Basics of Supply Chain Managment (Lesson 5)

UUnit nit 11 BBasics asics ooff SSupply upply CChain hain M anagement Management Lesson 5 Capacity Management and PAC

Unit 1

Basics of Supply Chain Management

Preface............................................................................................................3 Course Description................................................................................................................. 3

Lesson 5 – Capacity Management and PAC.....................................................4 Introduction and Objectives.................................................................................................. 4 Capacity Management and Planning Processes .................................................................. 4 Determine Available Capacity .............................................................................................. 7 Identify Capacity Requirements and Load Profiles............................................................ 9 Resolving Differences........................................................................................................... 11 PAC........................................................................................................................................ 12 Scheduling ............................................................................................................................. 13 Bottlenecks ............................................................................................................................ 14 Shop Order Packets ............................................................................................................. 14 Control of Inputs and Outputs............................................................................................ 15 CRP and MRP...................................................................................................................... 17 Summary ............................................................................................................................... 18 Further Reading ................................................................................................................... 18 Review ................................................................................................................................... 19 What’s Next? ........................................................................................................................ 20

Appendix.......................................................................................................21 Answers to Review Questions .............................................................................................. 22

Glossary ........................................................................................................24

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Basics of Supply Chain Management Preface Course Description This document contains the fifth lesson in the Basics of Supply Chain Management unit, which is one of five units designed to prepare students to take the APICS CPIM examination. The Basics of Supply Chain Management unit provides the foundation upon which the other four units build. It is necessary to complete this unit, or gain equivalent knowledge, before progressing to the other units. The five units, which together cover the CPIM syllabus, are: Basics of Supply Chain Management Master Planning of Resources Detailed Scheduling and Planning Execution and Control of Operations Strategic Management of Resources Please refer to the preface of Lesson 1 for further details about the support available to you during this course of study. This publication has been prepared by E-SCP under the guidance of Yvonne Delaney MBA, CFPIM, CPIM. It has not been reviewed nor endorsed by APICS nor the APICS Curricula and Certification Council for use as study material for the APICS CPIM certification examination.

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Basics of Supply Chain Management Lesson 5 – Capacity Management and PAC Introduction and Objectives This lesson introduces the concept of capacity management, its objectives and methods. The lesson also looks at the purpose and functionality of production activity control (PAC). On completion of this lesson you will be able to: Identify objectives of capacity management Explain the relationship between capacity management and priority planning Determine rated or calculated capacity Calculate the capacity required for a shop order Identify the objectives and activities of PAC Describe the process of order preparation and the data requirements for a PAC system Identify the basic techniques of scheduling State the purpose and content of a shop order Detail the steps involved in implementing and controlling work orders Create an input/output report

Capacity Management and Planning Processes Capacity management is the planning and control of resources required to meet production objectives. The company must calculate how much output is needed from its manufacturing facilities and suppliers to meet those targets. It involves the following activities: The resources needed to meet the production plan must be identified. Plans to ensure that the required level of capacity is available must be developed. When those plans are implemented it is necessary to monitor output and compare against plan in case corrective actions are required. For example, if yield is consistently below expected levels further capacity mus t be made available to ensure production levels are met and the reasons for the low yield must be investigated. Capacity planning occurs at each level in the priority planning system. As with production planning, the level of detail required at each stage in capacity planning becomes progressively higher. The highest level of capacity planning is resource requirements planning (RRP) which is at the same level of detail as the sales and operations plan or production plan. The next level is roughcut capacity planning (RCCP) which is roughly equivalent in time frame and level of detail to the master production schedule (MPS). Capacity requirements planning (CRP) is the next step in the process and equates to the MRP in the level of detail required. The following diagram illustrates the hierarchy of priority planning and capacity planning.


