CPIM - APICS
Transcript of CPIM - APICS
CPIM
Certified in Production and Inventory Management
Detailed Scheduling and Planning Version 5.4—January 2016
Instructor Upgrade Packet
Detailed Scheduling and Planning Version 5.4 – January 2016
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APICS CPIM Exam Content Manual
Version 5.0
Visit apics.org/ecmerrata for APICS CPIM Exam Content Manual errata. Internet links cited in the bibliographic references can be found in a more usable format on the
APICS website at apics.org/cpim. The references in this manual have been selected solely on the basis of their educational value to the APICS CPIM certification program and on the content of the material. APICS does not endorse any service or other materials that may be offered or recommended by the authors or publishers of books and publications listed in this manual. ©2016 APICS 8430 West Bryn Mawr Avenue, Suite 1000 Chicago, IL 60631-3439 USA Phone: 1-800-444-2742 or +1-773-867-1777 Fax: +1-773-639-3000 No portion of this document may be reproduced under any circumstances. CPIM is a registered trademark of APICS.
Letter to Candidates Dear Candidate: For more than a generation, the Certified in Production and Inventory Management (CPIM) program has been recognized as the international standard for individual assessment in the field of operations managements as it relates to transformation of products and services. Initiated by APICS in 1973, it provides a standard for individuals and organizations to evaluate their knowledge of this evolving field. APICS has administered more than 1 million tests in over 40 countries, and more than 100,000 professionals have earned the APICS CPIM designation—3,000 of them at the Fellow level. The mission of the APICS CPIM program is to be the premier professional certification for supply chain and operations management that tests the candidate’s knowledge and understanding of the principles and practices of operations and inventory management. The APICS CPIM program is designed to educate individuals in the various concepts, methodologies, terminology, and integration of topics within the supply chain and operations manage- ment function and to test candidates’ in-depth knowledge of these concepts. APICS has worked to ensure that APICS CPIM exams are consistently reliable and that the highest professional standards are used to develop and administer the program. Because organizations operate in a changing and challenging international environment, the APICS body of knowledge continues to grow to include recognized concepts and tools to improve competiti- veness and effectiveness organizations. The CPIM Exam Content Manual (ECM) is updated regularly to reflect these changes in the body of knowledge and to assist candidates in their understanding of the scope of material covered in the program. Using a typical business process orientation, the APICS CPIM program integrates individual modules in a progression of increased understanding. It is highly recommended that candidates follow this sequence of examinations to increase both understanding and success:
1. Entry module—Basics of Supply Chain Management: Terminology and basic concepts related to managing the flow of materials from suppliers to customers both internal and external throughout the supply chain
2. Core competency modules—Master Planning of Resources, Detailed Scheduling and Planning, Execution and Control of Operations: Available methodologies and techniques to drive processes and the application of these techniques
3. Capstone module—Strategic Management of Resources: Choosing the appropriate structures and methodologies to achieve organizational strategic objectives and an understanding of the integration of operations within the greater context of the organization
The following is a summary of each of the APICS CPIM modules. Basics of Supply Chain Management (BSCM) As the introductory module, Basics of Supply Chain Management introduces the material presented in depth in the other four modules. Experience has shown us that APICS CPIM candidates who master the material in Basics of Supply Chain Management first find the other modules easier to understand; therefore, we strongly recommend that all APICS CPIM candidates start with this module. This module introduces the definitions and concepts for planning and controlling the flow of products and services into, though, and out of an organization. Many of the key terms in this module are expanded in the other modules. This module explains funda- mental relationships among the various activities that may occur in the supply chain network from suppliers to customers. In addition, the module covers types of manufacturing and service systems, forecasting, master planning, material requirements planning, capacity management, production activity control, purchasing, inventory management, and distri- bution. Four main management philosophies are covered: enterprise resources planning, lean, quality management, and the theory of constraints.
CPIM Exam Content Manual 1
Master Planning of Resources (MPR) In Master Planning of Resources, candidates explore processes used to develop sales and operations plans, identify and assess internal and external demand management requirements, planning and replenishment in a networked distribution environment, and gain an understanding of the importance of producing feasible master schedules that are consistent with business policies, objectives, and resource constraints. The module focuses on developing and validating a plan of supply; relating management of demand to manufacturing, distribution and service environments; and developing and validating the master schedule. Detailed Scheduling and Planning (DSP) In Detailed Scheduling and Planning, candidates focus on the various techniques for inventory, procurement, and material and capacity scheduling. This module includes detailed descriptions of material requirements planning, capacity requirements planning, inventory management practices, and procurement and supplier planning. Techniques, such as material and capacity-constrained scheduling, are included and applicable to a variety of manufacturing and service organizations. Candidates will also become familiar with sustainable practices, supplier partnerships, lean principles, and outsourcing strategies and techniques. Execution and Control of Operations (ECO) Execution and Control of Operations focuses on four main areas: execution of operational plans and schedules, control of the work completed and the analysis of results, the management of and communication in the workplace, and the importance of utilizing appropriate design principles. The module explains techniques for scheduling and controlling operations within available capacity and deals with the execution of quality initiatives, cost management, and problem solving. Finally, this module presents techniques for making the most of resources, the environment, and continuous improvement activities.
Strategic Management of Resources (SMR) In Strategic Management of Resources, candidates explore the relationship of existing and emerging processes and technologies to operations strategy and supply chain-related functions for both manufacturing and service organizations. The module addresses three main topics: understanding the business environment, developing operations strategy, and implementing operations strategy. For maximum comprehension, candidates are strongly encouraged to be familiar with the information and concepts outlined in the other APICS CPIM modules before taking this course. Historical performance data confirms that candidates who successfully complete the other four modules approximately double their chances of passing the Strategic Management of Resources capstone module. The APICS CPIM program continues to evolve, incorporating relevant and current concepts and techniques into the body of knowledge, such as supply chain management, lean, service industries, globalization, theory of constraints, sales and operations planning, outsourcing, critical chain, and sustainability. APICS CPIM is an outstanding educational program, and APICS relies on your comments and suggestions to maintain and improve the program for future candidates. We wish you success in your pursuit of your operations management knowledge.
William R. Leedale, CFPIM, CIRM, and CSCP Chair, CPIM Subcommittee
2 ©APICS
Introduction This ECM provides assistance for those studying in the production and inventory management field, developing and conducting educational courses and workshops, and preparing for the certification examinations. The objective of this manual is to outline the APICS CPIM body of knowledge, which the APICS Certification Committee has organized into five modules: • Basics of Supply Chain Management • Master Planning of Resources • Detailed Scheduling and Planning • Execution and Control of Operations • Strategic Management of Resources
In this manual, each exam module begins with a statement of the scope of the subject matter, followed by a descriptive outline of the content as well as a bibliography of the references. Key terminology for the particular exam modules is provided on pages 9-29. Each exam module concludes with sample questions typical of those that appear on the examinations. The correct answers for the sample questions, with brief explanations of why they are correct, appear at the end the manual. The recommended procedure for mastering the subject matter is to review the content outline, which defines the material, and then to study each topic, using the references. At the end of each major section is a list of the references that apply to the topics in that section. The first number indicates the sequence number for the reference in the Bibliography section, and the numbers in parentheses indicate the chapter(s) within that reference. These outlines form the content and structure for the certification examinations. Candidates should understand the definitions of the key terms in the content outline, as well as the outlined techniques—why and how to apply them and which ones to select for different situations. New developments in the state of the industry may be described in current literature.
Sufficient references are given for each topical area to provide different approaches to material covered in each module and different styles of presenting it. Reading the available APICS periodical material, including APICS magazine, the Production and Inventory Management Journal, and the APICS Operations Management Now e-newsletter will help you maintain an awareness of changes in the state of this discipline.
About the APICS CPIM Examinations Candidates answer a predetermined number of questions to assess their knowledge in key areas. Each of the APICS CPIM exams (except Basics of Supply Chain Management) consists of 75 multiple-choice questions. The Basics exam consists of 105 multiple-choice questions. There is a three-hour time limit for each APICS CPIM exam. For more information about testing and registration policies and procedures you can download the bulletins from the APICS website at apics.org/cpim, or call APICS Customer Service at 1-800-444-2742 (United States and Canada) or +1-773-867-1777. Students who successfully complete CPIM examinations may be eligible to receive hours of college credit recommendations from the New York State Regents Research Fund, National College Credit Recommendation Service, based on an academic evaluation of student learning outcomes. The semester hours of undergraduate credit per exam are as follows: • BSCM: 3 semester hours • MPR: 2 semester hours • DSP: 2 semester hours • ECO: 2 semester hours • SMR: 3 semester hours
Detailed information about the outcomes and credit recommendations is available at www.nationalccrs.org. Transcripts are available through APICS.
CPIM Exam Content Manual 3
Question Format The questions on the CPIM examination are intended to test a candidate’s understanding of the CPIM body of knowledge. In addition, it is helpful to understand the various formats of questions on the examination. The following seven examples illustrate the types of multiple-choice questions that may be found on the examination. For Example 1, choose the response that best completes the statement.
Example 1: The key to a successful production plan is: (A) capacity requirements planning. (B) material requirements planning. (C) dynamic priority planning. (D) adequate production capacity. (The correct answer is D.)
For Example 2, choose the response that best answers the question.
Example 2: Which of the following approaches enables MRP techniques to be used for planning and controlling independent demand items? (A) pegged orders (B) two-bin system (C) time-phased order point (D) reorder point (The correct answer is C.)
For Example 3, choose the one response that does NOT correctly complete the statement.
Example 3: Group technology identifies the similarities among all of the following EXCEPT: (A) costs (B) parts (C) shapes (D) processes (The correct answer is A.)
For Example 4, another type of multiple-choice question, there are two or more statements, or possibilities. The question, and the
statements, are always followed by four-answer choices labeled A, B, C, and D. When answering multiple-choice questions of this type, read each question and the statements carefully to determine whether each statement (I through IV) is true or false. Next, look at the four choices. While this form of question is increasingly less common, the correct response requires determining if one or a combination of choices best answers the question. In Example 4, you should choose option A if you believe statements I and III are true. You should choose option B if you believe statements I and IV are true. You should choose option C if you believe statements II and III are true. Finally, you should choose option D if you believe statements II and IV are true.
Example 4: If a company changes from make-to-stock to assemble-to-order, the effects on inventory levels are which two of the following? I. Lower finished-goods inventory II. Higher finished-goods inventory
III. Lower work in process IV. Higher work in process
(A) I and III (B) I and IV (C) II and III (D) II and IV (The correct answer is B.)
Example 5 is similar to Example 4, but the number of possible combinations is greater. The best strategy for answering these questions is to consider each statement, decide whether it is true, and then search for the correct combination. If the combination you seek is not given, reconsider each statement carefully.
Example 5: Management policies and decisions about which of the following have a direct impact on investment? I. Customer service levels
II. Intra-company transportation modes III. Placement of distribution centers IV. Types of production processes
4 ©APICS
(A) I and II only (B) III and IV only (C) I, II, and IV only (D) I, II, III, and IV (The correct answer is D.)
Examples 6 and 7 ask for a judgment or evaluation of the MOST or LEAST appropriate choice. The judgment is not one person’s opinion, but is the accepted choice according to the APICS body of knowledge. Example 6 asks for the MOST appropriate choice. Example 7 calls for the LEAST appropriate choice.
Example 6: The MOST significant advantage of aggregating demand data before they are stored is that:
(A) information about demand is lost. (B) there is risk of input error in the
aggregation process. (C) data will usually be inconsistent with
financial information. (D) the processing time required to
aggregate is extensive. (The correct answer is A.)
Example 7: Which of the following lot-sizing calculations would be LEAST sensitive to changes in unit costs?
(A) least total cost (B) period order quantity (C) part period balancing (D) lot-for-lot (The correct answer is D.)
Taking the Test The test is designed to evaluate a candidate’s knowledge of the subject matter. Therefore, the key to success is a thorough understanding of the subject matter. All questions are based on the current CPIM body of knowledge as defined in the exam content manual. When you start your exam, read all the directions carefully. Be sure you understand the directions before you begin to answer any questions.
Read each question carefully and thoroughly. If a question includes stimulus material, such as a table, graph, or situation, be sure to study it before you answer the question. Take care to avoid assuming information not given, as well as assuming you know what is being asked without reading the question completely, or second-guessing the question. Every effort has been made to avoid misleading wording and to provide sufficient information for each question. Choose the best answer from the choices given. Do not look for hidden tricks or exceptions to the norm. For each question, one and only one of the four choices represents the correct answer. Once you begin the test, approach the questions in order, but do not waste time on those that are unfamiliar or seem difficult to you. Go on to the other questions and return to the difficult ones later if you have time. If you have some knowledge about a particular question, you may be able to eliminate one or more choices as incorrect. Your score on the test will be based on the number of questions you answer correctly, with no penalty for incorrect answers; therefore, it is to your advantage to guess rather than not answer a question. Avoid changing an answer unless you are absolutely certain that you marked the wrong answer. Interpreting Test Scores Scoring is based on your correct responses. There is no penalty for incorrect answers. The omission of an answer will be counted the same as an incorrect answer. The CPIM scaled score range is 265–330: 265–299: Fail 300–330: Pass 320 and greater: Fellow level For each examination, you receive a score for the total test. All candidates will also receive diagnostic information on their performance.
CPIM Exam Content Manual 5
Studying for the APICS CPIM Exam APICS offers a number of resources to help individuals prepare for the APICS CPIM examinations.
APICS CPIM References Bibliography. The APICS CPIM examination subcommittees have identified a number of references for each APICS CPIM module. These are listed in the bibliography section of each module. All references contain excellent material that will assist in test preparation. For additional information on the APICS CPIM references, visit the APICS website at apics.org/cpim, or call APICS Customer Service at1-800-444-2742 (United States and Canada) or +1-773-867-1777.
A candidate may discover that the material covered in one reference duplicates material covered in another reference. Both sources are included as references to provide candidates some discretion in selecting test preparation materials that they find accessible and understandable. For instance, a candidate who uses a specific reference in preparing for a certification exam that he or she passed may feel comfortable using that same reference to prepare for other certification exams. In deciding if a single reference is sufficient, candidates should assess their own levels of knowledge against both the descriptive examination specifications and the detailed topic list contained in the respective module’s content outline. If there are any areas of weakness, the candidate should consult another reference as part of the test preparation process.
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References for CPIM Exam Modules While these references do not cover the CPIM body of knowledge extensively, they do cover the material a successful candidate is required to know. References Author(s) BSCM MPR DSP ECO SMR APICS Dictionary, 14th ed., 2013 APICS
X X X X X
APICS CPIM Detailed Scheduling and Planning Reprints, 2010
APICS Exam Committee X
APICS CPIM Execution and Control of Operations Reprints, 2015
APICS Exam Committee X
APICS CPIM Master Planning of Resources Reprints, 2010
APICS Exam Committee X
Accounting Handbook, 5th ed. 2010 Siegal, Shim X Crafting and Executing Strategy: Concepts and Readings, 19th ed. 2014
Thompson, Peteraf, Strickland, Gamble X
Designing and Managing the Supply Chain, 3rd ed., 2008
Simchi-Levi, Kaminsky, Simchi-Levi
X
Distribution Planning and Control, 2nd ed. 2004
Ross X
Introduction to Materials Management, 7th ed., 2012
Arnold, Chapman, Clive X X X
Juran’s Quality Handbook, 6th ed., 2010 Juran, DeFeo X Leading Change, 2012 Kotter X Lean Production Simplified, 2nd ed., 2007 Dennis X X The Lean Toolbox, 4th ed., 2009 Bicheno, Holweg X Making Sustainability Work, 2nd ed. 2014 Epstein, Buhovac X X Manufacturing Planning and Control for Supply Chain Management, APICS/CPIM Certification Edition, 2011
Jacobs, Berry, Whybark, Vollmann X X X
Operations Strategy, 3rd ed., 2011 Slack, Lewis X Project Management, 11th ed., 2013 Kerzner X
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It is not practical to list all texts that contain excellent material. Although not currently primary references for the exams, the following chart shows texts that have been used previously for both the CPIM body of knowledge and APICS CPIM courseware. These are still excellent and viable references for APICS CPIM candidates to study. References Author(s) BSCM MPR DSP ECO SMR APICS CPIM Basics of Supply Chain Management Reprints, 2009
X
APICS CPIM Execution and Control of Operations Reprints, 2011
X
Capacity Management, 2008 Blackstone X A Guide to the Project Management Body of Knowledge, 4th ed., 2008
Project Management Institute Standards Committee
X
Introduction to Materials Management, 6th ed., 2008
Arnold, Chapman, Clive X X X
Juran’s Quality Planning and Analysis, 5th ed., 2007
Gryna, Chua, DeFeo X
Lean Six Sigma, 2002 George X Mainstreaming Corporate Sustainability, 2013
Farver X
Making Sustainability Work, 2008 Epstein, Buhovac X Manufacturing Planning and Control Systems for Supply Chain Management, 5th ed., 2005
Vollmann, Berry, Whybark, Jacobs X X X
Master Scheduling in the 21st Century, 2003
Wallace, Stahl X
Project Management, 7th ed., 2008
Meredith, Mantel X
Project Management, 10th ed., 2009
Meredith, Mantel X
Sales & Operations Planning: The How-to Handbook, 3rd ed., 2008
Wallace, Stahl X
Sales Forecasting: A New Approach, 2002
Wallace, Stahl X
Service Management and Operations, 2nd ed., 2000
Haksever, Render, Russell, Murdick X
Strategic Management of Resources References Sourcebook, 2009
X
Content outline. The content outline for each module provides an overview of the major topics included in that module. Each major topic is denoted by a Roman numeral and is followed by a list of the references that are particularly relevant to that topic.
APICS Dictionary. The APICS Dictionary, 14th edition, is an essential publication that applies to the exam content manual and exams. Within the profession, terminology varies among industries, companies, and the academic community. Each examination uses standard terminology as defined in the APICS Dictionary. Recognizing the terms and understanding their definitions are essential.
Reprints. The committee responsible for the exam content manual and examination selects articles that are particularly applicable to the curricula and exam preparation. These articles then are reprinted in module-specific collections. The reprints are included in the references for each module.
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Terminology Candidates are encouraged to be familiar with all key terms listed below for the corresponding modules. The APICS Dictionary is the primary guideline for all definitions of the key terms. Definitions for those terms followed by an * are included in the supplemental glossary listed below the key terms. In studying for the APICS CPIM certification, candidates may discover multiple terms used to denote the same technique. Examples of this include “sales and operations planning” versus “production planning” and “master production schedule” versus “master schedule.” APICS has attempted to provide consistency across all modules with recognized and preferred terminology. However, synonyms are often used by authors in the various references used to compile the body of knowledge.
CPIM Key Terminology BSCM MPR DSP ECO SMR 14 Points (Deming’s) X A3 method X ABC classification X abnormal demand X absorption costing X X acceptable quality level (AQL) X acceptance sampling X action message X activation X activity-based cost accounting X X activity based management (ABM) X actual costs X actual demand X adaptive smoothing X adjustable capacity X advanced planning and scheduling (APS) X X X advanced planning system (APS) X advance ship notice (ASN) X aggregate forecast X aggregate plan X agility X allocation X X X alpha factor X alternate operation X alternate routing X X analysis of variance (ANOVA) X andon X X anticipated delay report X anticipation inventories X appraisal costs X assemble-to-order X assembly line X assignable cause X X attribute data X availability X
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CPIM Key Terminology BSCM MPR DSP ECO SMR available capacity X available inventory X available time X available-to-promise (ATP) X average cost per unit X average inventory X average outgoing quality limit (AOQL) X back scheduling X backflush X backflush costing X backhauling X backlog X backorder X backward integration X backward scheduling X balanced scorecard X balance sheet X balancing operations X bar code X baseline measures X base series X basic seven tools of quality (B7) X batch X X batch picking X batch processing X benchmarking X X X benchmark measures X bias X bill of distribution X bill of labor X bill of lading (uniform) X bill of material (BOM) X bill of resources X block scheduling X bonded warehouse X bottleneck X X bottleneck operation X bottom-up replanning X break-bulk X break-even point X X bucketed system X bucketless system X budgeted capacity X buffer X X buffer management X X buffer stock X
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CPIM Key Terminology BSCM MPR DSP ECO SMR bullwhip effect X X business plan X business process reengineering (BPR) X business-to-business commerce (B2B) X by-product X X calculated capacity X capable-to-promise (CTP) X X capacity available X X capacity-constrained resource (CCR) X capacity control X capacity management X X capacity planning X capacity planning using overall factors (CPOF) X capacity-related costs X capacity requirements X capacity requirements planning (CRP) X capacity strategy X capacity utilization X carrying cost X cash conversion cycle X cash flow X cash-to-cash cycle time X X cause-and-effect diagram X X cell X cellular manufacturing X X centralized inventory control X central point scheduling X certificate of compliance X certification audits X certified supplier X X changeover X changeover costs X chase production method X X chase strategy X check sheet X closed-loop MRP X collaborative planning, forecasting, and replenishment (CPFR) X
common carrier X common causes X common parts bill of material X competitive advantage X competitive analysis X component X concurrent design X concurrent engineering X X
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CPIM Key Terminology BSCM MPR DSP ECO SMR conformance X consignment X constraint X X constraints management X consuming the forecast X continuous improvement X continuous manufacturing X X continuous process control X continuous process improvement (CPI) X continuous production X X X continuous replenishment X contract carrier X contribution X contribution margin X control chart X X control limit X X control points X co-product X X core competencies X core process X corporate culture X corrective action X correlation X X cost center X cost of goods sold X cost of poor quality X cost of quality X cost variance X cost-volume-profit analysis X count point X critical chain method X critical characteristics X critical path method (CPM) X X critical point backflush X critical ratio X critical-to-quality characteristics (CTQs) X cross-docking X cumulative available-to-promise X cumulative lead time X current ratio X curve fitting X customer relationship management (CRM) X X customer service X customer service level X customer-supplier partnership X X X customs broker X
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CPIM Key Terminology BSCM MPR DSP ECO SMR cycle counting X cycle stock X cycle time X data governance* X days of supply X decentralized inventory control X decision matrix X decision support system (DSS) X decomposition X decoupling X decoupling inventory X dedicated capacity X dedicated line X de-expedite X define, measure, analyze, improve, control (DMAIC) process X
delivery lead time X X X delivery schedule X Delphi method X demand filter X demand forecasting X demand lead time X demand management X demand planning X demand time fence (DTF) X demonstrated capacity X X demurrage X dependent demand X design for manufacturability X design for manufacture and assembly (DFMA) X design of experiments (DOE) X design-to-order X detention X deviation X direct costs X direct labor X direct material X discounted cash flow X discrete available-to-promise X discrete manufacturing X discrete order picking X disintermediation X dispatching X distressed goods X distribution X X distribution center X X
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CPIM Key Terminology BSCM MPR DSP ECO SMR distribution channel X X distribution inventory X distribution network structure X distribution of forecast errors X distribution requirements planning (DRP) X distribution warehouse X divergent point X dock-to-stock X downtime X drop ship X drum-buffer-rope (DBR) X X drum schedule X duty X early manufacturing involvement X early supplier involvement (ESI) X earned hours X echelon X e-commerce X econometric model X economic order quantity (EOQ) X economic value added X effective date X efficiency X X electronic data interchange (EDI) X employee empowerment X X employee involvement (EI) X X engineer-to-order X enterprise resources planning (ERP) X X environmentally responsible business X excess capacity X expedite X explode X exponential smoothing forecast X external failure costs X external setup time X X extrapolation X extrinsic forecasting method X fabricator X failsafe work methods X failure mode effects analysis (FMEA) X X feature X feedback X feeder workstations X field service X fill rate X final assemble schedule (FAS) X X
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CPIM Key Terminology BSCM MPR DSP ECO SMR finished goods inventory X finishing lead time X finite forward scheduling X finite loading X X finite scheduling X firm planned order (FPO) X first-article inspection X first in, first out (FIFO) X X first-order smoothing X first pass yield X fishbone analysis X fitness for use X five focusing steps X five forces model of competition X five Ss X X five whys X fixed cost X fixed-location storage X fixed order quantity X fixed overhead X fixed-position manufacturing X flexibility X X flexible workforce X floor stocks X flowchart X X flow control X flow processing X flow rate X flow shop X fluctuation inventory X focused factory X X focus forecasting X forecast X forecast consumption X forecast error X forecast horizon X forecast interval X forecast management X form-fit-function X forward flow scheduling X forward integration X forward scheduling X X four Ps X freight consolidation X freight forwarder X frequency distribution X
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CPIM Key Terminology BSCM MPR DSP ECO SMR functional layout X X functional product* X funnel experiment X Gantt chart X X X gatekeeping X gateway work center X X gemba X gemba walk* X genchi genbutsu X general and administrative expenses (G&A) X generally accepted accounting principles (GAAP) X X global measurements X global reporting initiative (GRI) X global trade identification number (GTIN)* X go/no-go X green manufacturing X green reverse logistics X gross margin X gross requirement X group technology (GT) X hansei X hazmat X hedge X hedge inventory X heijunka X X histogram X X horizontal dependency X horizontally integrated firm X hoshin X X hoshin planning X house of quality (HOQ) X X hurdle rate X hybrid production method X hypothesis testing X idle capacity X X idle time X inactive inventory X inbound stockpoint X income statement X incoterms X indented bill of material X independent demand X indirect costs X infinite loading X X information system architecture X input/output control (I/O) X X
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CPIM Key Terminology BSCM MPR DSP ECO SMR insourcing X intangible costs X intellectual property X intermittent production X intermodal transport X internal customer X internal failure costs X internal rate of return X internal setup time X X interoperation time X interplant demand X X in-transit inventory X intrinsic forecast method X inventory accounting X inventory accuracy X inventory adjustment X inventory buffer X inventory control X inventory investment X inventory management X inventory ordering system X inventory policy X inventory turnover X X inventory valuation X Ishikawa diagram X ISO 14000 Series Standards X ISO 9000 X ISO 26000 X item master record X jidoka X X jishuken X job analysis X job costing X X job enlargement X job enrichment X job sequencing rules X job shop X X job shop scheduling X X job status X joint replenishment X Juran trilogy X Just-in-Time (JIT) X kaizen X X kaizen blitz X kaizen event X kanban X X
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CPIM Key Terminology BSCM MPR DSP ECO SMR keiretsu X key performance indicator (KPI) X X key success factors X kit X knowledge-based system X labor efficiency X labor productivity X labor standard X lag capacity strategy X landed cost X X last in, first out (LIFO) X X lead capacity strategy X leading indicator X lead time X X lead-time offset X lean enterprise X lean metric X lean production X X X lean six sigma* X learning curve X learning organization X least changeover cost X least-squares method X least total cost X level loading X level of service X level production method X level schedule X X X liabilities X life cycle assessment (LCA) X lifecycle analysis X lifecycle costing X limiting operation X line X line balancing X line haul costs X Little's law* X load X load leveling X X load profile X X load projection X local measures X logistics X X lot X lot control X X lot cost X
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CPIM Key Terminology BSCM MPR DSP ECO SMR lot-for-lot X lot size X lot-size inventory X lot sizing X lot splitting X X lot traceability X lower control limit (LCL) X lower specification limit (LSL) X low-level code X machine center X machine hours X machine-limited capacity X machine loading X maintenance, repair, and operating (MRO) supplies X X make-or buy decision X make-to-order X make-to-stock X management by walking around (MBWA) X managerial accounting X manufacturing calendar X manufacturing environment X manufacturing execution systems (MES) X X manufacturing layout strategies X manufacturing lead time X X manufacturing order X manufacturing order reporting X manufacturing philosophy X manufacturing process X manufacturing resource planning (MRP II) X manufacturing strategy X market driven X marketing strategy X mass customization X X master planning X master planning of resources X master production schedule (MPS) X master schedule X master schedule item X master scheduler X material-dominated scheduling (MDS) X material requirements planning (MRP) X material safety data sheet (MSDS) X materials handling X materials management X mean X mean absolute deviation (MAD) X
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CPIM Key Terminology BSCM MPR DSP ECO SMR mean absolute percent error (MAPE) X mean squared error (MSE) X mean time between failures (MTBF) X mean time to repair (MTTR) X measure phase X median X milk run X min-max system X mixed-flow scheduling X X mixed-model production X X mixed-model scheduling X X mix forecast X mode X modular bill of material X modularization X move card X move time X X moving average X muda (waste) X X multilevel bill of material X multilevel master schedule X multisourcing X mura X muri X nesting X net present value X net requirements X network planning X X nominal group technique X nonconformity X nonevident failure X nongovernmental organization (NGO) X non-value-added X normal distribution X X obsolete inventory X one-card kanban system X one less at a time X one-piece flow X on-hand balance X on-time schedule performance X open order X X operating expense X operation X operational performance measurements X X operation costing X operation due date X
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CPIM Key Terminology BSCM MPR DSP ECO SMR operation duration X operation overlapping X operation/process yield X operations management X operations plan X operations scheduling X operations sequence X operations sequencing X operation start date X operations strategy X operation time X operator flexibility X opportunity cost X option X option overplanning X order entry X ordering cost X order picking X order point X order policy X order priority X order promising X order qualifiers X order release X order winners X outbound stockpoint X outlier X outsourcing X X overall equipment effectiveness (OEE) X overhead X X overhead allocation X overlapped schedule X X overload X overstated master production schedule X owner's equity X pacemaker X X package to order X pallet positions X panel consensus X parent item X Pareto's law X X participative design/engineering X X X participative management X X payback X P:D ratio X X pegging X
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CPIM Key Terminology BSCM MPR DSP ECO SMR people involvement X perceived quality X performance measure X performance measurement system X performance objectives X performance standard X periodic replenishment X period order quantity X perpetual inventory record X phantom bill of material X physical inventory X physical supply X picking list X pickup and delivery costs X pipeline stock X plan-do-check-action (PDCA) X X plan for every part (PFEP) X planned load X planned order X planned order receipt X planned order release X planning bill of material X X planning horizon X X planning time fence X point of sale (POS) X X point-of-use delivery X point-of-use inventory X poka-yoke (mistake-proof) X post-deduct inventory transaction processing X postponement X X X pre-deduct inventory transaction processing X prevention costs X preventive maintenance X X X primary work center X priority X priority control X X priority planning X X private carrier X probability X probability distribution X probable scheduling X problem-solving storyboard X process batch X process capability X X process capability index X process control X
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CPIM Key Terminology BSCM MPR DSP ECO SMR process costing X X process flexibility X X process flow X process flow analysis X process flow diagram X process flow production X process flow scheduling X process focused X process manufacturing X X processor-dominated scheduling X process train X procurement X procurement lead time X product configuration catalog X product cost X X product differentiation X product family X product focused X product group forecast X production activity control (PAC) X X production capability X production forecast X production level X production line X production plan X X production planning X production rate X production schedule X production scheduling X productive capacity X X productivity X X product layout X product life cycle X product line X product load profile X product mix X X product-mix flexibility X product positioning X X product profiling X product/service hierarchy X profit margin X program evaluation and review technique (PERT) X X X project costing X X projected available balance X project management X X X project manufacturing X
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CPIM Key Terminology BSCM MPR DSP ECO SMR project phase X project plan X protective capacity X protective inventory X protective packaging X prototyping X pull signal X pull system X X purchase order X purchase requisition X purchasing lead time X push system X X pyramid forecasting X QS 9000 X qualitative forecasting techniques X quality X quality at the source X quality circle X quality control X X quality costs X X quality function deployment (QFD) X X X quantitative forecasting techniques X quantity discount X queue X X queue time X X quick asset ratio X quick changeover X radio frequency identification (RFID) X random cause X random-location storage X random sample X random variation X rate-based scheduling X rated capacity X X raw material X receiving X record accuracy X redundancy X regression analysis X released order X remanufacturing X X remedial maintenance X reorder quantity X repair order X repetitive manufacturing X X replanning frequency X
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CPIM Key Terminology BSCM MPR DSP ECO SMR replenishment lead time X request for quote (RFQ) X required capacity X requirements explosion X requisition X rescheduling X residual income X resiliency X resource X resource-constrained schedule X resource leveling X resource-limited scheduling X resource planning X X resource profile X responsible procurement X return on investment (ROI) X reverse auction X reverse logistics X rework X X risk management* X risk pooling X robust design X root cause analysis X X rough-cut capacity planning (RCCP) X routing X X running sum of forecast errors X run time X X safety capacity X X safety lead time X safety stock X sales and operations planning (S&OP) X sales plan X sales promotion X sample X sampling distribution X sawtooth diagram X scatter chart X X scatterplot X scheduled downtime X scheduled load X scheduled receipt X scheduling X scheduling rules X scrap X scrap factor X seasonal index X
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CPIM Key Terminology BSCM MPR DSP ECO SMR seasonal inventory X seasonality X second-order smoothing X self-directed work team X semifinished goods X sensei X service X service function X service industry X service level agreement (SLA) X service parts X setup X setup costs X setup time X X shelf life X Shingo's seven wastes X X shipping manifest X shitsuke X shojinka X shrinkage X single-card kanban system X single exponential smoothing X single-level bill of material X single-minute exchange of die (SMED) X single-source supplier X six sigma X X small group improvement activity X SMART X smoothing constant X smoothing factor X social responsibility X special cause X specification X specific identification X split lot X spread X standard X standard costs X X standard deviation X X standard time X standardized work* X start date X statistical process control (SPC) X X statistical quality control (SQC) X stockkeeping unit (SKU) X stockout costs X
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CPIM Key Terminology BSCM MPR DSP ECO SMR stockout percentage X store X strategic drivers X strategic performance measurements X strategic plan X strategic planning X strategic sourcing X subcontracting X substitution X summarized bill of material X sunk cost X super bill of material X supermarket approach X supplier X supplier certification X supplier-input-process-output-customer (SIPOC) diagram X
supplier lead time X supplier measurement X supplier partnership X supplier relationship management (SRM) X supplier scheduling X supply chain X supply chain management X surge capacity X sustainability X X SWOT analysis X synchronized production X X tactical plan(s) X tactical planning X Taguchi methodology X takt time X X target inventory level X tariff X terminals X terminal-handling costs X terms and conditions X theoretical capacity X X theory of constraints (TOC) X X theory of constraints accounting X third-party logistics (3PL) X X throughput X X throughput time X time-based competition (TBC) X time bucket X time buffer X time fence X
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CPIM Key Terminology BSCM MPR DSP ECO SMR time-phased order point (TPOP) X X time series X time series analysis X time standard X tolerance X X total cost curve X total cost of ownership (TCO) X total costs X total factor productivity X total line-haul cost X total productive maintenance (TPM) X X total quality control (TQC) X total quality management (TQM) X X traceability X X tracking capacity strategy X tracking signal X trading partner X traffic X transaction channel X transfer batch X transfer pricing X transient state X transit inventory X transit time X transportation X X transportation inventory X trend X trend forecasting models X truckload carriers X two-bin inventory system X two-card kanban system X X two-level master schedule X U-lines X uniform plant loading X unit cost X UN Global Compact Management Model X United Nations Global Compact X unitization X unit load X unit of measure X unplanned repair X upper control limit (UCL) X upper specification limit (USL) X upstream X usage variance X utilization X X
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CPIM Key Terminology BSCM MPR DSP ECO SMR value added X X value analysis X value chain X value chain analysis X value perspective X value stream X X value stream mapping X variable cost X X variable costing X variance X VATI Analysis X velocity X vendor-managed inventory (VMI) X vertical dependency X vertical integration X virtual cell X virtual organization X visual control X visual management* X visual review system X voice of the customer (VOC) X X wait time X wall-to-wall inventory X warehouse demand X warehousing X waste X X wave picking X waybill X ways X weighted moving average X what-if analysis X where-used list X work cell X work center X X work in process (WIP) X X work order X workplace organization X yield X X zone X zone picking X
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Supplemental Glossary The following key terms are not found in the APICS Dictionary, 14th edition, so definitions have been provided below. Data governance—The overall management of the accessibility, usability, reliability, and security of data used to ensure data record accuracy. Gemba walk—The word “Gemba” is a Japanese term meaning the place where value is created and the actual work is done, such as the shop floor in a manufacturing plant. The aim of Gemba walk is to provide a leader with the opportunity to observe floor activities as they happen and ask questions about them, thus becoming more aware of what is going on in the organization. Global Trade Identification Number (GTIN)—GTINs uniquely identify all products and services that are sold, delivered and invoiced at any point in the supply chain. GTINS are typically found at point of sale and on cases and pallets of products in a distribution or warehouse environment. Functional product— Goods that are widely available from a range of sources. Typically, they have stable design, low profit margins, steady and predictable demand and long life cycles. Lean six sigma—A combined approach for process improvement and problem solving based on lean and six sigma methodologies. Little’s Law—Over the long term, inventory equals the process rate (i.e., cycle time) multiplied by the throughput. Risk management—Risk management is a systematic approach to identifying, analyzing, and addressing an organization’s exposure to uncertainty within the supply chain. Standardized work—Standardized work identifies, defines and documents current best practices for achieving consistent results and forms the baseline for continuous improvement. The
standardized work is presented using a combination of pictures and text, which are placed at each workstation where the activity or process is performed and employees are trained to do the tasks as defined in the Standard Work document. Visual Management—The concept of making the current condition of a workplace obvious at a glance, and hence more effective, by providing real-time information on work status using a combination of visual signs. Examples of Visual Management include kanban cards, tool shadow boards, and storyboards. Additional Resources for APICS CPIM Candidates In addition to the cited references, it may be helpful for you to pursue chapter-sponsored courses, college courses, APICS workshops, self-study courses, or courses offered by the APICS network of Authorized Education Providers (AEPs) as a means of learning the body of knowledge that is tested in the certification program. A wide variety of courses are available. As with any investment, you should research various courses before choosing one. For courses, visit the Partner and Event Finder on the APICS website at apics.org/finder or call APICS Customer Service at 1-800-444-2742 (United States and Canada) or +1-773-867-1777. APICS CPIM Instructor-Led Review Courses Available for each module of the APICS CPIM program, APICS CPIM review courses are designed for classroom review of the key principles and concepts for each content area. This ECM is used as the basis for the content in the CPIM review courses. It is important to understand that CPIM review courses are intended to assist the candidate in reviewing the body of knowledge and are not necessarily education. There will likely be some content in APICS review courses not covered by the exams. Course developers and/or instructors may believe that additional material needs to
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be taught or included in the glossary to ensure understanding of the body of knowledge that can be tested. They also may decide that a concept or term is adequately covered by the definitions in the APICS Dictionary or the CPIM ECM Glossary and not cover it in the course. These differences sometime lead candidates to perceive a potential disconnect between the courseware and the exam, when in fact they are both covering the same body of knowledge. APICS CPIM review courses do not “teach the test” and, in many areas, they review but do not teach concepts. All APICS review courses provide a thorough review of the subject matter, but none should be used without the most current CPIM ECM as a means to direct the candidate’s study. Note: The Review Course Participant Workbook is not a stand-alone reference or comprehensive single source and should be used only by a participant attending an instructor-led review course. For courses, visit the Partner and Event Finder on the APICS website at apics.org/finder or call APICS Customer Service at 1-800-444-2742 (United States and Canada) or +1-773-867-1777. Independent Study Courses APICS correspondence courses offer professionals a unique home-study alternative to the classroom. Correspondence courses are designed and conducted for APICS by the MGI Management Institute. For more information on course availability, contact APICS Customer Service at 1-800-444-2742 (United States and Canada), or +1-773-867-1777. APICS Educational Programs APICS offers a variety of educational programs, including workshops in supply chain and operations management and an annual international conference and exposition. For a complete list of APICS learning opportunities and information on course availability, call APICS Customer
Service at 1-800-444-2742 (United States and Canada), or +1-773-867-1777. APICS Online Study Tools The new APICS CPIM Study Tools are an online resource for APICS CPIM students to complement self-study or instructor-led courses. APICS CPIM Study Tools can be accessed at apics.org. For more information, please contact APICS Customer Service at 1-800-444-2742 (United States and Canada), or +1-773-867-1777. CPIM Exam Simulator The CPIM Exam Simulator is designed to increase candidates’ learning potential and assist in preparation for the CPIM exams. With over 300 online practice questions for each module, candidates can study with self-paced, timed and final exam simulations. For more information please contact APICS Customer Service at 1-800-444-2742 (United States and Canada), or +1-773-867-1777. APICS Certified Fellow in Production and Inventory Management (CFPIM) The distinguishing characteristic of a Certified Fellow in Production and Inventory Management (CFPIM) is the willingness to share acquired knowledge with others through presenting, teaching, publishing, and participating in APICS educational activities. This knowledge sharing must take place above and beyond a candidate's normal job duties and be directly related to the APICS CPIM body of knowledge. To obtain the APICS CFPIM designation, an application form must be filled out and submitted to the APICS corporate office. Points are awarded based on the following criteria: APICS CPIM exams passed, presentations, high scores on APICS CPIM exams (320 or greater), published works, classroom teaching, and various volunteer or practitioner activities. To apply for the CFPIM Certification visit apics.org/cfpim.
