Chapter 7

Basics of MRP and ERP

(Material Requirement Planning and
Enterpriser Resource Planning0

References
1. Russell etal., Operations Management
2. Stevenson, Operations Management

1
 Material Requirement Planning -MRP

• Materials requirements planning (MRP) is

a means for determining the number of
parts, components, and materials needed
to produce a product
• MRP provides time scheduling information
specifying when each of the materials,
parts, and components should be ordered
or produced
• Dependent demand drives MRP
• MRP is a software system

2
Independent and Dependent Demand
Independent
Demand

A Dependent
Demand

B(4) C(2)

D(2) E(1) D(3) F(2)

Independent demand is uncertain.

Dependent demand is certain.
 Dependent vs Independent Demand

Demand
Demand

“Lumpy” demand
Stable demand

Time Time
Amount on hand

Amount on hand

Safety stock
Time Time
MRP Inputs MRP Processing MRP Outputs
Changes
Order releases
Master
Planned-order
schedule schedules
Primary
reports
Exception reports
Bill of Planning reports
MRP computer Secondary
materials programs Performance-
reports control
reports

Inventory
Inventory
records
transaction
 18-6

Example of MRP Logic and Product Structure

Tree
Given
Giventhe
theproduct
productstructure
structuretree
treefor
for“A”
“A”and
andthe
thelead
leadtime
timeand
and
demand
demandinformation
informationbelow,
below,provide
provideaamaterials
materialsrequirements
requirements
plan
planthat
thatdefines
definesthe
thenumber
numberof ofunits
unitsof
ofeach
eachcomponent
componentandand
when
whenthey
theywill
willbe
beneeded
needed
Product Structure Tree for Assembly A Lead Times
A 1 day
A B 2 days
C 1 day
D 3 days
E 4 days
B(4) C(2) F 1 day

Total Unit Demand

Day 10 50 A
D(2) E(1) D(3) F(2) Day 8 20 B (Spares)
Day 6 15 D (Spares)
 Inputs to the
Production Plan
Marketing
Production Customer Finance
Capacity Demand Cash Flow
Inventory

Aggregate Human
Procurement
Production Plan Resources
Supplier
Manpower
Performance
Planning

Management Engineering
Return on Design
Investment Completion
Capital

7
 The Planning Process

Production Plan Master Production

Schedule

Material
Requirements
Plan

Capacity
Requirements
Plan

No Realistic??
Yes
Execute Capacity
Plans

Execute Material
Plans

8
ERP Modules

9
ERP’s Central Database
Finance &
Accounting

Sales Production &

& Marketing ERP Data Materials
Repository Management

Human
Resources

1
 ERP Implementation

 First step is to analyze business

processes
 Which processes have the biggest
impact on customer relations?
 Which process would benefit the
most from integration?
 Which processes should be
standardized?
 Use of Internet portals can aid 1
 Customer Relationship
Management (CRM)

 Plans and executes business processes that

involve customer interaction
 Changes focus from managing products to
managing customers
 Point-of-sale data is analyzed for patterns
used to predict future behavior

1
Supply Chain Management

Supply chain planning

Supply chain execution
Supplier relationships
Distinctions between ERP and
SCM are becoming
increasingly blurred
1
 Collaborative Product
Commerce (CPC)
 New product design and
development and product life cycle
management
 Integrates customers and suppliers
in the design process though the
entire product life cycle
1
 Collaborative Product Commerce
(CPC)
Customer Relationship
Management (CRM)

Customers

Time to Customer
Collaborative Design Collaborative
Time to Market

Manufacture

Collaborative Enterprise
Product Manufacture & Resource
Product
Commerce
DFMA Delivery Planning (ERP)
Design
(CPC)
Collaborative Design Collaborative
Manufacture

Suppliers

Supply Chain
Management (SCM)
1
 Connectivity

 A very difficult problem

 Enterprise Application Integration
(EAI) solutions
 EDI is being replaced by XML
 A continuing issue