4

Priority Planning

Capacity Planning

Sales and Operations Plan

Resource Requirements Plan (RRP)

Master Production Schedule

Rough-Cut Capacity Plan (RCCP)

Medium Range

Material Requirements Planning (MRP)

Capacity Requirements Plan (CRP)

Short Range

Purchasing and PAC

Input/Output Control

Long Range

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Operation Sequencing

Definition of Capacity Capacity is the capability of a system to perform its expected function. It is the capability of a worker, machine, work center, plant or organization to produce output per time period. Capacity is usually measured in standard hours as this is an easily recognized metric and can be applied to most areas of production. In a steady and uniform production environment, other parameters may be used to measure capacity. For example, in a paper mill, it may be useful to measure capacity in terms of the number of square feet of paper produced per minute. This could also be termed the throughput of the production operation. Definition of Resources A resource is defined in the APICS dictionary as ‘anything that adds value to a product or service in its creation, production, or delivery. The four main types of resource are labor, equipment, tools, and facilities. Labor: in most production environments the availability of manpower has a large impact on capacity. In some work stations, the equipment required may be minimal and manpower determines capacity rather than machinery. Equipment: In production planning, equipment requirements are compared to available equipment. At the CRP level, lead-time offsets between operations and work records are examined to help fine-tune work center loads. For example, a clothing manufacturer may have to adjust its schedules to allow for a number of slow running sewing machines. Tools : The availability of tools and fixtures can affect capacity as much as larger equipment. It is important to consider the maintenance requirements and expected life of tools required in production, and identify the need for tools in the BOM or routing file. Facilities: These are the buildings in the plant, for example, workshops. These must be examined during top level planning. Where new facilities are required, © Copyright Leading Edge Training Institute

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the lead time is generally very long as it includes planning, building, kitting out, and approving the new facility. Definition of Routing A routing file holds information on the method of manufacture for an item, the operations to be performed, the sequence of those operations, the work centers to be used, setup and run specifications. Basically, it describes the route of work through a manufacturing facility to completion. A routing often contains information on tooling, required operator skills, quality and testing. Long Range Capacity Management At the Sales and Operations planning level, input is provided by marketing and finance executives, following the guidelines of the strategic plan. The time periods involved in this activity are usually months or quarters. Generally, the sales and operations plan has three parts: the first set out in monthly buckets, the next in quarters, and a final long term planning section that enables the company’s resources to be checked. This level of planning determines the volume of output required and subsequently resource requirements. Decisions may be made at this stage about how to provide for capacity requirements where there is insufficient capacity: i.e. either invest in increased capacity or reduce the plan. The second level of long range planning is the master production schedule (MPS) and rough cut capacity plan (RCCP). The master scheduler breaks down the information from the S&OP into the appropriate level of detail, using a sales forecast to help calculate the balance of product required in each product family. The MPS time buckets are generally weekly or daily. Rough-cut capacity planning is used to balance the load required by the MPS. Medium Range Capacity Management Using MPS requirements, MRP calculates when parts should be made or purchased in order to fulfil projected demand on time, by means of a logical method called netting, which uses the lead time for each part required in a product along with the demand information for the product, to calculate start dates for production or for placing a purchase order. Individual work orders are generated at this point. At this stage, capacity requirements planning (CRP) can be used along with work order information to determine the load profile for each work center. Often, certain workstations will be overloaded and the planner must ensure on the best way to alleviate overloads and ensure MPS requirements are met. Short Range Capacity Management Short range capacity management involves controlling the volume of work in each job shop and deciding on a sequence of work which optimizes production with priorities. Release of work orders to the production floor in managed by Input/Output Control, which measures actual input and output against expected levels. The planner must adjust the load for © Copyright Leading Edge Training Institute

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Basics of Supply Chain Management each period accordingly. The sequence of work is determined by a dispatch list in job shops or by the run schedule in repetitive manufacturing environments. 1. Available Capacity is: A. The load on a work center required to produce a particular level of output B. The amount of released work to a facility during a specified period Review Q

C. The resources needed to produce a level of output within a given time D. The ability of a resource to produce a quantity of output within a given time

4-Step Capacity Planning Process There are four main steps to the capacity planning process. These include determining available capacity and capacity requirements, translating requirements into the throughput required for each work center and resolving any issues where available capacity is not sufficient to meet required capacity. The steps are: 1. Determine capacity available 2. Translate released and planned orders into capacity required 3. Total the capacity required for each work center 4. Resolve differences between available and required capacity.

