs and other requirements; not in monetary or other global unit
of measure
Specific products may be groups of items such as models instead of end items
The exact product mix may be determined with Final Assembly Schedule
(FAS), which is not ascertained until the latest possible moment
If the MPS is to be stated in terms of product groups, we must create a special
bill of material (planning bill) for these groups
Task Performed by a Master Production Scheduler
Construct and update the MPS
Involves processing MPS transactions, maintaining MPS records and reports,
having a periodic review and update cycle (rolling through time), processing and
responding to exception conditions, and measuring MPS effectiveness on a
routine basis
On a day-to-day basis, marketing and production are coordinated through the MPS
in terms of Order Promising
Order promising is the activity by which customer order requests receive shipment
dates.
An effective MPS provides
Basis for making customer delivery promises
Utilising plant capacity effectively
Attaining the firms strategic objectives as reflected in the production plan
Resolving trade-off between manufacturing and marketing
Since MPS is the basis for manufacturing budgets, the financial budgets
should be integrated with production planning/MPS activities
When MPS is extended over a time horizon, is a better basis for capital
budgeting
Based on the production output specified in the MPS the day-to-day cash flow
can be forecasted
The MPS should be realizable and not overstated
When scheduled production exceeds capacity, usually some or all of the following
occur:
Invalid priority
Poor customer service (missed deliveries)
Excess in-process inventories
High expediting costs
Lack of accountability

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6.6 MATERIAL REQUIREMENT PLANNING (MRP)
The business environment today is complex with uncertainties, competition and
change. To be competitive, an enterprise should have good processes and systems,
which should be able to adjust to the changes in the business environment. The change
can be of technological innovations, government policies, interest rates, competition,
changing customer perception and many other fluctuating forces.
To achieve competitive advantage companies differentiate themselves from other
players in the market. There are various ways by which a company can do so.
The products that are going to be produced should conform to the requirements of
the market and the design should be such that it should forecast and accommodate
customers future needs.
The marketing department, which keeps an eye on the trends and needs of the
market, should give relevant information to the production department so that they
would make periodic and relevant changes to the products.
The demand-supply factor in the market should be analyzed for proper production
planning and there should be some system that can assist management to take
strategic decisions.
Competitive advantage starts from sourcing the right raw material at the right
time. For this, the organization should have a good system of managing its
vendors, which includes parameters of quality, price and delivery schedules.
Manufacturing inventory system should be optimum, which is essential in
achieving the first stage of the cost reduction process.
The function of a manufacturing inventory system is to translate the Master
Production Schedule into detailed component material requirements and orders, based
on inventory. The system determines item-by-item, what is to be processed and when,
as well as what is to be manufactured and when. This is based on order priorities and
available capacities. As the purpose of manufacturing inventory is to satisfy
production requirements, the production plan is the source of demand and thus the
demand is deterministic.
From the point of view of quantity and timing of related production planning systems,
four categories of systems are possible to manage and control inventories.
Statistical Order Point: The system provides optimal solutions by means of
standard solutions to standard situations using statistical information to calculate
optimal item parameters, e.g., automatic recalculation of lead times, economic
order quantities and reorder points.
Lot Requirement Planning: An order method that is driven by forecast periods.
Order quantities are made to match demand in each specific forecast period.
Time Phased Order Point: Time-phased replenishment relies on actual demand
not established stock levels to drive the ordering and quantities of inventory for
manufacture or distribution.
Material Requirements Planning: A Material Requirements Planning system,
narrowly defined, consists of a set of logically related procedures, decision rules
and records, designed to translate a Master Production Schedule into net
requirements and the planned coverage of such requirements, for each component
inventory item needed to implement this schedule.
MRP is probably the most comprehensive approach to manufacturing inventory and
other dependents which demand an efficient inventory management system.

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In the process of planning, MRP system allocates existing inventories on hand to the
items to be manufactured. And based on the gross requirements, it reevaluates the
validity of the timing of any outstanding orders. The system establishes a schedule of
planned orders for each item, including orders, if any, to be released immediately plus
orders scheduled for release at specific future dates. Planned order quantities are
computed using any of several lot sizing rules.
6.6.1 Assumptions and Pre-requisites
There are a number of assumptions that are fundamental to all MRP models.
In addition, there are also prerequisites that ensure that the assumptions provide the
necessary optimum outputs. These are discussed below with some principles that are
employed by MRP systems:
Assumptions
The MRP system makes certain assumptions regarding inventories. The models
assume that:
Lead times for all inventory items are known and can be supplied to the system, at
least as estimates.
Every inventory item under item control goes into and out of stock, i.e., there will
be reportable receipts, following which the item will be in an 'on-hand' state and
will eventually be disbursed to support an order for an item into which it is
merged.
All components of an assembly must be available at the time an order for that
assembly is to be released to the factory.
Components and materials are discretely disbursed and used. In the case of
materials that come in continuous form (e.g., rolls of sheet metal), the standard
planning procedures are modified and the system adapted to handle such
inventory items properly.
The process is independent, i.e., a manufacturing order for any given inventory
item can be started and completed on its own and not be contingent on the
existence or progress of some other order for completing the process. Thus,
mating part relationships and set up dependencies do not fit the scheme of MRP.
Prerequisites
In order to develop a MRP model there are some prerequisites. The principle
prerequisites for a standard MRP system are as follows.
A Master Production Schedule exists and can be stated in bill of materials form;
All inventory items are uniquely identified;
A bill of material exists at the time of planning;
Inventory records contain data on the status of every item; and
There is integrity of file data.
In addition, other prerequisites in building MRP models are:
Individual item lead times are known;
Every inventory item goes into and out of stock;
All of the components of an assembly are needed at the time of release of
assembly orders;
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There is discrete disbursement and usage of component materials; and
Process independence of manufactured items is ensured.
6.6.2 Material Planning
Material Planning is a technique of determining the requirements of raw materials,
components, spares, etc., required for the manufacturing of the product. If the delivery
date of the finished product is known in advance, then the ordering time and quantity
of other work-in-progress can be planned accurately with the help of mathematical
calculations. This planning of work-in-progress of the finished goods is known as
Material Requirement Planning (or MRP).
While doing Material Requirement Planning one has to look for the following things:
All the components, sub-assemblies and assemblies are known so that they all can
participate for the planning of required materials.
The lead-time of all the assemblies and sub-assemblies should be known.
The inventory already in hand should be considered for the present Material
Requirement Planning.
6.6.3 MRP Process
The MRP can be understood with the help of following figure:

Figure 6.2: Material Requirement Planning (MRP)
The MRP process is initiated once the customer orders for the finished goods from the
supplier. Then the forecasting is done for the finished goods. A master plan is
prepared for the production process. This master plan contains all the constituents of
the production process that would finally lead to the resultant product. The master
plan for production initiates the process of Material Requirement Planning. For MRP
two other inputs are inventory which is already in hand and product design and
development. Then we have to see whether the capacity is adequate for the production
of requisite number of finished goods demanded by the customer. If the answer is
negative, then again we have to reschedule our production plan. But if the answer is
affirmative i.e., there is adequate capacity then we can go for the final master plan that
would ultimately lead us to the Material Requirement Planning.

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1. Define production planning and control.
.
.
2. Define expediting.
.
.
6.6.4 MRP System
The MRP is applicable to any manufacturing system that involves discrete, engineered
products involving assembling and part fabrication is dependent on the demand
situation. Since MPS is essentially an input to the system, MRP could be regarded
primarily as a component requirement planning system.
The basis for MRP design is based on a concept of dependent demand and a time
phasing approach. The approach combines three principles:
The inventory system deals with dependent demand.
Component demand can be precisely determined from the master schedule.
The optimum levels of inventory can be determined by time phasing, i.e.,
segmenting inventory status data by time.
Time phasing means adding the dimension of time to inventory data. The status is
established by recording and storing information on either specific dates or planning
periods with which the inventory are associated. The main aim of time phasing is to
provide answers to questions related to manufacturing inventory management.
It answers all questions related to when the material is required.
6.6.5 Benefits of MRP System
As shown in Figure 6.2, it is clear that the MRP system is very much commendable to
computerisation. Hence for very large number of products e.g., for many assembled
products, perhaps with sub-assemblies, the number of parts involved can easily be in
thousands. Requirement generation, inventory control, time phased orders and
capacity requirements, all have to be coordinated. All this can be done in a relatively
straight forward manner. Thus, practically all advantages of computerised planning
can be thought of with MRP system e.g., change in production schedule due to change
in market demand, cancellation of orders, change in procurement policy, delays in
receipt of incoming materials and also the change in capacity planning etc., all this
may reduce idle time at various stages and hence may increase productivity by men,
machine & materials.
6.6.6 Outputs The Materials Requirement Plan
The common objective of all MRP systems is to determine (gross and net)
requirements, i.e., discrete period demands for each item of inventory, so as to be able
to generate information needed for correct action in ordering inventory, i.e., relating to
procurement and production. The action is either new action (release of an order) or a
revision of previous action. The essential data elements that are required for any
action to be taken are:
Item Identity (part number)
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Order Quantity
Date of Order Release
Date of Order Completion (due date)
Once the order has been placed, the types of order action that are required when
revising an action taken previously, are limited to the following:
Increase in Order Quantity.
Decrease in Order Quantity.
Order cancellation.
Advancement of Order Due Date.
Deferment of Order Due Date.
Order suspension (indefinite deferment).
MRP systems meet their objective by computing net requirement for each inventory
item. The term component in MRP covers all inventory items other than products or
end items. Requirements for end items are stated in the MPS. The latter are derived
from forecasts, customer orders, field warehouse requirements, interplant orders, etc.
Requirements for all component items (including raw material) and their timings are
derived from the MPS by the system.
After determining the net requirements, these are time phased to ensure their proper
coverage. Therefore, MRP converts the gross requirements into net requirements. The
net requirements are always related to time, i.e., to some date or period. These are
covered by planned orders. Their quantities and timing are determined by any of the
lot sizing techniques. MRP signals, if necessary, the need to reschedule any of these
orders forward or backward in time, so that the net requirements are directly related
and are correctly timed with shop orders and purchase orders. Capacity considerations
are taken into account in determining MPS; this is not the role determined by MRP.
All the inputs received above enable determination of correct inventory status of each
item under the control of MRP. The MPS expresses the overall production plan and
the span of time covered by it. This is termed the planning horizon. Item lead time,
safety stock (if any), scrap allowances, lot-sizing algorithms, etc., are available from
the inventory record file. This is used to determine the size and timing of the planned
orders. The product structure file contains information on relationships of components
and assemblies. The MRP system uses these inputs to provide a number of important
outputs. These outputs can be classified as primary and secondary outputs. The
primary outputs of an MRP system are:
Order-release notices: These determine the orders that need to be placed and the
system makes the call for placement of planned order.
Rescheduling notices: Based on the feedback from manufacturing, it firms up
requirements on open order due dates.
Cancellation notices: Wherever necessary, it calls for cancellation or suspension
of open orders.
Item status analysis: It provides back-up data on the item. The output of the MRP
includes the following information: (a) Requirements, (b) Coverage of
requirements, and (c) Product structure.
Planned orders: It identifies factors considered for planning and on that basis
schedules for releases of notices in the future.