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APICS CPIM Certification Maintenance: Continuing Professional Development The Importance of Certification Maintenance The growing number of individuals choosing to pursue professional development through the APICS CPIM program indicates a strong awareness that continuing education and skills development are essential to meeting the information and technological challenges in today’s rapidly evolving workplace and global marketplace. Professional development opens doors to individual career opportunities and organizational success. Although APICS CPIM recognition and maintenance are voluntary programs, they equally demonstrate one’s commitment to achieving the highest level of professional development and standards of excellence. Both the APICS CPIM certification and APICS CPIM certification maintenance programs demonstrate one’s commitment to achieving the highest level of professional development and standards of excellence. The APICS CPIM certification maintenance program upholds both the objectives of the APICS CPIM program and the APICS vision to promote lifelong learning. This flexible program recognizes that individuals are at various levels in their careers, come from many industries, have different educational needs and career goals, and have varying degrees of access to continuing education. Thus, requirements for maintaining certification can be met through multiple sources and a variety of professional development activities intended to help prepare for the challenges ahead and maintain a professional edge by: • preserving the currency of hard-earned
certification credentials • expanding your knowledge of the latest
industry practices • exploring new technology solutions
• reinforcing skills • improving job performance • demonstrating commitment to
excellence • increasing competitive advantage
To promote professional growth and lifelong learning, APICS CPIM and CFPIM designees must complete the certification maintenance program every five years. Complete details on how to maintain your designation will be mailed to candidates upon successful completion of the certification requirements. APICS Code of Ethics When you start an examination, you will be asked to pledge to abide by the APICS Code of Ethics. Once certified, you pledge to continue your education to increase your contribution to the supply chain and operations management profession. After achieving the fellow level of certification (CFPIM), you pledge also to share your APICS CPIM knowledge with others by participating in APICS research and educational activities at local, district, national, and international levels. The APICS Code of Ethics is as follows: • Maintain exemplary standards of
professional conduct. • Not misrepresent your qualifications,
experience, or education to APICS or others you serve in a professional capacity.
• Respect and not violate the United States Copyright of all APICS materials, including but not limited to courseware, magazine articles and other APICS publications, APICS conference presentations, and CPIM, CSCP and SCOR-P examination resources. In this same spirit, you must not violate the copyright of other organizations and individuals in your professional capacity.
• Not engage in or sanction any exploitation of one’s membership, company, or profession.
• Encourage and cooperate in the interchange of knowledge and
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techniques for the mutual benefit of the profession.
• In your professional capacity, respect the fundamental rights and dignity of all individuals. You must demonstrate sensitivity to cultural, individual, and role differences, including those due to age, gender, race, ethnicity, national origin, religion, sexual orientation, disability, language, and socio-economic status.
• In your professional capacity, not engage in behavior that is harassing or demeaning to others based on factors including, but not limited to, age, gender, race, ethnicity, national origin, religion, sexual orientation, disability, language, or socio-economic status.
• Adhere to this Code of Conduct and its application to your professional work. Lack of awareness or misunderstanding of an ethical standard is not itself a defense to a charge of unethical conduct.
• Contact the Ethics Committee when uncertain whether a particular situation or course of action violates the Code of Conduct.
• Not become the subject of public disrepute, contempt, or scandal that affects your image or goodwill.
Failure to abide by APICS Code of Ethics policy may result in sanctions up to and including decertification.
CPIM Exam Content Manual 33
Detailed Scheduling and Planning Examination Committee Carol M. Bulfer, CPIM (Chair) Parker Hannifin Corporation Jorge E. Calaf, CPIM, CIRM, CPA
American University of Puerto Rico Staffan Cederstrand, CPIM Medius Dynamics AB Lawrence Ettkin, Ph.D., CFPIM
University of Tennessee–Chattanooga Andrea Prud'homme, Ph.D., CFPIM, CIRM,
CSCP The Ohio State University
William S. Thurston, CPIM, CIRM, CSCP, PMP Scope of the Subject Matter Please read the introductory materials in this manual for essential information pertaining to the examination. The subject matter of Detailed Scheduling and Planning includes inventory management, material requirements planning, capacity requirements planning, and procurement and supplier planning for both producing goods and providing services. Recognizing the importance of supply chain management, this module also covers deployment of supply chain strategies related to scheduling, planning, and sourcing. The emphasis is on applied and higher-thinking questions. Detailed Scheduling and Planning translates product-level plans and schedules generated at the master planning level into requirements that can be procured or produced in all types of environments, including goods and services industries. This supports the strategies and objectives established by the company, as constrained by lead time, cost, equipment, personnel, sustainability considerations, or other constraints. The subject matter, therefore, encompasses anything required to bridge the master planning area with the execution and control area of the APICS CPIM body of knowledge. This includes understanding the commonalities and
differences between producing goods and providing services. Also included is the planning, scheduling, resource allocation, and implementation of projects. The successful candidates will understand the tools and techniques for planning of inventory, including planning techniques such as material requirements planning, capacity requirements planning, lean, the theory of constraints, and project management. They will understand the effect of using each technique, know standard measures for inventory, materials, capacity, and supplier performance, and be able to recognize when to escalate issues. The candidates must be able to apply the concepts and techniques in the content, as well as analyze situations to determine which approaches are applicable. This includes the ability to: • use inventory policies to minimize
inventory and yet meet customer service objectives
• recognize when to use which capacity technique and how that technique supports the master schedule and the production plan
• know where to locate and how to apply standard formulae and algorithms for materials and capacity
• understand supplier partnerships and relationships and the best ways to communicate the firm’s needs and expectations of the supplier
• explain procurement planning and supply chain options
34 ©APICS
Detailed Scheduling and Planning Content The following table identifies the four main topics of the exam. The relative importance of these topics varies among industries, but the figures show the percentage designated for each section of the exam.
Diagnostic part
Main topic Percentage of exam
I Planning the Management of Inventory
25%
II Planning Material Requirements to Support the Master Schedule
25%
III Planning Operations to Support the Priority Plan
25%
IV Planning Procurement and External Sources of Supply
25%
Content Outline I. Planning the Management of Inventory Inventory planning concepts, policies, methodologies, and techniques determine part stocking levels, order quantities, safety stocks, forecasts, and handling and storage requirements, including global supply chain risks. This covers inventory techniques and tools used within the detailed material planning process. These include the effect of inventory accounting decisions on material planning calculations, as well as financial management and accuracy. Objectives that apply to inventory are evaluated with respect to balancing the desired customer service level with inventory reduction techniques. Measures of inventory performance are assessed.
A. Types and Classifications of Inventory: Examples include: raw materials, work in process, finished goods, maintenance, repair, and operating supplies, returned goods, excess, inactive, obsolete, scrap, and distressed and perishable inventory. Manufacturing and service industries are assessed from their different requirements and impacts on the planning processes.
B. Inventory Policies
1. Lot-sizing techniques for independent and dependent demand are applied to different types of production and service environments in support of inventory investment strategies.
2. Safety stock and safety lead time techniques
and their effects on inventory and customer service objectives are considered.
3. Inventory policies related to trade-offs in
stocking levels, customer service, environmental impact, and inventory accuracy targets in different business environments are evaluated.
4. Inventory performance measures as
they relate to business objectives. These may include: inventory turnover, customer service levels, and inventory accuracy.
5. Inventory valuation methods include: first
in, first out, last in, first out, specific identification, transfer pricing, standard and actual cost, and project and process cost. These are compared for their effect on inventory investment and related replenishment and justification decisions in various business environments.
C. Inventory Planning
1. Appropriate order review methodologies, such as material requirements planning, reorder point, periodic review, visual review, and kanban/pull system triggers, are evaluated for different types of inventory and business objectives.
Detailed Scheduling and Planning 35
2. Understanding the differences between dependent and independent demand as related to various inventory models and sources of demand are addressed.
3. Lean concepts that improve throughput
and reduce or eliminate inventories, including value-stream mapping techniques and pull systems, are reviewed.
4. The impact of global sourcing risks, such
as financial, political, transportation, and environmental, on inventory planning decisions is considered.
D. Accuracy, Handling, Storage, and
Traceability
1. Cycle counting, physical inventory, and using ABC classification are presented as methods for improving and sustaining part count and inventory investment accuracy.
2. Alternative storage and material handling options, such as stock location systems and automated storage and retrieval systems, are evaluated.
3. The importance of proper identification,
country of origin declaration, documentation, tracking, and traceability of inventory movement is emphasized, including bar coding and radio frequency identification tagging.
References: 1; 2; 3 (chapters 9–12); 4 (chapters 2-3, 6-7, 16); 5 (chapter 4); 6 (chapters 8, 9, 13–14, 16); 8 (chapters 1, 2, 4–6, 8–10); 9 II. Planning Material Requirements to Support the Master Schedule Planning material requirements driven by the master production schedule, including material requirements planning (MRP), deals with dependent demand parts and interrelationships that require planning at any given time. It also includes independent
demand planning for service parts, matching supply with demand, and managing demand at aggregate and disaggregate levels. MRP combines three principles: • Calculation, as opposed to forecast, of
dependent demand for component items • Netting of requirements for all items • Time phasing.
A. Identifying Information Used in the
Material Planning Process: This section describes the inputs used in calculating requirements for inventory items and their importance to the detailed material planning process. Accurate, timely, and complete data are critical.
1. Inventory data describe parts, define
current usage rates, stock balances, and track historical demand as required to support the policies, methodologies, and techniques of the material planning process. In a lean environment, this inventory data can be maintained in a plan-for-every-part record.
2. Master schedule data describe types,
quantities, sources, priorities, and time phasing of product demand generated as a result of the master planning process, including customer orders and forecasts.
3. Engineering data define the product
structure and parent/component relationships and include information on part interdependencies, lead times, and effective management of engineering changes.
B. Identifying the Desirable Characteristics of
the Detailed Material Planning Process: This section addresses those characteristics that enhance the capabilities of using material planning process outputs. Understanding sources of demand is useful in evaluating the resolution of action messages. Various safety policies are used to minimize the impact of uncertainty on the planning process.
36 ©APICS
1. Decisions are required that facilitate material planning, establish priorities, resolve conflicts through pegging relationships, and support other decisions and productivity measures based on the type of environment and product life cycles.
2. System feedback mechanisms enable the
monitoring of appropriate actions neces-sary to balance supply and demand.
3. Integration with master planning, final
assembly, and configuration processes ensures that material availability matches demand quantities, timing, and priorities.
C. Mechanics of the Detailed Material
Requirements Planning Process: Planning data calculate gross-to-net requirements by exploding bills of material and determining time-phased inventory needs. The requirements are exploded level by level — accounting for order policies, safety stock, and allocations.
1. Generating time-phased requirements
creates a material plan that supports company and supplier needs for longer-range planning and shorter-range tactical information. In a lean enterprise, pull systems are then integrated with enterprise resources planning and material requirements planning (MRP) systems.
2. The format of MRP time-phased data for
a given part number is often referred to as an MRP grid. This grid displays gross requirements, scheduled receipts, projected available, net requirements, and planned order receipts and planned order releases.
D. Maintaining the Validity of the Material
Plan: The output from the planning process recommends the placement and replanning of supply orders to maintain the validity of order priorities. The effects of planning parameters on the process are identified.
1. System replanning of order priorities to respond to changes of demand and supply results in actions that resynchronize the material plan with the current material requirements.
2. Revising planning parameters addresses the options of adjusting lead time, lot size, safety stock quantity, kanban quantity, cycle times, and other parameters to reflect product life cycles, current conditions, and company strategy.
3. What-if analysis and simulation tools,
methodologies, and techniques enable planners to evaluate viable alternatives without changing the existing material plan.
E. Managing the Project Plan
1. The project planning process is necessary to plan the resources for specific project activities. It includes a statement of work, work breakdown structure, project schedule, responsibility matrix, resource requirements, and budget.
2. The project implementation phase
includes selecting the project team, scheduling the work, and managing the team dynamics, schedule, and budget.
References: 1; 2; 3 (chapters 4, 11); 6 (chapters 7–9); 7 (chapters 3–4, 11–13, 17, 22); 8 (chapters 1, 14) III. Planning Operations to Support the Priority Plan Capacity is defined as the capability to produce goods or provide services. Capacity requirements planning (CRP) provides a check that the material plan is achievable based on existing orders and available capacity. Capacity management encompasses planning, establishing, measuring, monitoring,
Detailed Scheduling and Planning 37
and adjusting levels of capacity to execute the master schedule and related materials plan. It addresses the approaches for balancing the material plans with available internal and external resources and supporting activities, including constraint management and line and flow balancing. Uncertainty planning is also covered, including variability and capacity in a transient state. A. Identifying Information Used in the
Detailed Capacity Planning Process: This section addresses the use of work center and routing data to schedule orders and establish resource load by time period. Efficiency and utilization are used to determine the rated capacity of each work center. The material requirements plan provides the basis for projecting resource load by time period. The impact of unplanned work and quality problems on resources is identified. Also included are scheduling, queuing, and throughput management in various industries, including service.
1. The availability of theoretical,
demonstrated, and rated capacity, qualified by efficiency and utilization factors, is evaluated in different types of environments.
2. Load from planned and released orders,
repetitive schedules, past-due orders, rework, and work in process is calculated.
3. Impacts of industry-specific conditions,
such as remanufacturing, byproducts, co-products, and recycled material, are assessed.
B. Recognizing the Characteristics and
Techniques of the Detailed Capacity Planning Process: Various approaches for applying the process within different production and service environments are discussed. Attention is given to flow production by addressing process flow scheduling.
1. System design specifications and techniques include infinite and finite capacity planning, queuing and sequencing, constraint-based finite scheduling, load balancing for scheduling manufacturing operations, and establishing projected load on manufacturing resources.
2. Simulation and modeling techniques
enable a variety of scheduling and loading conditions to be assessed for transformation processes.
3. Operations are loaded, and adjusted for
capacity reductions or increases, to support business and customer service targets and to accommodate process variability.
4. Recognizing intangible and variable
capacity characteristics is necessary to manage load in a service industry.
5. Pull systems are integrated with
material requirements planning and enterprise resources planning systems to align shop floor activity with customer demand and takt time.
6. Integration with master planning, final
assembly, shop floor activities, and configuration processes ensures that capacity availability matches demand.
C. Using the Detailed Capacity Planning
Process: The output of detailed capacity planning is used to adjust the levels of capacity or load to complete scheduled work within the required timeframe.
1. Safety capacity is used in environments
that must accommodate unplanned load variability.
2. Methods of balancing capacity and load
include rescheduling orders, splitting orders, outsourcing, workforce development, changing capacity through workforce changes, and modifying order quantities and priorities.
38 ©APICS
3. In process industries, capacity management is used to manage constraints and flow balancing in either batch or continuous mode.
D. Measuring the Performance of the Detailed
Capacity Planning Process: This section identifies opportunities to measure and monitor the performance of operational objectives. The capacity planning process is measured on the ability to balance workload with available capacity and support on-time performance.
References: 1; 2; 3 (chapters 5–6, 15); 6 (chapters 10–12) IV. Planning Procurement and External Sources of Supply Procurement and supplier planning encompass planning and evaluation activities that companies employ to qualify suppliers and establish effective communication channels. Emphasis is on defining mutual business needs, product and process information, the impact of global sourcing, sustainability practices, and quality management required for the ongoing relationship. This includes approaches to communicating forecasts, orders, and schedules to ensure that purchased capacity and materials will be available in the required quantities and at the required time. A. Establishing Relationships with Suppliers:
Establishing long-term procurement partnerships is necessary to ensure competitive advantage and continuous improvement. Applying supply chain strategies to actual sourcing techniques will be addressed, including the principle of total procurement costs.
1. Varying degrees of partnership—
strategic alliance, joint venture, retailer-supplier, distributor integration, contract manufacturing, and technical and operational partnering—are examined.
2. Supplier selection alternatives include
single or multiple sourcing, domestic
and foreign providers, and special services. Additional supply chain links may exist, including retail, distribution, and transportation companies.
3. Effective communication techniques are
addressed, as are cultural differences, commercial versus government interests, and information technology support. Data necessary for collaboration include risk sharing, technical and quality specs, engineering changes, supply chain inventories, and future demand.
4. Environmentally responsible
purchasing— minimizing the impact the organization and its suppliers have on the environment—is examined.
B. Techniques and Concepts for Supplier
Partnerships: This section explores the elements of supplier relationships in different competitive environments and markets.
1. Supplier involvement in product
engineering using techniques such as concurrent engineering provides mutual value to companies and suppliers.
2. Techniques for procurement of
materials and services include contracts, kanbans, blanket orders, purchase orders, consignment, and pricing agreements. Additional considerations include supplier relationship management principles and activities, demand forecasting, outsourcing, and e-commerce.
3. Delivery approaches include traditional
modes of transportation, third-party logistics (3PL), cross-docking, point-of-use delivery, direct shipment and vendor-managed inventory (VMI).
4. Procurement planning, new product
introduction, and engineering change control affect supply chain performance.
Detailed Scheduling and Planning 39
5. Supplier participation in the partnership addresses areas of product design, quality requirements, related technology, sustainable business practices, delivery, and accounting processes.
6. Goals and benefits of the partnership
include improved technology, reduced inventory, improved customer service, improved quality, reduced lead times, improved visibility, better value-chain forecasting, cost reductions, reduced impact on the environment, damage and loss prevention, process improvement, access to new markets, and reduced time to market.
7. The supplier rating system encompasses
quantitative measures, such as cost and on-time delivery, product quality, environmental impact, and qualitative measures such as social performance, including the aspects of workforce diversity, human rights, labor, and anticorruption.
References: 1; 2; 3 (chapters 7, 13, 16); 4 (chapter 16); 5 (chapters 3, 5–9); 7 (chapter 8); 8 (chapters 3, 6–11, 14); 9 Key Terminology An understanding of the list of terms on pages 9–29 of this document is strongly recommended. The list is intended to be thorough but not exhaustive. The candidate is also expected to be familiar with the definitions of terms identified in the content outline. Definitions of these terms can be found in the APICS Dictionary, 14th edition.
40 ©APICS
Material Requirements Planning (MRP) Grid Many valid variations are used to display the MRP time-phased data. The following chart is the abbreviated grid sometimes used in texts and work problems.
Bibliography All test candidates should familiarize themselves with the following references for this examination. The recommended references pertaining to the diagnostic areas are listed at the end of each section of the content outline. Please see page 8 in the introduction to this manual for a list of past references that can also be used for study. Also, candidates who have not yet passed the suggested first module—Basics of Supply Chain Management—should familiarize themselves with the basic concepts of materials management presented in this exam content manual. All of these references are available at apics.org/shopapics.
The MRP Grid Technique Order quantity 50 Safety stock 8 Allocated quantity 5 Low-level code Lead time 3 Periods
1 2 3 4 5 6 7 8 x Gross requirements 40 10 30 50 50 20 30 40
Scheduled receipts 50 Projected available 140 95 85 105 55 55 35 Net requirements 3 Planned order receipts 50 Planned order releases 50
Detailed Scheduling and Planning 41
References 1. APICS CPIM Detailed Scheduling and
Planning Reprints, 2010. 2. APICS Dictionary, 14th ed., 2013. 3. Arnold, J.R. Tony, S.N. Chapman, L.M.
Clive, Introduction to Materials Management, 7th ed., Prentice Hall, 2012.
4. Bicheno, J. and M. Holweg, The Lean Toolbox, 4th ed., PICSIE Books, 2009.
5. Epstein, Marc J., A. R. Buhovac, Making Sustainability Work, 2nd ed., Berrett-Koehler Publishers, Inc. 2014.
6. Jacobs, F.R, W.L. Berry, D.C. Whybark, and T.E. Vollmann, Manufacturing Planning and Control for Supply Chain Management, APICS/CPIM Certification Edition, McGraw-Hill, 2011.
7. Kerzner, H., Project Management: A Systems Approach to Planning, Scheduling, and Controlling, 11th ed., John Wiley & Sons, Inc., 2013.
8. Simchi-Levi, D., P. Kaminsky, and E. Simchi- Levi, Designing and Managing the Supply Chain, 3rd ed., McGraw-Hill, 2008.
9. *The G4 Sustainability Reporting Guidelines https://www.globalreporting.org/resourcelibrary/GRIG4-Part1-Reporting-Principles-and-Standard-Disclosures.pdf.
*Internet links cited in the bibliographic references above can be found at apics.org/careers-education-professional-development/certification/ cpim/primary-references.
Sample Questions The following ten questions are similar in format and content to the questions on the exam. These questions are intended for practice—that is, to enable you to become familiar with the way the questions are asked. The degree of success you have in answering these questions is not related to your potential for success on the actual exam, and should not be interpreted as such. Read each question, select an answer, and check your response with the explanation on page 45–46.
1. Service level = 1 – Number of stockouts Number of replenishment cycles
The expression above is used to measure historical service levels in terms of a percentage for which of the following statistical control procedures?
(A) Line items shipped on time (B) Total quantity filled (C) Orders filled complete (D) Ordering periods not out-of-stock
2. An organization using time-phased
requirements planning has the following net requirements for an item:
Week Net required 2 350 5 1,200 7 1,000
11 1,500 Lead time 1 week Unit cost $1
Setup cost $30 Carrying cost 0.5% per week
If it is assumed that sufficient capacity is available in weeks 1 through 11 to order any amount in any period, which of the following is the most economical ordering plan?
(A) Week 1 4 6 10
Order 350 1,200 1,000 1,500 (B) Week 1 6
Order 1,550 2,500 (C) Week 1 4
Order 350 3,700 (D) Week 1 4 10
Order 350 2,200 1,500
42 ©APICS
3. Lot Size: Lot-for-lot On Hand: 500 Allocated: 0 Safety Stock: 0 Lead Time: 4
The chart shows the gross requirements for an item in a material requirements planning system. Stock on hand is 500, and there is nothing on order. The item has a lead time of four periods and is being ordered lot-for-lot. Which of the following would be the correct planned order release for the item?
(A) 100 in Period 1, 400 in Period 3 (B) 100 in Period 4, 400 in Period 6 (C) 100 in Period 5, 400 in Period 7 (D) 500 in Period 5
4. Calculation of rated capacity of a work
center includes consideration of which of the following? (A) Efficiency and utilization (B) Utilization, setup, and run time (C) Utilization and available work time (D) Efficiency, utilization, and available
work time
5. Which of the following is part of the capacity requirements planning process? (A) Determining the bill of resources (B) Determining the planned order
release (C) Calculating load on each work
center (D) Development of a forecast
6. To create an effective customer-supplier
partnership, it is essential to (A) Establish stability in schedules that
enable suppliers to react within their lead time
(B) Evaluate the suppliers based on price and then send the purchase order
(C) Establish a delivery schedule with a corresponding purchase order and send them to the suppliers
(D) Establish a preventive maintenance program to avoid quality problems due to machine troubles
The MRP Grid Technique Order quantity Safety stock Allocated quantity Low-level code Lead time
Periods 1 2 3 4 5 6 7 8
x
Gross requirements 100 300 200 400 Scheduled receipts Projected available 500 400 100 Net requirements Planned order receipts Planned order releases
Detailed Scheduling and Planning 43
7. A drill press operates at 50 percent efficiency and 80 percent utilization. How many clock hours must be worked to produce 80 standard hours? (A) 32 (B) 100 (C) 160 (D) 200
8. Which of the following might a planner
use to solve an overload problem? (A) Multiple setups (B) Alternate routings (C) Infinite loading (D) Adjust loading factors
9. Given the following purchase cost data
for product Z: 0 on hand (December 27) 100 @ $10 = $1,000 (December 28) 10 @ $11 = $110 (January 3) 10 @ $8 = $80 (January 10)
If this company is using a weighted average costing method and 100 units were sold on January 8, the cost per unit for the sale is: (A) $9.17 (B) $10.00 (C) $10.09 (D) $8.00
10. Which of the following is a major use of
the bill of material? (A) Engineering change control (B) Plan for every part (C) Costing of the process (D) Preventive maintenance schedule
44 ©APICS
Answers to Sample Questions Note: References to the content outline appear in parentheses. Detailed Scheduling and Planning
1. D (IB) The percentages of line items shipped on time (A), of the total quantity filled (B), and order filled complete (C) are all incorrect because the formula does not include any of these statistics. The formula (D) includes the number of stockouts that have occurred during some number of replenishment cycles or lead times. One minus the proportion of replenishment cycles in which a stockout occurs is the percentage of ordering periods not out of stock, or service level.