1
 ERP and MRP

 MRP (material requirements planning) was

the precursor to ERP
 Primarily a production planning and control
system
 MRP evolved to MRP II (manufacturing
resource planning)
 ERP and ERP II continue to extend the links
through all business processes

1
 Material Requirements Planning

 Computerized inventory control &

production planning system

 Schedules component items when

they are needed - no earlier and no
later
1
 When to Use MRP

 Dependent and discrete items

 Complex products
 Job shop production
 Assemble-to-order environments

1
 MRP

Material requirements planning (MRP): Computer-

based information system (i.e. glorified database)
for ordering and scheduling of dependent
demand inventories

It is a production planning process that starts from the

demand for finished products and plans the production
step by step of subassemblies and parts.

20
 Independent and Dependent Demand
Independent demand: Demand for final products.
Dependent demand: Demand fort items that are subassemblies or
component parts to be used in production of finished goods.
Independent Demand
A
Dependent Demand

B(4) C(2)

D(2) E(1) D(3) F(2)

Independent demand is uncertain.

21
Dependent demand is certain.
 Is Dependant Demand lumpier?

The independent demand is continuous while the dependent demand is

lumpy.
Indep. Demand

Dep. Demand
“Lumpy” demand
Stable demand

Time Time
Amount on hand

Amount on hand

Safety stock
Time Time 22
MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction

23
 MRP Inputs: 1. MPS

• Master Production Schedule: MPS

– Time-phased plan specifying timing and quantity of production for
each end item.
– MPS comes from sales and marketing
– MPS covers about 1-3 months into the future
• Must cover cumulative lead time
Cumulative lead time: The sum of the lead times that
sequential phases of a process require, from ordering of
parts or raw materials to completion of final assembly.
– From Now until Cumulative lead time plans are generally
frozen
• Sometimes MPS is capacity filtered; MPS is curtailed after
taking the available capacity into account.

24
 MRP inputs: 2. BOM

Bill of materials (BOM): A listing of all of the

raw materials, parts, subassemblies, and
assemblies needed to produce one unit of a
product.
Product structure tree: Visual depiction of
the requirements in a bill of materials, where all
components are listed by levels.

Most often people do not use the term product

structure tree. Instead use BOM to mean the
product structure tree.

25
 Product Structure Tree

Level Chair
0

1 Leg Back
Assembly Seat Assembly

Cross Side Cross Back

2 Legs (4)
Bar(2) Rails (2) bar Supports (3)

26
 Explosion Example

• How many leg assemblies are needed for 1

chair?
• How many Cross bars are needed for 5 chairs?

• Computing how many parts are required per a

final product is called BOM explosion.

• MRP answers these questions by taking

production lead times into account: Not only it
tells how many, but also when.
27
 Lead Times

Assembly

Subassembly

Fabrication

Procurement

1 2 3 4 5 6 7 8 9 10

28
 Assembly Time Chart

Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11

Days
29
 MRP input: 3. Inventory levels
• Beginning inventory on hand
• Scheduled receipts
– Pipeline inventory not received yet but it is in the
process of coming to the inventory. We know
when this will be available for use.

30
Material Master
production
Requirements schedule

Planning
Product Material Item
structure requirements master
file planning file

Planned
order
releases

Work Purchase Rescheduling

orders orders notices
Figure 12.5

3
 MRP Outputs

 Planned orders
 Work orders
 Purchase orders
 Changes to previous plans or
existing schedules
 Action notices
 Rescheduling notices

3
 MPR Processing
• Gross requirements
– Total expected demand
• Scheduled receipts
– Open orders scheduled to arrive
• Planned on hand
– Expected inventory on hand at the beginning of each time period
• Net requirements
– Actual amount needed in each time period
• Planned-order receipts
– Quantity expected to received at the beginning of the period
– Offset by lead time
• Planned-order releases
– Planned amount to order in each time period