Determine Available Capacity Available capacity can be defined as the capacity of a resource, such as a work center or production line, or individual piece of equipment, or team, to produce a quantity of product or output in a particular time period. To calculate available capacity, three things must be known to the planner: Available time Utilization Efficiency Time Available The time available, which depends on the number of machines, the number of workers, and the hours of operation, is calculated by multiplying the number of machines (or workers) by the hours of operation. Available time

=

(number of machines / workers) x (hours of operation)

For example, the planner in a chocolate factory is calculating the capacity requirements for a range of exclusive hand made chocolates. There are five people available for production and they work 35 hours per week. Capacity for the week is 5 x 35, or 175 hours. Utilization The rate of utilization, that is, the percentage of time that the work center is active is calculated by dividing actual hours worked by scheduled hours. This measures the amount of time that the © Copyright Leading Edge Training Institute

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work center is active, which can be discovered from historical data or from a work sampling study. Utilization

=

(Actual hours worked) ----------------------------(Scheduled work hours)

x

100%

For example, the chocolate making work center may be available for 7 hours each day, but setup time and finishing off at the end of each shift may take an hour or more. Therefore the actual hours worked is only 6 hours each day and the rate of utilization over the week is therefore 85%. Efficiency The efficiency of the work center, which is the actual work center output expressed as a percentage of expected output is calculated as a percentage also: Efficiency

=

(standard hours of work) ----------------------------(actual hours of work)

x

100%

The output of the handmade chocolates work center is expected to be around 350 sets of a dozen chocolates per 35 hours. At the end of a week of production, the work center has produced 385 boxes of a dozen chocolates. That is equivalent to 38.5 standard hours of work. Therefore the efficiency of the work center is 110 %. 2. The available time for a work center is 160, of which 140 hours are actually worked. The work center produces 180 standard hours of work in a week. What are the utilization and efficiency parameters of the work center? A. Utilization = 87.5%, Efficiency = 129% Review Q

B. Utilization = 129%, Efficiency = 77.8% C. Utilization = 77.8%, Efficiency = 129% D. Utilization = 129.5%, Efficiency = 87.5%

Rated Capacity When the available time, utilization, and efficiency parameters have been calculated, an accurate capacity figure can be calculated. Rated, or calculated, capacity is a measure of the expected output from a work center. It is calculated by multiplying the available time by the utilization and efficiency percentages for the work center: Rated Capacity

=

(available time ) x (utilization) x (efficiency)

The rated capacity for the chocolate factory is therefore the available hours (175) multiplied by the utilization figure (85%) then by the efficiency figure (110%). The rated capacity for the chocolate making work center for the week is 163.63 hours.


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Basics of Supply Chain Management 3. If the utilization of a work center is 80% and its efficiency is 110%, what is the rated capacity for that work center over a five day week of 8 hours per day? A. 7.04 Review Q

B. 32 C. 35.2 D. 44

Demonstrated Capacity Demonstrated capacity is proven capacity. This is calculated by averaging the performance data of a work station. Utilization and efficiency are not used in this calculation but demonstrated capacity is still affected by them. The handmade chocolates work center has produced 350, 385, 390, and 387 standard hours of work in the past four weeks. Its demonstrated capacity over those 4 weeks is 378.

Identify Capacity Requirements and Load Profiles Identifying capacity requirements involves translating the planned production (in units) into the time required at each work center in each period. Although this occurs at each level in the planning process, this lesson is concerned only with capacity requirements planning (CRP) at the MRP level. The first step is to identify the required starting and completion dates for each order in each work center, using data from open order files, MRP, routing files, and work center files. Information Required

Information Source

Open shop orders

Open order files

Planned order releases

MRP

Location of work to be carried out

Routing file

Standard hours

Routing file

Lead times

Routing file or work center file

Work Center Capacity

Work Center File

Lead Time Manufacturing lead time comprises several components. These are explained below: Queue time

Waiting for an operation to begin

Setup time

Getting ready for the operation

Run time

Performing the operation

Waiting time

Waiting time after the operation ends

Moving time

Time taken to physically move product between operations


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Basics of Supply Chain Management Lead Time Components

