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 Consideration:
 Part 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
 MRP Crusade
Success? 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 Transaction Set identifier
BEG*00*NE*00498765**010698 Beginning of Segment
PID*X*08*MC**Large Widget Description of Product
P01**5*DZ*4.55*TD Baseline Item Data
CTT*1 Transaction Totals
SE*1*1 End of Segment
XML


e 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

Application Database
User PCs
Server(s) Server(s)
ERP Sales

 Worldwide sales of top 10 vendors

 1995 $2.8 B
 1996 $4.2 B

 1997 $5.8 B $3.2 B SAP

 Fortune 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

1. 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
Why ERP?

High Common Client Multiple Clients

Flexibility

Multiple Processes Multiple Processes

Common Client Multiple Clients

Low
“Best Practices” 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 – Snow Shovel

 Order quantity is 50 units
 LT is one week
MRP Table

Gross Requireme
Scheduled receip
6 units short
MRP Table

Gross Requireme
Scheduled receip
Order 50 units week earlier
Ending Inventory

Gross Requireme
Scheduled receip
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

13122 062 Nail (4)

048 Top Handle
14127 Scoop-shaft
314 scoop assembly Assy
Rivet (4) connector

118 Shaft (wood)

314 scoop assembly

314 scoop assembly

019 Blade (steel)

14127 Rivet (6)

2142 Scoop (aluminum)

13122 Top Handle Assembly
13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118 129 Top Handle 082 Nail (2)
Top handle Bracket (steel)
Coupling (steel)
BOM Explosion

 Processof 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 129 Top Handle 082 Nail (2)
Top handle Bracket (steel)
Coupling (steel)
Net Requirements

Sch Gross Net

Part Description Inv Rec Req Req
Top handle assy 25 -- 100 75
Top handle 22 25
Nail (2 required) 4 50
Bracket Assy 27 --
Top bracket 15 --
Top coupling 39 15
Net Requirements
Sch Gross Net
Part Description Inv Rec Req Req
Top handle assy 25 -- 100 75
Top handle 22 25 75 28
Nail (2 required) 4 50 150 96
Bracket Assy 27 -- 75 48
Top bracket 15 --
Top coupling 39 15
13122 Top Handle Assembly
13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118 129 Top Handle 082 Nail (2)
Top handle Bracket (steel)
Coupling (steel)
Net Requirements
Sch Gross Net
Part Description Inv Rec Req Req
Top handle assy 25 -- 100 75
Top handle 22 25 75 28
Nail (2 required) 4 50 150 96
Bracket Assy 27 -- 75 48
Top bracket 15 -- 48 33
Top coupling 39 15 48 --
Timing of Production

 This tells us how many of each we need

 Doesn’t 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

LT = 2
Gross Req
13122 Top Handle Assy-2

13122 Top
13122 Top Handle Assy -3

13122 Top handle

LT = 2
Gross Req
457 Top Handle

13122 Top handle

LT = 2
Gross Req
One handle for
Each assembly
Sch receipts
LT = 2Avail Bal
Proj.
Gross Req
(ending) 25
Net Req
457 Top Handle

LT = 2
Gross Req
457 Top Handle
082 Nail (2 required)

13122 Top handle

LT = 2
Gross Req
Two nails for
Each assembly
Sch receipts
LT = 1
Lot Size
Proj. = 50
Avail Bal
(ending)
Gross Req 25
Net Req
082 Nail (2 required)

LT = 1
Lot Size =
082 Nail (2 required)

LT = 1
Lot Size =
082 Nail (2 required)

LT = 1
Lot Size =
11495 Bracket Assembly

13122 Top handle

LT = 2
Gross Req
One bracket for
Each assembly
Sch receipts
LT = 2Avail Bal
Proj.
Gross Req
(ending) 25
Net Req
11495 Bracket Assembly

13122 Top handle

LT = 2
Gross Req
One bracket for
Each assembly
Sch receipts
LT = 2Avail Bal
Proj.
Gross Req
(ending) 25
Net Req
11495 Bracket Assembly

13122 Top handle

LT = 2
Gross Req
One bracket for
Each assembly
Sch receipts
LT = 2Avail Bal
Proj.
Gross Req
(ending) 25
Net Req
11495 Bracket Assembly
129 Top Bracket

LT = 2
Gross Req
129 Top handle bracket
1118 Top handle coupling

LT = 2
Gross
LT = 3 Req
Safety Stock
1118 Top handle coupling

LT = 3
1118 Top handle coupling

LT = 3
Other considerations
 Safety stock if uncertainty in demand or
supply quantity
 Don’t let available go down to 0
 Safety LT if uncertainty in arrival time of
supply
 Place order earlier than necessary
 Order 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
can’t 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 Carrying cost = $2 / unit/ week = CH
 Avg Demand = 92.1 / wk = D
EOQ
 Minimizes total  Economic Lot Size:
ordering & holding
costs 2C P D
ELS =
 Assumes demand CH
same every period
 Definitely not always  Where:
true for this use D = avg demand
 Avg. demand and  C = ordering cost
holding cost need P

same time units (e.g. C = holding cost

H
per week)
EOQ
 Sqrt( 2 * 300 * 92.1 / 2) = 166

Week numbe
EOQ

 Ordering cost = 6 * 300 = $1,800

W eek num
 Inv carry cost = 1,532.5 * 2 = $3,065
 Total $4,865
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

Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Req. 10 10 15 20 70 180 250 270 230 40 0 10
Orders 20 35 250 520 270 10
Begin 20 10 35 20 250 180 520 270 270 40 10 10
End 10 0 20 0 180 0 270 0 40 0 10 0

Avg Inv 15 5 28 10 215 90 395 135 155 20 10 5

 Ordering cost = 6 * 300 = $1,800

 Inv carry cost =1,082.5 * 2 = $2,145
 Total $3,945
Part Period Balancing
(Least Total Cost)
 Increase the quantity until holding costs equal
the ordering cost
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Req. 10 10 15 20 70 180 250 270 230 40 0 10

 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 No. 1 2 3 4 5 6 7 8 9 10 11 12
Req. 10 10 15 20 70 180 250 270 230 40 0 10
Orders 55 0 0 0

 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
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Req. 10 10 15 20 70 180 250 270 230 40 0 10
Orders 55 0 0 0 70 180 250 270

 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
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Req. 10 10 15 20 70 180 250 270 230 40 0 10
Orders 55 0 0 0 70 180 250 270 280 0 0 0
Begin 55 45 35 20 70 180 250 270 280 50 10 10
End 45 35 20 0 0 0 0 0 50 10 10 0
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?
 Multiplelevels to be concerned about
 Real-time changes