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The system is also capable of providing to provide a number of secondary outputs.
Apart from the primary outputs an MRP System can be used for:
Inventory order action,
Re-planning order quantities,
Safeguarding priority integrity,
Performance control, and
Reporting errors, incongruities and out-of-bounds situations in the system.
Some of the secondary outputs that can be provided by the MRP system are:
Exception notices reporting errors, incongruities, and out-of-bound situations.
Inventory level projections.
Purchase commitment reports.
Tracing demand sources.
Performance reports.
An MRP system that is properly designed, implemented and used will also contain
valid and timely information that can assist in the functioning of the organization on
three separate levels:
Planning and control of inventories.
Planning of open order priorities.
Inputs to the capacity requirements planning system.
6.6.7 Priority Planning
The validity and integrity of shop scheduling, loading, despatching and job
assignments are based on operational priorities. The priorities in a MRP system are
derived from the MPS. Each shop order entails a number of operations that must be
performed to complete the order. In order to complete these operations, there are
priorities in two areas:
1. Order priority.
2. Operation priority.
Where there are valid open-orders, priority planning and priority control are the basis
for decisions on due dates, re-planning of order quantities and releases of schedules in
the future. But to be valid, they must derive from valid order priorities, i.e., valid order
due date. An MRP system has the capability to establish valid order priorities at the
time of order release and maintain them up-to-date and valid.
In priority assignment and updating, the concept of dependent priority is very useful.
The 'dependent priority' concept recognizes that the real priority of an order depends
on the time of order completion and the availability of all inventory items that are
required not only for the operation but also for previous operations. This can be
thought of as vertical priority dependence. Due date-oriented priority ratios have been
developed and are being used successfully in many MRP systems.

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Dynamic updating of operation priority is based on the critical ratio and not due dates
and established relative priorities. The dependent priority procedure computes the
value of the critical ratio for the next operation to be performed on every open shop
order, as follows:
Ratio A = Quantity On-hand/Order Point
Ratio B = Lead time for Balance Work/Total Lead time
Critical Ratio = A/ B
Ratio A is a measure of need and represents the degree of stock depletion. Ratio B
is a measure of the response and reflects the degree of work completion. A critical
ratio of 1 signifies that work on the order has kept pace with the rate of stock
depletionthe order is on Schedule. A value, lower than 1, indicates an order
ahead of schedule. The priority of the job becomes higher as the value of critical
ratio falls or becomes lower.
In the case of assembly products, horizontal dependence exists. In such a situation, the
MRP system must re-plan requirements and dates of need for the component orders in
question, in case of change or rescheduling in parent product requirements. However,
in independent demand situations, ratio A is meaningless.
6.7 BILL OF MATERIALS (BOM)
A bill of materials (sometimes bill of material or BOM) is a list of the raw materials,
sub-assemblies, intermediate assemblies, sub-components, components, parts and the
quantities of each needed to manufacture an end product.
A BOM can define products as they are designed (engineering bill of materials), as
they are ordered (sales bill of materials), as they are built (manufacturing bill of
materials), or as they are maintained (service bill of materials). The different types of
BOMs depend on the business need and use for which they are intended. In process
industries, the BOM is also known as the formula, recipe, or ingredients list. In
electronics, the BOM represents the list of components used on the printed wiring
board or printed circuit board. Once the design of the circuit is completed, the BOM
list is passed on to the PCB layout engineer as well as component engineer who will
procure the components required for the design.
The bill of materials is not simply a materials list but is a materials list that provides
information useful to reconstruct the manufacturing process. It serves as the interface
to order entry. The manufacturing bill of material is developed by re-sequencing the
engineering bill of materials in the context of the assembly process, and then deriving
from it the process information that will allow the new part to be ready for production.
While good business practice indicates that companies should aim for a unified set of
information, including having just one version of every bill of materials at a time, but
many different views of bills are feasible. Where good practice has not been fully
adopted, multiple concurrent bills of materials may be encountered. In addition to the
Manufacturing bill of materials and the engineering bill of materials, other possible
and common bills of material include:
6.7.1 Costing Bill of Materials
Occasionally encountered is a version of the bill of materials, which expresses cost
information separately from the manufacturing bill.

