Page 337 - Orlicky's Material Requirements Planning

316 PART 3 Managing with the MRP System

capacity planning is a major challenge, and costing is accomplished by job. Clearly, these
two different environments require different tools.
In a repetitive manufacturing operation, the conversion process is accomplished
through a very predictable series of sequential operations. Work-in-process is relatively
low, and these sequential operations are highly dependent on each other. Forcing repetitive
manufacturing approaches into job shop–oriented computer systems is possible, but one
barrier to a successful fit is the amount of paperwork and transactions. Since the lot sizes
are so small, the amount of paperwork is quite large because a unique order is still expect-
ed for each production lot that is released in a discrete manufacturing system. If the same
process of paperwork and transactions is used to build repetitive product as discrete prod-
uct in a job shop, the production work force is soon buried under a mountain of paper.
A look at the economic order quantity (EOQ) formula in Chapter 8 can provide
insight here. Although this formula is very old, and many consider it to be obsolete, it
helps to make the point of why different management processes are needed to support a
repetitive operation. Even though this formula may not be used explicitly to calculate the
lot size in a repetitive manufacturer, an effective management process does this kind of
analysis to determine optimal lot size. A repetitive manufacturer wants to have very
small lot sizes with the eventual goal of producing in lot sizes of one as close as possible
to market demand so that the manufacturer can react as the market reacts. This is differ-
ent from the commodity manufacturing company at the far right of the volume/variety
matrix. This formula also can be analyzed in reverse to identify factors that must be
changed to allow these small lot sizes to be achieved in a cost-effective manner.
Changes in lot sizes should have no significant impact on annual usage. The total
demand does not depend on the production lot size. Given that the inventory carrying
cost typically is a fixed overhead cost divided by production volume, this factor also
should not be affected by a change in lot size. The same is true for the cost of the item.
The case could be made that one of the expected benefits of reducing lot size is that qual-
ity should improve because there is less time between the production and use of materi-
al. Quality improvement eventually should benefit product cost. In the short term, a deci-
sion to reduce lot size will not have a major impact on product cost. Therefore, the only
factor that can be adjusted to reduce the cost impact of the decision to produce in small-
er lot sizes is the cost of setup. A significant part of the setup cost is the fixed time and
expense required to issue work orders, transact parts, close paperwork, and address all
the other routine expectations found in a job shop. This cost does not depend on the num-
ber of parts on each work order but rather is related directly to the number of orders
processed. The repetitive manufacturer has no time for all this non-value-added activity
for each individual part in lot sizes of one. The process must be reengineered to provide
the required information without the non-value-added cost.
Since product is built in high volume through a repetitive process, there is no
requirement for a detailed level of progress reporting because this feedback does not add
value, only cost. However, in a repetitive manufacturer, the manufacturing process can
be thought of as a river that flows continuously at a relatively stable level. When the flow