100% Move

80%

Wait 60%

Run

40%

Setup

20%

Queue

0% Operation 1

Operation 2

As can be seen from the chart above, it is, perhaps surprisingly, queuing which takes up most time. This is true for many reasons, mainly due to the problems associated with organizing and coordinating the flow of materials. Scheduling Orders Lead time has a strong effect on the process of scheduling orders as it affects the start times of each order. Scheduling orders involves calculating the operation time for each work center, making allowances for queue, wait, and move times, then taking into account the length of each shift. Operation time

=

(setup time ) + (runtime)

To convert scheduled hours into a number of days worked, the total hours required is rounded up to the nearest eight hours and then expressed as number of days assuming one shift per day. input Load Profile Once the necessary start and end dates have been determined, the start and finish dates for all work orders on each work center must be established. When this has been done, a load profile is calculated for each work center. A load profile shows the capacity requirements based on planned and released orders for each time period in the MRP. A typical load profile is displayed below:

load

output

Week

10

11

12

Total

Released load

210

200

160

570

120

120

Planned load Total load

210

200

280

690

Rated capacity

220

220

220

660

Over/under capacity

10

20

(60)

(30)

Work Center: 21

Rated Capacity: 220 standard hours per week

Figure 1 Example Load Profile


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Basics of Supply Chain Management 4. Which of the following will affect available capacity? § Quantity of customer order § Pace of wo rk § Product specification

Review Q

§ Product mix A. All except pace of work B. All except product specification C. All except the quantity of customer order D. Product specification and pace of work

Resolving Differences The final step in capacity planning is to resolve any differences between available and required capacity. In the example load profile given above, by week 12 the work center is unable to meet demands and so an alteration must be made to ensure that production requirements are fulfilled. Available Capacity < Required Capacity 160 155 150 Required Capacity

145

Linear (Available Capacity)

140 135 130 125 Week 1

Week 2

Week 3

If available capacity is less than required capacity, production requirements cannot be met unless some changes are introduced. The changes must either affect capacity or work load, although altering the load may complicate the scheduling of other work centers. The following table lists examples of changes that may be made. Capacity Changes

Changes to Load

Overtime or Undertime

Change lot sizes

New Hires or Layoffs

Reschedule production

Shift-work Modified production routings Subcontracting production © Copyright Leading Edge Training Institute

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Basics of Supply Chain Management Available Capacity > Required Capacity 180 160 140 120

Required Capacity

100 80

Linear (Available Capacity)

60 40 20 0 Week 1

Week 2

Week 3

If available capacity is greater than required capacity, resources may be under-used.

PAC Production Activity Control (PAC) is responsible for executing the MPS and the MRP and ensuring optimal use of resources, minimal work in progress and optimum customer service levels. Priority Planning Sales and Operations Plan

Master Production Schedule

Planning


Purchasing

PAC Implementation Input/Output Control

PAC and purchasing represent the implementation phase of the priority planning system. Functions The three main functions of PAC involve planning, execution and control. Plan Ensure resources are available Schedule start dates and completion dates

Execute

Control

Collect relevant shop order information

Develop and maintain order priority

Release shop orders

Monitor WIP, lead times and queues

Measure actual performance

Report work center performance © Copyright Leading Edge Training Institute

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Basics of Supply Chain Management Plan and Schedule

Work Authorization

Control and Monitor

The results of monitoring and reporting on WIP, lead times, queues and work center performance will be fed back into the PAC system to ensure continuous improvement of the accuracy of the PAC system. PAC is therefore a loop system.

Manufacturing

PAC Data To work effectively, the PAC system must be provided with information on what to produce, when to produce it, and in what quantity. It must also have access to information on the operations required, their duration, and the capacity of each work center. The table below shows where this information may be found. Information Required

Source of Information

What and how much to produce

MRP, open orders

When parts are needed

MRP

What operations are needed

Routings

How much time each operation will take

Routings

How much capacity is available at each work center

Work Centers

Scheduling Scheduling is the act of creating a schedule, for example, an MPS, a shop schedule, a maintenance schedule or a supplier schedule. Basic rules may be applied to aid in the process. In this case, a schedule for each operation on the production floor is required. Objectives The aim of the schedule is to ensure that the required delivery dates are met and that the manufacturing resources are used effectively and efficiently. This involves establishing start and finish times for each operation needed to complete an order in good time for the order finish date but not so far ahead that inventory costs escalate. There are several techniques for scheduling. Techniques The basic techniques of scheduling and loading include forward scheduling, backward scheduling, infinite loading and finite loading 1. Forward Scheduling Using this technique activities start as soon as the order is received without reference to the due date of the order. Forward scheduling allows the work load to be levelled more easily across the period by using excess capacity in advance to build up finished goods for an expected order.