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6.7.2 Planning or Modular Bill of Materials
This is used in Master Production Scheduling. This is an artificial grouping of items in
bill of materials format that expresses the relationship of multiple product features,
variants and options. Inventory items are arranged in terms of product modules, i.e.,
sets of component items each of which can be planned as a group. The process of
modularizing consists of breaking down the bills of highest-level item and rearranging
them into modules. There are two somewhat different objectives, in modularization:
1. To disentangle combination of optimal product features.
2. To segregate common from unique, or peculiar parts.
The first is required to facilitate forecasting and the second is aimed at minimizing
inventories in components that are common to option alternatives, i.e., are used in
either optional choice. Sometimes there are options within options (like four-wheel or
two-wheel drive for a jeep. A traditional approach to optional product features was
providing stock over the forecast provisions. The lack of modularization in product
design made it difficult to disentangle options and options within options, thereby
entailing additional safety stock and making inventory management more difficult.
A multitude of model designation implies that all the models, then get into the
processor of forecasting and master scheduling. It is difficult to forecast demand for
any single option, but to forecast, with a degree of dependability, and with what other
options it will be combined is very difficult. The number of models within each
product family should be reduced (at least for internal purposes). This is primarily for
procurement, fabrication and subassembly of components. For purposes of final
assembly scheduling, specific combinations of options must be specified for each unit
to be built. Thus the concept of modular bills of material is very useful in multi-model
product situations.
6.7.3 Phantom Bill of Materials
A technique called phantom bill can be used to handle transient assemblies. In this
technique the transient subassembly is treated as follows:
1. Lead time is specified as zero.
2. Lot sizing is lot for lot.
The bill of material carries a special code so that the system can recognize that it is a
phantom and applies special treatment to it.
6.7.4 Engineering Bill of Materials
The engineering bill of materials is the master product definition that contains
as-designed information on the inventory item.
Table 6.1: A Typical Engineering Bill of Materials
Level Part # Revision Quantity Unit Description Make/buy
1 1684423003 B Parent Ea Adapter Make
..2 1547662009 J 1 Ea Control Unit Buy
..2 1676387001 C 1 Ea Moisture Tester Make
....3 1870119302 B 3 Ea Enclosure Buy
..2 1870119302 B 1 Ea Enclosure Buy
....3 1200014273 D 4 Ea Machine Screw Buy
....3 0900016001 F 1 Ea Cover Buy
Contd..
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..2 1464438389 AA 2 Ea Precipitator Assy. Make
....3 5201048007 E 2 Ea Element Buy
....3 5700255100 E 2 Ea Housing Buy
....3 9800266600 D 8 Ea Machine Screw Buy
....3 1200014267 G 2 Ea Precipitator Buy
Table 6.1 shows a typical engineering bill of materials. Each engineering bill of
materials has a parent. The parent is the item (product, assembly, subassembly,
intermediate, etc), which is to be made. All the controls on the bill of materials relate
to the parent. In other words, it has context and instruction that allows manufacturing
engineers to derive the manufacturing bill of materials.
The product structure must be defined in terms of levels of manufacture.
Subassemblies, which never see a stock room because they are immediately consumed
in the assembly of their parents, called transient subassemblies, should also be
accounted for. A technique called phantom bill can be used to handle these.
You will also come across certain apparent discrepancies; let us take a hypothetical
case where part no. 18701-19302 appears twice in the bill of materials. The parent part
requires 4 units of enclosures, the first 3 enclosures are used for the sub-assemblies
and the fourth is used at the final-assembly stage. In a situation like this, to avoid the
possibility of placing separate orders for the same part, the part is always assigned the
lowest level (highest level number) at which it appears. Thus, the enclosures should
always appear as a level 3 item. This is called low-level coding. Such coding also
facilitates computer processing.
Column 4 provides information on the quantity required for each parent item.
Column 5 provides information on the unit of measurement. The metrics adopted are
very important and should be consistent. Column 6 gives the description of the
inventory item. This may or may not be unique. The last column provides information
on the sourcing of the inventory item.
6.7.5 Pseudo Bill of Materials
When the bill of material is broken down in the process of modularization, various
sub-assemblies are promoted and become end products, i.e., highest-level items. This
tends to create a large number of end items. In order to reduce the forecasting burden
the technique of creating pseudo bill of materials is used. The newly created end items
are grouped by option so that there is no obstacle to taking any such group and
creating a pseudo bill (assigning an artificial parent with a number) to cover it. The
pseudo bill number represents the optional product features in the MPS and MRP
system will explode the requirements from this point on.
With the emergence of cost effective data processing and MRP II and ERP systems, it
is possible to display the bill of materials in many ways. Commonly encountered
reporting formats include:
Single-level bill: A parent and its direct components.
Single-level where-used: An item and all the parents in which it is a direct
component.
Indented bill (multi-level bill): A parent, its direct components, their components
and so on down to the starting materials. This shows which components form part
of which parents at all levels.
Indented where-used: An item, all the parents in which it is a direct component,
their parents and so on up to the end products. This also shows structures.

