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Lecture 31

Models in JIT

D = 12000/year, C0 = Rs 5000/order C = Rs 100/unit and i = 20%. As part of JIT initiative, they have identified a supplier located nearby who provides items with no rejects. The transportation cost is Rs 100/trip. Other order costs are negligible.
Economic Order Quantity (EOQ) =
Q 2 DC0 iC


Total annual cost of ordering and carrying =

TC 2DC0iC = 48989.8

Average money locked up in QC inventory = =122474.5


New order cost C0 = Rs 100 New EOQ = 346.41 New TC = 6928.2 Average money locked up in inventory = 17320.5 If we assume that monthly demand is 1000 and weekly demand is 250, the new EOQ is close to the weekly demand. If the company chooses to order weekly demand then, Q = 250 TC = 9800 Average money locked up in inventory = 12500.

fD S k n


demand is 160/day. The factory works 8 hours a day. The factory gives a 10% safety stock. The container size is 10. They wish to have 2 hours inventory. Find the number of kanbans?
D = 160; f = 0.25 S = 0.1 n = 10 K = .25x160x1.1/10 = 4.4. This can be approximated to 5 kanbans.

When S = 0, we have K = 3.2 kanbans in the system. When S = 0 we have no buffers and the inventory is tight. This can result in under utilization and idleness of machines if there is uncertainty in the system. Normally 4 kanbans would be ideal for this situation since it gives enough buffers to respond to variation in the production. This also shows that in reality there will be more kanbans resulting in some additional inventory.

Computing safety stock

One way that we have already indicated is to define a certain percentage, say 10% and try to reduce the percentage as the system matures and becomes more reliable.

Another way is to compute the mean and standard deviation of the LD and use a service level to calculate the safety stock. Let and be the mean and standard deviation of LTD. For a normal distribution +z will replace fD + S where z is computed in the usual way from standard normal tables.

Safety stock
A third way is to use the shortage cost in the computation. If Cs is the shortage cost and i is the inventory holding cost, n is the container size and is the lead time demand, we have .
in F 1 Cs

F is the area under the standard normal curve from which z can be computed. The value of z gives the safety stock. This formula comes from probabilistic inventory models where we compute the safety stock based on the shortage cost.

For a single item the last 10 withdrawals and the last 10 replenishments are found to have taken place at the times given in table 9.1. For a 95% confidence interval, assuming normal distribution of lead time demand, find the safety stock and the number of kanbans? Also compute the number of kanbans for Cs = Rs 5/unit/year

Withdrawals (date and time) Day 1 08.10 Day 1 08.45 Day 1 09.13 Day 1 10.40 Day 1 12.49

Arrivals (day and time) Day 1 09.15 Day 1 10.07 Day 1 10.47 Day 1 12.18 Day 1 14.30

Withdrawals (date and time) Day 1 13.15 Day 1 14.37 Day 1 15.47 Day 2 08.20 Day 2 09.10

Arrivals (day and time) Day 1 15.09 Day 1 15.45 Day 2 08.30 Day 2 09.15 Day 2 10.30

The time taken between a withdrawal and the corresponding arrival, which replenishes the withdrawn kanban can be taken as the instance of lead time. The ten lead time values are 65, 82, 94, 98, 101, 114, 68, 43, 55, 100 minutes. It is assumed that the 8 hour shift ends at 16.00 hours. The mean and standard deviation of the lead times is 1. 37 hours and 0.36 hours respectively. Based on the withdrawals, we observe that 10 kanbans have been withdrawn during the time 1 day and 1 hour = 9 hours. The demand is therefore 1.11 kanbans per hour = 11.1 units per hour. Mean LTD = 11.1 x 1.37 = 15.2 units (LTD) = 11.1 x 0.36 = 4 units At 95% confidence level, z value for area = 0.95 is 1.645. + z = 15.2 + 1.645 x 4 = 21.78 = 2.178 kanbans. We can add some more safety stock and make it 3 kanbans.

Using the formula ,
in F 1 Cs

F = 0.91 for which z = 1.34 + z = 15.2 + 1.34 x 4 = 20. 56 units = 2.05 kanbans. We can add some more safety stock and make it 3 kanbans.