33
 MRP Processing

• Gross requirements: (Forecasted)Demand period by period

• Net requirements(t)
=Gross requirements(t)-Projected inventory(t-1)
-Scheduled receipt(t)
• If Net requirement(t) > 0
set Planned order receipts(t)>=Net requirement(t)
• Planned-order receipts is the production planned
• Projected inventory(t)
=Projected inventory(t-1)+Scheduled receipt(t)
+Planned order receipts(t)-Gross requirements(t)
• Planned order release(t-LT)=Planned-order receipts(t)
34
 Basic MRP Processes
1. Exploding the bill of material
2. Netting out inventory
3. Lot sizing
4. Time-phasing requirements

3
 The MRP Matrix
ITEM NAME OR NO. LLC - LOW LEVEL CODE PERIOD
LOT SIZE QTY MADE IN LY - LEAD TIME 1 2 3 4 5
Gross Requirements Derived from MPS or planned
order releases of the parent
Scheduled Receipts On order and scheduled to be
received
Projected on Hand Beg Inv Anticipated quantity on hand at
the end of the period
Net Requirements Gross requirements net of
inventory and scheduled
receipts
Planned Order Receipts When orders need to be
received
Planned Order Releases When orders need to be placed
to be received on time

3
 MRP example with LT=2 and 1 level

Periods 0 1 2 3
Gross requirements 6 11 7
Inputs
Scheduled receipts 2 3 0
Projected on hand 10 6 0 0
Net requirements 0 2 7
Planned order receipts 2 7 Outputs
Planned order releases 2 7

37
Figure 13-8

38
 Other Considerations

• Safety Stock
– Not much for items with dependent demand
• Lot sizing
– Lot-for-lot ordering
– Economic order quantity
– Fixed-period ordering
– Part-period model

39
MRP example with Lot size=5, LT=2 and 1 level

Periods 0 1 2 3
Gross requirements 6 11 9
Inputs
Scheduled receipts 2 3 0
Projected on hand 10 6 3 4
Net requirements 5 10
Planned order receipts 5 10 Outputs
Planned order releases 5 10

40
Figure 13-9

41
 MRP updates
• Regenerative MRP
– Do the planning from scratch
– Time between regenerations is long
– Ok for stable environments
• Net Change MRP
– Update the plan according to changes

42
 MRP Outputs

• Planned orders - schedule indicating the amount

and timing of future orders.
• Order releases - Authorization for the execution of
planned orders.
• Changes - revisions of due dates or order
quantities, or cancellations of orders.
• Performance-control reports
• Planning reports
• Exception reports

43
 Capacity Planning

Capacity requirements planning: The process

of determining short-range capacity requirements.

Load reports: Department or work center reports

that compare known and expected future capacity
requirements with projected capacity availability.

Time fences: Series of time intervals during which

order changes are allowed or restricted.

44
 MRP Planning

Develop a tentative Use MRP to

master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master production
resource requirements schedule
No
Can
Is shop capacity be
capacity No
changed to meet
adequate? requirements
Yes Yes

Firm up a portion Change

of the MPS capacity

45
 MRP in Services

• Food catering service

– End items are the catered food
– Dependent demands are ingredients for
each recipe, i.e. bill of materials
• Taco Bell menu items
• Hotel renovation
– Activities and materials “exploded” into
component parts

46
 Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements
• Ability to evaluate capacity requirements
• Means of allocating production time

Eventually it is a database with limited decision

making capability

47
 Requirements of MRP

• Computer and necessary software

• Accurate and up-to-date inputs:
– Master schedules
– Bills of materials
– Inventory records
• Integrity of data

48
 MRP II

• Expanded MRP with and emphasis

placed on integration
– Financial planning
– Marketing
– Engineering
– Purchasing
– Manufacturing

49
 MRP II

Market Master
Finance Manufacturing production schedule
Demand

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut Capacity
capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?