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Next level end level where-used: An item, all the parents in which it is a direct
component, and the top-level parents (products) of which they form part.
Summarized bill: A list of all components (at all levels) in a parent with total
quantities, but not displaying any structure information.
The bill of material structure is the arrangement of inventory item data within the bill
of materials file. Information in the bill of materials includes:
Item identities: Assignment of item identity eliminates ambiguity and identifies
levels of manufacture. It cross-references the item master data. An item may be
able to be listed as a component more than once in a bill.
Sequence Number: Can be used to present the bill in a particular way, grouping
all component items of a given type together, or presenting a picking sequence.
Also known as a find number or balloon number.
Component Quantity: The amount of the component item to be used in
manufacturing the parent, normally stated as quantity per unit of the parent but
expressed per batch in some formula-based systems. Also known as quantity
per.
Unit of Measure: May be provided automatically by an MRP II or ERP or other
system or specified by the user if unit conversions are available.
Relationship: Indicates whether the component is used in the quantity stated per
unit or batch of the parent or in some other way, such as per order or as required.
Type of Component: shows whether the item is a normal component or a special
type. Types of component in addition to standard include phantoms, sometimes
called pseudo, options, reference items and others.
The bill of material should reflect, through its level structure, the way material flows
in and out of stock. Thus it is expected to specify not only the composition of a
product but also the process stages in the products manufacture. The product structure
must be defined in terms of levels of manufacture. Sub-assemblies which never see a
stock room because they are immediately consumed in the assembly of their parents
are called transient subassemblies.
6.7.6 Features of Bill of Materials
Insight into current and future availability with Available to Promise and
Component Availability
Visual drill-down into existing bills of material
Use stock or non-stock components
Attach media objects for videos or pictures of assemblies
Global replacement of components
User-defined cost groupings
Optional routing definition
Tracking of engineering change history
Various user-defined fields for each assembly
Copy from functionality to ease setup of new bills
Engineer name, revision numbers, drawing numbers, effective dates
Engineering change order (ECO) tracking
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6.8 CAPACITY REQUIREMENT PLANNING
As the master schedule is developed, rough-cut capacity planning is used to check
capacity requirements against capacity availability. But rough-cut capacity planning
does not take into account lead time off setting, or the amount ahead of time
component parts must be made to meet the master schedule for the end items. MRP
forms the basis for detailed capacity calculations.
The output of the MRP system indicates what component items will have to be
produced and when, and this output can therefore be converted into the capacities
required to produce these items. The explosion of the MPS results in details on
machine load, or workload projections. The MRP then compares this with available
departmental and work center capacities to answer such question as relating to
overtime work, inter-departmental transfer of work/people, sub-contracting of work,
starting new shifts, hiring more manpower, etc.
This exercise by using the routing sheet, which indicates the sequence of machines or
work centers a part must go through during processing and the labour standards,
makes it possible to determine capacity requirements at each operation.
The total capacity requirements placed on a work centre during a given time period
are called the load. The output of Capacity Requirements Planning (CRP) is usually in
the form of load report, or load profile, which is a graphical representation of the load
on each work centre by time period. This report provides visibility into future and is
based on valid order priorities. Hence, it facilitates capacity requirement planning by
providing essential inputs for the capacity requirement planning system to function
effectively.
6.9 TECHNIQUES OF CRP
Capacity Requirements Planning, also known as CRP, in MRP parlance, is the
technique that allows business to plan ahead to determine how large their future
inventory capacity needs to be in order to meet demand. CRP also helps companies
determine how much space they will need to hold these materials. It verifies that you
have the sufficient capacity available to meet the capacity requirement for the MRP
plans. It thus helps the planners to make the right decisions on scheduling before the
problem develops.
The key elements of the Capacity Requirements Planning process are of establishing,
measuring, and adjusting the limits or levels of the production capacity based on the
process of determining the amount of labor and machine resources required to
accomplish the tasks of production. Inputs of the CRP process are the Order Entry
modules in a MRP system which facilitates translating the orders into hours of work
by the work center by time period via the use of parts routings and time standards.
Capacity planning actually occurs at two times in the assembly environments. First, it
is the Rough-Cut Capacity Planning (RCCP) that is done during the preparation of the
Master Production Schedule. Purpose of RCCP is to make a rough check on the
feasibility of the MPS (against the availability of operating shifts and labor hours,
existing availability of equipments) before making any materials planning and final
scheduling decisions. It identifies potential bottleneck operations that may disrupt
your master schedule. If the master schedule is not feasible at this stage, it should be
adjusted. Any serious capacity problems should be relayed back to the aggregate
production plan. Once a feasible master schedule is confirmed, we continue with the
short-range scheduling of production.

