13 - Manufacturing Resource

Planning
Dr. Ron Tibben-Lembke

Historical Perspective
ERP- Enterprise
Resource Planning
MRP II Manufacturing
Resource Planning
mrp material
requirements
planning

MRP Crusade (1975)

Material

Requirements Planning
Make sure you have enough parts when
you need them
Take

future demands, factor in lead times

(time phase), compare to on hand, order
Determine order size and timing
Control and plan purchasing vs. OSWO
inventory management

Closed-Loop MRP
Capacity
Part

Consideration:

routings
Calculate loads on each work station
See if scheduled load exceeds capacity
Lead-time long enough to allow some
shuffling to make plan feasible

MRP II -- Manufacturing
Resource Planning
A method

for the effective planning of all

resources of a manufacturing company (APICS
def.)

Financial accounting incorporated

Sales
Operations Planning
Simulate capacity requirements of different possible
Master Production Schedules

1989, $1.2B MRPII sales in U.S., one third of total software sales

Success?

MRP Crusade
Begins

Electronic Data Interchange

My

computer talks to yours, tells you exactly

what I want to order, when
You fill out a form, very compressed message
sent, viewed as form
Software, hardware expensive to implement
Sample Purchase Transaction
ST88850*1
BEG*00*NE*00498765**010698
PID*X*08*MC**Large Widget
P01**5*DZ*4.55*TD
CTT*1
SE*1*1

Transaction Set identifier

Beginning of Segment
Description of Product
Baseline Item Data
Transaction Totals
End of Segment

XML

Xtensible Markup Language

XML provides

self-describing information.
Much easier, faster to implement or modify
than EDI.
Expected to replace EDI.
Standardization through RosettaNet efforts

ERP differences
Material

planning
Capacity planning
Product design
Information warehousing
All

functions in the entire company operate

off of one common set of data
Instantaneous updating, visibility

Historical Perspective

User PCs

Application
Server(s)

Database
Server(s)

ERP Sales
Worldwide

sales of top 10 vendors

1995

$2.8 B
1996 $4.2 B
1997 $5.8 B
Fortune

$3.2 B SAP

survey: 44% reported spending

at least 4 times as much on
implementation as on software

ERP Challenges
Modules

assume best practices:

Change

software to reflect company ($)

Change company to follow software (?)
Accuracy

of data

Drives

entire system
Ownership of / responsibility for
Ability

to follow structure

ERP Novel?
Goal-like

novel
Hero learns more about ERP,
deciding if it is right for his
company
Company rushes through
installation
General introduction to ERP
systems, what they do, how
different from MRP
SAP R/3 screen shots

3 Reasons for ERP

Legacy systems outdated and need
replacing anyway
2. Desire for greater communication
between locations
3. Reconfigure business to take
advantage of current and future
communications and computing
breakthroughs
1.

Flexibility

Why ERP?

High

Common Client
Multiple Processes

Multiple Clients
Multiple Processes

Low

Common Client
Best Practices

Multiple Clients
Mostly Best Practices

High
Low
Centralization

ERP Considerations
1. Control: how much centralization, drill-down visibility?
2. Structure: How large & dispersed, how tightly
integrated does it need to be?
3. Database: desired structure, accessibility
4. Customization: out/in source, how willing? Ability to
modify in real time. Creating in-house experts vs.
continued consulting dependence
5. Best practices: how willing to embrace?
Source: Carol A. Ptak ERP: Tools, Techniques and Applications for
Integrating the Supply Chain, St. Lucie Press, APICS Series on
Resource Management, 1999, p. 252.

How do we
System

for organizing WIP releases

Consider

LT for each item

Look at BOM to see what parts needed
Release so they will arrive just as needed
Example
Order

Snow Shovel

quantity is 50 units
LT is one week

MRP Table

6 units short

MRP Table

Order 50 units week earlier

Ending Inventory

Ending inventory

Terminology
Projected

Available balance

Not on-hand (that may be greater)

Tells how many will be available (in ATP sense)

Planned

order releases scheduled receipts

Only when material has been committed to their

production
Move to scheduled receipts as late as possible
Preserves flexibility

1605 Snow Shovel

1605
Snow Shovel

314 scoop assembly

118 Shaft (wood)

14127
Rivet (4)

048
Scoop-shaft
connector

062 Nail (4)

13122
Top Handle
Assy

314 scoop assembly

314 scoop assembly

019 Blade (steel)

2142 Scoop (aluminum)

14127 Rivet (6)

13122 Top Handle Assembly

13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118
Top handle
Coupling (steel)

129 Top Handle

Bracket (steel)

082 Nail (2)

BOM Explosion
Process

of translating net requirements

into components part requirements
Take

into account existing inventories

Consider also scheduled receipts

BOM Explosion Example

Need

to make 100 shovels

We are responsible for handle
assemblies.