2. D (IID)
Total cost = setup cost + carrying cost
Setup cost = number of setups × cost per setup
Carrying cost = units × unit cost × number of periods × carrying cost per period
The costs are calculated as follows:
A. Setup cost = $120 = $30 × 4 Carrying cost = $0 Total cost = $120
B. Setup cost = $60 = $30 × 2 Carrying cost = $48 = (1,200 × $1 × 3 × .005) + (1,500 × $1 × 4 ×.005) Total cost = $108
C. Setup cost = $60 = $30 × 2 Carrying cost = $55 = (1,000 × $1 × 2 × .005) + (1,500 × $1 × 6 × .005) Total cost = $115
D. Setup cost = $90 = $30 × 3 Carrying cost = $10 = (1,000 × $1 × 2 × .005) Total cost = $100
3. A (IIC) Lot Size: Lot-for-lot On Hand: 500
Allocated: 0 Safety Stock: 0
Lead Time: 4
The MRP Grid Technique Order quantity ___ ___ Safety stock ____ ____ Allocated quantity ___ ___ Low-level code Lead time ____ ____ Periods
1 2 3 4 5 6 7 8 x Gross requirements 100 300 200 400
Scheduled receipts Projected available 500 400 100 Net requirements 100 400 Planned order receipts 100 400 Planned order releases 100 400
Answers to Sample Questions 45
4. D (IIIA) Setup and run time are used to calculate required capacity. The rated capacity = time available × efficiency × utilization.
5. C (IIIA) A, and D are related to rough-cut
and B is related to the MRP explosion process.
6. A (IVA) Partnerships require a
commitment to stability within the agreed-upon response parameters. B and C are short-term and tactical in nature. D is really something that needs to be done without any regard to partnering.
7. D (IIIB) Standard hours = (clock hours) ×
(utilization × efficiency). Therefore, clock hours = (standard hours) / (utilization × efficiency) = 80 / (0.80 × 0.50) = 200 hours. A is incorrect because 32 = (standard hours) × utilization × efficiency. B and C are incomplete applications of the correct formula, dividing standard hours by utilization alone to arrive at 100 (B), and by efficiency alone to arrive at 160 (C).
8. B (IIIC) If the planner had an alternate
route, it could be used to distribute or divide the load between two choices, which makes B the correct answer. Multiple setups (A) add to the load, making it an incorrect choice. Infinite loading (C) detects the overload but does not solve the overload problem. Loading factors should reflect reality. Adjusting accurate loading factors (D) to address an overload will only hide reality from the planner; therefore, it is also incorrect.
9. C (IB) Standard costing is a method of
setting a new standard based on various parameters. A is incorrect because of average cost after January 10. B is incorrect because it is the FIFO cost of the product. C is correct because this is the weighted average on January 8. D is incorrect because this is the last cost paid for each item.
10. A (IIIB) For a comprehensive explanation, see page 70 of Arnold, J.R. Tony, S.N. Chapman, and L.M. Clive, Introduction to Materials Management, 7th ed., Prentice Hall, 2012. A is a major use of the bill of material because engineering sometimes changes the design of the products, and a record is required to know what to change. B is an extension of the item master. C uses routing information. D does not use the bill of material.
46 ©APICS
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Detailed Scheduling and Planning
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APICSacknowledgesthecontributionsofthefollowingindividualstothisandpreviousversions.
AlBukey,CFPIM,CIRM,CSCP PaulBernard,CIRMThomasF.Cox,CFPIM,CSCP BarbaraM.Craft,CPIMRichardDonahoue,CPIM,CSCP SharonDow,CIRM,C.P.M.BarryE.Firth,CIRM MichaelFord,CFPIM,CSCPSusanFranks,CFPIM,CSCP EileenGame,CIRMMartinR.Gartner,CFPIM,CSCP AnnK.Gatewood,CFPIM,CIRMMichelGavaud,CFPIM,CIRM,CSCP,C.P.M. ThomasP.Geraghty,CPIMDavidT.Jankowski,CFPIM,CSCP EdwardJ.Kantor,CPIMGeraldL.Kilty,CFPIM,CIRM,CSCP AnthonyKren,CFPIM,CIRM,CSCP,C.P.M.TheodoreLloyd,CPIM HenryLumTerryLunn,CFPIM,CIRM,CSCP DavidA.Magee,CPIM,CIRM,CSCPDebraHansford,CPIM,CIRM,CSCP,C.P.M.,CPSM JamesR.McClanahan,CFPIM,CIRM
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Module Description
Thiscoursefocusesoninventorymanagement,materialandcapacityschedulingandplanning,supplierrelationships,andtheinfluenceofleanphilosophiesintheseareas.Itexplainstheuseofamaterialdominatedschedulingtechnique,materialrequirementsplanning(MRP),injobshop,batch,andcertainrepetitiveprocesses.Thecourseexplainscapacityplanningindetail,introducesothercapacity‐planningtechniquessuchasprocessor‐dominatedschedulingincontinuousflowprocesses,andreviewsprojectmanagementtechniques.
Exam Content Manual
TheAPICSCPIMExamContentManual(ECM)isanimportantdocumentthatallexamcandidatesshouldstudyandreviewinpreparationforeachCPIMexam.Therefore,weareprovidingtheappropriateECMineveryParticipantWorkbook.TheobjectiveofthismanualistooutlinetheAPICSCPIMbodyofknowledgethattheAPICSCertificationExamCommitteehasdefinedforeachCPIMexam.
Therecommendedprocedureformasteringthesubjectmattercoveredineachcertificationexamistoreviewthecontentoutline,whichdefinesthematerial,andthentostudyeachtopic,usingthereferences.Attheendofeachmajorsectionisalistofthereferencesthatapplytothetopicsinthatsection.ThefirstnumberindicatesthesequencenumberforthereferenceintheBibliographysection,andthenumbersinparenthesesindicatethechapter(s)withinthatreference.Theseoutlinesformthecontentandstructureforthecertificationexaminations.Assuch,havingthemostcurrentexamcontentmanualisessentialasitisrevisedannually.
TheParticipant’sworkbookhasbeendevelopedbasedontheexamcontentoutlineandthereferenceslisted.UsingtheexamcontentmanualinconjunctionwithaCPIMclassandthisParticipantWorkbookwillhelpbetterpreparecandidatesfortheCPIMcertificationexams.
CandidatesshouldunderstandthedefinitionsofthekeytermsintheECM,whyandhowtoapplythem,andwhichonestoselectfordifferentsituations.TheCPIMcoursewarecoversmany,butnotall,ofthekeytermsintheECM.Therefore,candidatesshouldsupplementtheirlearningbystudyingtheECMkeytermlistusingtheAPICSDictionaryorotherECMreferencesasaguide.
Class Problems and Activities
Throughoutthecourse,thereareclassdemonstrations(inwhichinstructorscanintroduce/explainconcepts),aswellasactivitiesforparticipants.Theseactivitiesaredesignedtoreview,enhance,anddeepentheparticipants’knowledge.Theactivitiesmaybeperformedindividually,inpairs,orinsmallgroupsasindicated.
Severalsymbolsassociatedwithactivities/problemsandsolutionsareusedthroughoutthecourse:
Thiscubewiththequestionmarkinthecornerindicatesanactivity,classproblem,oroptionalhomeworkproblem.
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Thiscubewiththesolidcornerindicatesasolutiontoaproblem.
ThissymbolonaslideindicatesthatthesolutionisfilledinsequentiallyusingthebuildfeatureofPowerPoint.Simplyadvanceasyouwouldtomovethroughthevisualsandtheslidewillsequentiallybuild.Buildslidesofferyouawaytoexplainthesolutiononepartatatime,andtofillinapartialsolutionandthenaskforparticipantinputbeforecompletingthesolution.Ifyouprefertomodifythesequenceofthebuildslides,usethecustomanimationfeatureinPowerPoint.
Thissymbolindicateslearningobjectives.Thelearningobjectiveshavebeendesignedtobemeasurable,togiveparticipantsaguidetowhatknowledgetheywillhaveaftertakingthecourse,andtoserveasreviewtopicsfortheinstructorattheendofeachclass.
AnasteriskbesideavisualindicatesthatthevisualdoesNOTappearintheparticipantworkbook.Thesearetypicallyseenbesidesolutionvisualsreservedfortheinstructor.
Instructor Preparation
Instructorsshouldexpecttospendanaverageoftwotofourhoursofpreparationforeachhourofinstruction.TheyshouldalsoreadthecurrentExamContentManualsectiononDSPandbefamiliarwiththereferencesforDSP.Asareviewcourseforexampreparation,itisimportanttoprovideanobjectivepresentationofthematerial,withoutbias.Itisalwaysanexcellentideatoprovidepracticalexamplesoftheconceptsbeingtaught.
Theinstructorcommunityisavailableforcommunicatingwithandaskingquestionsoffellowinstructors.Tobeaddedtothiscommunity,[email protected].
APICSrequiresInstructorDevelopmentProgram(IDP)participationforinstructorswhoteachCPIMcoursesonbehalfofAPICSPartners.Foradditionalinformation,[email protected].
AllinstructorsarealsoencouragedtoattendanAPICSsponsoredTrain‐the‐Trainerprogramtoenhancetheirinstructorskills.CheckwithyourlocalAPICSpartnerformoreinformation.
Instructor Materials
Instructorswillneed
acopyofthecompletenine‐sessioninstructorguide theCD‐ROMofPowerPointvisualsforeachsession.
Equipment Needed
projectorandscreen twoflipchartswithstands,paper,andmarkers(recommended) whiteboardandmarkers(recommended)
*
About This Guide ParticipantWorkbookPage
© 2016 APICS I-v Instructor Guide Version 5.4
Guide and Workbook Formats
ThisinstructorguidecontainsallninesessionsoftheDSPcourse.
Theleft‐handinstructorpages,oreven‐numberedpages,inthisguidecontainimagesofthevisualstoaccompanythelecture,notestoshapethecontentofthelecture,andquestionstoposetoparticipantstostimulatediscussion.Intheparticipantworkbooktheseleft‐handpagescontainonlythevisualsandspacetotakenotes.
Theparticipantpages,orodd‐numberedpages,containthecontentofthecourse.Theseright‐handpagesarethesameintheinstructorguideandparticipantworkbook.Thisfacing‐pagelayoutallowsaninstructortoseewhattheparticipantsarereferencing.
Iconsareusedthroughouttheinstructortexttogivevisualcuesanddrawattention.Alistoftheiconsandtheirusesappearsbelow.
Instructor Guide Icons and Cues
Thefollowingisalistoficonsandcuesthatwillindicateupcomingtasks.
Ask:Identifiesaquestiontoasktheclass
Discuss:Identifiesatopicforclassdiscussion
Explain:Indicatesthatatopicmayrequirefurtherexplanation
Flipchart:Identifiesanactivityforwhichitmaybehelpfultowriteinformationonaflipchart
Note:Indicatesanitemtowhichspecialattentionshouldbepaid
Time:Indicateshowmuchtimetospendonacertainactivity CPIMStudyTools:Indicatesthattheseinstructormaterials(solutionslidesandperformancecheckanswers)areavailabletostudentsonlineintheCPIMStudyTools
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X X
X
Suggested Training Room Layout
Thesuggestedtrainingroomlayoutshownbelowisconducivetolearningasitpromotesinteractionamongthelearnersaswellasbetweenthelearnersandtheinstructor.Ideally,theroomshouldaccommodateadditionalworktablesforbreakoutexercisesattheback.However,thisisnotnecessary.
Approximately 35 feet
Ap
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0 feet (op
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Ap
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ly 6
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Projector
FlipFlip
Screen
Extra Work Tables
Co
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Approximately 35 feet
Ap
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ly 4
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Ap
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FlipFlip
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Extra Work TablesExtra Work Tables
Co
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Instructor Table
Or,useoneofthelayoutsshownontherighttoencourageparticipationbytheclassandtoinvolvealllearners.
Trytoavoidthetraditionallayoutshowntotherightwheninstructing.Youwillseethatitfillsfromthebackaspeopletrytoavoidactiveparticipationintheclass.Thefocusisontheinstructorandnotonthelearner.
Movearoundtheroomduringclasssessions—especiallyifyouarerestrictedtousingatraditionalroomlayout.Thiswillencourageeveryparticipanttotakeamoreactiveroleinthelearningenvironment.Whenasessionends,puttheroombackinproperorderbeforeleaving.
About This Guide ParticipantWorkbookPage
© 2016 APICS I-vii Instructor Guide Version 5.4
Visual Aids (Slides)
VisualaidsintheformofPowerPointslidesareincludedanddesignedtohelpexplaininformationortoprovidevisualcuesforrecallingandunderstandinginformation.ThecourseCDcontainsallthefilesyouneedtopresentthevisuals.
IfyoudonothaveaccesstoafullversionofPowerPoint,aPowerPointviewerfilecanbedownloadedfromMicrosoft.
To Move through the Slides
Clickthemousebuttontoadvancefromslidetoslide. Youcanalsousethearrowkeys,spacebar,andthePageUpandPageDownkeysto
movethroughtheslides. Tojumptoaspecificslideinthepresentation,typetheslidenumber,andthenpress
<enter>.
To Draw Freehand on a Slide
ClicktheFreeformtoolonthebottomleftorrightcorneroftheslide(itresemblesapencil).
Placethecrosshairpointerwhereyouwanttobegindrawing. Holddownthemousebuttonwhiledrawing.Adrawingpencilwillappear. Movethemousetodrawshapesontheslides. Toenddrawing,presstheEscapekeyonthekeyboard. AlternativestotheFreeformtoolonslidesthattheinstructormustfillinincludethe
following: Usetraditionaloverheadtransparenciesandasecondprojectorforvisualswhere
spacesmustbefilledin SomeprojectorsallowtheusertoplaceablanktransparencyovertheLCDpanel.
Theinstructorcanthenwriteontheblanktransparency
To End the PowerPoint Slide Show
PresstheEscapekey
Equipment
Arriveatleast45minutestoonehourearlyforeachsessiontosetupandtesttheequipment—projector,flipchart,whiteboard,etc.Testtheequipment;walktothebackoftheroomtotestforfocus,clarity,andsightlines.Learnhowtodimthelightsifnecessary.
Blackboards and Whiteboards
Blackboardsareoneoftheoldestvisualaidsandcanbeveryeffective.Whiteboardscanbeusedinmuchthesameway.Usethemtoworkthroughclassproblemsandforillustration.Bebrave!Drawstickpeopleandtrucks,etc.,tomakeyourpoint.Thiscangivegoodmemorycluestolearners,pacethepresentation,andenliventheclassatyourartisticexpense.
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Flip Charts
Flipchartscanbeusedforworkingproblemsandwillbeusedinthefinalreviewactivity.Youcanalsopostquestionstoaflipcharttocomebacktolater.Theinformationonflipchartsispermanentandcanberetrievedforlateruse.Theyarealsogreattopostaroundtheroomduringtheworkshop.Flipchartsrequirespecialmarkers.Whiteboardmarkerswillwork,buttendtodryoutquickly.
Performance Checks
Thereismuchmaterialtobecoveredineachsession.Theperformancecheckswerecreatedtogiveyouanopportunitytoassesstheparticipants’learning.Theperformancechecksmaybeusedasevaluationtoolsorhomeworkassignments.Anoptionistosendthemtotheparticipantsasapre‐courseassignmenttoassesstheirknowledgebeforethecoursestarts.Ifyouareusingtheperformancechecksforevaluationorhomeworkassignments,makesureyouhaveapolicyandthattheparticipantsunderstandit.Theparticipantsareadultswithotherresponsibilities,soyoushouldtrytohaveaflexiblepolicy.
Pleasenotethataprogresscheckanswersheetfortheparticipants’useinrecordingthecorrectanswerstotheperformancecheckquestionscanbefoundintheAppendix.
Class Participation
Telltheparticipantsthateveryonehasacontributiontomake,andeveryoneshouldparticipateinclassdiscussionsandproblemsolving.
Icebreaker
Beforethefirstsession,havetheparticipantsintroducethemselves,identifytheiremployer,statetheirjobtitle/functions,andwhattheyhopetogetoutoftheclass.
APICS CPIM Study Tools
InadditiontoyourprintedAPICSCPIMinstructorguide,APICShasdevelopedtheAPICSCPIMStudyTools—anonlinelearningenvironmenttohelpyourstudentsmasterthecoreconceptswithintheAPICSCPIMmoduleandtohelpyoumanageyourstudents’progress.Thisonlinetoolcontainspresentationslidesandassessmentstocomplementyourstudents’APICSCPIMlearningexperience.
ToaccessAPICSCPIMStudyTools,youwillneedanAPICSID.
IfyoucurrentlydonothaveanAPICSID,simplygotoapics.org/newusertocreateone. IfyouareamemberoftheAPICSInstructorDevelopmentProgram(IDP),simplylogin
toapics.orgusingyourAPICSID. IfyouarenotalreadyamemberoftheAPICSIDP,[email protected]
themthatyouareaninstructorwhohaspurchasedanAPICSCPIMinstructorguidewiththeintentionofteachinganAPICSCPIMcourse.TheAPICSProfessionalDevelopmentteamwillhelpgetyousetupsothatyoucanaccesstheAPICSCPIMStudyTools.
FullinstructionsonaccessingAPICSCPIMStudyToolsareavailableonlineatapics.org/cpimstudytools.
Session 1: Inventory Policies Participant Workbook Page
© 2016 APICS 1-9 Participant Workbook Version 5.4
Types and Classifications of Inventory
Inthissection,wewilladdressthemajortypesandclassificationsofinventoryinconventional,lean,andTOCmanufacturingprocesses.Wealsowilldiscussserviceinventory.
Ourgoalistohelpyouunderstandhowdifferenttypesofinventoriesaffectinventoryinvestmentorthevalueofinventoryatalllevelsmeasuredinmonetaryterms.
Rememberthatdetailedschedulingandplanningbalancesinventoryinvestmentobjectiveswithcustomerserviceandproductionefficiencyobjectives,andthatinventorystrategyandpoliciesbothaffectandreflecttradeoffsamongthethreeobjectives.
Major Types of Manufacturing Inventory
Manufacturinginventorycanbeclassifiedintofourmajortypesthatarefoundinbothconventionalandleanmanufacturingprocessenvironments:
rawmaterials workinprocess(WIP) finishedgoodsanddistributioninventories maintenance,repair,andoperatingsupplies(MRO)
Thefirstthree(rawmaterials,WIP,andfinishedgoods),arebasedontheflowofmaterialsfromsuppliersthroughmanufacturingandintothedistributionsystem.
Isinventoryconsideredanassetoraliability,andwhy?
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Major Types of Manufacturing Inventory
Raw material
Work in process (WIP)
Finished goods and distribution inventories
Maintenance, repair, and operating (MRO) supplies
Visual 1-8
ContinuetodisplayVisual1‐8.
Raw Material
Pointoutthatrawmaterialincludespurchasedandextracteditems,suchascomponentsoffinishedproductsandsubassemblies.Theyarethelowest‐levelcomponentsinabillofmaterial(BOM).Notethatinleanenvironments,rawmaterialinventoriesarekeptlow.
WIP
ExplainthatWIPinventoryresultswhenrawmaterialistransformedintofinishedgoodsindiscretesteps,andcanbeinvariousstagesofcompletion.NotethatleanmanufacturingtechniquesreduceunnecessaryWIPandinventorycoststhroughfasterthroughputandshorterleadtimes.
Session 1: Inventory Policies Participant Workbook Page
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Raw Material
Rawmaterialsarepurchaseditemsorextractedmaterialsthatareconvertedintocomponentsandproductsduringthemanufacturingprocess.
Rawmaterialsincludecomponentssuchasmanufacturedpartsorsubassembliesthataretransformedintofinishedproducts.
Theyarethelowest‐levelcomponentsinabillofmaterial(BOM).
Theprocurementprocessandmanagementofsupplierrelationshipsaddressthemanagementofrawmaterialsupplyrequirementsinbothmanufacturingandserviceindustries.Inleanmanufacturingenvironments,rawmaterialinventoriestypicallyareverylow.Leanmanufacturingreliesonrelationshipswithsuppliersthatdeliverrawmaterials,oftendirectlytothefactoryfloor.Suppliersdothisinappropriatelotsizestoreducethewasterepresentedbyinventorycarryingcosts.
WIP
Insomeconventionalmanufacturingprocessenvironmentssuchasintermittent(jobshop)andbatch,productiontransformsrawmaterialsintofinishedproductsinaseriesofdiscretesteps.ThisresultsinwhatiscalledWIPinventory:goodsinvariousstagesofcompletioninaproductionprocess.WIPincludesthefollowing:
rawmaterialthathasbeenreleasedforinitialprocessing semifinishedstockandcomponents completelyprocessedmaterialsawaitingfinalinspectionandacceptanceasfinished
goodsinventory.
Mostmanufacturingfirmshavesomeinventorythatfitsthisclassification.ProductionreportingcommunicatesthecompletionstatusofproductsateachintermediatestageofproductionsothataccountingcandeterminethevalueofWIP.Thisisbasedondirectmaterialandlaborcostsandallocatedfactoryoverheadcosts.
Inapureleanmanufacturingenvironment,WIPlevelsaresignificantlylower.Productionlayouts,suchascontinuousflowandcellular,andothermethodsfacilitateacontinuousone‐pieceflowofmaterialfromrawmaterialtofinishedproductthatissynchronizedwithcustomerdemand,orpullrate.ManufacturingleadtimesandWIPdecreasebydesign.
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1 • 8 © APICS Confidential and Proprietary
Major Types of Manufacturing Inventory
Raw material
Work in process (WIP)
Finished goods and distribution inventories
Maintenance, repair, and operating (MRO) supplies
Visual 1-8
ContinuetodisplayVisual1‐8.
Finished Goods and Distribution Inventories
Explainthatfinishedgoodscanconsistofenditemsaswellaspartssoldtocustomersasreplacements.Finishedgoodsmaybeheldtoreduceleadtimes.Leanmanufacturingtechniquesfocusonreducingfinishedgoodsinventories.
Asktheclasshowtheuseofdistributioncenterscanloweroveralldistributioncosts.
Answer:
Thelowerunitcostoffulltruckloadshipmentstodistributioncentersforlocaldistributionoftenoutweighsthehigherunitcostofshippingoverlongdistancesdirectlytothecustomer.
MRO Supplies
MROsuppliessupportgeneraloperationsandmaintenanceandarenotincludedinthecostofgoodssold.
Session 1: Inventory Policies Participant Workbook Page
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Subclassifications of Manufacturing Inventory
Visual1‐9showsadditionalwaysofclassifyingandanalyzingthefourmajortypesofinventorywejustdiscussed.Thiswillprovideadditionalunderstandingoftheirimplicationsforinventoryinvestment.
Whatcouldcausethesetypesofinventory,andwhatcanbedoneaboutthem?
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Whyshouldthetargetinventorylevelforexpensiveoperatingitemsbelower?
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Excess
Therearetwoperspectivesonexcessinventory.Manyauthorsdefineitasmaterialsprocuredormanufacturedinexcessofcurrentoperationalneeds.Excessinventorymayoccurbyplaninresponsetolot‐sizingrules,seasonalityconsiderations,oranticipationbuilds.Apricebreakordiscountforapartmaygivethepurchasingdepartmentsufficientreasontobuyalargerquantitythannormal.Inaccurateinventoryrecordscouldpromptprematurereplacement.Ordercancellationsmayresultinhigherinventory,thusincreasingcarryingcostsandriskofspoilageandobsolescence.Inleanmanufacturing,Just‐in‐Time(JIT)materialdeliveriesanddemand‐pullschedulingreducetheincidenceofexcessinventory.Oneoftheeightwastesofmanufacturingintheleanphilosophyisoverproduction.
Asecondperspectiveonexcessinventoryshowstheinfluenceofthetheoryofconstraints(TOC)productionphilosophy.
excessinventory—Anyinventoryinthesystemthatexceedstheminimumamountnecessarytoachievethedesiredthroughputrateattheconstraintorthatexceedstheminimumamountnecessarytoachievethedesiredduedate.Totalinventory=productiveinventory+protectiveinventory+excessinventory.
─APICSDictionary
Examplesofexcessinventoryareamountswellabovethoseheldforproductiontobuffercriticalconstrainingresourcestoachievethedesiredthroughputrate,andfinishedgoodsinventoryattheshippingpointtoprotectpromisedshippingdates.Seethediscussionofbuffersonpage1‐17under“OtherManufacturingInventory.”
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Inactive, Obsolete, and Scrap Inventory
Continuetoexplainthesubclassificationsofmanufacturinginventory:inactive,obsolete,andscrap.
Addressthesignificanceofavoidingorreducingthesetypesofinventorytomanageinventorycoststhroughbetterinventoryplanningandpractices.
Other Manufacturing Inventory
1 • 10 © APICS Confidential and Proprietary
Other Manufacturing Inventory
Buffers
Inventory buffers
Return goods
Visual 1-10
Buffer and Inventory Buffer
BufferandbufferinventoryaretermsdefinedintheAPICSDictionary.Whiletheirdefinitionsdifferslightly,itismoreimportanttofocusonthefactthatbothleanandTOCusebufferstoachievebetterresults.
LeanandTOCproductionclassifyinventoryaswaste,butinsomeinstancesitisnecessarytousebuffersofrawmaterialsandfinishedgoodstoexpeditethroughput,especiallyforconstrainedresources.
Theneteffectisshorterleadtimes,bettercustomerservice,lessWIP,lowerinventories,andanoverallreductionininventorycosts.
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Inactive
Inactiveinventoryisstockthathasexceededconsumption,ordemand,withinadefinedperiodoftimeorhasnotbeenusedforadefinedperiod.Likeexcessinventoryandobsoleteinventorydiscussedbelow,itisanassetfromanaccountingperspectivebutentailsongoingcarryingcosts.Inactiveinventoryoftenisthedirectresultofinventorynotbeingusedwithin12to18monthswithnoforeseeablefutureuse.Forproperassetreporting,thisinventoryshouldbevaluedatzeroandthecostshouldbewrittenoffagainstcurrentprofits.
Obsolete
Obsoleteinventorytypicallyisnotusedorsoldatfullvaluebecausetheproductsarenolongerproducedorsupported.Disposingoftheinventorymeansthatitscostscannotberecoveredthroughrevenues,whichmeanslostrevenueandreducedprofit.Partsobsoletedbyanengineeringchangeorderaremarkedforremovalaspartofthematerialdispositionoractiontasksoftheengineeringchangeorder.
Scrap
Scrapismaterialthatisoutsideofspecificationsandisnotpracticaltorework.Scrapcanbearesultofthenatureofthematerialsandthemanufacturingprocess.Ascrapfactorshouldbebuiltintodeterminingmaterialrequirements.
Other Manufacturing Inventory
Buffer inventories in lean and TOC environments are examples of inventories that incur a cost, but whose overall impact on inventory investment is positive. This is because their objective is to maintain desired throughput, reduce manufacturing lead time, and lessen the dependence on forecasts—thus reducing total inventory and production costs.
Buffer Bufferisaquantityofrawmaterialsorsemifinishedgoodsrequiringfurtherprocessing,oftenpurposelymaintainedataworkcentertoachievedesiredthroughput.
InTOC,thetermstrategicbufferisusedforrawmaterialsandsemifinishedproductsthatarriveearly,aswithatimebuffer,toensurethatacriticalconstrainedresourceorshippingpointdoesnotrunshortofmaterialstoprocessorship.InTOCproductionphilosophy,bufferlevelsareevaluatedasoftenasdailytoensuretheyarenottoohighortoolow.Constantadjustmentstominimizeinventoryinvestmentcostsareconsideredtobeagoodpractice.
Buffers,includingsafetystock,canbeusedtoaddressfluctuationsincustomerdemandandsupplyateachworkstationorprocessandattheshippingpointorfinishedgoodslevel.
Inventory Buffer
ThedefinitionofinventorybufferintheAPICSDictionaryissimilartothedefinitionofbuffer.Itappliestoinventoryusedtoprotectthethroughputofanoperationortheschedulefromdelaysindelivery,qualityproblems,anddeliveryofincorrectquantities.
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Other Manufacturing Inventory (cont.)
Return Goods
1 • 11 © APICS Confidential and Proprietary
Return Goods
Reasons for:
Customer quality demands
Damage or defects
Recalls
Over-forecasting
Seasonal demand
Obsolete inventory
Repair and remanufacturing
Recycling
Disposition of:
Correct defects
Replace
Return for resale
Repair or remanufacture for resale
Sale into other markets
Convert to reusable components
Reuse in current form
Visual 1-11
Brieflyreviewthetypesofreturngoodsinventoryandalternativewaysofdisposingofthem.Theexamplesgivengenerallyareself‐explanatory.
Note:RepairandremanufacturingarediscussedinmoredetailinSession2intheOrderReviewMethodssection.
Asktheclasstogiveexamplesofthetwotypesofrecycling:conversiontoreusablecomponentsandreuseincurrentform.
Answer:
Therecyclingofglassprovidesexamplesofboth.Crushingglassbottlestocreatefeedstock,orreusablecomponents,forthemanufactureofnewglassisoneformofrecycling.Recirculationofglassbeveragebottlesforreuseisanother.Yetanotherexampleofreuseisthereturnofpackagingmaterialsandpalletstosuppliers,whichisbecomingacommonpracticeascompaniesimplementgreenmanufacturing,greenreverselogistics,andsustainabilityprograms.
Session 1: Inventory Policies Participant Workbook Page
© 2016 APICS 1-25 Participant Workbook Version 5.4
Hard, Perishable, and Distressed Inventory
Thenatureofhardgoodsisimpliedinthediscussionoftangibleproductsabove.Theyarepartofaserviceprovided.Wecaninferthattwotypesofhardgoodsexist:
thosethatinvolvesomerawmaterialtransformation,suchasrestaurantmeals,customclothing,andbakedgoods
materialsthatarenottransformedduringtheservicetransaction,suchasgoodsboughtfromaretailstore,automobilepartsinstalledbyanautomotiverepairshop,orreplacementpartsusedinasurgicaltransplantoperation.
Perishableinventoryisfoundinbothmanufacturingandserviceindustries.Hakseveretal.,inServiceManagementandOperations,2nded.,chap.19,usestheexampleofbrochuresforanathleticeventasaperishablegoodsreordermodel.Thekeyconceptisthatbrochuresboughtbutnotsoldfortheeventareworthlessfromtheserviceorganization’sstandpoint.
Distressedgoodsalsoarefoundinbothmanufacturingandservices.Theyincludeproductsthataredamagedorclosetotheirexpirationdatesandcannotbesoldatfullprice.Anexamplewouldbedamagedpaintingsorotherworksofart.Distressedgoodsoftenarefoundatclearancesales.
Givesomeexamplesofserviceinventorythatareconsideredhardgoods:
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Givesomeexamplesofserviceinventorythatareconsideredperishablegoods:
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Service Inventory Management and Costs
Likeinventorymanagersinmanufacturing,serviceinventorymanagersaresubjecttothesamevariationsandfluctuationsincustomerdemandfordifferenttypesofproducts.Theyfacethesamechallengeswithrespecttobalancinginventorycostswithcustomerserviceandserviceefficiency.
Themanagementofphysicalinventoryinserviceindustriesissubjecttothesameprinciplesandpoliciesusedinmanufacturingwhendealingwithissuessuchasforecastinganddemandmanagement,ordermanagement,inventoryperformance,andaccuracy.
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Aggregate Inventory Policies
References:Arnoldetal.,IntroductiontoMaterialsManagement,7thed.,chap.2,9;George,LeanSixSigma,chap.13,14;BichenoandHolweg,TheLeanToolbox,4thed.,chap.9,17;Simchi‐Levyetal.,DesigningandManagingtheSupplyChain,chap.1,12;Jacobsetal.,ManufacturingPlanningandControlforSupplyChainManagement,APICS/CPIMCertificationEdition(2011),chap.5,16;Garrisonetal.,ManagerialAccounting,12thed.,chap.3,4;Williams,“CostingInventory—YesItCostsMoney,”APICSCPIMDSPReprints,January,2010;EpsteinandBuhovac,2nded.,MakingSustainabilityWork,chap.4.