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The master schedule is exploded through the MRP using bills-of-material, producing a
set of recommended planned orders, for in-house production, as well as orders to
suppliers for any bought-out material items, and indicate, based on the master
schedule and the associated material buy plan, which items should be replenished first
and the due dates. It can also include rescheduling of the open orders.
In a job shop situation, using the saved routings of the various items, these planned-
orders are converted to requirements (for example, in machine and labor hours) at the
various work centers. In this way the required capacity for each work center in each
time period is determined. As MRP assumes infinite capacity, and in the general
approach of infinite loading, capacity constraints are ignored in developing the
capacity profile. In finite loading, the master schedule is developed within the capacity
constraints at all work centers.
6.10 PROBLEMS IN MRP AND CRP
6.10.1 Material Requirements Planning (MRP) Problems
The major problem with MRP systems is the integrity of the data. If there are any
errors in the inventory data, the [bill of materials] (commonly referred to as 'BOM')
data, or the master production schedule, then the output data will also be incorrect
(colloquially, "GIGO": Garbage In, Garbage Out). Data integrity is also affected by
inaccurate cycle count adjustments, mistakes in receiving input and shipping output,
scrap not reported, waste, damage, box count errors, supplier container count errors,
production reporting errors, and system issues. Many of these type of errors can be
minimized by implementing pull systems and using bar code scanning. Most vendors
in this type of system recommend at least 99% data integrity for the system to give
useful results.
Another major problem with MRP systems is the requirement that the user specify
how long it will take for a factory to make a product from its component parts
(assuming they are all available). Additionally, the system design also assumes that
this "lead time" in manufacturing will be the same each time the item is made, without
regard to quantity being made, or other items being made simultaneously in the
factory.
A manufacturer may have factories in different cities or even countries. It is not good
for an MRP system to say that we do not need to order some material, because we
have plenty thousands of miles away. The overall ERP system needs to be able to
organize inventory and needs by individual factory, and inter-communicate the needs
in order to enable each factory to redistribute components, so as to serve the overall
enterprise.
This means that other systems in the enterprise need to work properly, both before
implementing an MRP system and in the future. For example systems like variety
reduction and engineering which makes sure that product comes out right first time
(without defects) must be in place.
Production may be in progress for some part, whose design gets changed, with
customer orders in the system for both the old design, and the new one, concurrently.
The overall ERP system needs to have a system of coding parts such that the MRP
will correctly calculate needs and tracking for both versions. Parts must be booked
into and out of stores more regularly than the MRP calculations take place. Note, these
other systems can well be manual systems, but must interface to the MRP. For
example, a 'walk around' stock intake done just prior to the MRP calculations can be a
practical solution for a small inventory (especially if it is an "open store").
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The other major drawback of MRP is that takes no account of capacity in its
calculations. This means it will give results that are impossible to implement due to
manpower or machine or supplier capacity constraints. However this is largely dealt
with by MRP II.
6.10.2 CRP Problems
The key elements of the Capacity Requirements Planning process are of establishing,
measuring, and adjusting the limits or levels of the production capacity based on the
process of determining the amount of labor and machine resources required to
accomplish the tasks of production. Inputs of the CRP process are the Order Entry
modules in a MRP system which facilitates translating the orders into hours of work
by the work center by time period via the use of parts routings and time standards.
Organizations operate below their maximum available capacity, either because there is
insufficient demand to fill the capacity, or it is deliberately done so that the operation
cans response quickly to every unplanned increase in demand. Often, though,
organizations find some parts of their production operating below capacity while other
component parts have production at their capacity ceiling. It is the parts of production
that are operating at maximum capacity which constitute the capacity constraint for
the whole production operation. Alternative long-term capacity strategies would be to
add in new production equipments, adding new work shifts, continuous process
improvement to reduce cycle times, subcontract out some production volume, or to
improve on forecast accuracy with better forecasting methods if actual demand has
shown to consistently lag behind forecast.
6.11 MAINTENANCE MANAGEMENT CONCEPTS
Although there are many definitions of maintenance, maintenance must be defined
and managed as a 'process', in order to achieve optimum pay back from expenditure.
Hence, there is a need to identify a maintenance management system as an integral
part of the asset life cycle management model.
Optimal performance is only achieved by organizations that embrace a holistic
approach. This encourages a close working link between the production and
maintenance areas that are jointly responsible for achieving business plan
requirements. There are three critical factors needed to realize optimal performance.
Assets must be maintained with a focus on the asset's function. The asset function
defines what is needed to achieve operating performance targets. Thus, effective
maintenance is about preservation of asset function to deliver the required
operating performance, rather than just preservation of the asset itself.
Processes need to establish the concept of maintenance as an important process in
achieving business profitability. In order to efficiently manage maintenance
activity, evaluation of performance against targets, and processes reflecting a
cycle of continuous improvement and the 'asset lifecycle management model' are
adopted to gain acceptance and management commitment.
People need to be effectively engaged to understand their role, responsibility and
goals in terms of the maintenance management processes. People are the means of
achieving performance and dependability targets that assure the achievement of
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Programmed maintenance management increases the efficiency and lifespan of
equipment, therefore increasing profitability. These ideas are addressed all in three
factors mentioned above. When this happens, it delivers synergetic asset management
where:
Business goals drive decisions for the use and care of assets.
Production and maintenance work together as manufacturing teams to develop
mutual targets.
Performance and dependability targets become drivers for business profitability.
All resources are optimized, not just maintenance resources.
Asset management needs to be considered as a holistic management system. This will
ensure that good decisions for the use and care of equipment are consistently made
and implemented-decisions, which constitute the best business value, which manage
assets for their entire lifecycle.
Operations and Maintenance Contracts
Contracting out maintenance jobs is a fairly common practice in the United States.
In India, many companies now offer contracts for Operations and Maintenance
(O&M). This is very common in the aviation and power industries. In addition,
specific assets like computing systems, electrical, mechanical equipment, etc., a large
number of organizations contact out maintenance. A third category is the increasing
interest in asset management firms to offer such services. This has become quite
popular in construction and buildings and in the software areas.
By outsourcing O&M, it increases the level of maintenance productivity. Associating
with professional maintenance people gives a company the advantage to address
issues with those experts who face and meet these challenges on a daily basis.
In addition, outsourcing also enables a company to gain greater control over
maintenance results. However, it is important to note that the following key elements
have to be highlighted to achieve the optimum benefit from outsourcing activities:
Performance measurements are developed and clearly communicated,
Planned maintenance is established as the focus of the operation,
Maintenance becomes a competitive advantage,
Both manufacturer and maintenance contractor desire a mutually beneficial
relationship,
Maintenance best practices are established and tracked.
The Company saves on the need for highly trained maintenance men whose average
utilization over the year may be low. It also benefits from the contractor's
specialization, who being more familiar with the jobs, are likely to do a better and a
quick job. In the maintenance partnership scenario, performance guarantees and
continuous improvement goals provide greater control over maintenance results and
assures production goals are being achieved.
6.12 BUSINESS PROCESS RE-ENGINEERING
Business process re-engineering is one approach for redesigning the way work is done
to better support the organizations mission and reduce costs. Re-engineering starts
with a high-level assessment of the organizations mission, strategic goals, and
customer needs. Basic questions are asked, such as Does our mission need to be
redefined? Are our strategic goals aligned with our mission? Who are our

