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Chapter 4
CONTROLLING
MATERIAL FLOW
To synchronize all information and goods flows so that
parts are at disposal at the right time in the right place,
in the desired quality and quantity.

Lecturer: Dr. Nguyen Hang Giang Anh

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Learning Objectives

❖ Describe the hierarchical operations planning process in

terms of materials planning (APP, MPS, MRP).
❖ Understand the use of BOM, Inventory status and MRP
computation.
❖ Describe the limitations of MRP systems, and why
organizations are migrating to integrated ERP systems.
❖ Understand JIT systems.
❖ Know how to achieve JIT operations – KANBANS.
❖ Understand what Lean and Six Sigma are in SCM.

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Main content

1. Material Requirements Planning (MRP)

2. Just In Time (JIT)

3. Lean and Six-Sigma

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1. MATERIAL
REQUIREMENTS
PLANNING (MRP)
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Introduction

❖ One drawback for planning logistics → slow to react to

changing conditions. Ex: If a customer urgently wants a
delivery, we cannot tell them to wait until we fit them in to the
next planning cycle.
❖ Thus, planners need to take forecasts of demand for
logistics, and then plan the supply to meet this → But
forecasts are often wrong.
❖ To solve these problems: Matching the supply of logistics
to actual demand rather than using unreliable forecasts.
→ Material Requirements Planning (MRP) uses the master
schedule to plan the supply of materials.

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Independent vs. Dependent Demand

❖ Independent Demand
▪ Final products: automobiles,
televisions, tables.
▪ Demand occurs at constant
rate.
❖ Dependent Demand
▪ Raw materials, components,
and subassemblies.
▪ Demand occurs in lumps.

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Operations Planning

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MRP Approach

❖ MRP comes from three main sources:

▪ Master schedule, giving the number of every product
to be made in every period.
▪ Bill of materials, listing the materials needed for every
product.
▪ Inventory records, showing the materials available.

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Production Planning Hierarchy

Forecast
Firm orders Aggregate of demand
from known Product Plan from random
customers
customers

Master Inventory
Engineering Production transactions
design changes Schedule
(MPS)

Material
Bill of Inventory
Requirements
Materials records
Planning
(BOM) file file
(MRP)

Reports
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Master production schedule (MPS)
❖ Based on the Aggregate Production Plan (APP).
❖ Indicates When and How many exact end items will be produced.
❖ Example: The ATV Corporation makes three models: Model A, Model
B, and Model C. ATV’s MPS for January and February is as follows

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Bill of Materials (BOM)

❖ It is an ordered list of all the parts (i.e., raw materials,

components, and assemblies) needed to produce a product.

❖ It shows way a final product/parent item putting together

from individual components.

❖ Final product is at level zero. Subsequent levels are parent

components, then components.

❖ Production planners explode BOM for level zero item to

determine the number, due dates, and order dates of
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components.
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Part of a BOM for an ATV

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Inventory Records

❖ It shows the materials available with:

On-hand inventory: the inventory at the end of the period.
On-hand inventory (period 𝒕) = Max{0, On-hand inventory (period 𝒕 − 𝟏)
+ Scheduled/Planned receipts (period 𝒕)
– Gross requirement (period 𝒕)}

where:
o Scheduled/Planned receipts: a committed order awaiting delivery for a specific
period.
o Gross requirement: a time-phased requirement prior to considering on-hand
inventory and lead time to obtain the product.

Gross requirement (period 𝒕) = Customer demand (period 𝒕) + Backlog (period 𝒕 − 𝟏)

❖ MRP system use inventory records to determine the quantity

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available for use in a given period.
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MRP Procedure

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MRP Computation
❖ To compute a dependent demand, it requires:
o independent demand information (the demand of the final product)
from the MPS.
o parent–component relationships from the BOM.
o inventory records of the final product and all of its components.
❖ Based on the information, the net requirements of the final
product and components are computed as follows:
Net requirements (period 𝒕) = Gross requirements (period 𝒕)
– On-hand invnetory (period 𝒕 − 𝟏)
– Scheduled/Planned receipts (periods  𝒕)

❖ The net requirements are offset with appropriate lead times to

ensure orders are released on time, called planned order
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releases, the most important output of the MRP.
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MRP Computation Procedure
Step 1: Use the MPS to find the Gross requirements for all time periods
of level 0 items.

Step 2: Compute the On-hand inventory, Net requirement (materials

needed to order), and Planned order receipt for level 0 items. If
there is a Planned order receipt, use the Lead time and any other
relevant information to offset Planned order release.

Step 3: Take the next level. Use the BOM to translate the Net
requirements from the previous level into Gross requirements for
this level.

Step 4: Take each material in turn and compute On-hand inventory, Net
requirement, and Planned order receipt for the level. Then if there
are more levels of materials, go back to step 3. 16

Step 5: Finalise the timetable, adding any specific adjustments.