Introduction
1 • 17 © APICS Confidential and Proprietary
Aggregate Inventory Policies
Resolving sales and operational conflicts
Inventory valuation
Performance metrics
Visual 1-17
Explainthescopeofaggregateinventorypoliciescoveredinthissection;differentiatebetweenaggregate‐levelpoliciesandtheitem‐inventorypolicieswewilldiscussinthenextsection.
Resolving Sales and Operational Conflicts
1 • 18 © APICS Confidential and Proprietary
Emergence of Conflicts
During the development of business strategy− Choice of manufacturing strategy: make-to-stock, make-to-
order, assemble-to-order, engineer-to-order − Choice of manufacturing process to support strategy:
intermittent, repetitive, continuous, project
During priority and capacity planning− Customer service levels− Efficient plant operations− Backlog and safety stock decisions
Minimum inventory investment− Low inventory levels− High inventory turns
Visual 1-18
Business Strategy Choices
Facilitateadiscussiononthekindsofconflictsandtradeoffissuesthatariseduringthedevelopmentofbusinessstrategyandpriorityplans.Notethefollowingconflictingobjectives:
sales—highcustomerservicelevels operations—efficientplantoperationandmaterialavailability finance—minimuminventoryinvestment costofmaterials—totallifecyclecost
Agoodexampleisthesettingofsafetystockpolicywherethetradeoffisbetweencustomerserviceandinventoryinvestmentcosts.ThistypeofissuecanbeaddressedatboththeS&OPandmasterschedulinglevel.
Session 1: Inventory Policies Participant Workbook Page
© 2016 APICS 1-27 Participant Workbook Version 5.4
Aggregate Inventory Policies
Introduction
Thetwotypesofinventorypoliciesareaggregateanditem‐level.
Aggregate‐levelpoliciesareassociatedwiththeimpactofinventorymanagementontheoverallfinancialperformanceofthecompany.
aggregateinventorymanagement—Establishingtheoveralllevel(forexample,dollarlevel)ofinventorydesiredandimplementingcontrolstoachievethisgoal.
─APICSDictionary
InthissectionofSession1,wewillcoverthreetopicsthatrelatetoaggregateinventorypolicy: resolvingsalesandoperationalconflicts inventoryvaluation performancemetrics
Item‐levelpoliciesareassociatedwithmaterialsandoperationsplanningandexecution.Laterinthissection,wewillcovertwoimportantpolicies—lotsizingandsafetystock,bothofwhichconstraintheinventoryplanningfunctionsaddressedinSession2.
Resolving Sales and Operational Conflicts
Business Strategy Choices
Inanymanufacturingorganization,differentfunctionshavedifferentobjectives.Thesedifferentobjectivesemergeandareaddressedasearlyaswhenamanufacturerdecideswhattomakeandsell,andhowtomakeit.Themanufacturermustmakechoicesrelatingto
manufacturingstrategyorproductionenvironment,suchasmake‐to‐stock,make‐to‐order,assemble‐to‐order,engineer‐to‐order,andmasscustomization
manufacturingprocess,suchasintermittent,repetitive,continuous,andproject.
Decisionsonthesechoicesareinfluencedbyproductandprocessdesign,technologyrequirements,levelofexpecteddemand,productvarietyandvolume,geographicscopeofthemarket,lifecycleandenvironmentalcostofpurchasedmaterials,andcustomerexpectationsaboutorderfulfillmentspeedandlocation.Ultimately,thesechoicesanddecisionsneedtobalanceasetofconflictingobjectives:
highcustomerservicelevels—highproductvarietyandquality,andshorterleadtimesandproductionflexibilitytorespondtocustomerorders
efficientplantoperations—longproductionrunstominimizechangeoversandreduceper‐unitproductioncosts;highrawmaterialinventorylevelsatlowcosts
minimuminventoryinvestment—lowlevelsofinventoryandhighinventoryturns,orinventoryturnover.
realcostofmaterials—lowestpurchasepriceversustotallifecycleandenvironmentalcosts
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Priority and Capacity Planning Choices
Brieflynotethattheconflictsbetweeninventoryinvestment,customerservice,andproductionefficiencyareaddressedduringmasterplanningactivitiesandS&OP.
Resolving Conflicts
1 • 19 © APICS Confidential and Proprietary
Shorter lead time
Flexible production Lessen
dependence on forecasts
Resolving Conflicts
Synchronize pull production with
customer demand Minimize inventory
investment
Faster throughput
Eliminate wasteful procedures from the production process
Ensure one-piece continuous flow of
material
Empower employees
Constraint buffers to ensure full utilization
Just-in-Time delivery of raw materials to factory point of use
Visual 1-19
Discussresolvingconflictsthroughmeansotherthantheconventionalapproach,inwhichdirecttradeoffsaremadebetweeninventoryinvestmentandcustomerservice,forexample.
Asthediagramshows,anothermethodistochangetheapproachtoproductionandcustomerservice.Thismightincludetakingstepstoincreasethroughputandadoptpullproductiontechniques,asintheleanandTOCphilosophies.
Walktheclassthroughthethoughtprocessinthediagram:Moreproductionflexibilityandfasterthroughputcanleadtobetterresponsivenesstocustomersandlowerinventorylevels.
Session 1: Inventory Policies Participant Workbook Page
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Cost of Goods Sold (Cost of Sales)
Retailstoresgenerallysellgoodsinthesamephysicalforminwhichtheyareacquired.Sometimesthefreightcostsareaddedtotheacquisitioncoststocreate“landedcosts.”Thisoccurswhenthefreightcostscanbetrackedeasilytotheitembeingbought.Landedcostsarelistedasanassetonthebalancesheetuntiltheitemissold.Theacquisitioncostsbecomethecostofgoodssoldoncetheitemissold,thusreducingprofitintheperiodsold.
Serviceorganizationscarrymaterialinventoriesasinthecaseofplumbers,personal‐serviceorganizations,hospitals,hotels,beautysalons,educationalorganizations,banks,andotherfinancialinstitutions.Examplesofmaterialinventoriesincludethepipesandfittingsofaplumbingcompany,andofficesuppliesusedbypersonalserviceandfinancialinstitutions.Theseareconsumedasoperatingsuppliesandarenottrackedascostofgoodssold.Otherserviceorganizationsprovidetangiblegoodsinadditiontotheservice,suchasautomobilerepaircompaniesthatsellpartswiththeservice.Thesepartsusuallyarecarriedininventoryasanasset,issuedtothejobasrequired,andtrackedascostofgoodssoldwhentheserviceisprovided.
Amanufacturingcompanyconvertsrawmaterialandpurchasedcomponentsintofinishedgoods.Itscostofsalesincludestheconversioncosts,suchaslaborandoverhead,aswellastherawmaterialsandcomponentcostsofthegoodsitsells.Amanufacturerhasthreetypesofinventoryaccounts:materials,WIP,andfinishedgoods.Afterrawmaterialsaretransformedintofinishedproducts,theyremainininventoryuntiltheyaresold.Inamake‐to‐orderenvironment,shipmentusuallyisimmediateuponcompletingproduction.Oncesold,thematerialsaresubtractedfrominventoryandareincludedinacompany’sincomestatement,alongwithlaborandoverheadcosts,asthecostofgoodssold.Notethattheterms“costofgoodssold”and“costofsales”areusedinterchangeably.
Types of Inventory Valuation
ShowninVisual1‐23arevarioustypesofinventoryvaluationmethods.Thedifferentmethodsarenecessarywhenthecostofanitemchangesduringtheaccountingperiod.Thesemethodsproducedifferentinventoryinvestmentvalues.Onceacompanyselectsitsinventoryvaluationmethod,itisdifficultandtime‐consumingtochangetoanothermethod.
Specific identification
Thespecificidentificationmethodkeepstrackoftheunitsfromthebeginninginventoryandtheunitspurchased,resultinginidentificationofthepurchasecostofeachitem.Trackingcanbedonebycodingorserialnumberidentification.Thismethodisbestusedforexpensiveitems,ratherthanforloworfrequentlychangingunitcosts,andcanbeusedtodetermineactualcost.
Average cost
Withtheaveragecostmethod,thecostofgoodssoldandendinginventoryarebasedontheaverageoftheactualcostspaidforeachunitproducedorpurchased.Theaveragecostappliestoalloftheitemsavailableforsaleduringtheperiod.
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Continuesummarizingthetypesofinventoryvaluation.First in, first out (FIFO)
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Costing Method Example Data Source
Record of purchases
April 100 units $10 each
May 100 units $12 each
June 100 units $14 each
Ending first quarter inventory: 0 units
Second quarter usage: 210 units
Source: CPIM Inventory Management Certification Review Course (APICS 1998).
Visual 1-24
ExplainthatthisvisualincludesdatatobeusedinthesampleFIFOandlastin,firstout(LIFO)calculations.
1 • 25 © APICS Confidential and Proprietary
Costing Method—FIFO Calculation
Date Quantity received
Unit cost ($)
Inventory value ($)
Usage quantity
Issue unit cost ($)
Issue value ($)
April 100 10 1,000 90May 100 12 1,200 10
80June 100 14 1,400 20
10
July starting inventory of 90 at
960
$14= $1,260
Cost of goods sold = $2,340
10 900 10 100 1212
14
240
140
Visual 1-25
WalktheclassthroughtheFIFOcalculationusingthebuildslide.
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Standard cost
Withstandardcostsystems,asinglevalueisselectedforaninventoryitemthatisreasonableandoftenbasedonhistoricaloranticipatedcosts.Thedifferencebetweenactualcostsincurredandstandardcoststhenisreportedintheformofavariancefromthestandard.Thistechniqueconsistentlyreportstheinventoryassetandthecostofgoodssoldatthesamevalue.Standardcoststypicallyarereviewedandupdatedannually.
Actual cost
Actualcostscanbeusedwhenthereisameansoftrackingthespecificcostofeachitem,suchassomeformoflotcontrol,toaspecificpurchaseorderorproductionrun.Thismethodisnotusedoftenexceptforcustomitemsoruniqueitemssuchasexpensivejewelry.
Transfer cost and price
Transfercostandpriceareimportantinthetransferofgoodsbetweensistercompaniesordivisions.Althoughmanagementpolicycansetthetransferprice,thenettransfereffectistomovetheinventorycostsfromthesellingdivisiontothebuyingdivision.Theydonotaffectthevaluationofassets,asdoaverage,standard,andactualcost.
First in, first out (FIFO)
TheFIFOmethodassumesthattheoldestitemsininventoryarethefirstonesissuedfrominventory.Inaperiodofincreasingcosts,thistendstokeepthetotalinventoryvalueonthebalancesheetclosetothecurrentmarketvalue,butwouldchargecostofgoodssoldattheolderandlowercostvalues.
Visual1‐25showstheFIFOcalculationbasedonthedatainVisual1‐24.
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Last in, first out (LIFO)
BrieflyexplainLIFO:Itassignscostofgoodssoldbasedonthemostrecentcostincurred—incontrasttoFIFO.
Class Problem 1.2: Last In, First Out
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Problem 1.2 LIFO
Date Quantity received
Unit cost ($)
Inventory value ($)
Usage quantity
Issue unit cost ($)
Issue value ($)
April 100 10 1,000 ? ? ?May 100 12 1,200 ? ? ?
? ? ?June 100 14 1,400 ? ? ?
? ? ?Cost of goods sold = ?
July starting inventory of 90 at $____ = ?
Visual 1-26
Havetheclassdoproblem1.2intheparticipantworkbook.ReviewthesolutioninVisual1‐27,whichisabuildslide.
Solution:
1 • 27 © APICS Confidential and Proprietary
Problem 1.2 Solution
Date Quantity received
Unit cost ($)
Inventory value ($)
Usage quantity
Issue unit cost ($)
Issue value ($)
April 100 10 1,000May 100 12 1,200
June 100 14 1,400
July starting inventory of 90 at
10 100960
12 240
$10 = $900
Cost of goods sold = $2,700
12208010
9010
1414
1260140
Visual 1-27*
Costofgoodssoldis$2,700;Julystartinginventoryof90at$10is$900.
AsktheclasstoexplainwhyusingLIFOinaperiodofrisingpricesresultsinalowertotalinventoryvalueonthebalancesheetthanwithusingFIFO.
Answer:
LIFOkeepstheitemspurchasedearlieratlowercostsonthebalancesheet.Duringatimeofrisingcosts,thisresultsinalowerinventoryvaluationthaniftheFIFOvaluationwereused.Currentprofitswillbelowerbecausethemoreexpensiveitemsarechargedtocostofgoodssold.
Note:Althoughnotcommonlyused,theLIFOmethodisusedinthegroceriesindustry,amongothers.Itisnotanacceptedaccountingmethodinsomecountries.
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LIFO (last in, first out)
TheLIFOmethodassumesthatthelatestitemsininventoryarethefirstonesbeingissuedtoproductionorsales.Thismethodassignscostofgoodssoldbasedonthemostrecentcostincurred.Inaperiodofrisingcosts,thiswouldtendtounderstatethetotalinventoryvalueonthebalancesheet.However,itwouldchargecostofgoodssoldatvaluesclosetothecurrentmarketvalue.Itshouldbenotedthatthisisstrictlyanaccountingmethodforvaluinginventoryandisnotnecessarilybasedonthephysicalmovementofinventory.
Class Problem 1.2: Last In, First Out
CalculatetheLIFOvaluationforthisinventory:
Date Quantity received
Unit cost ($)
Inventory value ($)
Usage quantity
Issue unit cost ($)
Issue value ($)
April 100 10 1,000May 100 12 1,200
June 100 14 1,400
Cost of goods sold = July starting inventory of 90 at $____ =
Onceyouhavecalculatedtheanswer,explainwhythiswouldresultinalowertotalinventoryvalueonthebalancesheetthanwithusingFIFO.
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Inventory Performance Metrics
Aggregate Inventory Metrics
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Aggregate Inventory Metrics
Inventory turns
Days of supply
Cash-to-cash cycle
Customer service
Visual 1-28
Explaintheoverallbusiness‐levelperspectiveofaggregateinventorymetrics.Introducethefourmetricswewillreview.
Inventory turns
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Inventory Turns
A measure of how effectively inventory is being used
Example:Annual cost of goods sold = $1,000,000Average inventory = $500,000
Annual cost of goods soldAverage inventory in dollarsInventory turns =
$1,000,000$500,000Inventory turns = = 2
Note: “Cost of goods sold” is synonymous with “cost of sales.”
Visual 1-29
Brieflywalkthoughthecalculationofinventoryturns.
Askwhattheinventoryturnsratiowouldbeinanothercompanythatgeneratesthesamelevelofannualsaleswithanaverageinventoryof$20,000.Askhowlongitwilltake,onaverage,torecovercostofinventory.
Answer:
Theratiowouldbe$1,000,000to$20,000,or50.Itwouldtakeaboutaweekonaveragetorecoverinventorycosts.Thisisbasedontheturnsbeingalmost52,orweekly.
Giveexamplesoftypicalinventoryturns.Simchi‐Levyetal—inDesigningandManagingtheSupplyChain,3rded.,p.57—givethefollowingUSmanufacturingmedianaggregateturnsin2001:
electroniccomputers:7.0 papermills:8.0 industrialchemicals:6.4 bakeryproducts:23.0 bookpublishingandprinting:2.5 householdaudioandvideo:3.9
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Order quantities in production and service environments
Orderquantitydecisionsarebasedonmanydifferentmethods.Decidinghowmuchtoorderatatimeoftenisdependentonthemanufacturingenvironmentacompanyoperateswithin,aswellastheproductionsystemsandmethodsitemploys.Whencompaniesuseanenterpriseresourcesplanning(ERP)system,atime‐phasedrecordiscreatedthatpermitsdevelopingdiscretelotsizessupportingthelot‐for‐lot(L4L)andPOQmethods.
Forprojectandmake‐to‐ordermanufacturers,themajorityofcustomerorderswillbepurchasedormanufacturedforeachorderasthescheduledictates.Toaccountforthecostsofeachorderandtoeliminateorminimizeresiduals,itemsareobtainedonlyforeachorder.Thismaterialisallocatedtotheparticularorderwhenitreachesinventoryandisissuedagainstthatordernumber.ThesameitemmaybesubjecttoL4Lorderingforcertaintypesoforders,andtodifferentorderingtechniquesforotherorders.Anexampleisabusinessthatperformscontractworkforthegovernmentandusesthesamematerialsinitscommercialbusiness.
Inleanandrepetitiveenvironments,theL4Lmethodmakessensebecausethethemeistoonlyproducewhatisneeded.Inlean,overproductionisconsideredoneoftheeightwastesoftheToyotaProductionSystem.Customersdeterminetherateofproduction,whichisconvertedtoatakttimethatsetsthepaceofproduction.Theidealflowpatternisaone‐pieceflowandtheideallotsizeisone.Smallerlotssimplymeanlowerinventorycosts.Whentheidealone‐pieceflowcannotbeobtained,inventorybufferingisestablishedbetweenprocesses.Inventoryinvestmentinthisenvironmentisminimizedtowhatisneededtosupportthecontinuousflowofproducttothecustomer.
Orderquantitydecisionsalsoarefactorsinservicesparalleltothoseinmanufacturing,especiallyinpurchasing.Theenvironmentinwhichtheyareemployedcandifferslightlyintermsofstoragecapacity,shelflife,replenishmentcycles,anddemandpatterns.
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Costs associated with order quantity decisions
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Order Quantity-Cost Relationship
0
200
400
600
800
1000
1200
1400
1600
0 200 400 600 800 1000 1200Order quantity
Cos
t in
dolla
rs
Ordering costs
Carrying costs
Total cost
EOQ
Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by Permission of Pearson Education
Total cost = carrying costs + ordering costs
Visual 1-38
Discusstheorderquantitycostrelationshiptointroduceinventorycarryingcostandorderingcost.
Carryingcosthasalinearrelationshiptoorderquantity. Orderingcostdecreasesatageometricrate. Resultingtotalcostcurveislowestatapointcalledtheeconomicorderquantity(EOQ),
whichwewilldiscusslater.Inventory carrying cost
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Inventory Carrying Cost
Opportunity (capital) cost
Storage costs− Space, workers, equipment− Counting and handling
Risk costs− Obsolescence− Damage and deterioration− Lost or stolen goods− Insurance
Visual 1-39
Explainthethreecategoriesofcostsassociatedwithcarryingorholdinginventory.Notethatopportunitycost,orcapitalcost,willbereviewedseparately.
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Opportunity cost
Typicallythelargestcomponentofcarryingcost,opportunitycostoftenisreferredtoasacompany’scostofcapital.Thecostofcapitalrepresentstherateofreturnthecompanycouldearnfromitsbestinvestmentopportunities.Bytyingupmoneyininventory,regardlessofwhetherthefundsareborrowedornot,thecompanyisforgoingthisalternativeinvestment.
Inventorycarryingcostusuallyisexpressedasapercentageofaverageinventoryforachosenperiod.Ittypicallyisdeterminedbytheaccountingdepartmentandmaydifferbyinventoryaccountingclassification.
Ordering cost
Orderingcostsapplytopurchaseordersandmanufacturingorders,andconsistofthefollowing:
coststoprepareandplaceanordertosuppliersorthefactory setupcostsforinternalmanufacturing costsofreceiving,handling,andinspection
Thecoststoreplenishinventorystocksdifferbetweenordersplacedtooutsidesuppliersandordersplacedtothefactory.Ineithercase,thecostisexpressedastheamounttoplaceasingleorderinabsolutecurrencyvalues.Costelementsmayincludetheclericalcostsoforderrequisition,release,monitoring,manufacturingsetup,andmaterialshandlingandinspectionuponreceipt.
Whataresomeotherorderingcosts?
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Lot-Sizing Techniques
EOQ
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Economic Order Quantity
0
200
400
600
800
1000
1200
1400
1600
0 200 400 600 800 1000 1200Order quantity
Cos
t in
dolla
rs
Ordering costs
Carrying costs
Total cost
EOQ
Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by Permission of Pearson Education
Total cost = carrying costs + ordering costs
Visual 1-42
ReviewtheeffectoftherelationshipsbetweenorderingcostsandcarryingcostsondeterminingtheEOQ.
Note:Orderingcostsaresometimesreferredtoaspreparationcosts.OrderingcostisanAPICSDictionarytermandiswidelyusedintextbooks.
1 • 43 © APICS Confidential and Proprietary
Economic Order Quantity
Demand is relatively constant and known.
Item is produced or purchased in lots or batches, not individually.
Ordering and inventory carrying costs are constant and known.
Replenishment occurs all at once.
Visual 1-43
ExplaintheassumptionsunderlyingtheEOQ.
AskwhyitisacceptabletoselectanorderquantitythatisslightlyhigherorlowerthantheactualEOQ.
Answer:
BecausethecurveisshallowattheEOQpoint,anorderquantityslightlyhigherorlowerthantheEOQnormallywillnotmakemuchdifference.
AsktheclasswhenitwouldbeappropriateandinappropriatetousetheEOQmethodinmanufacturingorservices.
Answer:
Itisappropriatewhendemandisstableandcontinuous.
Answer:
Itisinappropriateinmake‐to‐order,wherethecustomerdeterminesthequantity;whenshelflifeisshort;andwhenreplenishmentisnotinbatchesanddoesnotoccurallatonce.
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Lot-Sizing Techniques
Inanidealworld,acustomercouldalwaysorderandreceivetheexactquantitydesired.Inreality,thisisseldompossibleoreconomicallyfeasibleforthesupplierorthecustomer.Asaresult,productsoftenareorderedandmadeinmultiplescalledlots.
AsshowninVisual1‐42,thecostofcarryinginventoryrisesataconstantratewithorderorlotsize,whiletheorderingcostdecreaseswithincreasesinlotsizeatageometricrate.Lot‐sizingtechniquesfallintogeneralcategoriesofeconomic,fixed,period,L4L,ordernperiods,andPOQ.
EOQ
TheEOQisbasedonthefollowingassumptions:
Demandisrelativelyconstantandknown. Theitemisproducedorpurchasedinlotsorbatches,notcontinuously. Orderingandinventorycarryingcostsareconstantandknown. Replenishmentoccursallatonce.
Onewaytodevelopanannualusageistodetermineanaveragemonthlyusagerateandmultiplyby12.Themonthlyratemustbefactoredsothatshortmonths,potentiallybecauseofshutdown,areequalizedwithlongmonths;forexample,Marchhas22productivedays.
Theoretically,theoptimumorderquantityisthequantityindicatedonthehorizontalaxisbelowwherethetwocostcurvesintersectinVisual1‐42,whichalsocoincideswiththepointatwhichthetotalcostcurveisataminimum.Thedashedverticallineintersectswiththispoint,whichiscalledtheEOQ.
Thegraphicshowsthattheorderingcostdecreasesatageometricratewhilethecarryingcostincreasesataconstantrate.Inaddition,thelowestpointisthecenteroftheshallowestareaonthetotalcostcurveandisnotmuchdifferentfromawiderangeoforderquantitiesaroundit.
WhyisitacceptabletoselectanorderquantitythatisslightlyhigherorlowerthantheactualEOQ?
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WhenwoulditbeappropriateandinappropriatetousetheEOQmethodinmanufacturingorservices?
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FOQ
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Fixed Order Quantity
Use usually is dictated by some condition related to shipping, handling, or line replenishment.
Regardless of demand variability, suppliers receive orders with consistent order quantities, but at a variable frequency.
Quantity may be determined very informally, or it might be based on some form of calculation, such as EOQ.
It is simple to use and relies on judgment and past history.
It leads to inventory buildup.
Visual Visual 1-44
ExplainthatFOQspecifiesastandardnumberofunitstobeordered.Theadvantageisthatitiseasytounderstand.Pointoutthatorderquantitiesarefixed,butorderfrequencycanvary.
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Fixed Order Quantity Grid
Source: CPIM Inventory Management Certification Review Course (APICS 1998).
Order qty.: 500 FixedSafety stock: 80Allocated qty.: 0Lead time: 2 PeriodsLow-level code: 0
Technique
*For Period 3: 40 to satisfy demand and 80 to maintain safety stock **For Period 5: 10 to maintain safety stock
Periods1 2 3 4 5 6 7 8
Gross requirements 130 160 120 260 130 120 185 115
Scheduled receiptsProjected available 370 240 80 460 200 570 450 265 150
Net requirements 120 10
Planned order receipts 500 500
Planned order releases 500 500
Visual 1-45
Note:TheMRPgridwillbefullyexplainedinSession4.
ExplainthatFOQusedinMRPPeriod3hasaneedfor80unitstoreplenishsafetystockand40tosatisfygrossrequirements.
Period5hasaneedtoreplenish10unitsofsafetystock.
Inbothcases,theorderquantityisfixedat500.
Note:Itiswiseforanyorderquantity,whetherfixed,EOQ,orother,tobereviewedperiodicallytodetermineanychangesrequiredforoptimuminventoryandorderinglevels.
AsktheclassiftheFOQinthevisualseemsappropriate.Whyorwhynot?
Answer:
No.Theitembeingplannedisanenditem.InanMRPenvironment,FOQwouldnotbeappropriateatanend‐itemlevelbecauseoftherelativelyhighlevelsoffinishedgoodsinventory(projectedavailable)shown.ItwouldbeappropriateifdemandwerestableandconsistentandiftheFOQwereequaltothatdemand.
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L4L
TheL4Lruleischaracterizedbythefollowing:
Itemsareorderedfromsuppliersandthefactoryintheamountsnecessary,whentheyareneeded.
Orderquantitieschangeasrequirementschange. Nounusedlot‐sizeinventoryiscreated.ExamplesoftheuseofL4Lareasfollows:
inplanningandfulfillingtime‐phasedrequirementsfordependentdemanditems,asinMRPandforindependentitemsinmasterproductionscheduling
whenorderingcomponents,suchasAitemsthatareexpensivetoinventoryfromeithersuppliersorthefactory
perishableitems inaleanenvironment,whereinventoryisconsideredawaste
WithaL4Ldecisionrule,youorderexactlywhatyouneed,whenyouneedit.Ittakesintoaccountbothquantityandtimephasingandavoidsinventorybuildup.ItisaprocessthatplansorderreleasesforthepurchaseormanufactureofenditemsbasedonactualrequirementsratherthananEOQorFOQ.
Order n periods
UnlikeL4LandFOQ,inthismethod,theorderquantityisbasedonanestimateofwhatitwillrequiretosatisfydemandforacertainnumber(n)ofperiods.Ifinventorymanagementwantstoorderaquantitytocoverthreeweeksofdemand,itcanmakeanestimate,basedonjudgmentorforecast,ofthequantityequivalenttothreeweeks’demand;oritcanuseamoresystematiccalculation,basedonEOQ,calledthePOQsystem.
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POQ
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Period Order Quantity
has a fixed number of periods between orders
bases order quantities on forecast for the number of periods.
consolidates periods of discrete demand to reduce order costs
starts with an EOQ calculation.
Visual 1-48
ExplainthatthePOQstartswiththeEOQcalculation.Ithasafixednumberofperiods—days,weeksandsoon—betweendeliveries,buttheorderquantitiesarebasedonnetrequirementsfortheconsolidatedperiods.
1 • 49 © APICS Confidential and Proprietary
Period Order Quantity: Before Order
Source: CPIM Inventory Management Certification Review Course (APICS, 1998).
1 2 43 765Periods
130 160 120 260 130 120 185
8
Order qty.: POQEOQ = 650
Safety stock: 80 FixedAllocated qty.: 0Lead time: 2 PeriodsLow-level code: 0
Technique
115
370 80 ? ?240 ?
4153650=
usage period AverageEOQ=POQ
120 260 130 120
? ? ?
?
Gross requirementsScheduled receiptsProjected availableNet requirementsPlanned order receiptsPlanned order releases
?
(when rounded)
Visual 1-49
IntroducethesamegridweusedtoillustrateFOQ.RatherthanusingFOQtomeetnetrequirements,wewillusetheEOQof650shownintheplanningdataattheupper‐leftofthevisualgiven.TheEOQwilldeterminethenumberofperiodsbetweenorders,whichthenenablesustodeterminethePOQ.Notethesafetystockof80isaccountedforinthenetrequirements.
PointoutonthevisualthatyouneedtodividetheEOQbytheaverageperiodusagefortheeight‐periodplanninghorizontocalculatethePOQorderperiod.Seethenextvisualforthecompletecalculation.
NotethatVisual1‐49isaviewofthedatabeforeanorderisdetermined.
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POQ
ThePOQstartswithanEOQcalculation.ContrarytoFOQ,theorderquantitymayvary,buttheintervalbetweenordersremainsfixed.
InPOQ,thelotsizeisequaltothenetrequirementsforagivennumberofperiods—forexample,fourdaysoroneweek.Thenumberofperiodsstaysthesame,buttheorderquantityvariesbasedonactualrequirements.
OnewaytolookatPOQisthatitconsolidatestheL4Lrequirementsforanumberofperiodstoreduceorderingandhandlingcosts.
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Calculation of number of periods and net requirements
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Period Order Quantity Calculation
Determine EOQ
Forecast average period usage for the planning horizon
Divide EOQ by average period usage to determine POQ period
Calculate net requirements for POQ period (4 periods)
650
12208
153
650
1534
120 + 260 +130 + 120 = 630
=
=
Visual 1-50
Continueexplainingthecalculation:
AgainassumethattheEOQis650unitspertheformula. Averageperiodusage,inthisexample,isthesumoftheforecastdemand,orgross
requirements,overeightperiods(1,220)dividedbythenumberofperiods(8)=153. ThePOQperiodisEOQ(650)dividedby153=4
Toshowthecalculationofthenetrequirementforthenextfourperiods,seethenextvisual.
1 • 51 © APICS Confidential and Proprietary
Period Order Quantity: After Order
Source: CPIM Inventory Management Certification Review Course (APICS, 1998).
Order qty.: POQEOQ = 650
Safety stock: 80 FixedAllocated qty.: 0Lead time: 2 PeriodsLow-level code: 0
Technique
Net requirements for POQ period (4 periods) = 120 + 260 +130 + 120 = 630
Gross requirements1 2 43 765
Periods
130 160 120 260 130 120 185
8115
370 80 330 200240 590
630
630
80 ? ?
Scheduled receiptsProjected availableNet requirementsPlanned order receiptsPlanned order releases
185 115
?
120 260 130 120
Visual 1-51
Thisvisualisaviewofthedataaftertheorderisdetermined.Pointoutthatinthisexample,POQusesthesumofnetrequirementsforfoursubsequentperiodsstartinginthefirstperiod,Period3,thathasanetrequirement(120+260+130+120=630).
Afterreceiptsareapplied,netrequirementsforPeriods4,5,and6arezero.ThenextorderquantitycannotbecalculateduntiltotalnetrequirementsareknownforPeriod7through10.
Note:Netrequirementsforperiods3,4,5,and6areshownforinstructionalpurposes,butwouldnotappearinaproductionMRPsystem.
Comparison of FOQ and POQ
1 • 52 © APICS Confidential and Proprietary
Comparison of FOQ and POQ
FOQ Method
POQ Method
Periods
1 2 3 4 5 6 7 8
Gross requirements 130 160 120 260 130 120 185 115
Scheduled receipts
Projected available 370 240 80 460 200 570 450 265 150
Net requirements 120 10
Planned order receipts 500 500
Planned order releases 500 500
Periods
1 2 3 4 5 6 7 8
Gross requirements 130 160 120 260 130 120 185 115
Scheduled receipts
Projected available 370 240 80 590 330 200 80 ? ?
Net requirements 120 260 130 120 185 115
Planned order receipts 630 ?
Planned order releases 630
Visual 1-52
ComparetheresultsofFOQversusPOQbasedoninventorylevelsasdiscussedontheparticipantworkbookpage.NotealsothecomparisontoL4L.
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Comparison of Lot-Size Techniques
Class Problem 1.3: Lot-Size Techniques
Ingroups,discusshowtheselot‐sizemethodscompareinrelationtotheefficientresponsetodiscreteperioddemand—forexample,netrequirementsshowninmaterialplanningtimebucketsforenditemsandcomponents—andtheirrelativeaffectsoninventoryinvestment.
Thenassignrelativerankings—high,medium,orlow—tothefivelot‐sizetechniquesinthetablebelow.Bepreparedtopresentyourfindingsandtocommentonothergroups’findings.