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customers? An organization may find that it is operating on questionable
assumptions, particularly in terms of the wants and needs of its customers. Only after
the organization rethinks what it should be doing, does it go on to decide how best to
do it.
In this lesson we shall discuss the concept of BPR and its advantages and challenges.
A business process or business method is a collection of related, structured activities
or tasks that produce a specific service or product (serve a particular goal) for a
particular customer or customers. It often can be visualized with a flowchart as a
sequence of activities.
Information Resource Goal
A business process:
1. Has a Goal;
2. Has specific input;
3. Has specific output;
4. Uses resources;
5. Has a number of activities that are performed
in some order;
6. May affect more than one organizational unit.
Horizontal organizational impact;
7. Creates value of some kind for the customer.
The customer may be internal or external
Output
<<Process>>
Business Process
Event
<<supply>> <<supply>>
<<goal>>

Figure 6.3: Business Process
A business process:
has a Goal
has specific inputs
has specific outputs
uses resources
has a number of activities that are performed in some order
may affect more than one organizational unit. Horizontal organizational impact
creates value of some kind for the customer. The customer may be internal or
external.
Process Models
Business Process
A business process is a collection of activities designed to produce a specific output
for a particular customer or market. It implies a strong emphasis on how the work is
done within and organization, in contrast to a products focus on what. A process is

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thus a specific ordering of work activities across time and place, with a beginning, an
end, and clearly defined inputs and outputs: a structure for action.
Connections
Supply link from object Information. A supply link indicates that the information or
object linked to the process is not used up in the processing phase. For example, order
templates may be used over and over to provide new orders of a certain style - the
templates are not altered or exhausted as part of this activity.
Supply link from object Resource. An input link indicates that the attached object or
resource is consumed in the processing procedure. As an example, as customer orders
are processed they are completed and signed off, and typically are used only once per
unique resource (order).
Goal link to object goal indicates the attached object to the business process describes
the goal of the process. A goal is the business justification for performing the activity.
Stateflow Link to Object Output
Stateflow link from event indicates some object is passed into a business process. It
captures the passing of control to another entity or process, with the implied passing of
state or information from activity to activity.