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Basics of Supply Chain Management 2. Backward Scheduling When using backward scheduling, the start and finish times are calculated backward from the due date of the order to ensure finished goods arrive at exactly the time required. The advantages of this approach are that resources are not committed to the production of a particular order until necessary. Also, the finished product is not sitting ready before it is required, which cuts down inventory costs. 3. Infinite Loading Infinite loading assumes that there is an unlimited capacity for throughput at all work centers. This is appropriate where it is very complicated to calculate the capacity of a work station. It is also useful where it is difficult to quantify the actual load on a work station. Most MRP systems infinitely load work centers. 4. Finite Loading Finite loading assumes that each work center has a definite capacity limit and therefore schedules cannot exceed that limit. 5. From which activity are purchase requisitions usually output? A. PAC B. MRP Review Q

C. Capacity planning D. MPS

Bottlenecks A bottleneck is created when there is a facility, function or resource which cannot keep pace with the demand placed upon it. This occurs in intermittent manufacturing as it is practically impossible to balance the available capacities of workstations with demand. Usually one or two workstations become overloaded. When a bottleneck occurs the following conditions are true: The throughput of all products using the bottleneck operation will be controlled by the speed of the bottleneck Any work centers feeding the bottleneck must be scheduled to provide work at a rate that can be handled by the bottleneck operation to avoid build ups of work in progress. A time buffer inventory should be established in front of the bottleneck The throughput of all work centers subsequent to the bottleneck operation will be controlled by the bottleneck.

Shop Order Packets A production order can be released when all the resources needed to process it are available. When an order is released to the shop or production floor, it must contain all the information necessary for successful and efficient production. The information will be contained in a ‘shop order packet’ and will include some or all of the following: Order number © Copyright Leading Edge Training Institute

Bills of Material 14

Part Number

Route Sheets

Name and Description of part

Material Issue Tickets

Quantity required

Tool requisitions

Engineering Drawings

Job and Move tickets

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In practice, shop order packets vary extensively from one industry to another and from one company to another. In all cases, the shop order packet is designed to ensure efficient production of the correct orders to meet the required delivery date. Where vital elements of the shop order packet are missing, mistakes can occur leading to longer work in progress times, production of the wrong product or delays in delivery.

Control of Inputs and Outputs When a work order has been issued, its progress through the manufacturing plant must be carefully monitored and controlled to determine what is happening, compare that to the plan and if necessary, take corrective actions to ensure production will deliver on time. Work orders are controlled by adjusting the amount of work entering and leaving work centers and by prioritizing the orders running at each work center. Input/Output Reports The control of work entering and leaving a work center is referred to as input/output control. An input/output report with a capacity per period of 80 standard hours is displayed below. Period

4

5

6

7

8

Total

Planned Input

76

64

72

80

88

380

Actual Input

68

64

64

83

82

361

Cumulative Variance

-8

-8

-16

-13

-19

-19

Planned Output

80

80

80

80

80

400

Actual Output

64

72

88

88

72

384

Cumulative Variance Planned backlog

64

60

44

36

36

44

Actual backlog

64

68

60

36

32

40

Figure 2 Input/Output Control report

The backlog is equal to the previous backlog minus the actual output.