TechniqueEfficient response to discrete period
demand
Impact on inventory
investment
Five lot-size techniques: FOQ, EOQ, lot-for-lot, order n, and POQ
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Safety Stock
Definition of Safety Stock
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Definition of Safety Stock
safety stock—1) In general, a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply. 2) In the context of master production scheduling, the additional inventory and capacity planned as protection against forecast errors and short-term changes in the backlog. Syn: buffer stock, reserve stock.
—APICS Dictionary
Visual 1-55
Note:Safetystockisapplicableinbothsupplyanddemandsituations—forbothfinishedgoodsandrawmaterials.RefertotheAPICSDictionary.
Discussthetypesofuncertaintythatmayrequirecompaniestocarrysafetystock.Leadparticipantstoconcludethattheseuncertaintiescanexistforbothfinishedgoodsandrawmaterial.
Explaintheuseofsafetyleadtimeinmanagingrawmaterials—forexample,twoweeks.
Purpose of Safety Stock
1 • 56 © APICS Confidential and Proprietary
Purpose of Safety Stock
Source: Adapted from CPIM Inventory Management Certification Review Course (APICS 1998).
LT
ReorderpointQ
uant
ity
c abTime
LT
Point a: Zero inventory level is reached after replenishment; no stockout
Point b: Zero inventory level is reached as replenishment occurs; no stockout
Point c: Zero inventory level is reached before replenishment; stockout
100
0
Visual 1-56
Walkthroughthestockoutscenariointhisorderpointsituation.OrderpointbasicsarecoveredintheAPICSBasicsofSupplyChainManagementcourseandcanbereviewedinIntroductiontoMaterialsManagement,Arnoldetal.,7thed.,chap.11.Theorderpointdiagramhereisbasedonorderpoint(OP)=demandduringleadtime(DDLT)(nosafetystock).
Notethattheorderpointis100units,whichistheestimateddemandduringleadtime.Withcaseb,theactualuseofinventoryoccursatarateequaltothedemandduringleadtime(100),soreplenishmentoccursjustasinventoryreaches0.However,casecshowsthat,withoutsafetystock,afasteruseofinventoryfromthereorderpoint(100)to0causesastockoutbeforereplenishmentoccurs.CaseashowsthattheDDLTwaslessthan100andtherewasaninventorybalanceatreplenishment.
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Time period safety stock
Atimeperiodsafetystockprovidesanevenamountofsafetystock,equaltotheestimatedusage,overadesignatedtimeframe.Theperiodcanbesetasdays,weeks,ormonths.Safetystockvariesdirectlywiththechangeindependentorindependentdemand,asapplicable.Thisdiffersfromstatistical‐basedsafetystockinthattheamountisnotbasedondeviationfromdemand.Instead,whendemandvariesinfutureperiods,suchaswithseasonalproducts,thetimeperiodsafetystockvariestoreflectthedynamicquantity.
Asanexample,low‐costindependentdemandC‐classitemsonlyarereviewedfororderingonamonthlybasis.Providingaone‐monthtimeperiodofsafetystockprotectsagainstthesituationinwhichanend‐of‐monthreviewdoesnotindicatereorder,butonthenextday,theavailablebalanceistakenbelowthereorderpoint.Withnoformalreviewplanneduntiltheendofthemonth,thesafetystockquantityprovidesabufferforthisdelay.
Timeperiodsafetystockisprojectedbasedonactualdemand,forecasteddemand,oracombination.Inventorysystemssetupusingamonthlyforecasttodeterminedemandmultiplytheforecastedmonthlyusagebythenumberoftimeperiods.
Timeperiodsafetystock=forecastmonthlyusage×safetystocktimeperiod
Example:
Safetystocktimeperiod=2weeks=0.5months
Forecastmonthlyusage,basedonfourweeks=50units
Timeperiodsafetystock=50×0.5=25units
Thistechniquealsoisusefulforitemswithfrequent(dailyorweekly)deliveries.Thetimeperiodsafetystockprovidesabufferagainstdelaysinreceiptsthatwouldotherwiseshutdownproductionordelayshipmentstocustomers.
Notethatifthetimeperiodforsafetystockisadailyfigure,theforecastshouldbenormalizedtocompensateformonthsdifferinginthenumberofworkdays.
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Fixed safety stock
1 • 62 © APICS Confidential and Proprietary
Fixed Safety Stock
A new part is being phased in.
A part is being phased out.
Visual 1-62
Explainfixedsafetystockandtwocasesinwhichitapplies.Explainthatsoftwaresystemsmayrequiremanualinterventionandobservationofstocklevelsduringproductphase‐out.
Approaches to Safety Stock
1 • 63 © APICS Confidential and Proprietary
Approaches to Safety Stock
Part type or situation Statistical Time period Fixed
Finished goods (independent demand)
Effective if demand is large volume and stable
Could be used; result might be a higher safety stock level than necessary
Could be used; result might be a higher safety stock level than necessary
Raw materials (dependent demand)
Not normally used
Parts with fluctuating demand; safety stock can increase or decrease as demand changes
Parts requiring special oversight: parts being phased in or out
Visual 1-63
Explainthemethodsusedtodeterminesafetystockforfinishedgoodsandrawmaterials.Safetystockprotectsagainstfluctuationinbothdemandandsupply.
Askwhatinferencescanbedrawnabouttheuseofsafetystockforindependentanddependentdemanditems.
Answer:
Statisticalsafetystockisbestusedforindependentdemand.
Timeperiodcanbeusedforlow‐costindependentC‐classitemsandfordependentdemanditems.
Fixedsafetystockcanbeusedforindependentdemanditemsinspecialcircumstancesanddependentdemandparts.
Explainthatduringperiodsofexpectedgradualgrowthorgradualdecline,fixedsafetystockmaynotbetheidealmethodforphasingoutproducts.Assumingthatthesystemislookingatthefutureandthepast,asystem‐generatedtime‐basedsafetystockwouldbepreferred.Incertaincircumstances,anorganizationmaywishtomaintainasafetystocklevelandwillcontinuetoorderpartsduringaproductphase‐out.Whenanend‐of‐lifesupportdateisknown,afixedanddiminishingsafetystocktargetcanbesettoforcestocktozero,andsafetystockreplenishmentwillcease.
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Fixed safety stock
Fixedsafetystockenablestheplanningofasafetystockquantityforpartsthatrequirespecialoversight.Thefixedsafetystocktechniquegenerallyisappliedwhenthefollowingsituationsexist:
Anewpartisbeingphasedin. Apartisbeingphasedout.
Inthefirstsituation,itisnecessaryfortheplannertoobtainadequatehistoryonanewpartbeforecalculatingastatisticalsafetystock.Untilthattime,theplannercanestablishafixedsafetystockhighenoughtoprovidethetargetservicelevel.
Thesecondcaserequirestheplannertosetthefixedsafetystocktozeroandmanuallycheckusageagainststockbalances.Otherwise,iftheproducthasalongusagehistory,theapplicationsoftwaremaytrytocalculateasafetystockandtriggerreplenishment.Manualinterventionandobservationofstocklevelsmaybenecessaryduringproductphase‐out.
Approaches to Safety Stock
ThetableinVisual1‐63suggestsanapproachtosettingsafetystocklevelsfordifferenttypesofinventoryusingdifferentsafetystockmethods.
Whatinferencescanbedrawnabouttheuseofsafetystockforindependentanddependentdemanditems?
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Wrap-Up and Homework
1 • 65 © APICS Confidential and Proprietary
Learning Objectives
Recognize types and classifications of inventories− Recognize the major types and sub-classifications of inventory. − Explain how they affect inventory valuation and investment.− Compare the types and roles of inventory management and
policies in manufacturing and service industries.
Understand aggregate inventory policies− Explain how aggregate inventory policy interrelates with a
company’s customer service and operations efficiency objectives.
− Describe the role of inventory valuation methods.− Explain the significance of aggregate and item-inventory
performance metrics.
Visual 1-65
1 • 66 © APICS Confidential and Proprietary
Learning Objectives (cont.)
Understand item inventory policies− Describe how lot-sizing and safety stock policies
support aggregate level policies in manufacturing and service industries.
− Differentiate among the major lot-sizing methods.− Explain the use of safety stock in managing inventory.
Visual 1-66
Reviewtheobjectiveswiththeclass.
Vocabulary Check
1 • 67 © APICS Confidential and Proprietary
Vocabulary Check
Objective: Reinforce terminology used in this session.
Complete the activity in class, individually or in pairs, or as homework.
Visual 1-67
Haveparticipantstake10minutestodothevocabularycheckinclass,eitherindividuallyorinpairs.Iftimeisnotavailable,participantscandoitashomework.
Solution:
1 • 68 © APICS Confidential and Proprietary
Vocabulary Check Solution
1. d
2. k
3. i
4. a
5. l
6. j
7. c
8. f
9. h
10. g
11. b
12. e
Visual 1-68* 1.d 5.l 9.h2.k 6.j 10.g3.i 7.c 11.b4.a 8.f 12.e
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Uses of order point
Theusesoftheorderpointmethodareasfollows:
primarilyforindependentdemanditems,suchasfinishedgoodsandMRO fordependentdemanditemssuchasrawmaterialswhendemandisstableand
continuous notforhigh‐valueclassAitemsbecauseofinventorycosts forlimitinglotsizesbecauseoftruckloadandstoragecapacityatthereceiving
warehouse
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Periodic Review System
2 • 11 © APICS Confidential and Proprietary
Periodic Review System
CharacteristicPeriodic
review systemOrder point
system
Interval between orders
Fixed and constant
Varies depending on actual usage
Order quantity Varies by period Usually fixed
Periodic Review Versus Order Point System
The periodic review system also is called the fixed reorder cycle inventory model and the fixed-interval order system.
Visual 2-11
Animportantpointtomakeisthattheperiodicreviewsystemistheoppositeoftheorderpointsystemintermsoforderquantityandorderinterval.Italsoisknownasafixedintervalordersystem.
Explainthataperiodicreviewatregularintervalscanbebasedonaperpetualinventoryrecordorvisualreview.
Logic
2 • 12 © APICS Confidential and Proprietary
Periodic Review
Target level (T)
Q3Q2Q1
Un
its
in s
tock
Source: Arnold et al., Introduction to Materials Management, 7th ed. Reprinted by permission of Pearson Education
Visual 2-12
Walkthroughthelogicoftheperiodicreviewsystem(PRS)showninthevisualtoexplainthatordersareplacedatfixedintervalsandthatorderquantityvaries.Thereviewintervalsareequal;quantitiesQ1,Q2,andQ3arenotnecessarilythesame.Alsopointoutthedemandduringleadtimeandtheon‐handinventoryatthetimeoftheorder.
Remindtheclassthatwhenanorderisplaced,thequantityonhandplusthequantityorderedmustbesufficienttolastuntilthenextshipmentarrives.
Thequantityequaltothedemandduringleadtimeplusthedemandduringthereviewperiodplussafetystockiscalledtarget(ormaximum)inventorylevel.
Formoreperiodicreviewcalculations,whichwereintroducedintheBasicsofSupplyChainManagement(BSCM)CPIMreviewcourse,referparticipantstoIntroductiontoMaterialsManagement,Arnoldetal.,7thed.
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Application
ThePRSisadvantageousinthefollowingsituations:
Receivingdeliveriesofmanydifferentitemsfromonesourceatonetimeiseconomical. Trackingandpostingtransactionsofmanysmallissuesfrominventoryisexpensive. Itissafetoassumethatsufficientinventoryhasbeenorderedtolastuntilthenext
reviewinterval. Itemshavealimitedshelflife,suchasfarmproduce,chemicals,andfoodproducts. Orderingcostsarelow;orderingonceaweekormonthisnotacostissue.
WhyisthePRSoftenusedinretailandwarehouselocations?
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Vendor-Managed and Consignment Inventory
VMIandconsignmentinventorysystemsareusedtoreplenishbothindependentanddependentdemand.Theyarenotinthesamecategoryastheorderreviewmethodswehavejustcovered.Instead,suppliersinvolvedinVMIandconsignmentinventoryapplysomeofthesetechniquesinplanningandmanaginginventoriesfortheircustomers.
Vendor-managed inventory
Vendor‐managedinventory(VMI)differsfromconsignmentintheserespects:
Thecustomersharesvisibilityofitsdemandwiththesupplier,intermsofpromotionsandpoint‐of‐salesrates,throughvariousinformation‐sharingtechnologies.
Thecustomer’sinformationisaninputtotheplanningprocessusedbythesupplier,whichassumestheentireroleforplanningandreplenishment.
Ownershipoftheitemisnegotiableanddependsonthebusinessrequirementsandcontractualagreementsbetweenthetwoparties.
Consignment inventory
Consignmentinventoryoccurswhenasupplierprovidesacustomerwithinventoryforusebutretainsownershipoftheproductuntilitisusedorsold.Thesupplierorthecustomerperiodicallyinventoriestheconsignedproductand,asaresult,thesupplierbillsthecustomerandreplenishestheconsignedinventory.Analternativeisthatthecustomerpaysperiodicallybasedonusage.
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Reverse Logistics Planning
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Reverse logistics planning
addresses reverse flow of products and components
accepts and returns goods for repair, remanufacture, and recycling of products and components
recognizes similarities and differences between “repair and remanufacture” and normal manufacturing
assumes that independent and dependent demand planning for repair and remanufacturing is similar to manufacturing planning and control principles.
Visual 2-14
Explainthatreverselogisticsisasetofsupplychainmanagementactivitiesinvolvedinthereturn,repair,remanufacture,andrecyclingofproductsandcomponents.
Thefocusinthissectiononreverselogisticsisonthereturnofproductsandcomponentsforrepairandremanufacture.Seethenotebelowforthekeyreferenceforthissection.
Ofspecificinterestishowtheindependentanddemandplanningenvironmentsforrepairandremanufacturecanbesimilartoanddifferentfromnormalmanufacturing.
Similaritiesincludetheuseofforecasting,advancedplanning,materialrequirementsplanning,limitedcapacityconditions,BOMs,routingfiles,inventorystatusreports,andworkcentercapacity.
Akeylearningpointisthatthematerial,labor,andmachinecapacityrequirements,aswellasthesetsofoperationsneededforrepairandremanufactureprocesses,areprobabilistic.
Unlikenormalmanufacturing,material,labor,machinecapacity,andoperationsarenotstandardforthereturnedenditemanditscomponents,butaredependentoninspectionofthereturneditemtodeterminetheextentorrepairofremanufacturerequired.
TheauthorsofMRPIIforRemanufacturingandRepair,citedbelow,concludethatrepairandremanufactureoverallhavemoresimilaritiestothandifferencesfromtheprinciplesofMPCapplicabletonormalmanufacturing.
Note:Forreverselogisticsandreturngoodshandling,seeDemmyetal.,MRPIIforRemanufacturingandRepair(CPIMDSPReprints2010),pp.34–39.
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Impact of Lean Production Concepts
Thepurposeofthissectionisnottoteachthebasicsofleanmanufacturing,butrathertofocusontheireffectoninventorylevelsandtheirimplicationsforDSP.
Tighter Coupling of Production Activities
Leanmanufacturingisknownforitsemphasisoneliminatingwaste,andonewayitaccomplishesthisisthroughthereductionofproductionleadtime.InLeanSixSigma,MichaelGeorgeobservesthatlongleadtimes
causehighvariationinleadtime createextracostsofovertime,scrap,rework,andcapitalinvestedininventoryand
equipment createhiddencosts:manufacturingoverheadcausedbyexcessiveplantsize,expeditors,
stockrooms,andpersonnel reducetherateofqualityimprovements:Qualityproblemsaredetectedafterlarge
stockpilesofWIPandfinishedgoodshaveaccumulated.Problemsdetectedatthislatestagearemorelikelytoleadtoobsolescenceandlowersalesmargins.
Shorter Production Lead Times
Principles
Basedontheobservationsabove,Georgeinfersthreeprinciplesforshorteningleadtime:
PutamaximumcapontheamountofWIPtopredictleadtime. MaintainsupplychainvelocitybysustaininganevenflowofWIPandensuringthatWIP
isrelatedtocurrentdemand. Releasematerialintothelineinamountsconsistentwithappropriatebatchsizesto
preventexcessWIP.
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Implementing the principles
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Pull System
Each workstation makes only enough to replenish what the next workstation is using.
One process replenishes only what the next process is using.
One factory produces only what the distributor or customer uses (the pull).
Visual 2-27
Someauthorsrefertothepullsystemasakanbansystem.Aworkstationproducespartsonlywhenadownstreamworkstationsignalstheneedforit.Eachworkstationwithdrawsonlythepartsorassembliesitneedsatthetimefromanupstreamworkstation,basedonwhattheworkstationneedstomakeforitsimmediatecustomer.Partsinventorymaybemanagedwithasupermarketapproachtoimprovepicking.
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Strategic buffer
must be adequate to service demand during manufacturing lead time
needs to account for the cycle time interval before manufacturing can shift from making one product to another
needs to account for transportation time, safety stock, and seasonality and promotions
caps WIP in the system and allows managers to reduce lead times by reducing setup and batch size.
Visual 2-28
ExplainthatGeorgeusesthetermcycletimeintervaltodescribethetimeittakesfortheproductionlinetoresumerunningaproductafteritchangesovertomakingotherproducts.
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Process flexibility
can swiftly change volume or mix
requires the following:− flexible machinery − cross-trained employees− quick changeovers.
Visual 2-29
Brieflyreviewtheimportanceofflexibilityofmachineryandworkersinleanmanufacturing,asbothaffectthefactory’sabilitytoproduceinsmallerbatchesinordertorespondquicklytocustomerdemandandlessenthedependenceonforecasts.
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Implementing the principles
OrganizationscantakethefollowingstepstoreduceWIPandthereforeleadtime:
Useapullsystem. Thefactoryproducesonlywhatthecustomerordistributoruses,whichcreatesthe
pull. Eachworkstationmakesonlyenoughtoreplenishwhatthenextworkstationis
using. Eachprocessreplenishesonlywhatthenextprocessisusing.
Inotherwords,workstationAmakesonlyenoughtoreplenishwhatthenextworkstation(B)isusing.IfBtakesanassemblyfromtheinventorybufferatA,Abeginstoworkonreplacingtheassemblybasedonakanbanorsignal,suchasanemptybin.Partsinventorymaybemanagedwithasupermarketapproach,wherepartsareeasytotakeoffofashelf,muchliketheshelvesofasupermarket.Inventoryisthenrestockedsothatemployeeshaveeasyaccess.
Determinethestrategic,orfinishedgoods,buffer. Thestrategicbuffermustbeadequatetoservicedemandduringmanufacturinglead
time. Itneedstoaccountforcycletimeinterval.Thisisthetimethatittakesproductionto
shiftbacktomakingapartaftermakingotherparts. Itneedstoaccountfortransportationtime,safetystock,andseasonalityand
promotions. ItisimportantbecauseitputsacapontheamountofWIPinthesystemandenables
thestartofcontinuousimprovementinitiativestoreduceleadtimesthroughsetupandbatch‐sizereduction.
Increaseflexibilitytodealwithproductlinecomplexity.Thisrequirestheabilitytoquicklychangevolumesandproductmixusingflexiblemachinery,cross‐trainedemployees,andquickchangeovers.
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Implementing the principles (cont.)
2 • 30 © APICS Confidential and Proprietary
Synchronous Pull
Synchronous pull uses takt time to control the velocity of flow and reduce overall lead time.
Operation times must be known and standardized.
Completion of an assembly at one workstation triggers production of an assembly at the upstream workstation and throughout the production process.
The system assumes that through process improvements, batch sizes that are consistent with the desired rate of flow can be implemented.
The trigger can be recognized by MRP software, which can then indicate the need to start the replacement assembly for the one just pulled.
Visual 2-30
Reviewhowthemovefromabasicasynchronouskanbansystemtoasynchronousoneleadstofurtherreductionsinleadtime.
Financial Implications
Asktheclasstoexplainhowreducedproductionleadtimewouldaffectfinancialperformance.
Answer:
Reductionininventorylevels,inventoryinvestment,andinventorycarryingcosts
Note:Guideparticipantsbypromptingthemto
nameafewmetricsthatarerelevant,suchascash‐to‐cashcycle,daysofsupply,andinventoryturns
explainthelogicalrelationshipbetweenthroughputincreaseandinventoryreductionstohigherinventoryturnsandlowerinventoryinvestment.
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Implementing the principles (cont.)
Implementsynchronousflow. Thebasicpullsystemhasnotimingassociatedwithoperationsintheproduct
routing.Wheneveracustomerneedsapart,thepullsystemrespondsbyreplenishingthepartpreviouslysupplied.Thissystemisasynchronous.
Adoptingasynchronouspullsystem,throughtheuseoftakttimetocontrolthevelocityofflowthroughtheproductionprocess,willreduceoverallleadtime.
Thisrequiresknowingandstandardizingoperationtimes,whichwillenablecompletionofanassemblyproducedatoneworkstationthatwillinturntriggerproductionofanassemblyattheupstreamworkstationthroughouttheproductionprocess.
Italsoassumesthatthroughprocessimprovements,organizationscanimplementbatchsizesthatareconsistentwiththedesiredrateofflow.
NotethatthetriggercanberecognizedbyMRPapplicationsoftware,whichcanthenindicatetheneedtostartthereplacementassemblyfortheonejustpulled.
Financial Implications
Howwillareductioninproductionleadtimeaffectfinancialperformance?
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Lean Production Tools
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Five Principles of Lean
Value
Value stream
Flow
Pull
Perfection
Visual 2-31
UsethisvisualofthefiveleanprinciplesfromLeanThinkingbyWomackandJonestointroducethetoolsweareabouttodiscuss.Threeofthem—valuestream,flow,andpull—areofparticularinteresttousastheyrelatetothroughputandwasteelimination.
Note:ThefiveprinciplesherearenottobeconfusedwiththethreeprinciplesonmanagingWIPtoreduceleadtimeinLeanSixSigmabyMichaelGeorge.
2 • 32 © APICS Confidential and Proprietary
Major Lean Improvement Tools
Value stream mapping
Pull system
Setup reduction
Total productive maintenance
Visual 2-32
Usethisvisualtosummarizethetoolswewillcover.
Note:Pullsystemhasalreadybeenreviewed.
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Application of ABC analysis and classification
ABC analysis and classification model
ABCanalysisisauseful,relativelysimplemethodforclassifyingandanalyzinginventory.InItalyinthe19thcentury,economistandphilosopherVilfredoParetoobservedthatroughly80percentofthewealthofItalywasheldby20percentofthepopulation.Thisissometimesreferredtoasthe80‐20rule,orPareto’sLaw.
Withrespecttoinventory,Pareto’sLawisshowngraphicallyonVisual2‐45.Althoughmanydeviationsarepossible,aruleofthumbistoidentifyapproximately20percentofthoseitemsthataccountforapproximately80percentoftheusagecostofgoodsasA,thenext15percentofitemsasB,andthebottom5percentasC.
Inactualpractice,the80‐20ruleneedstobelookedatasaruleofthumb.Infact,theAPICSDictionaryusesaslightlydifferentdistributionasshowninVisual2‐46.
Theusesoftheclassificationschemecenterondegreeofcontrol.Itiscommonsensethatmanagersshouldbemoreconcernedwiththecostlyfewthanthetrivialmany.AfewwaysinwhichABCclassificationsmaybeusedarelistedonVisual2‐47.
Cycle counting frequency
WhenusingABCanalysisincyclecounting,countersshouldverifyAitemsmorefrequentlythanBorCitems.
Customer service
Orderquantityandsafetystocklevelsareestablisheddependingontheeconomicsandcriticalityofeachitem.Fromanaccountingperspective,thefocusisdollaraccuracy.ItmightalsotakeintoaccountthatAitemstakelongertoprocureifthereisanunplannedstockout.
Engineering priorities
Valueengineeringeffortsarebetterspentonitemswithhighcostorusagethanonitemswithlowvalueorusage.
Replenishment systems
ItmightbemoreeconomicaltocontrolsomeCitemswithasimpletwo‐binsystemofreplenishment,whileemployingmoresophisticatedmethodsforAandBitems.OneadvantageofMRP,though,isthatallitemscanbenefitfromthesamedegreeofcontrol.
Investment decisions
Aitemsrepresentalargerinvestmentininventory;therefore,moreanalysistypicallyisusedwhenmakingdecisionsaboutorderquantityandsafetystockforAitemsthanforBorCitems.TheprimaryfocuswhenconsideringhowtoimproveinventoryturnsisalwaysonAitemsfirst.
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Class Problem 2.1: ABC Analysis for Cycle Counting
Sample ABC Analysis
2 • 48 © APICS Confidential and Proprietary
Problem 2.1 Sample ABC Report
* Calculated based on 250 days per year
Source: CPIM Inventory Management Certification Review Course (APICS 1998).
Report row #
PartCumulative
percent items
Unit cost On handUsage (units)
Usage (value)Percent
total usage
Cumulative percent of total
usage
Days of supply*
1 81201 5 $ 69.56 600 3,316 $ 230,660 20.70 20.70 45
2 81203 10 $ 879.60 38 170 $ 149,532 13.46 34.22 56
3 85097 15 $ 53.47 1,324 1,951 $ 104,325 9.39 43.61 170
4 88248 20 $ 7.00 2,543 11,467 $ 80,349 7.23 50.84 0
5 85439 25 $ 69.10 313 1,057 $ 73,038 6.57 57.41 74
6 81202 30 $ 43.88 565 1,528 $ 67,062 6.04 63.45 92
7 80400 35 $ 8.25 1,771 7,304 $ 60,258 5.42 68.87 61
8 87401 40 $ 65.94 100 764 $ 50,378 4.53 73.40 33
9 81513 45 $ 19.00 298 2,227 $ 42,313 3.81 77.21 33
10 84192 50 $ 33.74 80 1,224 $ 41,308 3.72 80.93 16
11 85427 55 $ 14.95 1,110 2,503 $ 37,442 3.37 84.30 11
12 86814 60 $ 24.80 295 1,320 $ 32,736 2.95 87.25 56
13 81613 65 $ 13.10 400 2,052 $ 26,881 2.42 89.67 49
14 81992 70 $ 167.50 14 154 $ 25,795 2.32 91.99 23
15 86270 75 $ 7.25 767 2,644 $ 19,169 1.73 93.72 73
16 81401 80 $ 416.00 14 45 $ 18,720 1.69 95.41 78
17 82618 85 $ 22.45 6 725 $ 16,276 1.46 96.87 2
18 80401 90 $ 73.92 0 201 $ 14,858 1.34 98.21 0
19 83284 95 $ 154.03 17 68 $ 10,474 0.94 99.15 63
20 85318 100 $ 3.60 288 2,616 $ 9,417 0.85 100.00 27
$ 1,110,991
Visual 2-48
Solution:
2 • 49 © APICS Confidential and Proprietary
Problem 2.1 Solution
1. Where would you place the cutoffs for A and B items for the purposes of cycle counting?
General ABC distribution (per APICS Dictionary)
This case
Category Percent of items
Dollar usage (%) Percent of items
Dollar usage (%)
A 10–20 50–70 20 51B 20 20 20 22C 60–70 10–30 60 27
2. What overrides would you use to place an item in a higher or lower category for cycle counting purposes? Why?There do not appear to be any items that need to be moved into higher or lower categories. Even though an item may have a high per-unit value, it may not account for a high percentage of usage and therefore does not need to be moved to the A category.
Visual 2-49* 1. TheannualusagedoesfitthegeneralABCclassificationmodel,sothecutoffsforAand
Bcouldbe,forexample,at20percentand40percent.
General ABC Distribution (per APICS Dictionary)
This Case
Category % of Items Dollar Usage (%) % of Items Dollar Usage (%)
A 10–20 50–70 20 51
B 20 20 20 22
C 60–70 10–30 60 27 2. Itappearsthatnoitemneedstobemovedintohigherorlowercategories.Forexample,
eventhoughanitemmayhaveahighvalue,itmaynotaccountforahighpercentageofusageandthereforedoesnotneedtobemovedtotheAcategory.
2 • 50 © APICS Confidential and Proprietary
Problem 2.1 Solution (cont.)
Report row #
PartCumulative
percent items
Unit cost On handUsage (units)
Usage (value)
Percent total
usage
Cumulative percent of total
usage
Year's supply on
hand
3 85097 15 $ 53.47 1,324 1,951 $ 104,325 9.39 43.61 0.68
11 85427 55 $ 14.95 1,110 2,503 $ 37,442 3.37 84.30 0.44
10 84192 50 $ 33.74 80 1,224 $ 41,308 3.72 80.93 0.07
14 81992 70 $ 167.50 14 154 $ 25,795 2.32 91.99 0.09
17 82618 85 $ 22.45 6 725 $ 16,276 1.46 96.87 0.01
18 80401 90 $ 73.92 0 201 $ 14,858 1.34 98.21 0.00
3. Identify any anomalies that should be questioned with respect to the inventory items in this report.
• Planners may want to reexamine stocking policies for items in rows 3 and 11.
• The company could carry more of the items in rows 10, 14, 17, and 18 to protect against a production line shutdown.
Visual 2-50*
3. Itemsinrows3and11haveabout8monthsand5monthsofsupplyonhand,respectively,andplannersmightwanttore‐examinethestockingpoliciesonthesetwoitems.Itemsinrows10,14,17,and18areshowingverylowon‐handbalancesasCitems,andacompanycouldcarrymoretoprotectagainsthavingtoshutdownaproductionline.
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Session 3: Information Used in the Material Planning Process
Purpose
Thissessionintroducesthebasicinformationandinputsthatareimportanttomaterialplanning,whichalsoisthesubjectofthenexttwosessions.Thissessionreviewsthefollowing:
planningfactors,inventorydata,end‐itemdemand,andproductstructureinformationusedinmaterialplanning
approachestoplanningandschedulingmaterialsindifferentproductionenvironments thematerialrequirementsplanning(MRP)model keyMRPplanningprocessparametersandperformancecharacteristics
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Learning Objectives
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Learning Objectives
Information Used in Material Planning− Differentiate among planning factors, inventory status
data, and historical demand and usage data. − Explain the relative advantages of significant and
nonsignificant item numbers.− Describe at least five sources of requirements for the
master production schedule (MPS). − Explain the minimum length of the planning horizon
for the MPS.− Describe the role of the bill of material (BOM) in
material planning.
Visual 3-3
3 • 4 © APICS Confidential and Proprietary
Learning Objectives (cont.)
Characteristics of the Material Planning Process− Explain the differences in material planning
approaches used in different production environments.
− Briefly describe the material requirements planning (MRP) model and its functions.
− Briefly describe the functions of key MRP planning process parameters.
− List at least five key performance characteristics of MRP.
Visual 3-4
Refertothelearningobjectivesontheopposingpageandreviewthemwiththeparticipants.
Askparticipantsiftheyhavequestionsabouttheobjectivesorwishtoaddothertopics.
Listanyadditionalobjectivesonaflipcharttobereviewedattheendofthesession.
Session 3: Information Used in the Material Planning Process Participant Workbook Page
© 2016 APICS 3-5 Participant Workbook Version 5.4
Learning Objectives
InformationUsedinMaterialPlanning Differentiateamongplanningfactors,inventorystatusdata,andhistoricaldemand
andusagedata. Explaintherelativeadvantagesofsignificantandnonsignificantitemnumbers. Describeatleastfivesourcesofrequirementsforthemasterproductionschedule
(MPS). ExplaintheminimumlengthoftheplanninghorizonfortheMPS. Describetheroleofthebillofmaterial(BOM)inmaterialplanning.
CharacteristicsoftheMaterialPlanningProcess Explainthedifferencesinmaterialplanningapproachesusedindifferent
productionenvironments. Brieflydescribethematerialrequirementsplanning(MRP)modelanditsfunctions. BrieflydescribethefunctionsofkeyMRPplanningprocessparameters. ListatleastfivekeyperformancecharacteristicsofMRP.
Detailed Scheduling and Planning
Instructor Guide Version 5.4 3-6 © 2016 APICS
Information Used in Material Planning
References:Arnoldetal.,IntroductiontoMaterialsManagement,6thed.,chap.3–5;Jacobsetal.,ManufacturingPlanningandControlforSupplyChainManagement,APICS/CPIMCertificationEdition(2011),Chap.8;TaylorandBolander,SystemFrameworkforProcessFlowIndustries(CPIMDSPReprints2001).