50
Capacity Requirements
Planning (CRP)

 Computerized system that projects load

from material plan
 Creates load profile
 Identifies underloads and overloads

5
 Capacity

Usually expressed as standard

machine hours or labor hours

Capacity = (no. machines or workers)

x (no. shifts) x (utilization)
x (efficiency)

5
 Capacity Terms

 Load profile
 Compares released and planned orders with work
center capacity
 Capacity
 Productive capability; includes utilization and
efficiency
 Utilization
 % of available working time spent working

5
More Capacity Terms

 Efficiency
 Load
 The standard hours of work assigned to a
facility
 Load percent
 The ratio of load to capacity
Load % = (load/capacity)x100%

5
 Capacity Requirements
Planning
MRP planned
order
releases

Capacity Open
Routing
requirements orders
file
planning file

Load profile for

each machine center
Figure 12.8
5
 Determining Loads
and Capacities

2 copiers, 2 operators
5 days/wk, 8 hr/day
1/2 hr meals, 1/2 hr maintenance per day

Efficiency = 100%
Utilization = 7/8 = 87.5%
Daily capacity = 2 machines x 2 shifts
x 8 hours/shift x 100% efficiency
x 87.5% utilization
= 28 hours or 1,680 minutes
Example 12.2
5
 Determining Loads
and Capacities
JOB NO. OF SETUP RUN TIME
NO. COPIES TIME (MIN) (MIN/UNIT) TOTAL TIME
10 500 5.2 0.08 5.2 + (500 x 0.08) = 45.2
20 1,000 10.6 0.10 10.6 + (1,000 x 0.10) = 110.6
30 5,000 3.4 0.12 3.4 + (5,000 x 0.12) = 603.4
40 10,000 11.2 0.14 11.2 + (10,000 x 0.14) = 1,411.2
50 2,000 15.3 0.10 15.3 + (2,000 x 0.10) = 215.3
2385.7 min
Load percent = 2,385.7 / 1,680 = 1.42 x 100% = 142%
Add another shift:
Daily capacity = 2 machines x 3 shifts x 8 hours/shift
x 100% efficiency x 87.5% utilization
= 42 hours or 2,520 minutes
Revised load percent = 2,385.7 / 2,520 = 0.9467 x 100% = 94.67%
Example 12.2
5
 Initial Load Profile
120 –
110 –
100 –
Hours of capacity

90 –
80 –
70 –
60 –
50 –
40 –
Normal
capacity
30 –
20 –
10 –
0–
1 2 3 4 5 6
Time (weeks)
Figure 12.9
5
Remedies for Underloads
1. Acquire more work
2. Pull work ahead that is scheduled for
later time periods
3. Reduce normal capacity

5
 Remedies for Overloads
1. Eliminate unnecessary requirements
2. Reroute jobs to alternative machines or work centers
3. Split lots between two or more machines
4. Increase normal capacity
5. Subcontract
6. Increase the efficiency of the operation
7. Push work back to later time periods
8. Revise master schedule

6
 Adjusted Load Profile
120 –
110 –
100 –
Hours of capacity

90 –
80 –
70 – Work an
extra
60 – shift Push back
Pull ahead
50 –
Overtime Push back Normal
40 –
capacity
30 –
20 –
10 –
0–
1 2 3 4 5 6
Time (weeks)
Figure 12.10
6
Relaxing MRP Assumptions

 Material is not always the constraining

resource
 Lead times can vary
 Not every transaction needs to be
recorded
 JIT can be used with MRP
 The shop floor may require a more
sophisticated scheduling system
6
Manufacturing
Resource
Planning
(MRP II)

6
Manufacturing Forecast Aggregate
production
plan
Customer orders

Resource No
Feasible?

Planning Yes
Master production
schedule

(MRP II) Material requirements

planning

Capacity requirements
planning

No
Feasible?
Feedback
Yes

Purchase Work
orders orders

Shop floor
Inventory
control

Manufacture

Figure 12.11
6
Manufacturing Forecast Aggregate
production
plan
Customer orders

Resource
Forecast Aggregate Customer
No
Feasible?