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Example of MRP Computation
Do safety stock = 15 -->
O week 3 = Net
requirements = 15

Tuy nhiên do Q = 10 -->

Do ó chi co the dat {10;
20;30}

--> Planned order

receipts = 20 (week 3)

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A Close-Loop MRP System

Internal Supply: Tu cung cap

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Benefits of MRP
❖ Higher inventory turnover.
❖ Better customer service – limit delays caused by shortages of
materials.
❖ More reliable and faster delivery times.
❖ Less time spent on expediting and emergency orders.
❖ Ability to track material requirements.
❖ Ability to evaluate capacity requirements.
❖ Ability to plan other logistics activities.
❖ Availability of production information providing visibility for
schedulers to plan ahead. 19
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Issues of MRP

❖ Reduces the flexibility to deal with changes.

❖ Needs a lot of detailed and reliable information.

❖ Becomes very complex.

❖ Does not recognize capacity and other constraints.

❖ Be expensive and time consuming to implement.

❖ Risks: quantity and lead time.

❖ Capacity limit.

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ENTERPRISE RESOURCE PLANNING

❖ By the end of the 20th century,

the global business environment
has changed.
❖ Additional tasks are required and
the existing MRP systems could not
handle these added tasks.
❖ To deal with the tasks, ERP
systems that operated from a
single, centralized database were
engineered to replace the existing
MRP systems.
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2. Just In Time (JIT)

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Principles of JIT
❖ Just-in-time (JIT) systems organize materials to arrive just as they
are needed (right time – right place – right quantity).
❖ By coordinating supply and demand, they eliminate
stocks/inventory of raw materials and work in progress.
❖ JIT’s view of stock:
o Stocks are held to cover short-term mismatches between supply and
demand.
o These stocks serve no useful purpose – they only exist because poor
co-ordination does not match the supply of materials to the demand.
o To improve operations, the reasons for differences between supply
and demand are needed to be found, and the differences are needed
to be solved → No stock is needed at all.
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Inventory Hides Problems

Neu duoc chon --> Chon tay phai --> Because if you
store inventory so high --> You cannot see the problems
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Stock Levels with Types of Control

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Wider effects of JIT (1/2)
❖ Quality: Organizations have defined some arbitrary level of
acceptable quality.
▪ JIT recognizes that all defects have costs → find the cause and make
sure that no defects are produced → support the total quality
management.
❖ Suppliers: JIT relies totally on its suppliers → supports the view of
customers and suppliers working closely together in long-term
partnerships.
❖ Batch size: Operations use large batch sizes to reduce set-up costs
and disruptions.
▪ But if demand is low → the products made in large batches sit in stock
for a long time.
▪ JIT looks for ways of reducing the batch size so that it more closely
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matches demand.
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Wider effects of JIT (2/2)
❖ Lead times: Long lead times → high stocks to cover uncertainty until
the next delivery.
▪ JIT aims for small, frequent deliveries with short lead times.
❖ Reliability: JIT bases on continuous, uninterrupted production → all
operations must be reliable.
▪ If equipment breaks down → managers must find the reasons and make
sure it does not happen again.
❖ Employees: organizations still have a friction between ‘managers’ and
‘workers’.
▪ JIT argues that the welfare of everyone depends on the success of the
organization → all employees should be treated fairly and equitably.
→ JIT is not just a way of minimizing stocks. By coordinating all activities,
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it increases efficiency and eliminates waste.
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Achieving JIT Operations

❖ Push and pull systems

❖ Kanbans

❖ Advantages and disadvantages of JIT

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Push and Pull Systems
Push: Day (Vi du: Push --> M1 -> M2)
Pull: Keo (Vi du: Pull --> M1 <- M2)

❖ In a traditional process, https://marketingbox.vn/chien-luoc-marketing-keo-va-day-push-or-pull.html

o each operation has a timetable of work that must be finished in a given time.
o Finished items are then ‘pushed’ through to form a stock of work in
progress in front of the next operation → this ignores what the next operation
is actually doing.
o The result is delays and increased stock of work in progress.

❖ JIT uses another approach to ‘Pull’ work through the process.

o When one operation finishes work on a unit → it passes a message back to
the preceding operation to say that it needs another unit to work on.
o The preceding operation only passes materials forward when it gets this
request.
o This process does not have earlier operations pushing work through, but has
a later operation pulling it through.
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Kanbans (看板) (1/2)
❖ JIT needs ways of organizing the flow of materials pulled through the
process.
❖ The simplest system moves materials between two stages in containers.
o When the second stage needs some materials, it simply passes the
empty container back to the previous stage as a signal to fill it.
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KANBANS (看板) (2/2)
KANBANS are cards that control the flow of materials through JIT operations.
▪ Kanban is the Japanese for a card, or some form of visible record.
▪ They arrange the ‘pull’ of materials through a process.
▪ The most common way of using Kanbans is to use two cards:
▪ Production Kanban,
▪ Conveyance/Movement Kanban.