13122 Top Handle Assembly

13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118
Top handle
Coupling (steel)

129 Top Handle

Bracket (steel)

082 Nail (2)

Net Requirements
Part Description
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling

Inv
25
22
4
27
15
39

Sch Gross
Rec Req
-100
25
50
--15

Net
Req
75

Net Requirements
Part Description
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling

Inv
25
22
4
27
15
39

Sch
Rec
-25
50
--15

Gross
Req
100
75
150
75

Net
Req
75
28
96
48

13122 Top Handle Assembly

13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118
Top handle
Coupling (steel)

129 Top Handle

Bracket (steel)

082 Nail (2)

Net Requirements
Part Description
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling

Sch
Inv
25
22
4
27
15
39

Gross
Rec Req
-100
25 75
50 150
-75
-48
15 48

Net
Req
75
28
96
48
33
--

Timing of Production
This

tells us how many of each we need

Doesnt

tell when to start

Start as soon as possible?
Dependent events (oh no, not that!)
Front schedule Cutting approach
Back schedule

13122 Top Handle Assy

13122 Top Handle Assy-2

13122 Top Handle Assy -3

457 Top Handle

One handle for

Each assembly

457 Top Handle

457 Top Handle

082 Nail (2 required)

Two nails for

Each assembly

082 Nail (2 required)

082 Nail (2 required)

082 Nail (2 required)

11495 Bracket Assembly

One bracket for

Each assembly

11495 Bracket Assembly

One bracket for

Each assembly

11495 Bracket Assembly

One bracket for

Each assembly

11495 Bracket Assembly

129 Top Bracket

129 Top handle bracket

1118 Top handle coupling

1118 Top handle coupling

1118 Top handle coupling

Other considerations
Safety

stock if uncertainty in demand or

supply quantity
Dont

Safety

supply

let available go down to 0

LT if uncertainty in arrival time of

Place

Order

order earlier than necessary

quantities

EOQ,

Lot-For-Lot, Periodic Order quantity,

others

MRP Priorities
First:
Get

installed, part of ongoing managerial

process, get users trained
Understand critical linkages with other areas
Achieve high levels of data integrity
Link MRP with front end, engine, back end
Then:
Determine

order quantities more exactly

Buffering concepts
Nervousness

Ordering Policies
Dependent

Demand

Not

independent demand
Discrete not continuous
Lumpy may have surges
Complexity
Reduces

costs ordering & holding

Anything other than lot-for-lot Increases
lumpiness downstream

Assumptions
All

requirements must be available at start

of period
All future requirements must be met, and
cant be backordered
System operated on periodic basis (e.g.
weekly)
Requirements properly offset for LTs
Parts used uniformly through a period
Use

average inventory levels for holding cost

Example Demands
Try

several lot-sizing methods

Economic Order Quantity

Periodic Order Quantity
Part Period Balancing
Wagner Within

Order

cost = $300 per order = CP

Inventory
Avg

Carrying cost = $2 / unit/ week = CH

Demand = 92.1 / wk = D

EOQ
Minimizes

total
ordering & holding
costs
Assumes demand
same every period
Definitely

not always
true for this use

Avg.

demand and
holding cost need
same time units (e.g.
per week)

Economic

Lot Size:

2C P D
ELS
CH
Where:
D

= avg demand
CP = ordering cost
CH

= holding cost

EOQ

Sqrt( 2 * 300 * 92.1 / 2) = 166

EOQ

Ordering cost = 6 * 300 =

Inv carry cost = 1,532.5 * 2 =
Total
$4,865

$1,800
$3,065

Periodic Order Quantities

EOQ
Gave

good tradeoff between ordering &

holding
resulted in a lot of leftovers.
Only

order enough to get through a

certain number of periods no leftovers
How many? EOQ / avg. demand
166

/ 92.1 = 1.805 ~ 2 weeks worth

Periodic Order Quantities

Ordering cost = 6 * 300 =

Inv carry cost =1,082.5 * 2 =
Total
$3,945

$1,800
$2,145

Part Period Balancing

(Least Total Cost)
Increase

the quantity until holding costs equal

the ordering cost

Order

10 holding = 10/2*2 = 10
Order 20 holding = 10 + 10*1.5*2 = $40
Order 35 = 40 + 15*2.5*2 = $115
Order 55 = 115 + 20*3.5*2 = $255
Order 125 = 255 + 70*4.5*2 = $85

Part Period Balancing

Week 5:
Order 70: Holding = 10*0.5*2 = $10
Order 250: 10 + 180*1.5*2 = $550
So I could:

Order 250 units, pay $300 in ordering and $540 holding,

for a total of $840,
Order 70 now, 180 next week, and pay $600 in ordering
and $10 + 180*0.5*2=180 in holding = $790
Seems like the second option is best.

Part Period Balancing

When

should we place a separate order? If

1.5*$2*D > 300. D>300/3 = 100
Whenever demand is >= 100, we might as well
place a separate order.
What about week 9?
Order 230: holding = 230*0.5*2 = $230
Order 270: = 230 + 40*1.5*2 = $350
Order 280: = 350 + 10*3.5*2 = $420

Part Period Balancing

Wagner-Within
Mathematically

optimal
Work back from planning period farthest
in the future
Consider all possibilities:
Order

for 5, 4 and 5, 3 and 4, then 5, etc.

Uses dynamic programming similar to
linear programming

Simulation Experiments
What

is best under real-world

conditions?
Multiple

levels to be concerned about

Real-time changes