Choosing the next item

Complete all containers of the last processed item First come first served. Shortest processing time Earliest due date Cyclic Maximum kanbans

A manufacturing cell processes three parts A, B and C. It has just completed a kanban of B. The waiting kanbans in the order of arrival are A, B, A, C, B, A. The processing times of items A, B and C are 20, 18 and 15 minutes respectively. The due dates for the six kanbans are 20, 30, 25, 50, 45 and 40. Find the next kanban to be taken up Complete all containers of the last processed item - Complete the two kanbans of B that are waiting First come first served A Shortest processing time C Earliest due date A, A, B, A, B, C Cyclic C, A and B (assuming that the cycle is A-B-C-A) Maximum kanbans - A

Small lots
Consider a cell making two items A and B. A total time of 600 minutes is available for the production of these two items. The demand of each item is 60. The total time to make a piece of A is 10 minutes with a bottleneck time of 4 minutes. The total time to make a piece of B is 8 minutes with a bottleneck time of 3 minutes. The changeover time from A to B and from b to A is 20 minutes. Find the minimum batch sizes for A and B? Also consider that 2 and 3 operators are available and that the set up time is reduced to 10 minutes?

Let us assume that two operators are allotted to the cell to produce A and B. The time/piece is 5 minutes for A and 4 minutes for B. The time required for production is 300 + 240 = 540. We require 1 set up which takes another 20 minutes. When we produce 1 large batch of 60A and 60B, the time needed is 560. We calculate the total production time to be 540. We have 60 minutes available for setups. We can have 3 changeovers A to B, B to A and A to B. We can therefore have 2 batches of A and two batches of B each having a batch size of 30. The production sequence would be A(30) B (30) A (30) B (30).

If we consider 3 operators, the unit time to produce A and B becomes 4 and 3. The total processing time required is 420. We now have a balance of 180 minutes for setups. We can have 5 changeovers of each A and B and can produce A-B-A-B-A-B-A-B-A-B each with a batch of 12. If the set up times are reduced to 10 minutes, 18 setups are possible. If we create another 10 minutes, we can have 19 changeovers, which can be split as 10 each for A and B. The batch size now reduces to 6.

Maintenance and Availability

Assume that initially 800 hours are available in the cell. The cell works at 80% availability. Compute the batch size for the two parts. If due to TPM initiatives, the availability is increased to 90%, compute the batch sizes.

Total time = 800 hours Available time = 80% of 800 = 640. If we consider 3 operators, the unit time to produce A and B becomes 4 and 3. The total processing time required is 420. We now have a balance of 220 minutes for setups. We can have 11 changeovers if the changeover time is 20 minutes. Six batches of each are possible and the batch size is 10 for each. If the availability is increased to 90%, the available time is 720. We now have 300 minutes available for set up. If set up time is 10 minutes we can have 30 changeovers and hence 15 batches of each part is possible. The batch size reduces to 4.

Consider a cell making 4 parts (A to D). The data is given in table 9.2. Find the backlog items and indicate when to start production?
Ite m 1 2 3 4 Batch size 50 20 100 50 Target inventory 100 80 200 150 Units in Batches inventory in process 60 1 40 80 60 2 1 1 Time per batch (hours) 3.3 2.4 1 2

Target inventory = 2 x 3.3 + 4 x 2.4 + 2 x 1 + 3 x 2 = 24.2 hours. The total permissible inventory is 24 hours and if inventory reduces to below 24 hours, we initiate production.

Units in inventory = 60x3.3/100 + 40 x 2.4/20 + 80/200 + 70/150 = 3.96 + 4.8 + 0.8 + 2.4 = 11.96 Batches in process = 3.3 + 4.8 + 1 + 2 = 11.1 Total inventory = 23.06 Since the total inventory is less than the target, we can initiate production.

We calculate the inventory position of each of the items: Item A: Inventory = 7.26 and target = 6.6 Item B: Inventory = 4.8 and target = 4.8 Item C: Inventory = 1.8 and target = 2 Item D: Inventory = 4.4 and target = 6

We can initiate production of C and D and can begin with D because the gap between existing and target inventories is the higher. We can also choose the item based on other dispatching rules such as SPT, minimum changeover, cycle etc.