Systems used in operations management

One important aspect of operations management is to ensure that materials are ready when they are needed. A number of systems are used in improving fl ows, some from the application of sophisticated information systems, others the adoption of Japanese inspired approaches.

Manufacturing Resource Planning (MRP) is a planning and control system designed for organisations that engage in mass production. MRP is a push-based system, pushing work through the system. The computer system MRP II is a form of inventory control matching supply and demand with sophisticated features such as:

● shop fl oor control

● production planning

● fi nancial analysis

● capacity planning

● customer order entry

● purchasing

● forecasting.

Request goods

Purchase Dept Checks request

ok? No

Purchase Order to Supplier

Supplier Sends Goods to User

Goods ok?

No

END Inform User

Inform User

Simple process flow chart Yes

Figure 3.6 Crown Prosecution Service outline process map

(Source: Crown Prosecution Service (2004) http://www.cps.gov.uk/Publications/finance/process_mapping.html)

105 ENTERPRISE OPERATIONS

OPERATIONS MANAGEMENT

Brown et al. (2001) cite the benefi ts of MRP as potentially providing:

● reduced stock holding and stock turnover

● increased customer service (fewer delays through materials shortage)

● swift, reliable quotations of delivery times

● improved facilities utilisation

● less time spent on hurrying emergency orders

● better relationships with suppliers by identifying clear lead times.

Enterprise Resource Planning (ERP) combines internal processes such as MRP II with exter-nal processes. ERP is a management system that integrates all aspects of business, includ-ing planninclud-ing, manufacturinclud-ing and sales. As ERP has become more popular certain software applications have emerged to help implement activities such as inventory control, order tracking, customer service, fi nance and human resources. It may be costly and time hungry to implement but it does cohesively link the supply chain.

Optimised Production Technologies is a production improvement method based on bottle-neck improvements. It concentrates on constraints and seeks to identify and then remove obstructions that hinder the fl ow of a system.

Just-in-time (JIT) systems have an objective of producing or procuring products or compo-nents as they are required by a customer or for use (CIMA, 2005). JIT is a pull-based system

USER PURCHASE DEPT

Check Requests

SUPPLIER

No ok ?

No

Yes

Yes

Inform User

Send Purchase

Order

Fills Order

Send Goods To User Check

Requests

Ok ?

End Request

Goods

Figure 3.7 Crown Prosecution Service deployment chart

(Source: Crown Prosecution Service (2004) http://www.cps.gov.uk/Publications/finance/process_mapping.html)

STUDY MATERIAL E1 106

OPERATIONS MANAGEMENT

of planning and control pulling work through the system in response to customer demand.

The obvious advantage of JIT is the elimination of large stocks of materials and parts. JIT purchasing involves a system whereby ‘material purchases are contracted so that the receipt and usage of material, to the maximum extent possible, coincide’ (CIMA, 2005). Put simply the stock of raw materials is reduced to near-zero levels. Financial savings are easily apparent as is the requirement to foster an effective working relationship with suppliers.

JIT approaches are often undertaken in parallel with TQM. TQM facilitates the intro-duction of JIT because JIT is not feasible with, for example, high reject rates and high wastage in manufacturing, and TQM reduces these. A form of risk assessment in the pro-duction department often takes place. The impact of propro-duction delays and stock-outs if the JIT system fails has implications. A decision on whether to accept the risk or, perhaps, to carry buffer stocks must be made.

The extract from the following article explains how crucial just-in-time (JIT) deliveries are to optimising space in retail outlets.

For all the attention focused on supply chain processes, from global sourcing to the end consumer, very little discussion is dedicated to how shipments are received into stores. The reason is perhaps quite pragmatic: Few retailers are willing to talk about what happens in their back rooms. When approached for this story, most declined to comment. However, there is a clear consensus among retailer expectations: Inventory should fl ow from the back room to the store fl oor as quickly as possibly. Back rooms, kept to a minimum footprint, are for processing shipments, not for storage.

. . . .

Reliance on transportation carriers and third-party logistics providers for store-level logistics has become a dominant trend. The ultimate goal is to manage store deliveries so that store resources, specifi cally back-room space and labour, are utilised most effi ciently and in-stock positioning is optimised.

. . . .

Pharmacies in traditional drug stores as well as in grocery and super-store formats have some of the most stringent requirements for JIT deliveries. Every inch of every footprint is at a premium, and neither the pharmacist nor technicians has time to receive shipments.

‘A pharmacy retailer may need to receive deliveries before 6 a.m. to replenish stock or at a defi ned time slot when they have scheduled clerks specifi cally for receiving deliveries.’ noted Drew Kronick, executive VP of business development and supply chain solutions for Velocity Express.

A national home-accessories and lifestyle retailer began using Velocity Express for furniture replenishment about 18 months ago. In a targeted Northeastern mar-ket where the retailer operates approximately 30 stores, Velocity Express makes daily deliveries to the stores, and in some cases may deliver multiple times to a single store.

Valuable square footage that was once dedicated to back-room storage has been con-verted to selling space, and replenishment inventory of large furnishings is held in a centralised location. When furniture sells from the store fl oor, Velocity Express picks up at the central warehouse and delivers to the store that same day.

The JIT service is designed to deliver to whatever parameters the retailers set. In markets where there is a critical mass of stores, a fl eet of trucks and drivers may be dedicated to a specifi c retailer.

Source: Robbins Gentry, C. (2007) Back-room secrets. Chain Store Age, March.

107 ENTERPRISE OPERATIONS

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Exercise 3.9

What is the main principle difference between MRP and JIT?

Solution

JIT is a pull-based system which responds to demand. In contrast MRP is a push-based system which tends to use stock as buffers between the different elements of the system such as purchasing, production and sales (CIMA, 2005).