Inventory and Manufacturing Systems Chapter 3 PDF

INVENTORY AND MANUFACTURING SYSTEMS CHAPTER 3 INTRODUCTION In the preceding chapter, we discussed a variety of methods for collecting data about inventory. The next question one might ask is: What information do I need to collect, and how might this vary depending on the manufacturing system in use?...

INVENTORY AND MANUFACTURING SYSTEMS CHAPTER 3 INTRODUCTION In the preceding chapter, we discussed a variety of methods for collecting data about inventory. The next question one might ask is: What information do I need to collect, and how might this vary depending on the manufacturing system in use? This chapter covers the flow of information through a bare-bones manufacturing system using minimal transactions, one organized under a manufacturing resources planning (MRP II) system, as well as one under a just-in-time system. The basic transactions in a simplified manufacturing system are noted in figure 1 1-1 A DESCRIPTION OF THE MRP II SYSTEM The MRP II system was a gradual development of computer systems that were designed to bring the advantages of computerization to the manual manufacturing systems in existence before the 1960s. It began with the creation of databases that tracked inventory The data could now be easily sorted and sifted to see which items were being used the most (and least), which yielded valuable information about what inventory should be kept in stock and what discarded The MRP system evolved into the manufacturing resources planning (MRP II) system. This newer version contained all of the elements of the old MRP system, while also adding on several new features The main features of the MRP II system are noted in Figure 2 The MRP II system is essentially an enormous scheduling tool. It was originally designed to bring structure to the chaos of the manufacturing floor, which it certainly has done in many cases The MRP II system still allows suppliers to ship in low-quality goods, requires periodic quality inspection points, allows work-in process to build up, and machines to have excessively long setup times—all factors that are directly addressed and reduced by the just-in-time (JIT) manufacturing methodology 2. THE IMPORTANCE OF DATABASES IN AN MRP II SYSTEM The foundation of the MRP II system is the three databases that feed it information. The most important is the bill of materials database, which consists of a separate record for each product manufactured. The bill of materials database is the driving force behind the material requirements planning portion of the MRP II system, so its accuracy is of the highest importance. 2. THE IMPORTANCE OF DATABASES IN AN MRP II SYSTEM The bill of materials database is also an outstanding tool for the inventory accountant, because it contains accurate information about product components. Another key database is for labor routings. Each record in this database contains a detailed list of the exact times that each labor position needs to complete a product, and usually includes the required machine time, as well 3 A DESCRIPTION OF JUST-IN-TIME SYSTEMS A JIT system is a considerable departure from the traditional manufacturing system, involving several changes that, in total, are intended to massively reduce the level of waste in a company’s production system A complete JIT system begins with production at supplier facilities, includes deliveries to a company’s production facilities, and continues through the manufacturing plant the process flow and transactions shown in Figure 3 represent an extremely advanced and streamlined system. In reality, a JIT system may represent a mix of some JIT components and a more traditional system, so additional transactions may be required 4 IMPACT ON WASTE COSTS A key focus of the JIT system is its relentless focus on eliminating all waste from a system. This can be a waste of assets, in the case of unneeded inventory. It can also be a waste of time, in the case of assets that are unused for long periods of time (e.g., work-in-process inventory held in a production queue). It can also be the waste of materials, such as unnecessary levels of obsolete inventory, defective products, rework, and the like. When fully installed, a JIT system vastly reduces all of these types of waste. When this happens, several aspects of a product’s costs decrease significantly For example, by reducing the amount of work-in-process, machine operators can tell immediately if an incoming part from another workstation is defective, and can notify the preceding workstation of the problem before it makes any more parts, which reduces the quantity of rework that must be done 5 IMPACT ON OVERHEAD COSTS A key focus of any JIT system is on reducing various kinds of wasted time, so that the entire production process is focused on the time spent actually producing products. The costs of material handling, facilities, and quality inspection will decline as a result of installing a JIT system. In addition, the reduction of all types of inventory will drastically decrease the amount of space required for the warehouse facility. Because all costs associated with the warehouse are assigned to the overhead cost pool, the amount of overhead will be reduced when the costs of staff, equipment, fixed assets, facilities, and rent associated with the warehouse are sharply cut back. 6 COSTING ALLOCATION DIFFERENCES BETWEEN A JIT AND TRADITIONAL SYSTEM The chief difference between the types of cost allocations in a JIT environment and a traditional one is that most overhead costs are converted to direct costs To be specific about which costs can now be charged directly to a product, they are as follows: Depreciation. The depreciation cost of each machine in a machine cell can be charged directly to a product. It may be possible to depreciate a machine based on its actual usage, rather than charging off a specific amount per month Electricity. The power used by the machines in a cell can be separately metered and then charged directly to the products that pass through that cell Materials handling. Most materials handling costs in a JIT system are eliminated, because machine operators move parts around within their machine cells Operating supplies. Supplies are mostly used within the machine cells, so most items in this expense category can be separately tracked by individual cell and charged to products. Repairs and maintenance. Nearly all of the maintenance that a company incurs is spent on machinery, and they are all grouped into machine cells