Item Data
Brieflyintroducethreetypesofitemdatausedinthematerialplanningprocess:
planningfactors statusdata historicaldemandandusagedata
Planning Factors
3 • 6 © APICS Confidential and Proprietary
Item Data: Planning Factors
Part # DescriptionUnit of
measureOrderpolicy
Orderquantity
Sourcecode
ABCcode
Leadtime
Standardcost
10564 gearhousing
EA 50 M B 3 108.44
Primelocation Drawing Revision
Lastcycle
Lastreceipt
Lastissue
YTDusage
MTDusage
12C3 10564B F1 D 03/22 04/01 04/06 190 23
On hand AvailableOn
orderSafetystock
17 7 10 22 0
Date Reference Initials Receipts Issues Adjust Location Balance03/13 M1056 VXS 49 S2 12C3 5203/20 A357 MOM 15 S2 12C3 3703/22 C87 REC -1 S2 12C3 3603/27 A412 MOM 22 S2 12C3 1404/01 M1103 VXS 26 S2 12C3 4004/06 A415 MOM 23 S2 12C3 17
Transaction history:
AllocationsScrapfactor
.10
FOQ
Planner/buyer
Stores
Planning factors
Visual 3-6
Explainthatthisisasampleitemdatareportbasedondatainotherfiles,suchastheitemmasterandinventoryfiles.Thefourplanningfactorsshowninthevisualarelotsize,leadtime,scrap,andsafetystock.RemindtheclassthatthesetermswerediscussedinSession1asinventorypolicies.
Session 3: Information Used in the Material Planning Process Participant Workbook Page
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Item Numbering
Topreventconfusion,anitemnumberorpartnumbermustbeassignedtoeveryrawmaterial,component,andsemifinishedandfinishedproduct.Somebasicprinciplesforaccuratetransactionsareasfollows:
Useuniqueitemnumbers—Thisrequirementseemsobvious,butitisespeciallysignificantforengineeringchanges.Ifachangeresultsinrevisedform,fit,orfunction,theitemshouldbegivenanewidentificationnumber,notjustanengineeringrevisionnumber.Eventhoughthenewitemscouldbesubstitutedfortheoldone,separateidentificationshouldbekeptforaccuratecounting,lotidentificationandtraceability,andcosting.
Insomecases,anengineeringchangeletterornumberisincludedasapartoftheitemidentificationcode.Ifanengineeringchangeaffectsonlythedrawingforapart,asinfixinganerrororoversight,anewitemnumberisnotrequiredbecausetwonumberswouldidentifythesameitem.Anengineeringrevisionletterornumbershouldbekeptseparatefromtheitemidentification.
Useonlyonesetofitemnumberswithinanorganization—Goalsofvariousorganizationalunitssometimesleadtodifferentitemidentificationsforthesamethings.Forexample,marketingmaylistsimpleanddescriptiveitemnumbersinsalescatalogs,whereasengineeringmightprefersequentialnumbersthatsuggestthechronologicalorderinwhichpartswereintroduced.Ifpossible,itisbesttouseonesetofnumbersthroughouttheorganization.
Assignresponsibilityforcreatingitemnumbers—Toenforceuniformityanduniqueness,asingleauthorityshouldbegivenresponsibilityandaccountabilityforidentifyingitems.
Donotreassignitemnumbersnolongerinuse—Evenmanyyearsafterapartorproducthasbeenretired,someneedforidentificationofthatpartmightoccur.
Useshortitemnumbers—Itemnumbersarecopied,keyed,printed,andspokenoften;manyerrorsandmisunderstandingscanbeavoidedbykeepingthemshortandsimple.
Keepitemnumbersuniform—Thesamenumberofcharactersshouldalwaysbeusedforallitemnumbers.Ifanitemcodeispartalphabeticandpartnumeric,therelativepositionsofthealphabeticandnumericportionsshouldalwaysbeconsistent.
Avoidconfusingcharacters—Useofmixedalphabeticandnumericorspecialcharacterscanleadtoerrorsinidentification,suchasIand1,2andZ,Oand0.
Allowroomforexpansion—Ascompaniesgroworcombine,itemnumbersmightnotaccommodateadditionalunitswithoutrestructuringorreuse.Thiscanbetroublesome,especiallywithsignificantnumbers.Whenitemnumberingsystemsarefirstdeveloped,allowanceshouldbemadeforfuturegrowth.
Detailed Scheduling and Planning
Instructor Guide Version 5.4 3-16 © 2016 APICS
Significant identification
Askwhatthedifferenceisbetweensignificantandnonsignificantitemnumbers.
Answer:
Significantnumbershavelogictotheirstructure;nonsignificantnumbers,orcodes,arerandomlyassignedorconsistofsimplesequentialnumbers;thereisnoapparentlogictotheirstructure.
3 • 13 © APICS Confidential and Proprietary
Significant Item Identification CodesInternational standard book number (ISBN)
Example 0-03-076980-9
Description • 0 is the group identifier for the English language.
• 03 is the publisher identifier.
• 076980 is the title identifier.
• 9 is the check digit.
Magazine subscriber identifier
Example 68506STJ7533TVG
Description • 68506 is the postal code.• STJ are the first 3
consonants in the last name.
• 7533 are four digits of street address.
• TVG is the abbreviation for the magazine.
Visual 3-13
Explainthatthepurposeofasignificantpartnumberistoconveysomeinformationabouttheitembeingidentifiedforthepeoplewhomustuseit.Thishelpstoimprovecommunicationandefficiencybutalsocanleadtoerrors,asthesepartnumbersareoftenlongerandmorecomplexthannonsignificantones.
3 • 14 © APICS Confidential and Proprietary
Advantages of Significant Codes
Easier to understand, work with, and recall
Easier recognition of part identity increases organization efficiency
Easier to detect miscoded items using size or color information
Easier to interpret using hyphens or symbols
Visual 3-14
Discusstheadvantagesofsignificantcodes.Haveparticipantsgiveexamplesofcodestheyuseandtheiradvantages.
Nonsignificant identification
3 • 15 © APICS Confidential and Proprietary
Advantages of Nonsignificant Codes
Shorter codes are faster to input or write.
Numerical codes are easier and faster to input.
Random or sequential number assignment is better at accommodating the growth of item numbers.
Nonsignificant codes can automatically be generated by software.
Visual 3-15
Explainthatnonsignificantitemnumbersmightconsistofeitherrandomorsimplesequentialnumbersorlettersthatonlyidentify,notdescribe.Themainadvantageisthatcompaniescanassignanumbertoanitemwithouthavingtofititintoaspecificcategoryorrangeofnumbers.
Session 3: Information Used in the Material Planning Process Participant Workbook Page
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Significant identification
Whatisthedifferencebetweensignificantandnonsignificantitemnumbers?
______________________________________________________________________________________________
______________________________________________________________________________________________
Withinthebasicprinciplesdescribedaboveregardingitemnumbering,thereisanimportantdecisiontomakeabouttheformthatitemnumbersshouldtake.Thepurposeofasignificantnumberistoconveysomeinformationabouttheitembeingidentifiedtothepeoplewhomustuseit.Visual3‐13showsexamplesofsignificantitemcodes.
Someoftheadvantagesofchoosingsignificantitemnumbersareasfollows:
easiertounderstand,workwith,andrecall easierrecognitionofpartidentityincreasesorganizationefficiency easiertodetectmiscodeditemsusingsizeorcolorinformation easiertointerpretusinghyphensorsymbols
Nonsignificant identification
Nonsignificantnumbersmightconsistofeitherrandomorsimplesequentialnumbersorlettersthatonlyidentify,notdescribe.
Theadvantagesofchoosingnonsignificantnumbersincludethefollowing:
Shortercodesarefastertoinputorwrite. Numericalcodesareeasierandfastertoinput. Randomorsequentialnumbersarebetterataccommodatingthegrowthofitem
numbers. Nonsignificantcodescanbeautomaticallygeneratedbysoftware.
Detailed Scheduling and Planning
Instructor Guide Version 5.4 3-18 © 2016 APICS
The Master Production Schedule
Introduction
3 • 16 © APICS Confidential and Proprietary
Introduction to the MPS
Material versus processor-dominated scheduling
Goals of master scheduling− Balance supply and demand per the production plan.− Plan efficient use of company resources.− Determine end-item priorities shown in the MPS.
Hand off from MPS to MRP, which then establishes and maintains the priorities for components and assemblies
Visual 3-16
Discussthefollowingpointswiththeclass:
Schedulingandplanningmayschedulematerialsfirstinwhatiscalledmaterials‐dominatedscheduling,asinMRP,orscheduleequipmentandcapacityfirst,asinprocessor‐dominatedscheduling.Processor‐dominatedschedulingoftenisusedinprocessindustriessuchaschemicalandpetrochemicals.Capitalinvestmentishighandcapacityutilizationisamajorconcern.ThiswillbecoveredinmoredepthinSession7.
TheMPSisthepriorityplanforenditems.TheduedatesandquantitiesshownintheMPSrepresentend‐itempriorities.
TheMPSprovidesMRPwithend‐itemduedates.MRPusesthesedatestocontrolplannedorderreleaseandreceiptdatesforcomponentsandassemblies.
TheMPSbalancessupplyanddemandasdictatedbytheproductionplan,andtheproductionplanshouldrepresentaggregate‐levelbalancing—forexample,atthesalesandoperationsplanning(S&OP)level—ofcustomerservice,productionefficiency,andinventoryinvestment.
Sources of MPS Requirements
3 • 17 © APICS Confidential and Proprietary
Sources of MPS Requirements
Periods1 2 3 4 5 6 7 8
Sales forecast 100 100 120 120 100 100 100 100Interplant orders 50 150 10Special engineering needs 20Service part requirements 30 30Special promotion 80Safety stock change 10 -10Anticipation buildup 5 5Totals 130 160 120 260 130 120 185 115
Product ABC
Visual 3-17
UseVisual3‐17toemphasizetherangeofitemsthatconstituteMPSrequirements.TheseallareindependentdemanditemsforwhichcomponentpartsneedtobeplannedbyMRP.
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Engineering Data
Bill of material
Asacompanydesignsanewproductormodifiesanexistingone,thedesignengineersmayreceiveinputfromsuppliers,customers,andotherfunctionalareasoftheorganizationduringthedesignprocess.Thedesignteamthencreatestheproductstructure.Thematerialsandcomponentsintheproductstructurecanbelistedinasummarizedpartslist,orsummarizedBOM,asshowninVisual3‐23.Thesummarizedpartslistshowsquantitiesbutdoesnotshowtherelationshipsamongcomponentsintheassembledtable.
Product structure and part interdependencies
Fromasummarizedpartslist,itisnotpossibleforMRPtocalculaterequirementsforthedependentdemandcomponentsandmaterialsforenditems.TheseoftenaredisplayedforinstructionalpurposesinwhatiscalledaproducttreeBOM,asshowninVisual3‐24.
Forplanningpurposes,MRPapplicationsoftwarewillrefertodataasshownintheindentedBOM.(SeeVisual3‐25.)TheindentedbillcontainsthepartstructureinformationintheproducttreeBOM,aswellasalistofcomponentquantitiesnecessarytobuildoneparentitem.ItisfoundintheproductorBOMmasterfile.
Detailed Scheduling and Planning
Instructor Guide Version 5.4 3-30 © 2016 APICS
Lead time
Discusstheroleofprocessengineeringindevelopinglead‐timedataandthelocationoflead‐timedataintheroutingfile.
Conclusion
Closetheengineeringdatasectionbybrieflysummarizingthethreeelementsofengineeringdatathatprovidecriticalinputstothematerialplanningprocess.
Session 3: Information Used in the Material Planning Process Participant Workbook Page
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Education and Training
InvestinginMRPeducationcanproducemorethanafour‐to‐onereturnoninvestmentbecauseeducationpreparesemployeestoimplementnewplanningsystemsandresolveproblems.Employeesbegintothinkaboutcompanywideprioritiesandaboutthebroadersupplychaininsteadofjustthinkingabouttheirownlimitedoperationalareas.
BothmanagementandMRPusersneedintensiveeducationandtrainingtounderstandthebenefitsofMRPtothecompanyandtheirownpersonalworkeffort.Educationprovidesuserswithknowledgeontheconceptsandbenefitsofthesystem.Traininggivesthemthetoolsneededtoperformtheirtasks.
WhenimplementinganMRPsystem,itiscriticalthatusersbetrainednotonlyinthefunctionalityofMRP,butalsointhenecessityofinputtingaccurateinformationtobeabletousethesystemeffectively.Documentedproceduresshouldbereadilyavailabletoplannersandschedulers.
Detailed Scheduling and Planning
Instructor Guide Version 5.4 3-50 © 2016 APICS
Wrap-Up and Homework
3 • 41 © APICS Confidential and Proprietary
Learning Objectives
Information Used in Material Planning− Differentiate among planning factors, inventory status
data, and historical demand and usage data. − Explain the relative advantages of significant and
nonsignificant item numbers.− Describe at least five sources of requirements for the
master production schedule (MPS). − Explain the minimum length of the planning horizon
for the MPS.− Describe the role of the bill of material (BOM) in
material planning.
Visual 3-41
3 • 42 © APICS Confidential and Proprietary
Learning Objectives (cont.)
Characteristics of the Material Planning Process− Explain the differences in material planning
approaches used in different production environments.
− Briefly describe the material requirements planning (MRP) model and its functions.
− Briefly describe the functions of key MRP planning process parameters.
− List at least five key performance characteristics of MRP.
Visual 3-42
Reviewtheobjectiveswiththeclass.
Vocabulary Check
3 • 43 © APICS Confidential and Proprietary
Vocabulary Check
Objective: Reinforce terminology used in this session.
Complete the activity in class, individually or in pairs, or as homework.
Visual 3-43
Solution:
3 • 44 © APICS Confidential and Proprietary
Vocabulary Check Solution
1. d
2. c
3. i
4. a
5. f
6. h
7. k
8. e
9. g
10. b
11. j
Visual 3-44*
1.d 5.f 9.g2.c 6.h 10.b3.i 7.k 11.j4.a 8.e
Session 4: MRP Mechanics: The Basics Participant Workbook Page
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Class Problem 4.3: Net Requirements and Planned Orders for Item D
TheinstructorwillreviewthenettingandschedulingofplanneditemDthroughperiod2.Notetheuseofthreenewvariables:allocations,scheduledreceipts,andfixedorderquantitylotsize.
Allocationsarecomponentson‐handbutnotavailable.Theyhavebeenallocatedtootherplannedordersbutarenotyetphysicallyremovedfrominventory.
Scheduledreceiptsareforplannedordersthatwerereleasedbeforeweek1andaredueintheperiodindicated.
UsingthegrossrequirementsforDandreferringtothecalculationsummarybelow,determinethenetrequirements,projectedavailablebalances,andplannedorderreceiptsandreleasesfortheremainingperiods.Postthemtothegridbelow.
Summaryofthecalculationofthenetrequirementandplannedorderreceiptforperiod1:
On-hand balance (or previous PAB) 170 - Allocations - 120 + Scheduled receipts + 160 - Gross requirements - 0
PAB (preliminary) 210 - Safety stock - 0
PAB (adjusted for safety stock) (= net requirement if < 0) 210
If 0 or > 0 = no net requirement If net requirement exists, create planned order receipt per lot-size policy + 0
Final PAB = PAB (preliminary) (210) + planned order receipt quantity (0) 210 Noplannedorderreceiptsarerequiredinperiod1sincethebalancebeingprojectedisadequatetocoverdemand.Usetheprocedureaboveforallperiods,asappropriate.
Detailed Scheduling and Planning
Instructor Guide Version 5.4 4-26 © 2016 APICS
Gross Requirements for Item C
4 • 25 © APICS Confidential and Proprietary
Instructor-Led Problem: Gross Requirements for Item C
Period: 1 2 3 4 5 6 7 8
Item A:
Gross requirements 10 100 10
Net requirements 10 100 10
Planned order receipts 10 100 10
Planned order releases 10 100 10
Item B:
Gross requirements 10 120 20 10 10
Net requirements 30 20 10 10
Planned order receipts 30 20 10 10
Planned order releases 30 20 10 10
Independent demand Item C 10 10 10 10 10 10 10 10
Item C requirements:
From Item A P/O releases at 2 per
From Item B P/O releases at 2 per
From Item C Ind. demand at 1 per
Gross requirements for Item C:
Visual 4-25
ExplainthatwenowareatthelowestleveloftheBOMs.WeneedtoplanitemsCandE.Wealsointroduceanewvariable,thedemandforservicepartC.StartingwithC,walktheclassthroughcalculatinggrossrequirementsusingthebuildfeatureofVisual4‐26.Pointoutthefollowing:(1)servicepartC;and(2)quantitiesperintheBOMsforCinrelationtoitsparents,BandF.Also,besuretopointoutthelow‐levelimpactofpartC.
4 • 26 © APICS Confidential and Proprietary
Solution: Gross Requirements for Item C
Period: 1 2 3 4 5 6 7 8
Item A:
Gross requirements 10 100 10
Net requirements 10 100 10
Planned order receipts 10 100 10
Planned order releases 10 100 10
Item B:
Gross requirements 10 120 20 10 10
Net requirements 30 20 10 10
Planned order receipts 30 20 10 10
Planned order releases 30 20 10 10
Independent demand Item C 10 10 10 10 10 10 10 10
Item C requirements:
From Item A P/O releases at 2 per
From Item B P/O releases at 2 per
From Item C Ind. demand at 1 per
Gross requirements for Item C:
20 20
10 10
10
10 10 10 10 10 10
30 70 250 30 50 10 10
20204060
200
Visual 4-26
Period: 1 2 3 4 5 6 7 8
Item A:
Gross requirements 10 100 10
Net requirements 10 100 10
Planned order receipts 10 100 10
Planned order releases 10 100 10
Item B:
Gross requirements 10 120 20 10 10
Net requirements 30 20 10 10
Planned order receipts 30 20 10 10
Planned order releases 30 20 10 10
Independent demand Item C 10 10 10 10 10 10 10 10
Item C requirements:
From Item A P/O releases at 2 per
From Item B P/O releases at 2 per
From Item C Ind. demand at 1 per
Gross requirements for Item C:
20 20
10 10
10
10 10 10 10 10 10
30 70 250 30 50 10 10
20204060
200
Session 4: MRP Mechanics: The Basics Participant Workbook Page
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8. Intheabovescenario,inwhichperiodwilltheplannedorderreleasesbethesame
forbothlot‐for‐lotandafixedorderquantityof25?
a. 2b. 3c. 4d. 5
9. InventorydatausedbyMRPis
a. scheduledreceiptsb. grossrequirementsc. netrequirementsd. plannedorderreleases
10. AsMRPnetsanitem,itcalculatesnetrequirementsof20inperiod2.Thegrossrequirementsare125andscheduledreceiptsare25inperiod2.Theprojectedavailableis95inperiod1.Whatistheitem’ssafetystock?
a. 10b. 15c. 20d. 25
Gross requirementsScheduled receiptsProjected availableNet requirementsPlanned order receiptsPlanned order releases
1 2 43 8765
Periods
A
Technique
Order quantitySafety stock Allocated quantityLead time 3
15 10 20 0 15 25 0 1525
20
Detailed Scheduling and Planning
Instructor Guide Version 5.4 4-52 © 2016 APICS
Appendix A: Completed MRP Grid from Instructor Walkthrough of Items A and F and Their Components
Item A Lot size = L4L
Lead time = 2 1 2 3 4 5 6 7 8
Gross requirements 10 100 10 Scheduled receipts Projected available 0 0 0 Net requirements 10 100 10 Planned order receipts 10 100 10 Planned order releases 10 100 10 Item F Lot size = L4L Lead time = 1
Gross requirements 20 20 10 Scheduled receipts Projected available 0 0 0 Net requirements 20 20 10 Planned order receipts 20 20 10 Planned order releases 20 20 10 Item B Lot size = L4L Lead time = 1
Gross requirements 10 120 20 10 10 Scheduled receipts Projected available 100 100 90 90 0 0 0 0 0 Net requirements 30 20 10 10 Planned order receipts 30 20 10 10 Planned order releases 30 20 10 10 Item D Lot size= 160 Allocation quantity = 120 Lead time = 1
Gross requirements 20 220 20 20 10 Scheduled receipts 160 Projected available 170 210 190 190 130 110 90 80 80 Net requirements 30 Planned order receipts 160 Planned order releases 160 Item C Lot size = 150 Safety stock = 15 Lead time = 2
Gross requirements 10 30 70 250 30 50 10 10 Scheduled receipts Projected available 120 110 80 160 60 30 130 120 110 Net requirements 5 105 35 Planned order receipts 150 150 150 Planned order releases 150 150 150 Item E Lot size = 140 Lead time = 1
Gross requirements 90 80 50 30 10 Scheduled receipts Projected available 120 120 120 30 90 40 10 0 0 Net requirements 50 Planned order receipts 140 Planned order releases 140
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Appendix: Blank MRP Grid Worksheets
Item A Lot size = Lead time =
1 2 3 4 5 6 7 8
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item F Lot size = Lead time =
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item B Lot size = Lead time =
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item D Lot size = Allocation quantity = Lead time =
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item C Lot size = Safety stock = Lead time =
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item E Lot size = Lead time =
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases
Detailed Scheduling and Planning
Instructor Guide Version 5.4 4-54 © 2016 APICS
Appendix B: Complete Solution for Optional Problem 4.6 Item A Lot size = L4L
Lead time = 2 1 2 3 4 5 6 7 8
Gross requirements 30 40 10 20 20 Scheduled receipts Projected available 0 0 0 0 0 Net requirements 30 40 10 20 20 Planned order receipts 30 40 10 20 20 Planned order releases 30 40 10 20 20 Item F Lot size = L4L Lead time = 1
Gross requirements 10 10 15 10 Scheduled receipts Projected available 0 0 0 0 Net requirements 10 10 15 10 Planned order receipts 10 10 15 10 Planned order releases 10 10 15 10 Item B Lot size = 60 Lead time = 2
Gross requirements 30 50 20 35 20 10 Scheduled receipts Projected available 100 100 70 20 0 25 5 55 55 Net requirements 35 5 Planned order receipts 60 60 Planned order releases 60 60 Item D Lot size = 160 Allocation quantity = 120 Lead time = 1
Gross requirements 60 90 30 55 40 10 Scheduled receipts 100 Projected available 170 150 90 0 130 75 35 25 25 Net requirements 30 Planned order receipts 160 Planned order releases 160 Item C Lot size = 150 Safety stock = 15 Lead time = 2
Gross requirements 15 75 210 40 180 50 15 5 Scheduled receipts Projected available 120 105 30 120 80 50 150 135 130 Net requirements 195 115 15 Planned order receipts 300 150 150 Planned order releases 300 150 150 Item E Lot size = 140 Lead time = 1
Gross requirements 190 10 195 10 Scheduled receipts Projected available 120 120 120 70 60 5 5 135 135 Net requirements 70 135 5 Planned order receipts 140 140 140 Planned order releases 140 140 140
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Appendix: Blank MRP Grid Worksheets
Item A Lot size = Lead time =
1 2 3 4 5 6 7 8
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item F Lot size = Lead time =
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item B Lot size = Lead time =
Gross requirements Scheduled receipts Projected available Net requirements Planned order Receipts Planned order releases Item D Lot size = Allocation quantity = Lead time =
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item C Lot size = Safety stock = Lead time =
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases Item E Lot size = Lead time =
Gross requirements Scheduled receipts Projected available Net requirements Planned order receipts Planned order releases
Detailed Scheduling and Planning
Instructor Guide Version 5.4 4-56 © 2016 APICS
Appendix C: Complete Solution for Optional Problem 4.7
Item A Lot size = L4L Lead time = 2
1 2 3 4 5 6 7 8
Gross requirements 20 5 110 25 Scheduled receipts Projected available 0 0 0 0 Net requirements 20 5 110 25 Planned order receipts 20 5 110 25 Planned order releases 20 5 110 25 Item F Lot size = L4L Lead time = 1
Gross requirements 25 25 25 Scheduled receipts Projected available 0 0 0 0 Net requirements 25 25 25 Planned order receipts 25 25 25 Planned order releases 25 25 25 Item B Lot size = 60 Lead time = 2
Gross requirements 20 5 135 25 50 Scheduled receipts Projected available 100 100 80 75 0 35 45 45 45 Net requirements 60 25 15 Planned order receipts 60 60 60 Planned order releases 60 60 60 Item D Lot size = 60 Allocation quantity = 120 Lead time = 1
Gross requirements 40 10 270 50 100 Scheduled receipts 100 Projected available 170 150 110 100 10 20 40 40 40 Net requirements 170 40 80 Planned order receipts 180 60 120 Planned order releases 180 60 120 Item C Lot size = 150 Safety stock = 15 Lead time = 2
Gross requirements 5 165 135 345 10 60 10 10 Scheduled receipts 150 Projected available 120 115 100 115 70 60 150 140 130 Net requirements 50 245 15 Planned order receipts 150 300 150 Planned order releases 150 300 150 Item E Lot size = 140 Lead time = 1
Gross requirements 180 180 205 25 25 Scheduled receipts Projected available 120 120 80 40 115 90 65 65 65 Net requirements 60 100 165 Planned order receipts 140 140 280 Planned order releases 140 140 280
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Pegging
Unexpectedeventscancausecomponentsofanenditemtoarrivelate.Forinstance,theremightbeaproblemwiththedeliveryofapurchasedcomponentfromasupplier,ortheinspectionofaproductionlotfromthefactorymightcausetherejectionofsomeoftheparts.
Toassessandaddresstheimpactofsuchevents,plannersmustbeabletotracethegrossrequirementsforanaffecteditemtoitsimmediateparentandupwardtoitsparentintheMPS.Thisimplosionprocesspermitstheplannertodeterminewhichparentsgeneratehowmuchoftheitem’stotalgrossrequirementsinanyperiod.Theplannercanthenusebottom‐upreplanningtoevaluateandimplementalternativesolutionssuchas
compressingleadtime cuttingorderquantity substitutingmaterial changingtheMPS.
Detailed Scheduling and Planning
Instructor Guide Version 5.4 5-14 © 2016 APICS
Single-Level Versus Full Pegging
5 • 11 © APICS Confidential and Proprietary
Full-Level Pegging
Component C
1 2 3 4 5 6 7 8
Item C 10 30 70 250 30 50 10 10
Service part demand 10 10 10 10 10 10 10 10
Item A (POR) 20 200 20
Item A (POR Item B) 30 20 10 10
Item F (POR Item B) 30 20 10 10
Item NumberPeriod
Source of Requirements
Gross Requirements
POR = planned order releases
Visual 5-11
Explainthatfullpeggingtracesgrossrequirementsforcomponentstoorderreleasesatlevel0.Itcanbeusedtofindwhatgeneratedthedemandatthefinishedgoodslevel,suchasaforecast,salesorder,servicepartsdemand,orinterplantdemand.Thefull‐peggingreportinVisual5‐11showsthatcomponentC’sdemandistracedtoenditemparentsAandFandservicepartC,anindependentdemanditem.ItemFisnotshownasasourceinsingle‐levelpeggingbecauseitistwolevelsupfromcomponentC.
Askparticipantswhyitisimportanttoknowthemaster‐scheduledparentforalow‐levelcomponent.
Answer:
Ifanimbalancebetweenthedemandandsupplyforacomponentcannotberesolvedatalowerlevel,theconsequencesofadjustmentstotheMPScanbeweighedandaddressed.
ExplainthatresolvingimbalancesattheMPSlevelisalastresortbecauseithasacascadingeffectontheschedule.
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Class Problem 5.2: Create Firm Planned Order
Reviewthefollowing:
ItemYhasagrossrequirementof50unitsinperiod3. TheregularnettinglogicofMRPhasscheduledaplannedorderreleaseinperiod1fora
quantityof80tobereceivedinperiod3. ArawmaterialrequiredtofabricateitemYwillnotbeavailableuntilperiod2.There
willbeonlyenoughmaterialtofabricate50unitsofitemY. TheplannerhastheflexibilitytoreducetheplannedleadtimeofitemYtooneperiod. Themosteconomicorderlotsizeis80(twolotsof40),butafteralotof40,itemY’s
orderquantitymaybeincreasedinmultiplesof10.
Basedontheaboveassumptions,addressthefollowing:
1) WhywouldMRPautomaticallyplananorderfor80ratherthan50?Whatcantheplannerdoaboutthis?
2) WhatwouldaplannergainbycreatinganFPOreleaseforYinperiod2,foraplannedorderreceiptinperiod3?
3) Usingthegrid,createanFPOtodevelopaplannedorderreceiptinperiod3inordertokeeptheproductionofcomponentYonschedule.Thenfinishbalancingtherecord.
Periods
1 2 3 4 5 6 7 8
Gross requirements 30 50 40
Scheduled receipts 30
Projected available
Net requirements
Planned order receipts
Planned order releases
Item YOrder qty.: 40; Allocation qty.: 0Safety stock: 0; Low-level code: 1Lead time: 2
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Instructor Guide Version 5.4 5-20 © 2016 APICS
What-If Analysis and Simulation
5 • 14 © APICS Confidential and Proprietary
Simulation
Run what-if analysis.
Run MRP in offline or test environment.
Test different planning parameters and assumptions.
Evaluate alternatives.
Manage risks.
Visual 5-14
Explainthatwhat‐ifanalysesnormallyaredonebyrunningMRPinasimulationmodeusingacopyoftherealERPdatabase,soasnottocompromisetheintegrityoftheschedulecurrentlyinuse.WhenasimulatedMRPscenarioreflectsthedesiredresults,itcanbecopiedovertothelivesystemtobecometheactualmaterialplan.
Inviteparticipantstoshareexamplesinwhichwhat‐ifanalysisandsimulationareusedtotestvariousMRPscenarios.Thescenariosmightbebasedonplanningparametersandassumptionssuchasplantshutdowns,assemblylinerebalancing,changesinlaborormachinecapacity,reductioninlotsizes,orurgentcustomerrequests.
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Project Plan Elements
Statement of Work
Thestatementofworkisthefirstplanningdocumentthatshouldbeprepared.Thestatementofwork
definesthescopeoftheproject describesthehistoryandpurpose explainsdeliverables indicatesmeasurablesuccessindicatorsforaproject. capturesthesupportrequiredfromthecustomer identifiescontingencyplansforeventsthatcouldthrowtheprojectoffcourse.
AccordingtoAGuidetotheProjectManagementBodyofKnowledge,3rded.,theprojectstatementofworkshouldindicateabusinessneed,describetheprojectscope,andincludeareferencetoaplanthatsupportstheorganization’sstrategicgoals.Theorganization’sneedfortheprojectcanbebasedonmarketdemand,technologicaladvances,standards,andsoon.Theprojectscopedocumentsprojectrequirements,whichmaybecomemoredetailedastheprojectscopebecomesbetterunderstood.
Work Breakdown Structure
Theworkbreakdownstructureistheprimaryplanningtoolfororganizingwork.Theworkbreakdownstructuredefines,indetail,theworkthatneedstobedoneandprovidesahierarchicalformatthatassiststheplannerinthefollowing:
structuringtheworkintomajorcomponentsandsubcomponents verifyingconformancewithallobjectives implementingasystemofprojectresponsibilitycommitments developingasystemofreportingandsummarization
Usinginformationfromthestatementofwork,successivelevelsofdetailregardingtasksareaddedtotheworkbreakdownstructure.
Visual5‐26showsanexampleofaworkbreakdownstructure.Noonestructureiscorrect—theworkbreakdownstructurecantakemanyforms.
Theworkbreakdownstructureaidsinsequencingactivities,suchasidentifyingtherelationshipsamongscheduleactivities,andestimatingresources,whichincludepersons,equipment,ormaterials.
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Project Schedule
5 • 27 © APICS Confidential and Proprietary
Project Schedule
project schedule—A list of activities and their planned completion dates that collectively achieve project milestones
─APICS Dictionary
The most common project scheduling methods are− Gantt charts− Critical path method (CPM)− Program evaluation and review technique (PERT)
Visual 5-27
Explainthatoncetheworkbreakdownstructureisinplace,theprojectschedulecanbedeveloped.Thescheduleservesasthebasisformonitoringprojectactivity.Ganttchartingandnetworktechniques,suchascriticalpathmethod(CPM)andtheprogramevaluationandreviewtechnique(PERT),canbeemployedtoscheduleprojects.
Gantt Charts
5 • 28 © APICS Confidential and Proprietary
Example Gantt Chart
Created using Microsoft® Office Project software
Visual 5-28
ExplainthataGanttchartdisplaystasksasbarsonahorizontaltimescale.TheGanttchartisaneasy‐to‐readmethodofshowingcurrentprojectstatus.ManysoftwareprogramsthatcreateGanttchartshaveaddedtheabilitytoseelinkagesandrelationshipsbetweenactivities.
AskparticipantstogiveexamplesoftheirexperienceswithGanttcharts.