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6. Complete the following input/output report and select the most appropriate statement below. A. Input is slightly larger than planned but output is 19 less than planned so there is a need to increase production rates Review Q

B. Input is larger than planned so inventory levels must be examined C. Input is larger than planned, so production rates must be reduced. D. Production must be increased to reduce the backlog

Period

4

5

6

7

8

Planned Input

50

50

50

50

50

Actual Input

71

50

48

30

56

Planned Output

50

50

50

50

50

Actual Output

59

48

40

29

55

30

30

30

30

30

Total

Cumulative Variance

Cumulative Variance Planned backlog

30

Actual backlog

30

Priorities The sequence of orders through each workstation is important to maintain overall plant efficiency. Order sequence is communicated to the factory in a despatch list. Priority control means deciding on the sequence in which to run orders at each workstation. The dispatch list provides information such as the order number, part number, setup quantity, run hours, operation hours, and start and finish dates. The jobs are listed in priority order, which is determined by dispatching rules. The list may also provide visibility on jobs next in the queue. Dispatching Rules Dispatch rules vary according to the requirements of the company and the production process. Some common dispatch rules include: First come, first served (FCFS) where jobs are performed in the order they are received Earliest job due date (EDD) where orders are ranked according to the date they are required by the customer. Earliest operation due date (ODD) where orders are produced according to operation due dates Shortest process time (SPT) where jobs that will be completed most quickly are highest in the dispatch list © Copyright Leading Edge Training Institute

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Basics of Supply Chain Management Critical ratio (CR), which schedules order priority according to whether the order is late, on time or ahead of schedule. The critical ratio is defined as the time remaining divided by the work remaining. If the critical ratio is less than 1, the order is late, if equal to 1, the order is on time, and if greater than 1, the order is ahead of schedule. The critical ratio for each job is used to establish an order of job priority where the lowest CR jobs are completed first. Production Reports Feedback on production activities across the plant and in each individual work center is provided by means of production reports. These reports vary according to the reporting needs of the management and planning teams. The reports may be manual, card-based, or computer-based. Production reports may include: Order status Exception reports Inventory status Labor reports Machine performance

CRP and MRP Capacity management occurs at all planning levels in an organization and is closely related to the priority plan. At the MRP level the most detailed level of capacity management, capacity requirements planning (CRP), takes planned MRP opers and open shop orders and converts them to a load on each work center, considering lead times and actual order quantities. Both MRP and CRP should form a closed- loop two-way communication system with MPS, ensuring planning is always well- informed and up-to-date. This is illustrated in the figure below. MPS

Resources available? (RCCP)

No

Yes MRP

Capacity available? (CRP)

No

Yes

PAC

Purchasing Performance Measurement


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Basics of Supply Chain Management Summary This lesson introduced the concept of capacity management, its objectives and methods. It also covered the purpose and functionality of production activity control (PAC). You should be able to: Identify objectives of capacity management Explain the relationship between capacity management and priority planning Determine rated or calculated capacity Calculate the capacity required for a shop order Identify the objectives and activities of PAC Describe the process of order preparation and the data requirements for a PAC system Identify the basic techniques of scheduling State the purpose and content of a shop order Detail the steps involved in implementing and controlling work orders Create an input/output report

Further Reading Introduction to Materials Management, JR Tony Arnold, CFPIM, CIRM and Stephen Chapman CFPIM 5th edition, 2004, Pearson Education International APICS Dictionary 10th edition, 2002, APICS Study Notes for Basics of Supply Chain Mangement, Brian Willcox CFPIM, CIRM 2001, Action Materials Management (Proprietary) Limited trading as Action MRPII


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Basics of Supply Chain Management Review The following questions are designed to test your recall of the material covered in lesson 5. The answers are available in the appendix of this workbook. 7. CRP is concerned with: A. Labor hours for a product family and individual work centers B. Calculating work center loads and labor hours for product families C. Validating capacity for the MPS and calculating work center loads D. Individual work orders, individual work centers, and calculating work center loads 8. The most accurate description of a routing is: A. The critical ratio to determine whether jobs are on time B. The path followed by information transactions C. The path work follows from work center to work center until the work is competed D. The path of materials from receipt of raw materials to the sale of finished goods 9. In which scheduling technique do production activities start as soon as the order is received without reference to the due date of the order? A. Infinite Scheduling B. Finite Scheduling C. Backward Scheduling D. Forward Scheduling 10. Available time may be either demonstrated or calculated. Which of the following is required to determine demonstrated capacity? A. Machine utilization and efficiency B. Available time and efficiency C. Historical data D. Rated Capacity