Object
Object

Figure 6.4: Workflow
Goal
A business process has some well defined goal. This is the reason the organization
does this work, and should be defined in terms of the benefits this process has for the
organization as a whole and in satisfying the business needs.
Goal link from activity Business Process indicates the attached object to the business
process describes the goal of the process. A goal is the business justification for
performing the activity.
Information
Business processes use information to tailor or complete their activities. Information,
unlike resources, is not consumed in the process - rather it is used as part of the
transformation process. In formation may come from external sources, from
customers, from internal organizational units and may even be the product of other
processes.
Supply link to activity Business Process indicates that the information or object linked
to the process is not used up in the processing phase. For example, order templates
may be used over and over to provide new orders of a certain style - the templates are
not altered or exhausted as part of this activity.
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Output
A business process will typically produce one or more outputs of value to the
business, either for internal use of to satisfy external requirements. An output may be
a physical object (such as a report or invoice), a transformation of raw resources into a
new arrangement (a daily schedule or roster) or an overall business result such as
completing a customer order.
An output of one business process may feed into another process, either as a requested
item or a trigger to initiate new activities.
Resource
A resource is an input to a business process, and, unlike information, is typically
consumed during the processing. For example, as each daily train service is run and
actual recorded, the service resource is used up as far as the process of recording
actual train times is concerned.
Supply link to activity Business Process. An input link indicates that the attached
object or resource is consumed in the processing procedure. As an example, as
customer orders are processed they are completed and signed off, and typically are
used only once per unique resource (order).
6.13 TOTAL PRODUCTIVE MAINTENANCE
Total Productive Maintenance (TPM) is a Lean concept based on three simple ideas:
Preventive maintenance schedules must be developed and adhered to.
Extensive maintenance history exists in a database, and equipment failures may
be predicted within reasonable timeframes.
Simpler maintenance tasks may be delegated to those who know the equipment
the best.
Establishing a preventive maintenance schedule and a Predictive maintenance system
are the basic requirements of lean manufacturing. In addition, the operators should be
responsible and have ownership for all maintenance of the equipment they operate.
As operators know their machines the best, they would be the first to detect variations
in operation: unusual sounds, vibrations, smell, etc. Only complex and specialized
maintenance functions are assigned to the maintenance department.
A series of methods, originally pioneered by Nippondenso (a member of the Toyota
group), to ensure every machine in a production process is always able to perform its
required tasks so production is never interrupted.
Total Productive Maintenance is a new way of looking at maintenance, or conversely,
a reversion to old ways but on a mass scale. In TPM the machine operator performs
much, and sometimes all, of the routine maintenance tasks themselves. This auto-
maintenance ensures appropriate and effective efforts are expended since the machine
is wholly the domain of one person or team. TPM is a critical adjunct to lean
manufacturing. If machine uptime is not predictable and if process capability is not
sustained, the process must keep extra stocks to buffer against this uncertainty and
flow through the process will be interrupted.. One way to think of TPM is
"deterioration prevention" and "maintenance reduction", not fixing machines. For this
reason many people refer to TPM as "Total Productive Manufacturing" or "Total
Process Management". TPM is a proactive approach that essentially aims to prevent
any kind of slack before occurrence. Its motto is "zero error, zero work-related
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TPM is a Japanese idea that can be traced back to 1951 when preventive maintenance
was introduced into Japan from the USA. Nippondenso, part of Toyota, was the first
company in Japan to introduce plant wide preventive maintenance in 1960. In
preventive maintenance operators produced goods using machines and the
maintenance group was dedicated to the work of maintaining those machines.
However with the high level of automation of Nippondenso maintenance became a
problem as so many more maintenance personnel were now required. So the
management decided that the routine maintenance of equipment would now be carried
out by the operators themselves (This is Autonomous maintenance, one of the features
of TPM). The maintenance group then focused only on 'maintenance' works for
upgrades.
The maintenance group performed equipment modification that would improve its
reliability. These modifications were then made or incorporated into new equipment.
The work of the maintenance group is then to make changes that lead to maintenance
prevention. Thus preventive maintenance along with Maintenance prevention and
Maintainability Improvement were grouped as Productive maintenance. The aim of
productive maintenance was to maximize plant and equipment effectiveness to
achieve the optimum life cycle cost of production equipment.
Nippondenso already had quality circles which involved the employees in changes.
Therefore, now, all employees took part in implementing Productive maintenance.
Based on these developments Nippondenso was awarded the distinguished plant prize
for developing and implementing TPM, by the Japanese Institute of Plant Engineers
(JIPE). This Nippondenso of the Toyota group became the first company to obtain the
TPM certifications.
Implementation
TPM has five goals:
1. Maximize equipment effectiveness.
2. Develop a system of productive maintenance for the life of the equipment.
3. Involve all departments that plan, design, use, or maintain equipment in
implementing TPM.
4. Actively involve all employees.
5. Promote TPM through motivational management.
TPM identifies the 16 types of waste (Muda) and then works systematically to
eliminate them by making improvements (Kaizen). TPM has 8 pillars of activity, each
being set to achieve a zero target. These pillars are:
1. Focused improvement (Kobetsu-Kaizen): for eliminating waste.
2. Autonomous maintenance (Jishu-Hozen): in autonomous maintenance, the
operator is the key player. It involves daily maintenance activities carried out by
the operators themselves that prevent the deterioration of the equipment.
3. Planned maintenance: for achieving zero breakdowns.
4. Education and training: for increasing productivity.
5. Early equipment/product management: to reduce waste occurring during the
implementation of a new machine or the production of a new product.
6. Quality maintenance (Hinshitsu-Hozen): This is actually maintenance for
quality. It includes the most effective quality tool of TPM: poka-yoke, which
aims to achieve zero loss by taking necessary measures to prevent loss.
171
7. Safety, hygiene, and environment: for achieving zero work-related accidents and
for protecting the environment.
8. Office TPM: for involvement of all parties to TPM since office processes can be
improved in a similar manner as well.
9. TPM Success Measurement: A set of performance metrics, which is considered
to fit well in a Lean/TPM environment, is Overall Equipment Effectiveness, or
OEE.
State whether the following statements are true or false:
1. Process planning begins during the engineering design of the product.
2. Contracting out maintenance jobs is a fairly common practice in India.
3. The MRP process is initiated once the customer orders for the finished
goods from the supplier.
6.14 LET US SUM UP
In any manufacturing enterprise production is the driving force to which most other
functions react. This is particularly true with inventories; they exist because of the
needs of production. In this lesson the relationship of production planning and control
to work-in-process inventories is stressed. The ultimate objective of production
planning and control, like that of all other manufacturing controls, is to contribute to
the profits of the enterprise. As with inventory management and control, this is
accomplished by keeping the customers satisfied through the meeting of delivery
schedules. Specific objectives of production planning and control are to establish
routes and schedules for work that will ensure the optimum utilization of materials,
workers, and machines and to provide the means for ensuring the operation of the
plant in accordance with these plans.
6.15 LESSON END ACTIVITY
Describe briefly the various strategies involved in an Aggregate Planning.
6.16 KEYWORDS
Material Requirement Planning: MRP is a system for planning the future
requirements of dependent demand items.
Master Production Schedule: MPS is an extension of the aggregate production plan.
It tells us the number of units of different models of a product to be manufactured on a
weekly or monthly basis.
Process Planning: Process Planning means fixing the process of manufacturing/
sequence of operations.
Dispatching: Dispatching concerns preparation and distribution of show orders and
manufacturing instructions to the concerned departments.
6.17 QUESTIONS FOR DISCUSSION
1. What are the functions of production planning and control?
2. Explain master production schedule.

172

3. Write short notes on:
(a) Material planning
(b) MRP process
(c) MRP systems
4. Describe capacity requirement planning.
Check Your Progress: Model Answers
CYP 1
5, 1, 3, 4, 2
CYP 2
1. Production Planning and Control is to set the realisation targets in terms
of Standard Output, measure the actual production performance against
the target set in advance and take remedial action as and when necessary.
2. Expediting means chasing intensively the bottle neck areas causing
delays/interruptions in carrying out smooth production and taking
appropriate actions from time to time and keeping the concerned
authorities well informed about the progress of planned targets.
CYP 3
1. True
2. False
3. True
6.18 SUGGESTED READINGS
Adam & Ebert, Production and Operations Management Concepts, Models and
Behavior, Prentice Hall of India, 1992
Bradley Gale, Managing Customer Value: Creating Quality and Service that
Customers can see, Free Press, NY, 1994
Buffa and Sarin, Modern Production/Operations Management, John Wiley & Sons,
1994
Clayton Christensen, The Innovators Dilemma: When New Technologies Cause
Great Firms to Fail, HBS Press, 1997
Chase, Jacobs, Aquilano, Operations Management for Competitive Advantage,
Tata McGraw Hill, Delhi, 2004
Krajewski and Ritzman, Operations Management, Strategy and Analysis, Pearson
Education, 2002
Melnyk, S. and D. Denzler, Operations Management: A Value Driven Approach,
McGraw Hill, 1996
Vonderembse, Mark, White, Gregory, Operations Management, Concepts, Methods
and Strategies, John Wiley & Sons, 2004

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