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Network diagrams and techniques
Thenetworkplanningprocessdescribesaprojectasanetworkofactivitiesortasksthathavespecificrelationshipstoeachother.Totransformaprojectplanintoanetwork,youmustknowtheactivitiesthatcomprisetheproject.Youmustdetermineeachactivity’spredecessorsorsuccessors.Anactivitycanhaveanyoneofthefollowingconditions:
Usuallyandatthebeginningofaproject,itmayhaveasuccessorbutnopredecessor. Usuallyattheendofaproject,itmayhaveapredecessorbutnosuccessor. Itmayhavebothpredecessorsandsuccessors.
Thenatureoftheworktobedonedeterminespredecessor‐successorrelationships.Thecompletednetworkisusedtodeterminetheproject’stotalduration.
Critical path method
critical path method—A network planning technique for the analysis of a project’s completion time used for planning and controlling the activities in a project. By showing each of these activities and their associated times, the critical path, which identifies those elements that actually constrain the total time for the project, can be determined.
─APICS Dictionary
Alistofactivities,theirduration,andtheirinterdependenciestypicallyareputintoanetworkdiagramforCPM.Activitiesaredeterminedtobeeithercritical,inthattheirdelaywouldlengthenthetotalprojecttimeline,ornoncritical.CPMisusefulforprioritizingactivitiesonthecriticalpath.
CPMismostappropriateforactivitiesthatarewelldefinedoraresimilartoactivitiesthathavebeenperformedbefore.Asingle,deterministicestimateofthedurationofeachactivityisusedforCPM.
ThecriticalpathfortheprojectinVisual5‐29isshownintheunshadedredtasks.ThepathfromstarttoA,C,F,andfinishisthelongestcriticalpathwithadurationof5+5+6days,or16daystotal.
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Program evaluation and review technique
5 • 30 © APICS Confidential and Proprietary
Program Evaluation and Review Technique
PERT is used when times may vary or are not understood.
Three time estimates are made:− O = Optimistic− ML = Most Likely− P = Pessimistic
Expected time = (O + 4ML + P)/6
The expected time is used in the project plan and Gantt chart.
Visual 5-30
ExplainthatinCPM,thetaskdurationsarewellunderstoodtypicallyfromhistoricalexperienceandaredeterministic.PERTcanbeusedwhenactivitiesarenotwelldefined,dataarenotavailableontaskdurations,ortheconfidenceinthetaskdurationestimatesislow.PERTisbasedonprobabilistictimeestimates.Thetechniqueusesstatisticalmethodstodeterminethedurationofanactivity.
5 • 31 © APICS Confidential and Proprietary
Example PERT Time Estimates
Start Expected Optimistic Most likely Pessimistic
Task A 5.83 days 4 days 6 days 7 days
Task B 3.33 days 2 days 3 days 6 days
Task C 4.5 days 3 days 4 days 8 days
Task D 1.17 days 1 day 1 day 2 days
Task E 3.83 days 2 days 4 days 5 days
Task F 6.67 days 4 days 7 days 8 days
Finish 0 days 0 days 0 days 0 days
Visual 5-31
Explainthatprobabilisticvaluesfordurationcanbegeneratedusingtheformulaonthepreviousvisual.Thesevaluesareusefulwhentheprojectteamhasnoexperiencewiththeprojecttasksandcannotaccuratelyassesstheestimateddurationforeachtask.Visual5‐31representsateam’sestimatesofoptimistic,mostlikely,andpessimisticvaluesforaproject.Thelongestandshortesttimedurationestimatesfortheprojectcanthenbecalculated.
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Program evaluation and review technique
Whenactivitiesarenotwelldefined,thereisnosimilaractivityexperience,orconfidenceintheestimatesoftaskdurationsislow,PERTcanbeused.PERTisbasedonprobabilistictimeestimates,whichderivefromstatisticalmethodsthatdeterminethedurationofanactivity.
PERTisanextensionofCPM,whichincorporatesvariabilityinactivityduration,ortimeestimates,intothenetwork.ThedifferencebetweenthetwomethodsisthatinCPM,activitydurationsareassumedtobedeterministic.
Becauseitcanlocateandcalculateavailableslacktimeandestimateandre‐estimateaproject’scompletiondate,PERTisthetechniquemostoftenusedwhentaskdurationsareuncertain.ManygovernmentorganizationsrequiretheuseofPERTforcomplexprojects.
Visual5‐31showscalculatedexpecteddurationsforaprojectwhoseprojectteamwasnotfamiliarwiththetasksandcouldnotaccuratelyestimatetaskdurations.TheformulaonVisual5‐30wasusedtogenerateexpectedtaskdurationsfromtheoptimistic,mostlikely,andpessimisticdurations.Theestimatedexpecteddurationscanbeusedforfurtherprojectplanning.
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Responsibility Assignment Matrix
5 • 32 © APICS Confidential and Proprietary
Responsibility Assignment Matrix
Activity Person 1 2 3 4 5Define A R C I I
Design I A R C I
Develop A I R C I
Test R I A R C
R = Responsible for task completion A = Accountable for outcome
C = Consulted (provides input on the work) I = Informed of progress
Source: adapted from A Guide to the Project Management Body of Knowledge (Project Management Institute 2004). Visual 5-32
Explainthepurposeandlayoutofaresponsibilityassignmentmatrix.Itisusedtoidentifyrolesandresponsibilitiesofteammembersbasedontheworkbreakdownstructure.IntheexampleonVisual5‐32,therearefourcategoriesofresponsibilityassigned:R,A,C,andI,asdefinedonthevisual.Notallprojectsutilizeallcategories.Whichcategoriesareusedoftendependsonthespecificorganizationalstructure.
Resource Requirements
5 • 33 © APICS Confidential and Proprietary
Resource Requirements
Resource requirements− Resource loading− Resource leveling− Constrained resource scheduling
• Heuristic method• Optimization method
− Critical chain method
Visual 5-33
Previously,welookedathowtouseschedulingmethodstoallocatetimeforaproject.Now,wewilllookattheallocationofphysicalresourceutilizationandavailability.Explaintheresourcerequirements,resourceloading,andresourceleveling.
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Class Problem 5.3: Project Planning (cont.)
Responsibility Matrix
Basedontheworkbreakdownschedule,identifyrolesandresponsibilitiesforthethreeworkersandcreatearesponsibilitymatrix.Foreachactivityintheprojectplan,usethelettersRandAtoindicatewhohasthemainresponsibility(R)fortaskcompletionandaccountability(A)foroutcome.Hint:Youmayfindithelpfultogroupthetasksasontheworkbreakdownstructure.
Task 1 2 3Worker
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Class Problem 5.3: Project Planning (cont.)
Project Budget
5 • 48 © APICS Confidential and Proprietary
Problem 5.3 Solution (cont.)
Example project budget
Worker 1 Worker 2 Worker 3 TotalTime worked in minutes
50 40 10
Labor cost $25 $20 $5 $50
Raw material cost
$40
Total cost $90
Labor rate: $30 per hour (fully loaded)
Visual 5-48*
Haveparticipantsfillinanestimatefortheprojectbudgettobuildonetable.Havethemusetherawmaterialandlaborcostsdiscussedearlierandtheminutesforeachworkerfromtheprojectschedule.
Note:Thelaborrateof$30belowisanarbitraryexampleinUSdollars.
Solution (cont.):
Intheexamplebelow,the50minutesforWorker1andthe40minutesforWorker2tosetup,assemble,andcleanuparegiven,aswellasthe10minutesthatWorker3spentinspectingandapprovingthetable.Thecostofrawmaterialwasestimatedat$40andlaborcostswere$50,foratotalestimateof$90pertable.
Worker 1 Worker 2 Worker 3 TotalTime worked in minutes
50 40 10
Labor cost $25 $20 $5 $50
Raw material cost
$40
Total cost $90
Labor rate: $30 per hour (fully loaded)
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The Elements of Manufacturing Lead Time
Visual6‐29showsfiveelementsofmanufacturingleadtime.Eachelementhasitsowntime,whichisspecifiedonaper‐operationbasis.
Inaddition,thereisorderpreparationleadtime,expressedonaper‐orderbasis.Queue
queuetime—Theamountoftimeajobwaitsataworkcenterbeforesetuporworkisperformedonthejob.
─APICSDictionary
Frequently,astandardqueuetimeisspecifiedfortheworkcenter.
Setup time
setuptime—Thetimerequiredforaspecificmachine,resource,workcenter,process,orlinetoconvertfromtheproductionofthelastgoodpieceofitemAtothefirstgoodpieceofitemB.
─APICSDictionary
Setuptimealsoisreferredtoaschangeover.
Standardsetuptimeusuallyisspecifiedontheroutingandmayincludetimespentonthefollowing:
physicallypreparingequipment assemblingastationforworkonanewmanufacturingorder tear‐downtimefromthepreviousoperation internalsetup—setupproceduresperformedwhilethemachineorprocessisnot
running(Externalsetup,ortimeincurredinsetupprocedureswhilemachinesarestillrunning,isnotincludedinsetuptime.)
Run time
runtime—Thetimerequiredtoprocessapieceorlotataspecificoperation.Runtimedoesnotincludesetuptime.
─APICSDictionary
Standardruntimeusuallyisspecifiedontherouting.Wait time
waittime—Thetimeajobremainsataworkcenterafteranoperationiscompleteduntilitismovedtothenextoperation.Itoftenisexpressedasapartofmovetime.
─APICSDictionary
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Instructor Guide Version 5.4 6-34 © 2016 APICS
The Elements of Manufacturing Lead Time (cont.)
6 • 29 © APICS Confidential and Proprietary
Elements of Manufacturing Lead Time
Waiting for operation to begin
Getting ready for the operation
Performing the operation
Holding after operation is complete
Transporting to next operation
Prepare manufacturing order
Queue Setup Run Wait Move
Visual 6-29
ContinuetodisplayVisual6‐29.
Continuetodiscusslead‐timeelementsbyreviewingtheelementsofmanufacturingleadtime.
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Operation Versus Interoperation Time
Operationtime,orsetupandruntime,createsloadasshowninVisual6‐30.
Operationtimeateachworkcenterintheroutingconsistsofruntimeandsetuptime. Setuptimeincludesinternalsetuptime.Itdoesnotincludeexternalsetuptime,whichis
thetimespentonsetupwhenmachinesarestillrunning. Runandsetuptimesreflectstandardtimeoractualtimeneededateachworkcenter.
Interoperationtime—queue,wait,andmove—doesnotaffectload.
Thesemanufacturingleadtimeelementsdonotcontributedirectlytoload;rather,theyaffecttheestimatedtimingofloadafterorderrelease.
Interoperationtimescanberelativelylargeinthejobshopandbatchmanufacturingenvironments.
Itisimportanttonotethatinteroperationtimesinajobshopareelasticandcanbeinfluencedbyavarietyoftechniques.
Tosummarize:
Manufacturingleadtimecomprisesfiveelements. Twooftheseelements(setupandruntimes)arecalledoperationtime.Operationtime
impactscapacityplanningbecauseithelpstodeterminetheloadonspecificresources. Interoperationtime(queue,wait,andmove)doesnotaffectthemagnitudeofload,but
determineswhenloadfromsetupandrunwillbecreatedatspecificresources.
Whichelementsofmanufacturingleadtimecreateload?
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Whichelementofmanufacturingleadtimeisdirectlyaffectedbythequantitybeingproduced?
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Whichelementsofmanufacturingleadtimedonotaddvalue?
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Whatroledoesinteroperationtimeplayincapacityplanning?
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Instructor Guide Version 5.4 6-38 © 2016 APICS
Utilization and Efficiency
6 • 31 © APICS Confidential and Proprietary
Utilization and Efficiency
Utilization− Intensity of use of resources− Measure actual, determine planned
Efficiency− Actual output versus standard− Measure actual, determine planned
Visual 6-31
Explainthatutilizationandefficiencyofworkcenteroperationsaffectthecapacitythatisactuallyavailabletomeetloadrequirements.Inthissection,wewillbrieflyreviewtheseconceptsandtheiruseincalculatingratedcapacity.
Utilization
6 • 32 © APICS Confidential and Proprietary
Utilization
Manage queues (job shop)
Track plant performance—especially capital-intensive plants
Make-versus-buy decisions
Components of non-utilization− Scheduled nonproductive activity− Normal working patterns− Tactical under-utilization
Utilization = actual hours worked
available time (hours)
Visual 6-32
Describetheformulaforcalculatingutilizationanddirectparticipantstopage6‐43foranexplanationofavailabletime,ifnecessary.Brieflyreviewtheuseofutilizationanalysis.Spendafewminutesdiscussingthefactors(plannedandunplanned)thatcausetheutilizationratetobelessthan100percent:
schedulednon‐productiveevents normalworkingpatterns tacticalunderutilization
Note:Variablesetuptimes(undertacticalunderutilization)canbecalculatedbyspecifyingvaluesformajorandminorsetups.
Note:Utilizationisveryimportantinprocessindustrieswherecapitalcostsarehigh.However,inotherindustriesandincompaniesthatshifttoleanmanufacturing,utilizationislessimportant.
Discusstheconceptofactivatingaworkcenter.AccordingtotheAPICSDictionary,activationmeansputtingaresourcetowork.Activationtomaintainhighutilizationratesatnon‐constraintworkcentersisundesirable.
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Utilization and Efficiency
Theabilityofcapacitytoaccommodateloadisaffectedbytwomajorfactors,utilizationandefficiency,whichwewilladdressinthissection.
Utilization
Utilizationisameasureofhowintensivelyaresourceisbeingusedrelativetoitsavailabletime.(Seepage6‐43foranexplanationofavailabletime.)Utilizationisimportantforthefollowingtasks:
managingqueuesandleadtimesinthejobshoporbatchmanufacturingenvironment monitoringtheperformanceoftheplantincapital‐intensiveindustries makingkeybusinessdecisions,suchasmakeorbuy analyzingthehistoricalperformanceofaproductiveresource
Components of non-utilization
Visual6‐32showsthethreecomponentsofnon‐utilizationthathavetobetakenintoaccountindeterminingthecapacityofproductionresources.Thecomponentsarelistedbelowwithexamplesofeach.
schedulednonproductiveactivities preventivemaintenanceduringshifttime prototypeproduction reworkorders
normalworkingpatterns scheduledbreaks multipleworkcentersinacellnormallystaffedbyoneworker interruptionsforsupportactivities,suchaspalletwrapping,becauseofstaffing
constraints tacticalunderutilization
Limitutilizationperweekto,forexample,80percentofavailabletime.Limitingutilizationenablesvariabilityinactualrunandsetuptimes,improvesqueuemanagement,andenablesmachinestorunatlessthan100percentutilizationtoachievedesiredproductivityandqualityresults.
Allowforunplanneddowntimeoroccasionswhentherewillbenoworkarrivingattheworkcenter.
Intheoryofconstraintsproduction,limitorsynchronizetheuseofnon‐constraintworkcenterswiththethroughputofthecapacity‐constrainedresource.AnyadditionalactivationwillbuildupmoreWIPthanisneededtosupportoverallsystemthroughput.
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Efficiency
6 • 33 © APICS Confidential and Proprietary
Efficiency
Efficiency =
Compares clock, or actual hours worked, to standard hours produced
Allows tracking of cost performance
Can lead to reconsideration of standard hours
Is extremely sensitive to the experience of workers
standard hours producedactual hours worked
Visual 6-33
Discussthedefinitionofefficiency.HaveparticipantsdoProblem6.1toreviewandreinforcethekeyconceptslistedinthevisual.
Class Problem 6.1: Efficiency Calculation
6 • 34 © APICS Confidential and Proprietary
Problem 6.1 Efficiency Calculation
1. Engineering studies indicate that the standard time to produce one unit is 20 minutes. A work center is expected to produce 24 units of item A on a particular day (eight-hour shift). At the end of the day, 30 units were produced. What is the efficiency?
2. The standard cost to produce one unit is $20. From a cost accounting standpoint, was production of item A above or below standard cost?
3. If the work center maintains about the same efficiency rate, what should be done to the predetermined standard hours currently in effect?
4. What are some of the possible causes for the deviation from standard hours in this case and in general?
Visual 6-34
Asktheclasstocalculatetheefficiencyofaworkcenterandthenanswerthreequestionsonefficiency.
Solution
6 • 35 © APICS Confidential and Proprietary
Problem 6.1 Solution
1. (30 parts x 20 minutes)/60 minutes per hour = 10 standard hours
Efficiency = standard hours produced
actual hours worked=
10
8= 1.25
4. Efficiency is especially sensitive to the skill level of workers. Other factors influencing efficiency include machine slowdowns and non-conforming materials.
3. If the standard hours produced remain higher than actual hours worked, standard hours produced should be adjusted for more accurate capacity planning.
2. Because more units (standard hours) were produced in an eight-hour shift than expected with the same actual hours worked, then the actual cost per unit will have been lower than standard cost.
Visual 6-35*
1. If30unitsareproducedineightactualhours,thenthestandardhoursproducedequal10andtheefficiencyis1.25or125percent.
2. Becausemoreunits,orstandardhours,wereproducedinaneight‐hourshiftthanexpectedwiththesameactualhoursworked,thentheactualcostperunitwillhavebeenlowerthanstandardcost.
3. Ifthestandardhoursproducedremainhigherthanactualhoursworked,standardhoursproducedshouldbeadjustedformoreaccuratecapacityplanning.
4. Efficiencyespeciallyissensitivetotheskilllevelofworkers.Otherfactorsinfluencingefficiencyincludemachineslowdownsandnon‐conformingmaterials.
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Reasons for queues
BecauseofthenegativeeffectonWIPinventorylevelsandleadtime,queuesneedtobemanagedandminimized.Therealsoaresomeargumentsinfavorofmaintainingappropriatelevelsofqueue.
Whydoqueuesexist?
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Organizational reasons
Aqueueforbusinessreasonsisintendedasacushionagainstpotentialdisturbancesintheproductionprocess.Asanexample,Visual6‐48considerstwoadjacentworkcenters:Machine1andMachine2.
Ifbothworkcenterswereperfectlysynchronized,noqueuewouldbeneeded. Asaresultofamaterialshortage,overloading,scraporreworking,breakdown,or
absenceofworkers,adisturbancemayoccuratMachine1orattherawmaterialsissueprecedingMachine1.
Thequeuesbeforebothworkstationsserveasaninventorybuffer,preventingdisruptionstoeitherMachine1or2.
Thesizeofthequeuebeforeaworkcenterdependsonthedegreeofsynchronizationthatcanbemaintained,inpractice,withthepreviousworkcenters.
Whatfactorsshouldbeconsideredindeterminingthelengthofqueuesbeforenon‐constraintandcapacity‐constrainedorbottleneckresources?
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Detailed Scheduling and Planning
Instructor Guide Version 5.4 6-56 © 2016 APICS
6 • 48 © APICS Confidential and Proprietary
Queues to Cushion Disturbances
Queues to cushion disturbances in the production flow
Machine no. 2
Queue Queue
Machine no. 1
Source: Schönsleben P, Integral Logistics Management (CRC/St. Lucie Press, 2000) Visual 6-48
ContinuetodisplayVisual6‐48.
Economic reasons
Discusstheeconomicbenefitsofsequencingworkordersinthequeueandthepsychologicaleffectsqueueshaveonworkerproductivity.Alsodiscussthedownsideofqueues,includingincreasedleadtime,higherWIP,andhigherlevelsofinventoryinvestment.
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Determine Load
TheprimarysourcesofloadtobemeasuredbyCRPareasfollows:
plannedorderreleasesfromMRP openorderstatusinformationfromproductioncontrol
Othersourcesofloadtobeconsideredincludethefollowing:
productreworkrequirements scrapthatexceedsexpectations qualityrecalls
Totheextentthattheycanbepredicted,managersshouldtaketheseothersourcesintoaccountandprovideextracapacity,orsafetycapacity,thatcanbemadeavailablequickly.
Units of measure
Mostoften,workcenterloadsandcapacitiesaremeasuredintermsofhours,ratherthanunitsproduced.Timeisacommonelementwhenaworkcenterproducesmanydifferentparts,subassemblies,andassemblies.Hourstendtobeaveryflexibleunitofmeasureandgenerallyarestatedintermsofstandardhours.
Standardhourscanbeexpressedinmachineorlaborhours,dependingonwhetheraworkcenterismachine‐pacedorlabor‐paced.Applythistest:Wouldtheproductionratedoubleifweappliedtwicethenumberofworkers?
Iftheanswerismostlyno,theworkcenterismachine‐paced.Loadandcapacitystandardsshouldbeexpressedinmachinehours.
Iftheanswerismostlyyes,theworkcenterislabor‐paced,aswithahand‐packingoperation.Loadandcapacityareexpressedinlaborhours.
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Instructor Guide Version 5.4 7-14 © 2016 APICS
Simulate Scheduling of Load
7 • 14 © APICS Confidential and Proprietary
Simulate Scheduling
WCCOperation 10
Week 1
WCAOperation 20
Week 2
WCBOperation 30
Week 3
Setup and Run
Wait and MoveQueueSetup
and RunWait and
MoveQueueSetup and Run
Wait and MoveQueue
Visual 7-14
Discussthesetwoimportantpointsaboutsimulating,ormodeling,theschedulingofplannedorderreleases:
BysimulatingtheschedulingofloadduringCRP,plannerscandeterminewhencapacitywillbeneededatworkcentersforplannedorderreleasesofcomponentsandenditems.
Thenplannersdeterminetotalloadonworkcentersinspecificperiodsbycombiningloadfromplannedorderreleases(r)withloadfromopenorders.
Explainthefollowingpointsaboutthesimulatedschedulingprocess:
Thepartinquestionhasathree‐weekleadtime,consistsofthreeoperations,andismadeinthreeworkcentersinthefollowingsequence:WCC,WCA,andWCB.
Backwardschedulingmostoftenisusedtoscheduleloadinspecificworkcentersinspecifictimeperiods.
Thebackwardschedulingmethodassumesaplannedreceiptdate,orduedate,inweek4.Thepartshouldbecompletedbytheendofweek3andbeavailableforuseatthebeginningofthenextweek,whenitisdue.
Theresultofsimulatedschedulingisaperiod‐by‐periodsummaryofloadandcapacityrequirementsatspecificworkcenters.Wewillshowshortlyhowthisinformationwillbeusedinworkcenterloadprofilesorreportsthatcompareloadandavailablecapacity.
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Simulate Scheduling of Load
Loadisscheduledduringexecutionandcontrolofoperations.InCRP,asimulatedschedulingoftheloadonresourcesoccurs.ThesourcesforthisloadareplannedorderreleasesfromMRPandtheremainingworkforopenordersfromtheshopfloorcontrolreport.Thepurposeofthissimulation,ormodeling,istodetermineifadequateresourcesareavailableduringtheperiodwhentheyactuallyareneeded.
Theschedulingmethodmostcommonlyusedforplannedordersisbackwardscheduling,illustratedinVisual7‐14.Thevisualshowsthefollowing:
Theparthasaleadtimeofthreeweeks. Itpassesthroughthreeoperations. Itpassesthroughthreeworkcentersinthefollowingsequence:WCC,WCA,andWCB. Thebackwardschedulingmethodassumesaplannedreceiptdate,orduedate,inweek
4.Thepartshouldbecompletedbytheendofweek3andbeavailableforuseatthebeginningofthenextweekwhenitisdue.
Theresultofsimulatedschedulingisaperiod‐by‐periodsummaryofloadandcapacityrequirementsforplannedorderreleasesatspecificworkcenters.Theresultsofthesimulatedschedulingareusedtocreateworkcenterloadreportsorprofilesthatcompareloadandavailablecapacity.
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Instructor Guide Version 5.4 7-16 © 2016 APICS
Work Center Load Report
7 • 15 © APICS Confidential and Proprietary
Work Center Load Report
Capacity (120 hours)
OVEROVEROVER
Period
1 2 3 4 5 6
Work center 208
Visual 7-15
Explainthattheworkcenterloadreportcomparesloadandavailablecapacityatworkcentersbyperiod.Notethatitalsoiscalledaloadprofilebysomeauthors.
Askwhatthemajorsourcesofloadareinworkcenterloadreports.
Answer:
Plannedorderreleasesandremainingoperationsofopenorders
Askifloadandcapacityarenearlyinbalance.
Answer:
Loadandcapacityappeartobenearlybalancedovertherangeshownintheillustration
Askwhataplannerwouldlookforinaloadreport.
Answer:
(1) Alargeoverloadinperiod1causedbypastdueorders;(2)excessiveoverloadinindividualperiodsoroverall;(3)whethersafetycapacityhasbeenplannedtoaccommodateurgentjobsorrework;(4)sufficientoutlook.Isitenoughtolookaheadjustsixperiods?
7 • 16 © APICS Confidential and Proprietary
Work Center Load Detail List
Week number Manufacturing order
Part number Operation Scheduled start
Scheduled complete
Load hours
1 12-678 ZY89-3872 040 Nov. 03 Nov. 06 32.0
12-719 TX23-8723 020 Nov. 02 Nov. 02 8.0
12-723 UD84-7492 040 Nov. 04 Nov. 09 64.0
Total week 1 104.0
2 12-699 PD63-8623 070 Nov. 09 Nov. 10 10.0
Work center 208 Capacity: 120.0 hours per week
Visual 7-16
Brieflyreviewanalternativeworkcenterloadreportformat.
Note:SeeBlackstonep.106and107forusefulexamplesofworkcenterorCRPloadreports.
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Work Center Load Report
TheprimaryoutputdocumentsandscreensfromCRParecalledworkcenterloadreportsorloadprofiles.(SeeVisual7‐15.)Whilesomeauthorsrefertothemasworkcenterloadreports,theAPICSDictionaryreferstothemasloadprofiles;wewillusebothtermsinthissession
Theworkcenterloadreportcomparestheloadsthatareexpectedateachworkcenterandtheavailablecapacityofeachworkcenterbyperiod.
Whatarethemajorsourcesofloadintheworkcenterloadreports?
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Bar chart
Theworkcenterloadreportiscommonlyrepresentedbyabarchart.ThereportshouldcovertheplanninghorizonrequiredbytheplannerforCRP,whichcouldbeaslongastheplanninghorizonusedintheMRP.
Barchartsandlinegraphsareeasytointerpretandreadilyrevealwhetherunderloadoroverloadconditionsexistinparticulartimeperiods.Usingsuchchartsandgraphs,plannerscaninterprettheeffectsoftheloadconditionsoncapacitiesandpriorities.
Areloadandcapacitynearlyinbalance?
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Whatwouldaplannerlookforinaloadprofile?
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Work center load detail list
Visual7‐16showsasimplifiedversionofanalternativeformatforconveyingcapacityandloadinformation.
Detailed Scheduling and Planning
Instructor Guide Version 5.4 7-18 © 2016 APICS
Resolve Load-Capacity Imbalances
7 • 17 © APICS Confidential and Proprietary
Balancing Load and Capacity
Increase capacity.
Reduce load.
Reduce capacity.
Increase load.
Redistribute load.
Visual 7-17
Explainagainthatinamaterial‐dominatedMRPandCRPsystem,plannersgiveprioritytoduedatesbyexercisingtheflexibilitythatisavailableintheuseofcapacityaswellasminimalamountsofflexibilityinscheduling.Thevisualsummarizestheadjustmentsthatcanbemadetobalanceloadandcapacity.
Askwhatspecificmeasurescanbeusedtobalanceloadandcapacity.
Answer:
(1)Implementingovertimeandextrashifts;(2)redeployingpersonnelbetweenworkcenters,whichusuallyiseveneasier;(3)developingawell‐preparedtemporaryworkforcesothatfrequentpeakloadscanbeeasilyhandled
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Resolve Load-Capacity Imbalances (cont.)
Increase capacity
Addextrashifts:Thisincludesincreasingthelengthofshiftsorschedulingweekendshifts;itshouldbeusedinthemediumtermbecauseitisnotdesirabletobechangingscheduledshiftsfrequently.
Scheduleovertimeorweekends:Thisisagoodshort‐termsolutionwhencapacityshortfallsarepredictedtobetemporary
Addpersonnel:Personneladditionsarealonger‐termsolutionusedwhencapacityneedstobeincreasedoverfairlylongperiodsoftime.Hiringtemporaryhelp,whenpossible,mightbeappropriateforshort‐termneeds.
Cross‐trainandreassignworkers:Workerswithmultiplecapabilitiesprovideflexibilityneededtoreassignworkerstooverloadedworkcenters.Cross‐trainingofworkers,includingthoseinindirectlaborpositions,isaprerequisiteforaflexibleworkforce.
Addequipment:Thismaybeanoptionfortheshorttermifequipmentcanberented. Reducesetuptime:Thiscanbedonebystreamliningsetupsorusingdedicated
equipment.Reducingsetuptimeenablesmoreruntime,whichshortensoperationcycletimes.
Subcontract:Subcontractingmaybeasolutionforshort‐termcapacityissues.Thistypeofarrangementgenerallyhasastartdate,anenddate,andaspecificscopeofworktheoutsidecompanywillperformtohelpresolvetheoverload.
Outsourceworktooutsidemanufacturingfirms:Thisessentiallyisamake‐or‐buydecisionthatcanaccommodatelong‐termcapacityimbalances.Outsourcingusuallyisapermanentchoicethatcentersaroundafirm’sdecisiontofocusonitscorecompetenciesandcapabilities.
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Instructor Guide Version 5.4 7-22 © 2016 APICS
Resolve Load-Capacity Imbalances (cont.)
Reduce load
7 • 19 © APICS Confidential and Proprietary
Overload Conditions: Reduce Load
Reduce lot sizes.
Change the MPS.
Visual 7-19
Reviewthemethodsofreducingload.
AskwhyreducinglotsizeinproductioncontroldoesnotrequirerevisionstotheMPS.
Answer:
Intheshort‐term,reducinglotsizescanbehandledwithfirmplannedorderstofreeupcapacity,butifthelot‐sizereductionisalong‐termsolution,themaster‐scheduledlotsizeswillhavetobeadjusted.
Note:Remindparticipantsthatreducinglotsizeresultsinatradeoffwithsetuptime.
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Resolve Load-Capacity Imbalances (cont.)
Reduce load
Reducelotsize:Thiscanbeagoodshort‐termsolution,butitdependsonmanyfactors.Reducinglotsizewillreducetherun‐timeload,butattheexpenseofadditionalsetups.Considerthissolutionifparticularproductsmakeitdifficulttobalanceloadandcapacity.PlannerscanreducelotsizeinisolatedcasesbyusingfirmplannedordersintheMRPreplanningprocess.Tocoverextendedperiods,plannersmayneedtorevisetheMRPplanandthencompletelyreruntheCRPplan.Lotsizingconsolidatesindividualrequirementsthatarespreadovertime.Substantialchangesinlot‐sizingplanningfactorsmighthaveeffectsthatwouldbedifficulttopredictwithoutanalysis.
ChangetheMPS:Alastresortforreductionofloadwhenadequatecapacitycannotbeaddedintheshort‐termistochangetheMPS.Doingsocouldhaveanegativeeffectoncustomerserviceandisanindicationthatrough‐cutcapacityplanning(RCCP)isnotdoingitsjob.IftheMPSchanges,thenMRPandCRPmustbereruntoassesstheeffectsofthechanges.
Whydoesn’treducinglotsizeinproductioncontrolrequirerevisionstotheMPS?
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Instructor Guide Version 5.4 7-24 © 2016 APICS
Resolve Load-Capacity Imbalances (cont.)
Reduce capacity
7 • 20 © APICS Confidential and Proprietary
Underload Conditions: Reduce Capacity
Eliminate shifts or reduce length of shifts worked.
Reassign personnel temporarily from direct labor job.
Visual 7-20
Reviewthemethodsforreducingcapacity.Increase load
7 • 21 © APICS Confidential and Proprietary
Underload Conditions: Increase Load
Make items normally purchased or subcontracted.
Release orders early.
Increase lot sizes.
Increase the MPS.
Subcontract work for others.
Visual 7-21
Reviewthemethodsforincreasingload.
Askwhatthedisadvantagesandpotentialbenefitsareofincreasingloadinordertobalancecapacity.
Answer:
Disadvantages:Inventorywillincrease;inventorymaybecomeobsoleteifproducedtoosoon.
Benefits:Costoverheadwillbeabsorbedoverahighervolumeofproducts;workforceskillswillberetained.
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Resolve Load-Capacity Imbalances (cont.)