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Basics of Supply Chain Management What’s Next? Lesson 5 introduced capacity requirements planning and PAC. At this point you have completed five of the ten lessons in Unit 1. You should review your work before progressing to the next lesson which is: Basics of Supply Chain Management – Lesson 6 – Basics of Inventory Management


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Basics of Supply Chain Management Appendix


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Basics of Supply Chain Management Answers to Review Questions 1. D Available capacity is the ability of a resource such as a plant, machine or workstation to produce output, for example, a part of finished product, during a specified period of time (hour, day, or week, for example). Required capacity is the amount of resource needed to produce the necessary output for a specified period of time. The amount of released work to a facility during a particular time period is the load for that facility. 2. A The utilization is equal to the percentage of actual hours worked (140) compared to the scheduled hours (160). The efficiency of the workstation is the standard hours of output (180) divided by the actual hours worked (140) as a percentage. 3. C The rated capacity is equal to the available hours (40) multiplied by the utilization percentage (80%) and by the efficiency percentage (110%). 4. C Available capacity is affected by product specification, product mix, pace of work, and methods of production. The quantity of the customer order affects required capacity. 5. B Material requirements planning (MRP) outputs planned requisitions and planned manufacturing orders. The planned requisitions then become purchase orders to be released to suppliers. 6. A The backlog is not a priority. It is more important to ensure that the cumulative actual output is as close to the cumulative planned output as possible. Period

4

5

6

7

8

Total

Planned Input

50

50

50

50

50

250

Actual Input

71

50

48

30

56

255

Cumulative Variance

21

21

19

-1

5

5

Planned Output

50

50

50

50

50

250

Actual Output

59

48

40

29

55

231

Cumulative Variance

9

7

-3

-24

-19

-19

Planned backlog

30

30

30

30

30

30

Actual backlog

30

7. D CRP takes place at the MRP level of planning. It is concerned with detailed scheduling for individual work orders at each work center in order to ensure that requirements are met without © Copyright Leading Edge Training Institute

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Basics of Supply Chain Management overloading work centers. Resource planning checks resources available for product families. The MPS is validated prior to running by using rough-cut capacity planning (RCCP). 8. C A routing concerns the steps in production required for a particular product. A routing file contains information on the operations to be completed, the sequence of those operations, the work centers (or alternatives) required, standard setup and runt times and other information such as required tooling and operator skills. 9. D In forward scheduling activities start as soon as the order is received without reference to the due date of the order. Forward scheduling allows the work load to be levelled more easily across the period by using excess capacity in advance to build up finished goods for an expected order. Using backward scheduling, the start and finish times are calculated backward from the due date of the order to ensure finished goods arrive exactly when they are needed.. Infinite loading assumes unlimited capacity for throughput at all work centers while set limits are used to define capacity for each work station in finite loading. 10. C In demonstrated capacity, available capacity is based on historical data of the rate of the production for the machine in the past. Available capacity may also be calculated by taking into account available time, utilization and efficiency rates for the machine in question.


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Basics of Supply Chain Management Glossary Term

Definition

Backward scheduling

A technique for calculating operation start dates and due dates that begins with the due date for an order and works backward by the expected lead time to determine the required start date

bill of material (BOM)

A listing of all the subassemblies, intermediates, parts and raw materials that are needed by a parent assembly, showing the amount of each needed to make one assembly. It is used with the MPS to determine purchase requisitions and production orders.

Bottleneck

A bottleneck machine or work center will process jobs at a slower rate than they are demanded. Any function whose capacity is less than the demand placed upon it.

Capacity

The capability of a worker, machine, work center, plant or organization to produce a level of output in a given time.

Capacity Requirements Planning (CRP)

The function of establishing, measuring and adjusting limits or levels of capacity, determining the amount of labor and machine resources required to accomplish the tasks of production.

Critical ratio

A dispatching rule that calculates a priority index by dividing the remaining time to due date by the expected elapsed time to finish the job. A ratio of less than 1 shows that a job is behind schedule, greater than 1 indicates that the job is ahead. If the critical ratio is equal to 1, the job is on time.