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Example: Kanban Cards (1/2)

Production Kanban card

Production Kanban:
signals the need to
produce more parts.

Conveyance Kanban: Conveyance Kanban card

signals the need to
withdraw parts from one
work center and deliver
them to the next work
center.
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Example: Kanban Cards (2/2)
Production Kanban Card

Part number to produce: M471-36 Part description: Valve Housing

Lot size needed: 40 Container type: RED Crate

Card number: 2 of 5 Retrieval storage location: NW53D

From work center: 22 To work center: 35

Conveyance Kanban Card

Part number to produce: M471-36 Part description: Valve Housing

Lot size needed: 40 Container type: RED crate

Card number: 4 of 5 Completed storage location: NW53D

From work center: 22 To work center: 35

Materials required:
Material no. 744B Storage location: NW48C
Part no. B238-5 Storage location: NW47B
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Single-card Kanban System (1/8)

• Each container must have a card.

• Assembly always withdraws from fabrication (Pull system).

• Containers cannot be moved without a Kanban.

• Containers should contain the same number of parts.

• Only good parts are passed along.

• Production should not exceed authorization.

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Single-card Kanban System (2/8)

Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
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Single-card Kanban System (3/8)

Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
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Single-card Kanban System (4/8)

Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
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Single-card Kanban System (5/8)

Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
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Single-card Kanban System (6/8)

Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
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Single-card Kanban System (7/8)

Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2

Figure 8.4 – Single-Card Kanban System

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Single-card Kanban System (8/8)

Receiving post
Kanban card for Storage
product 1 area
Kanban card for
product 2

Empty containers

Assembly line 1

O2

Fabrication
cell
O1 O3
Assembly line 2

Full containers
O2
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Advantages of JIT

❖ Lower stocks of raw materials and work in progress.

❖ Shorter lead times.
❖ Shorter time needed to make a product.
❖ Higher productivity.
❖ Higher equipment capacity and utilization.
❖ Less paperwork.
❖ Higher quality of materials and products.
❖ Less scrap and wastage.
❖ Better relations with suppliers. 42
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Disadvantages of JIT

❖ High risks of introducing completely new systems and

operations.
❖ Initial investment and cost of implementation.
❖ Long time needed to get significant improvements.
❖ Reliance on perfect quality of materials from suppliers.
❖ Reduced flexibility to meet specific, or changing,
customer demands.
❖ Difficulty of reducing set-up times and associated costs.
❖ Lack of commitment within the organization.
❖ Lack of co-operation and trust between employees. 43

❖ Need to change layout of facilities.

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3. LEAN AND
SIX-SIGMA
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Lean

❖ Lean has today replaced the use of the term JIT.

❖ Lean emphasizes the minimization of the amount of all the
resources used in the operations of a company.
❖ The principle of lean is the elimination of “waste”.
o by eliminating wastes of all sorts in the system,
o the lean approach lowers labor, materials, and energy
costs of production.
❖ Lean also emphasizes building exactly the products
customers want, exactly when they need them.

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Primary objectives of lean systems

❖ Produce only the products that customers want.

❖ Produce products only as quickly as customers want to use
them.
❖ Produce products with perfect quality.
❖ Produce in the minimum possible lead times.
❖ Produce with no waste of labor, materials, or equipment;
designate a purpose for every movement to leave zero idle
inventory.
❖ Produce with methods that reinforce the occupational
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development of workers.
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Six-sigma
❖ From statistics, the term “sigma” refers to
▪ standard deviation of values for the output of a process.
▪ an indicator of variability.
❖ The six-sigma approach is
▪ to achieve a process standard deviation that is six times smaller than
the range of outputs allowed by the product’s design specification.
▪ to design and improve products and processes so that variability is
reduced → first identifying sources of variability and then reducing
them.
❖ Six Sigma (also Six Sigma Quality) is all about pleasing customers
→ A customer-oriented definition of quality is the ability to satisfy
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Six-sigma metric

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References

❖ What is Just In Time (JIT):

https://www.youtube.com/watch?v=OXVi7dOF3jU
❖ How Toyota Changed The Way We Make Things:
https://www.youtube.com/watch?v=F5vtCRFRAK0
❖ What is Kanban? Kanban Explained with a Coffee Cup:
https://www.youtube.com/watch?v=Lib1vFmfCng&ab_channe
l=DevelopmentThatPays
❖ What is Lean Six Sigma:
https://www.youtube.com/watch?v=s2HCrhNVfak&ab_chann
el=Simplilearn

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