Reduce capacity
Eliminateshiftsorreducelengthofshiftsworked:Mightincludetransferringorlayingoffpersonnelorsendingthemtotraining.Thismedium‐termsolutionwouldordinarilybetakenonlyinthecontextofotherfactors,suchasageneralbusinessslowdown.
Reassignpersonneltemporarily:Mayincludeshiftingpersonnelfromunderloadedtooverloadedworkcenters,ortopreventivemaintenanceorotherindirecttasks.
Increase load
Makeitemsnormallypurchasedorsubcontracted:Thismedium‐rangesolutionisthereverseoflettingworkoutforsubcontracting.Itrequiresamake‐or‐buyanalysis.Note:Inalogisticsnetwork,asubcontractormaybeconsideredapartnerandanextensionofthecompany.Bringingworkbackinhousemightcompensateforareductioninload,butattheexpenseofapartner.
Releaseordersearly:Releasingordersearlyisnotadvisableexceptintemporarysituations.Thisoptiontendstobuildupinventoriesofworkinprocess(WIP)andfinishedgoodswhileexpeditingneededrawmaterialsandthusshouldbeconsideredaload‐levelingoptionratherthanameanstocorrectcumulativecapacityexcess.
Increaselotsizes:Anoptionthatcouldbeaccomplishedbyusingfirmplannedorders;however,italsoproducesadditionalinventoryandshouldbeashort‐termsolution.
IncreasetheMPS:IncreasingtheMPSistheleastdesirablesolution,unlesstherearesalesorsalesprojectionstosupportit,becauseitrequiresarerunofbothMRPandCRP.Thissolutionmighthaveunforeseenresultsonthebalanceofworkloads.
Subcontractworkforothers:Whensubcontractingforothersisfeasible,itcanaccommodateshort‐orlong‐termloadimbalances.
Whatarethedisadvantagesandpotentialbenefitsofincreasingloadinordertobalancecapacity?
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Instructor Guide Version 5.4 7-26 © 2016 APICS
Resolve Load-Capacity Imbalances (cont.)
Redistribute load
7 • 22 © APICS Confidential and Proprietary
Redistribute Load
Use alternate work centers.
Use alternate routings.
Modify priorities by adjusting operation start dates forward or backward.
Hold orders in production control.
Revise the MPS or lot sizes.
Overlap operations and split lots.
Visual 7-22
Explainthetechniquesforredistributingload.
Asktheadvantagesofloadleveling.
Answer:
Loadlevelingmakesiteasiertoplanandmanageproduction,asstaffinglevelsandmachineutilizationaremorestableandpredictable.
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Resolve Load-Capacity Imbalances (cont.)
Inadditiontoreducingorincreasingload,asdiscussedabove,amanagermaychoosetoredistributeloadsothatitislevelormorecompatiblewithcapacity.Loadlevelingresultsinmorestableworkforcedeploymentandmachineuse.
Redistribute load
Usealternateworkcenters:Sometimesaworkcenterforacertainoperationhasalternates.Thesealternatesusuallyarelessefficientormorecostly,buttheyprovideanopportunitytoshiftworkfromanoverloadedtoanunderloadedworkcenterinthesametimeperiod.
Usealternateroutings:Attimestheoptimalsequenceshownbyaroutingisnotmandatoryforalloperations.Byconsideringalternativesequences,workloadsbetweenworkcentersmightbeshiftedintodifferentperiods.
Modifyoperationpriorities:Theplanneradjustsoperationstartdatesforwardorbackwardintimebytailoringtheroutingforanorderatrelease.Ineffect,modifyingprioritiestakesadvantageofthevariabilityofqueuetimeandabsorbssmallvariationsinload.Thisoptionoftenistherightoneforloadleveling,sinceorderduedatesremainvalidandtheinformationiscommunicateddirectlytothedispatchingsysteminproductioncontrol.
Holdordersinproductioncontrol:Holdingordersdeferstheloadonresources,butmayincreasedeliveryleadtimes,causeduedatestobemissed,andpreventattainmentoftheMPS.Ifloadlevelingistheobjective(forexample,anoverloadedplanningperiodisfollowedbyanunderloadedone),holdingordersinproductioncontrolmightbeaviableoption.Theorderduedatemaystillbeachievable,asqueuetimevariationmightpermittheordertobecompletedontime.
RevisetheMPSorlotsizes:ThisoptionmayhaveratherunpredictableresultsafterMRPandCRParererun.Theproblemmaybecomeaggravatedafterfollowingallthenecessaryreplanningsteps.
Runoverlappingoperationsoruselotsplitting:Bothtechniquescanbeusedtoexpediteproduction.Inlotsplitting,orderquantitiesaredividedandprocessedsimultaneouslythroughsimilarequipmentorworkcenters.Overlappingmaynotbeusefulwhenmultipletransfersofmaterialfromoneworkcentertothenextarecostlyortime‐consuming.
Whataretheadvantagesofloadleveling?
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Instructor Guide Version 5.4 7-28 © 2016 APICS
Prepare Operating Plan or Revise the MPS
7 • 23 © APICS Confidential and Proprietary
CRP Model
Capacity requirements
planning
Determine load on resources over a period
of time
Simulate scheduling of load at work
centers by period
Create work center load reports
Resolve load-capacity imbalances
A
B
C D
E
Revise MPS if not resolved
Prepare operating plan for execution
Visual 7-23
Usethisslidetoreorienttheparticipants.WenowareatapointintheCRPcyclewherewecanpreparetheoperatingplanforexecutionorworkwiththemasterschedulertorevisetheMPS.
Prepare the operating plan for execution
Explainthatload‐capacityimbalancesmostoftencanberesolved,theelementsofaworkableexecutionplancanbeputinplace,andproductioncontrolcanproceed—enablingthemanagertoexecuteaplanthatmeetspriorityobjectives.
Revise the MPS
7 • 24 © APICS Confidential and Proprietary
Revise the MPS
CRP’s first objective is to make capacity fit load.
If capacity is not available, revise master production schedule.
Explode requirements again during next MRP run.
If required, evaluate further; planners may need to take action.
Visual 7-24
AlthoughthefirstobjectiveofCRPistomakecapacityavailableforload,doingsomightnotbepossible.Insuchacase,theMPSmustberevised.
Pointoutthatifchronicoverloadingofcapacityoccurs,revisingtheMPSisonlyashort‐termsolution.Morecapacitywillbeneededtoachieverevenueandcustomerservicegoals.
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Performance Check
Selectthebestanswertoeachofthefollowingquestions.
1. WhichofthefollowingstatementsappliestoCRP?
a. CRPisastand‐aloneoperation;itdoesnotdependonotherplanningandcontrolactivities.
b. CRPcanbeusedtocompensateforoverloadedconditionscausedbyhigher‐levelloadandpriorityplans.
c. CRPisusedinconjunctionwithMRP.d. CRPmostcommonlyisusedinrepetitiveorprocessproduction.
2. WhichofthefollowingisadirectinputtoCRP?
a. workcenterloadreportb. dispatchlistc. routingdatad. preventivemaintenanceschedule
3. WhichofthefollowingisanoutputofCRP?
a. routingdatab. workcenterloadreportc. preventivemaintenancescheduled. dispatchlist
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Answers(cont.):
4. d—Addingshiftsandequipmentwillincreasecapacity.Also,schedulingovertimewillincreasecapacity.
5. b—Answeraidentifiescapacitybottlenecksratherthanmaterialproblems.Answercfocusesonlaborandequipmentratherthanmaterials.Answerdisusedinjobshopandbatchproductionenvironments.
6. a—Time‐phasedvisibilityoftheloadandcapacityimbalancesisakeyadvantageofCRP.Answerbisincorrectbecausecomputerprocessingtimecouldbeextensive,especiallywhenthereareimbalances.CRPisaprocessthatisdrivenbyMRPanditsvariousconsolidationprocessesandmaynotclearlyshowtheeffectsofmasterschedulerevisions,socisincorrect.CRPisnotequallyapplicableinalltypesofenvironments;therefore,answerdisincorrect.
7. c—Process‐dominatedschedulingisusedwhencapacitymanagementisahigherprioritythanduedates,soIandIVarethecriteriaforusingprocess‐dominatedscheduling.
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8. Material‐dominatedschedulingisbestusedinthefollowingsituations:
I. Capacityisrelativelyexpensive.II. Materialisrelativelyexpensive.III. Capacityisflexible.IV. Duedateisflexible.
a. IandIIIb. IIandIVc. IandIVd. IIandIII
9. Inprocessflowscheduling,processtrainsarescheduledusingreverseflowscheduling,forwardflowscheduling,ormixedflowscheduling.Mixedflowschedulingmeansthefollowing:
a. Anintermediatestageisscheduledfirstwhenthemainbottleneckmovestoaprocessorinthatstage.
b. Thefirststageisscheduledfirstwhendemandislow.c. Thelaststageisscheduledfirstwhenthefirststageisconstrainedbymaterial
supplyonly.d. Anyofthesemethodscanbeused.
10. Whichofthefollowingstatementsaretrue?Theformalprocesstrainrepresentation
I. illustratesgeneralizeddefinitionofresources.II. illustratesdivergentproductstructure.III. supportsstage‐by‐stagescheduling.IV. supportscontinuousflowwithinastage.
a. Ionlyb. IIandIIIonlyc. I,II,andIIIonlyd. I,II,III,andIV
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Collaborative Relationships
Visual8‐21remindsusofthecontinuuminsupplyrelationships.Inthissectionofthecourse,wewillreviewtwotypesofcollaborativerelationships:
strategicalliances supplierpartnerships
Asdiscussedearlierinthissession,botharehighervalue‐addedrelationshipsthanthearm’s‐lengthrelationshipsshownontheleftsideofthecontinuum.Someauthorsseedistinctdifferencesbetweenthesetwoformsofcollaborativerelationships,butthereissomeoverlapaswell.
Strategic Alliances
Astrategicallianceinvolvestwoormoreorganizationsthatshareinformation,participateinjointinvestments,anddeveloplinkedandcommonprocesses.Simchi‐Levyetal.inDesigningandManagingtheSupplyChain(2008),3rded.,chap.8,addressfourtypesofstrategicalliancesthataresignificantinsupplychainmanagement:
technicalandoperationalpartnering distributorintegration thirdpartylogistics(3PL) retailer‐supplierpartnerships(RSP)
Let’sreviewthefirsttwotypes.Wewillreview3PLandRSPinSession9inthecontextofdeliveryapproachesthatacceleratethesupplychain.
Technical and Operational Partnering
IBM’spartnershipwithIntelandMicrosoftintheearly1980swasanexampleofastrategicallianceinvolvingtechnicalandoperationalpartnering.IBMtookapersonalcomputer(PC)tomarketwithouthavingtodevelopamicroprocessororoperatingsystem.ThesecomponentswereprovidedbyIntelandMicrosoftinabusinessagreementthatthatdidnotinvolvesettingupalegaljointventure.Ajointventureisaformal,legalentitycompletewitharticlesofincorporationinwhichpartiesagreetoriskequitycapitaltoachievespecificbusinessobjectives.
Thestrategicalliancefocusedononeproduct:thePC.Thegoalwastocreateacompetitiveadvantageforaspecificproductorproductline.Itwasnotapermanentorexclusiverelationship.OtherPCmanufacturerswerelaterabletosourcethesamecomponentsasIBMfromIntelandMicrosoft,andtheIBMPCeventuallylostitscompetitiveadvantage.
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Strategic Alliances (cont.)
8 • 22 © APICS Confidential and Proprietary
Strategic Alliances
Technical and operational partnering
Distributor integration
Third-party logistics (3PL)
Retailer-supplier partnerships
Visual 8-22
ContinuetodisplayVisual8‐22.
Distributor Integration
Leadadiscussiononthekeyelementsofdistributorintegration:
Itisastrategythatleveragesthenaturalstrengthsofmanufacturersandtheirdistributors:distributorsknowtheirendusersbetter;manufacturersprovidecriticalexpertiseandparts.
Highlevelsofinventoryinthedistributionnetworkcanbereducedbyholdinginventoryathigherlevelsofthedistributionnetwork.
Agreementscanbeputinplacetoencouragesharingofinventoryinformation,parts,andexpertiseamongdistributors.
Distributorintegrationisaformofriskpoolingasappliedtoinventorymanagement.
Note:RefertoSimchi‐Levyetal.,DesigningandManagingtheSupplyChain,chap.8,p.260–262
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Supplier Partnerships
Authorsandpractitionerssometimesusethetermssupplierpartnershipsandstrategicalliancesinterchangeably.
Still,thiscoursetakesthepositionthatthereisonenotabledifferencebetweenthetwotypesofcollaboration:
Comparedtoasupplierpartnership,astrategicalliancelikelyhasaclear,commonstrategicgoalandanagreed‐uponbusinessplan.ThestrategicallianceinvolvingIBM,Microsoft,andIntel,forexample,hadaclearbusinessgoal:toachieveearlymarketshareleadershipinthePCmarketbyleveragingthecompetenciesofthreeleadingbrands.
Insupplierpartnerships,organizationsaremorelikelytohavecoordinatedratherthancommonbusinessplansthroughwhichtheystrivetogainmutualcompetitiveadvantageintermsofquality,speed,dependability,flexibility,andcost.
Value Proposition Areas
Ratherthanfocusingonthedifferencesbetweenstrategicalliancesandsupplierpartnerships,however,weshouldfocusonhowpartnershipscreatemorevalueforbothpartiesintherelationship,asopposedtoanarm’s‐lengtharrangement.
Product development
Often,manufacturersdonothavethecompetencetodesignandmakepartsthatarecriticaltotheirproducts.Companiescansolvethisproblembycollaboratingwithothermanufacturersonproductandprocessdesign,andbyusingconcurrentengineeringtospeedtime‐to‐marketofnewandredesignedproducts.
Operational integration and efficiencies
Supplychainmanagementdealswiththeinterconnectionbetweenmaterialtransformationprocessesinenterprisesthatselltoandbuyfromeachother.Supplierpartnershipsareameanstoimprovetheflowandthroughputofmaterialsinthesupplychainbyusing,forexample,leanmethodstoshortenleadtimesandreduceworkinprocess.Usingsuchmethodsalsoensuresthat,acrossthesupplychain,therateofproductioniscoordinatedandconsistentwithcustomerdemand.
Quality management
Supplierpartnershiparrangementscanincludestringentqualitystandardsandpracticestoensurethattheproductreflectsthevoiceofthecustomer,thatqualityisdesignedintoit,andthatinspectionwillnotbeneededbythecustomer.
Investment risk
Supplierpartnershipscanaffectinvestmentdecisions.FordMotorCompanyfoundthat,informingpartnershipswithkeysuppliers,theycouldassurethosesuppliersthatinvestinginequipmentneededtomeetFord’ssubassemblyrequirementswasamanageablerisk.
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Supplier Partnerships (cont.)
8 • 23 © APICS Confidential and Proprietary
Supplier Partnerships
Objectives are similar to strategic alliances.
Partnership creates more value for both parties.
Value proposition areas include the following:− product development− operational integration and efficiencies− quality management− management of investment risk− flexibility− access to markets
Visual 8-23
ContinuetodisplayVisual8‐23.
Continuediscussingthetypesofvalueaddedbysupplierpartnerships.
Askwhatothervaluepropositionareastheremightbe.
Answer:
Otherexamplesmightinclude
collaboratingonpackagingtoreducecostsrelatedtooperationalintegrationandefficiencies
strengtheningtechnologicalcapabilitiesofonepartnerbylearningfromanotherpartnerthatalreadyhasthesecapabilities—resultinginafasterlearningcycle
poolingresourcesandexpertisetoovercomehighmarketentrybarriers buildingfinancialstrengthforbothpartieswithhigherrevenuesresultingfromthe
partnership;reducingoperationsandadministrativecostsbecauseofcost‐sharingortheexpertiseofoneoftheparties.
Note:RefertoSimchi‐Levyetal.,DesigningandManagingtheSupplyChain,chap.8,p.247–249.
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Operational Communication
Enteringintoaleanrelationshiprequiresanincreasedlevelofdetailinupfrontplanningandintheexecutionofcontracts.Changesinthemethodsandtimingofcommunicationmayberequired.Communicationchannelsneedtoextendbeyondtheconventionalpurchasingandsalesrelationshiptoincludeengineering,qualitycontrol,manufacturing,andlogistics.
Technology
Manualmethodsofcommunicationsuchaspurchaseorders,productspecifications,schedules,qualityspecifications,anddeliveryinformationaretooslowtosupportafast,responsiveexchangeofinformation.Movingtowardanintegratedrelationshiprequirestheestablishmentofquickcommunicationsystems,suchaselectronicdatainterchange,basedonrecognizedstandardsestablishedbytheAmericanNationalStandardsInstitute(ANSI).Othersystemsincludethebarcodingofshippinglabelsandtheuseofradiofrequencyidentification(RFID)tagstoexpeditethetrackingofmaterialinthewarehouseandintransit.
Planner/Buyer Approach
Apracticethathasgrowninpopularityistheuseofplanner/buyerswhoareindirectcontactwiththeMRPsystemandsuppliers.Theyareresponsibleforthefollowing:
materialplanningforitemsundertheircontrol,suchasmatchingmaterialrequirementswithsuppliers’manufacturingcapabilitiesandconstraints
communicatingschedulestosuppliers followinguponandresolvingsupplierproblems,andnotifyingthemasterschedulerof
delaysthatwillaffecttheschedule
Whensharedwithsuppliers,anMRPschedulecanserveasareleasedocumentandasaforecast,dependingontheplanninghorizon.
Technical and Quality Specs
Aleanenvironmentassumesthatqualityrequirementswillbemetbecausethereislittleornosafetystocktomakeupfordefectivematerial.Apreventiveplanwillidentifytherootcausesofproblemswhentheyoccurandmakeitpossibletocorrectthem.
Thesuccessofleanrequiresthatqualityspecificationsbeclearlycommunicatedtothesupplier.Thesuppliershouldhaveasysteminplacetorespondquicklywhenthecustomerreportsthereceiptofadefectiveproduct.
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Operational Communication (cont.)
8 • 36 © APICS Confidential and Proprietary
Operational Communication
Technology
Planner/buyer approach
Technical and quality specs
Scheduling
Delivery
Engineering drawings and changes
Packaging
Transportation
Visual 8-36
ContinuetodisplayVisual8‐36.
Scheduling and Delivery
Explainthatthecustomer,orplanner/buyer,andsupplierneedtofrequentlydiscussthescheduleandidentifypointsthatcouldaffectcost.
Discussthat,inaleanenvironment,deliveryfrequencyisdesignedtoprovideacontinuousflowprocesswhileminimizingtheneedforbufferstock.
Engineering Drawings/Changes
Discusstheimportanceofrapidlycommunicatingengineeringchangeorderstosuppliersandthebenefitofseekingtheirinputonprocessdesignchangesormaterialsthatmightberequired.
Packaging
Explainhowthecustomerandsupplierneedtoworktogethertoagreeonpackaging.
Transportation
Explainthatthecustomerandsuppliermustagreeonatransportationsystemthatcanreacttothecustomer’sneeds.
Discusstheimportanceofselectingtransportationsuppliersascarefullyasyouwouldproductsuppliers.
Askwhereintherelationshipcontinuummosttransportationsuppliersarelocatedandiftheyshouldbemovedtoadifferentlocationinthecontinuum.
Answer:
Assumingmanytransportationsuppliersarelocatedtowardtheleft,ornon‐collaborative,side,appropriateconsiderationshouldbegiventomovingthemtotheright,towardthird‐partylogisticsoutsourcing.
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Learning Objectives
ProductandProcessDevelopment Explainthesignificanceoftime‐to‐market. Differentiatebetweenconventionalandconcurrentengineeringapproaches. Describeatleastthreeadvantagesofsupplierinvolvement.
Purchasing Explaintherelationshipbetweenthelevelofsupplierintegrationandchoiceof
purchasingapproach. Describeatleastthreeexamplesofhowsuppliersandcustomersusecontractsto
managerisk. Describethebenefitsandrisksofglobalsourcing.
SupplyChainAcceleration Explainthesignificanceoftotalcostofownership(TCO)inpurchasingdecisions. Describeatleasteightgoalsandbenefitsofsupplierpartnerships. Listfivekeyareasoftrainingtosupportsupplierpartnershipgoals. Describethevalueofengineering’sroleinsupplierpartnerships. Listthreemainfunctionsofsupplierrelationshipmanagementsystems. Explainhowsupplierpartnershipsareabletobenefitfromdeliverytechniquesthat
acceleratethesupplychain. Describethepurposeofsupplierratings.
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Product and Process Development
References:Arnoldetal.,IntroductiontoMaterialsManagement,7thed.,chap.14;Simchi‐Levyetal.,DesigningandManagingtheSupplyChain,3rded.,chap.1.and11;EpsteinandBuhovac,2nded.,MakingSustainabilityWork:BestPracticesinManagingandMeasuringCorporateSocial,Environmental,andEconomicImpacts,chap.8;Bichenoetal.,TheLeanToolbox,4thed.,chap.15.
9 • 6 © APICS Confidential and Proprietary
Product and Process Development
Translate customer needs into product design specifications.
Design the process for making the new product.
Time to market is of critical importance.
Conventional approach: serial involvement of various functions.
Concurrent engineering: simultaneous involvement of functions in a team approach.
Visual 9-6
Askparticipantsforexamplesofindustriesinwhichnewproductdevelopmentisofstrategicimportance.
Answer:
Examplesincludepharmaceuticals,thefashionindustry,consumerelectronics,andmotorvehicles.
Explainthatproductdevelopmenttranslatesthecustomer’sneedsintodesignspecifications.Thesespecificationsareusedbyprocessengineeringtodevelopaprocessthatcreatestheproductthecustomerwants.
Askwhatfunctionalareasofthefirmareinvolvedindesigningnewproductsandprocesses.
Answer:
Severalfunctionsareinvolvedinconceptualdevelopment,productdesign,andprocessdesign.Theseincludeoperations,researchanddevelopment,marketingandsales,productengineering,processengineering,andprocurement.
Askwhydevelopinganearlyadvantageinthemarketforaproductisofcriticalimportance.
Answer:
Duringtheproductintroductionandearlygrowthstagesoftheproductlifecycle,profitmarginsarehigh.Thesestagescomprisethecompetitiveadvantageperiod.Also,companiesthatbringproductstomarketbeforetheircompetitorsoftensustainmarketleadership.
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Conventional Versus Concurrent Engineering
Theconventionalapproachtoproductandprocessdevelopmenthasbeenaserialapproach.
Differentdepartmentsreviewandmakeinputstothedesignprocessoncemanagementhasapprovedtheproductproposalandthenpassiton.
Conflictsbetweenmarketingpersonnelwhobelievethatmorelegroomandcomfortareimportantfeatures,productengineerswhobelievethattechnicalperformanceismoreimportantthancomfort,andfinancepersonnelwhowanttokeepproductioncostsdownmaynotberesolveduntillateinthedesignprocess.
Concurrentengineeringisawidelyusedpracticetoday.Ithasseveralkeycharacteristics:
Theinputsofdifferentfunctionsareconsideredsimultaneously. Simultaneousinputismadepossiblebyacross‐functionalteamapproachinwhich
participantsincludingcustomersandsuppliersworkacrossdepartmentallinestodevelopaproductwithfeaturesthecustomerwants.
Supplier Involvement
Therearetwoimportantadvantagestoinvolvingsuppliersintheconcurrentengineeringprocessearlyon:fastertime‐to‐marketandtheabilitytotapthesupplier’sexpertiseinproductandprocessdesign.
Involvingsuppliersearlyinthedevelopmentprocessenablesbothpartiestosharetechnologyanddesigninformation.
Animportantbenefitofinvolvingsuppliersearlyisthatdoingsosimplifiesproductdesignsandincreasesstandardization.
Simplified,morestandardizedproductdesignsresultinproductsthatareeasiertomanufactureandassemble.
Reducingdesigncomplexityintheinitialproductdevelopmentstageresultsinfewerengineeringdesignchangesandqualityproblems.
Leveragingasupplier’stechnicalcapabilitycansavetimeandresources. Earlyinvolvementbythecurrentsuppliersreducestime‐to‐marketsubstantially.
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Instructor Guide Version 5.4 9-12 © 2016 APICS
Purchasing
References:Arnoldetal.,IntroductiontoMaterialsManagement,7thed.,chap.7and14;George,LeanSixSigma(2002),chap.13;Simchi‐Levyetal.,DesigningandManagingtheSupplyChain,3rded.,chap.4,9,and10;Monczkaetal.,PurchasingandSupplyChainManagement,4thed.,chap.14and16;EpsteinandBuhovac,2nded.,MakingSustainabilityWork:BestPracticesinManagingandMeasuringCorporateSocial,Environmental,andEconomicImpacts(2008),chap.4.;Bichenoetal.,TheLeanToolbox,4thed.,2009,chap.16.
Purchasing Approaches
9 • 11 © APICS Confidential and Proprietary
Purchasing Approaches
Purchase orders
Blanket orders
Lean
Consignment inventory
Vendor-managed inventory (VMI)
Visual 9-11
Discusstheexamplesofapproachesusedtoordermaterial,parts,andservicesfromsuppliersgivenonVisual9‐11.Theapproachesrangefromthoseusedwhenthereislittleornooperationalintegrationbetweensellerandbuyertothoseusedwhenoperationalintegrationishigh—asinlean,consignment,andvendor‐managedinventory.Theseapproachesinclude
purchaseorders:formalauthorizationforapurchasetransaction;lowoperationalintegration
blanketorderreleases:routineorderingonaregularbasisofproductionitemsandmaintenancesuppliesagainstablanketordercontract
leanpurchasingsystem:involvescommittedsupplychainpartners;buyerssendstableproductionschedulestosuppliersonaregularbasis;releaseofmaterialtothebuyerisbasedonkanbansignals
consignmentandvendor‐managedinventory:detailsinSession8.
Session 9: Supplier Partnerships Participant Workbook Page
© 2016 APICS 9-15 Participant Workbook Version 5.4
Types of Contracts
Suppliersandtheirbuyersoftendevelopagreementsorspecialcontractstoachievetacticalandstrategicobjectives.Selectedexamplesofsuchagreementsorcontractsarepresentedbelow.Manyofthemreflecttheneedtomanageandhedgeriskinrelationshipswithsupplychainpartners.
Buy‐backcontracts Thesellergivesthebuyertheincentivetoordermoreunitsbyagreeingtobuybackunsoldgoodsatanegotiatedpricethatishigherthansalvagevaluebutlowerthanfullpurchaseprice.Bothpartieshedgetheirrisk.
Revenue‐sharingcontracts
Buyersharessomeoftherevenuefromitssaleswithitssupplierasaconditionforadiscountedwholesalepricefromthesupplier.
Pay‐backcontracts Thebuyer,suchasadistributor,consentstoanagreed‐uponpriceforitemsitdoesnotpurchasefromthemanufacturer.Themanufacturer’sriskiscushionedatapricethedistributoriswillingtopaytoavoidstockouts.
Cost‐sharingcontracts Thedistributoriswillingtosharesomeproductioncostswithamanufacturerinreturnforadiscountonthewholesaleprice.Productioncostsarehigh,andthebuyeriswillingtogivethemanufacturersomeincentivetoproducemoreunitsinordertobufferagainstastockout.
Pricingagreements Thebuyerisallowedtobuyitemsfromapricelistorcatalogatanegotiateddiscountduringacontractperiod.
Capacityreservationcontracts
Themanufacturerrevealsitsforecastofbusinessactivitybypayingtoreserveagivenlevelofcapacityatitssupplier.
Whywouldadistributorbewillingtosharesomeoftheproductioncostswithamanufacturerinreturnforadiscountonthewholesaleprice?
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Detailed Scheduling and Planning
Instructor Guide Version 5.4 9-16 © 2016 APICS
Global Sourcing
9 • 13 © APICS Confidential and Proprietary
Global Sourcing
Cost and non-cost advantages
Supply chain management challenges
Importance of strategic sourcing
Visual 9-13
Discusstheadvantages,challenges,andinherentrisksofglobalsourcing,notingthatthelocationofabusinessmaymakeitpronetosocialandpoliticalrisksthataffectprocurement.
Askwhatsomeofthebenefitsandadvantagesofglobalsourcingmightbe.
Answer:
Accesstoinexpensivelabor,accesstoexpertiseortechnologynotavailablelocally,entryintothelocalmarketabroad.
Askwhatsomeofthesupplychainmanagementchallengesofglobalsourcingmightbe.
Answer:
Morecomplexpurchasingprocess:extratime,costsanddocumentation,currencyfluctuations;logisticsandquality:longerleadtimesandtransportationcosts
Askforexamplesofglobalsourcingrisks.
Answer:
Financial,politicalinstabilityorcorruption,terrorism,transportation,non‐governmentalorganizations(NGOs),orenvironmentalpollutionrisks
Askforwaysthatglobalsourcingrisksmightbemitigated.
Answer:
Implementariskmanagementplantoidentifyrisks,evaluatepotentialeffects,measureimpacts,andidentifyandimplementsolutions.Communicateresultsandmonitorrisksastheyevolve.Specificriskmitigationsmayincludeinsurance,redundancyofsuppliers,employeetraining,andproductdiversification,andshouldbeconsideredagainsttheirtradeoffinprice.
Askwhystrategicsourcingisappropriateforglobalsourcing.
Answer:
Strategicsourcingsystematicallyaddressestherisksassociatedwithglobalsourcingandhelpstodeterminetheappropriateprocurementstrategyfordifferentmaterials,products,andservices.
Session 9: Supplier Partnerships Participant Workbook Page
© 2016 APICS 9-17 Participant Workbook Version 5.4
Global Sourcing
Intheglobaleconomy,morebusinessesaresourcingandsellingmaterials,products,andservicesoutsidetheirhomecountries.Formanufacturersinsomecountries,therearebenefitsandchallengestoglobalsourcing.
Whataresomeofthebenefitsandadvantagesofglobalsourcing?
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Whataresomeofthesupplychainmanagementchallengesofglobalsourcing?
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Whataresomeexamplesofglobalsourcingrisks?
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Howmightglobalsourcingrisksbemitigated?
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Whyisstrategicsourcingappropriateforglobalsourcing?
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Detailed Scheduling and Planning
Instructor Guide Version 5.4 9-18 © 2016 APICS
Supply Chain Acceleration
References:Arnoldetal.,IntroductiontoMaterialsManagement,7thed.,chap.15;George,LeanSixSigma(2002),chap.13and14;Simchi‐Levyetal.,DesigningandManagingtheSupplyChain,3rded.,chap.8and14;Monczkaetal.,PurchasingandSupplyChainManagement,4thed.,chap.11;EpsteinandBuhovac,2nded.,MakingSustainabilityWork:BestPracticesinManagingandMeasuringCorporateSocial,Environmental,andEconomicImpacts(2008),chap.3and8;Bichenoetal.,TheLeanToolbox,4thed.,chap.16;Kerzner,ProjectManagement:ASystemsApproachtoPlanning,Scheduling,andControlling,11thed.,chap.8.;TheG4SustainabilityReportingGuidelineshttps://www.globalreporting.org/resourcelibrary/GRIG4‐Part1‐Reporting‐Principles‐and‐Standard‐Disclosures.pdf
9 • 15 © APICS Confidential and Proprietary
Supply Chain Acceleration
Total cost of ownership
Partnership goals and benefits
Training
The role of engineering
Supplier relationship management
Delivery approaches
Supplier rating systems
Visual 9-15
Brieflyreviewthefactorsthat,fromapurchasingexecutionandsupplierrelationshipstandpoint,contributetosupplychainspeedandflexibility.
Total Cost of Ownership
9 • 16 © APICS Confidential and Proprietary
Total Cost of Ownership
Acquisition costs
Usage costs
End-of-life costs
total cost of ownership (TCO)—In supply chain management, the sum of all the costs associated with every activity of the supply stream. The main insight that TCO offers is the understanding that the acquisition cost often is a very small portion of the total cost of ownership.
─APICS Dictionary
Visual 9-16
Explainthatinanalyzingacontractorasingletransaction,buyersneedtoconsidermorethantheobviouscosts,suchaspurchasepriceandtransportationcost.Stresstherelevanceofsupplierpartnershipsinminimizingtotalcostofownershipforbothparties.
Conductashortdiscussionofhowparticipants’companiesincludetotalcostofownershipconsiderationsintheirpurchasingdecisionsandwhethertheyusethecostfactorsshowninthevisual.
Appendix
© 2016 APICS A-2a Instructor Guide Version 5.4
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Detailed Scheduling and Planning
Instructor Guide Version 5.4 A-2b © 2016 APICS
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