Planning production
plan
orders Yes
Master production
schedule

(MRP II) Material requirements

planning

No Capacity requirements
planning

Feasible?
No
Feasible?
Feedback

Yes Yes

Purchase Work
orders orders
Master production
schedule
Shop floor
Inventory
control

Manufacture

Figure 12.11
6
Manufacturing Forecast Aggregate
production
plan
Customer orders

Resource
Master production schedule
No
Feasible?

Planning Yes
Master production
schedule

(MRP II)
Material requirements planning Material requirements
planning

Capacity requirements
planning

Capacity requirements planning

No
Feasible?
Feedback
Yes

No Purchase Work
orders orders
Feasible?
Shop floor
Inventory
control

Yes Manufacture

Figure 12.11
6
Manufacturing Forecast Aggregate
production
plan
Customer orders

Resource No
Feasible?

Planning
Purchase Work
Yes
Master production
schedule

(MRP II)
orders orders Material requirements
planning

Capacity requirements
planning

Shop floor control

Inventory No
Feasible?
Feedback
Yes

Purchase Work
orders orders

Manufacture
Shop floor
Inventory
control

Manufacture

Figure 12.11
6
Manufacturing Forecast Aggregate
production
plan
Customer orders

Resource No
Feasible?

Planning Yes
Master production
schedule

(MRP II) Material requirements

planning

Capacity requirements
planning

No
Feasible?
Feedback
Yes

Purchase Work
orders orders

Shop floor
Inventory
control

Manufacture

Figure 12.11
6
 ERP

• Enterprise resource planning (ERP):

An expanded effort to integrate standardized record
keeping that will permit information sharing throughout
the organization
• Strategic considerations
– High initial cost
– High cost to maintain
– Future upgrades
– Training

69
 Summary
• MRP:
– Dependent vs Independent demand
– Inputs (BOM),
– Processing,
– Outputs
– Benefits and requirements
• Capacity planning
• MRP-II and ERP

70
 Practice Questions
1. The master production schedule states which end items
are to be produced both when and how many.
Answer: True Page: 577
2.Load reports show capacity requirements for departments
or work centers which may be more or less than the
capacity available in that work center.
Answer: True Page: 593
3.MRP II permits the simultaneous planning of production,
marketing, and financial resources to support a production
plan.
Answer: True Page: 592

71
 Practice Questions
• 1. The output of MRP is:
• A) gross requirements
• B) net requirements
• C) a schedule of requirements for all parts and
end items
• D) inventory reorder points
• E) economic order quantities and reorder
points
• Answer: C Page: 577

72
 Practice Questions

2. The MRP input listing the assemblies,

subassemblies, parts, and raw materials needed
to produce one unit of finished product is the:
• A) master production schedule
• B) bill-of-materials
• C) inventory-records
• D) assembly-time chart
• E) net-requirements chart
• Answer: B Page: 578

73
 Practice Questions
• 3. Which one of the following most closely
describes net material requirements?
• A) gross requirements - amount on-hand -
scheduled receipts
• B) gross requirements - planned receipts
• C) gross requirements - order releases +
amount on-hand
• D) gross requirements - planned order
releases
• E) gross requirements - amount on-hand +
planned order releases
• Answer: A Page: 581
74
 Practice Questions

4.In MRP, "scheduled receipts" are:

• A) identical to "planned-order receipts"
• B) identical to "planned-order releases"
• C) open orders (that is, ordered before the first
time bucket, but not delivered yet)
• D) "net requirements"
• E) available to promise inventory
• Answer: C Page: 582

75
 Practice Questions
5. Which is true of a net-change system?
A) It is a batch-type system which is updated
periodically.
B) It is usually run at the beginning of each month.
C) The basic production plan is modified to reflect
changes as they occur.
D) It is used to authorize the execution of planned
orders.
E) It indicates the amount and timing of future
changes.
• Answer: C Page: 588 76
 Chapter 8