Demonstrated capacity

Proven output capability of a resource as evidenced from historical performance data, usually the average number of items produced x the standard hours per item

Earliest due date (EDD)

A priority or dispatching rule that sequences jobs according to their due dates

Efficiency

A percentage representing the actual output compared to the expected standard output. This percentage shows how well a process or resource is performing in line with expectations

Finite loading

Assigning no more work to a work center than it can be expected to complete in a given time period. The term often refers to a computer technique involving calculating shop priority revisions to level loads by operation

First-come -firstserved (FCFS)

A dispatching rule that requires jobs to be sequenced according to their arrival times, also known as first in, first out (FIFO)


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Unit 1

Basics of Supply Chain Management rule Forward scheduling

A technique for calculating operation start and due dates where the scheduler begins with a known start date and computes the earliest completio n date for the order

Infinite loading

Calculation of the capacity required at work centers in the time periods required regardless of the capacity available to perform the work

Input/output control

A technique for capacity control where planned and actua l inputs and planned and actual outputs of a work center are monitored to identify problems within the work center. The planned inputs and outputs are developed by capacity requirements planning (CRP)

Job shop

Organization of production where similar equipment is organized by function and each job follows a distinct route through the shop

lead time

Lead time is the span of time required to perform a process.

Load profile

A display of future capacity requirements based on released and / or planned orders over a specified time period.

Master Production Schedule (MPS)

The anticipated build schedule for those items assigned to the master scheduler. It becomes a set of planning numbers that drive material requirements planning. The MPS represents what the company plans to produce expressed in quantities and dates.


A set of techniques that uses bill of material data, inventory data, and the master production schedule to calculate requirements for materials. It makes recommendations to release replenishment orders for material and to reschedule orders.

Move time

The time a job spends in transit between operations

Priority control

The process of communicating start and completion dates to manufacturing departments in order to execute a plan. The dispatch list is the usual means of providing these dates and priorities, based on current plan and open order status.

Production activity control (PAC)

The function of routing and dispatching work through the production plant and performing supplier control.

Queue time

The amount of time a job waits at a work center before setup begins. Queue time is an element of manufacturing lead time

Rated capacity

The expected output capability of a resource taking into account planned hours, efficiency and utilization rates. Rated capacity = available time x efficiency x utilization

rough-cut The process of converting the master production schedule into capacity planning requirements for resources such as labor, machinery, warehouse space, (RCCP) supplier capabilities. Demonstrated capacity is examined for each key © Copyright Leading Edge Training Institute

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Unit 1

Basics of Supply Chain Management resource. Routing

Information detailing the method of manufacture of a particular item, including the operations to be performed, their sequence, the work centers to be used, and setup / run specifications. It may also include information on tooling, operator skills required, quality and testing requirements.

Run time

The time required to process a piece or lot at a work center. It does not include setup time. Run time is an element of manufacturing lead time.

Setup time

The time needed to prepare a manufacturing process run. It may include run and inspection time for the first piece and is an element of manufacturing lead time.

Shop order packet A pack of document s used to plan and control shop floor movement of an or shop packet order. The packet may include a manufacturing order, operations sheets, engineering blueprints, picking lists, move tickets, inspection tickets and time tickets. Shortest processing time (SPT) rule

A dispatching or priority rule that directs the sequencing of jobs in ascending order by the length of their expected processing time. The average lateness of jobs at a work center will be minimized but some jobs will be very late

Utilization

A percentage measure of the ratio of direct time (setup and runt time) to clock time. Utilization measures the amount of scheduled time actually used in production for a resource.

Waiting time

This is idle time or the amount of time a job remains at a work center after completion of the operation before it is moved to the next stage of production. It may sometimes be added to move time and is an element of manufacturing lead time

Work center

A production area consisting of one or more operators and machines with identical capabilities. A work center is considered a single unit when performing capacity requirements planning and detailed scheduling

work order

A work order is an order to the machine shop for tool manufacture or equipment maintenance or an authorization to start work on an activity or product.


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Basics of Supply Chain Managment (Lesson 5)

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