Just-In-Time
Systems

77
 JIT/Lean Production

• Just-in-time: Repetitive production system in

which processing and movement of materials
and goods occur just as they are needed,
usually in small batches
• JIT is characteristic of lean production
systems
• JIT operates with very little “fat”

78
 JIT Goals

• Eliminate disruptions
• Make system flexible by reduce
setup and lead times
• Eliminate waste, especially excess
inventory

79
 Sources of Waste

• Overproduction
• Waiting time
• Unnecessary transportation
• Processing waste
• Inefficient work methods
• Product defects

80
 Big vs. Little JIT

• Big JIT – broad focus

– Vendor relations
– Human relations
– Technology management
– Materials and inventory management
• Little JIT – narrow focus
– Scheduling materials
– Scheduling services of production

81
 JIT Building Blocks

• 1. Product design
• 2. Process design
• 3. Personnel/organizational
elements
• 4. Manufacturing
planning and control

82
 1. Product Design

• Standard parts
• Modular design
• Highly capable production systems

83
 2. Process Design

• Small lot sizes

• Setup time reduction
• Manufacturing cells
• Limited work in process
• Quality improvement
• Production flexibility
• Little inventory storage

84
 Benefits of Small Lot Sizes

Reduces inventory
Less rework
Less storage space
Problems are more apparent
Increases product flexibility
Easier to balance operations

85
 Production Flexibility

• Reduce downtime by reducing

changeover time
• Use preventive maintenance to
reduce breakdowns
• Cross-train workers to help clear
bottlenecks
• Reserve capacity for important
customers

86
 3. Personnel/Organizational Elements

• Workers as assets
• Cross-trained workers
• Continuous
improvement
• Cost accounting
• Leadership/project
management

87
 4. Manufacturing Planning and Control

• Level loading
• Pull systems
• Visual systems
• Close vendor relationships
• Reduced transaction processing
• Preventive maintenance

88
 Pull/Push Systems

• Pull system: System for moving work

where a workstation pulls output from
the preceding station as needed. (e.g.
Kanban)
• Push system: System for moving work
where output is pushed to the next
station as it is completed

89
 Kanban Production Control System

• Kanban: Card or other device that

communicates demand for work or materials
from the preceding station
• Kanban is the Japanese word meaning
“signal” or “visible record”
• Paperless production control system
• Authority to pull, or produce comes
from a downstream process.

90
Traditional Supplier Network

Buyer
Buyer

Supplier
Supplier Supplier
Supplier

Supplier
Supplier

Supplier
Supplier Supplier
Supplier Supplier Suppiler
Supplier Suppiler

91
Tiered Supplier Network

Buyer
Buyer

First Tier Supplier Supplier

Supplier

Second Tier Supplier Supplier

Supplier Supplier
Supplier

Third Tier Supplier Supplier

Supplier Supplier
Supplier Supplier
Supplier Supplier
Supplier

92
 Summary JIT Goals and Building Blocks

Ultimate A
Goal balanced
rapid flow

Supporting Reduce setup

Goals and lead times
Eliminate disruptions Eliminate waste
Make the system flexible Minimize inventories

Product Process Personnel Manufactur- Building

Design Design Elements ing Planning Blocks

93
 Converting to a JIT System

• Get top management commitment

• Decide which parts need most effort
• Obtain support of workers
• Start by trying to reduce setup times
• Gradually convert operations
• Convert suppliers to JIT
• Prepare for obstacles

94
 Obstacles to Conversion

• Management may not be committed

• Workers/management may not be
cooperative
• Suppliers may
resist

95
 JIT in Service

The basic goal of the demand flow

technology in the service organization is to
provide optimum response to the customer
with the highest quality service and
lowest possible cost.
– Eliminate disruptions
– Make system flexible
– Reduce setup and lead times
– Eliminate waste
– Minimize WIP
– Simplify the process

96
 JIT Purchasing

• New challenges
– Meeting manufacturing requirements
– Changing from traditional thinking and practices –
frequent on-time delivery of small quantities
– Long term relationships with suppliers as
partners

• How about Exchange purchasing: Auctions?

97
 JIT II

• JIT II: the practice of allowing vendors

to manage some aspects of buying their
products or services for the buyer

98
 Benefits of JIT Systems

• Reduced inventory levels

• High quality
• Flexibility
• Reduced lead times
• Increased productivity

99
 Benefits of JIT Systems (cont’d)

• Increased equipment utilization

• Reduced scrap and rework
• Reduced space requirements
• Pressure for good vendor relationships
• Reduced need for indirect labor

100
 Elements of JIT

• Smooth flow of work (the ultimate goal)

• Elimination of waste
• Continuous improvement
• Eliminating anything that does not add
value
• Simple systems that are easy to manage
• Use of product layouts to minimize
moving materials and parts
• Quality at the source

101
 Elements of JIT (cont’d)

• Poka-yoke – fail safe tools and methods

• Preventative maintenance
• Good housekeeping
• Set-up time reduction
• Cross-trained employees
• A pull system

102
Case Study based on a trip on Nov 19, 02

NUMMI

103
 History/Products
• Late 70’s oil crisis
• GM closes Fremont, CA plant firing 6000 in 1982
• Toyota approaches GM to set up Toyota production
system at a GM plant, United Auto Workers accepts the
deal
• GM and Toyota put together $400M in 1984. GM owns
the infrastructure, Toyota is the tenant.
• Nummi = New United Motor Manufacturing, Inc is born in
1984 as the unique example of a Toyota – GM joint
venture
• Products: Toyota Corolla, Tacoma Trucks, Pontiac Vibe
(Toyota bottom, GM top) and Toyota Voltz (Toyota
bottom, GM top, sold in Japan) , GM Prism until 13/12/01 104
 Workers
• Nummi has about 4500 unionized workers
• Workers are under two types:
– Production, high school graduates
– Maintenance
• Workers work in teams of 4-6
• Workers in a team rotate the tasks every 1-3 hours
• Team leader is responsible for the rotation.
• Team leader withdraws parts from the inventory (every 1-
2 hours) and provides the tools as necessary
• Workers make $17 per hour

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 Capacity
• Nummi has a cycle time of
– 60 seconds for Corolla, 1 body
– 82 seconds for Tacoma, 3 bodies (only cabin is
produced at Nummi, the bottom and the back are
bought from suppliers)
• Nummi works in two shifts
– I: 6:00-14:30, II: 16:30-1:00
– Each shift has 1 hour lunch/dinner break
– Starting the first shift at 6:00 workers avoid heavy
morning traffic
– Two hours between shifts I and II is to allow for
overtime after the first shift when necessary

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 Work Flow
• Stamping: Forming metal (side, back, front) panels with
presses
• Body & Weld: Putting panels together
• Paint: Paint inspection is the current bottleneck
– Primer body paint applied by robots (chemically
hazardous task)
– Door jambs painted manually
• Plastics: Making bumpers, inside panels
• Assembly: Putting in tires, engine, seats, bumpers,
harnessing. Cars , trucks on 2 km , 0.8 km conveyors
• Cars contain Building manifest = BOM = Ingredients list at
every step of these operations
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 Just in time
• Kaizen: continuous improvement
• Kanban: replenishment every 1-2 hours
• Jidoka: Assure 100% quality. Otherwise pull the Andon
chord
– 1000 times per shift
– 9% of line stops are longer than 30 seconds
– Line stops longer than an hour once every month
• Muda: Waste to be eliminated
• Genchi Genbutsu: Go to the source to learn and to solve
the problems
• This Japanese terminology is all over the boards in the
plant

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 Creative Tool / Work Place Design
• Die change at the stamping in 3 hours
• Tilted storage bins for ease of access
• Collapsing storage boxes when empty
– To reduce the empty box storage requirements in
trucks returning to suppliers, say in Indiana
– These boxes save about $10M annually
– The worker who suggested the boxes earned several
thousand points. 1 point = $1.
• More info www.nummi.com

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