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4.

Production and Material Planning

Planning Process
Aggregate production plan
Master production schedule Material requirements plan Capacity plan
No

Realistic Yes

Execute capacity plans Execute material plans

Master Production Schedule


A time-phased production plan that specifies how many of, and when to build, each end item Must be in accordance with the aggregate production plan, which sets the overall level of output in broad terms

MPS Example 1
Months Aggregate Production Plan (shows the total quantity of amplifiers) Weeks Master Production Schedule (shows the specific type and quantity of amplifier to be produced 240 watt amplifier 150 watt amplifier 75 watt amplifier 1 January 1,500 February 1,200

100 500

100 500 300

100 450

100 450 100

MPS Planning

Lot-for-lot or batch production policies


Ft = forecast for period t Ot = (confirmed) customer orders for period t It = end-item inventory in period t Qt = MPS, manufacturing quantity in period t

MPS Example 2 Io = 1600, lot for lot or batch = 2500


W1 W2 W3 W4 W5 W6 W7 W8

Ft Ot It Qt

1000 1000 1000 1000 2000 2000 2000 2000 1200 800 300 200 100 0 0 0

W1

W2

W3

W4

W5

W6

W7

W8

Ft Ot It Qt

1000 1000 1000 1000 2000 2000 2000 2000 1200 800 300 200 100 0 0 0

Material Requirements Planning (MRP)


Determines quantity & timing of dependent demand items Creates requirements and schedules identifying the parts, components, and materials necessary to produce the end products specified in the MPS

Objectives of MRP
Minimize inventory level Maximize operating efficiency Improve customer service

Inputs of MRP
Master production schedule Specifications or bills-of-material Inventory availability Purchase orders outstanding Lead times

Structure of the MRP System


Data Files BOM Master production schedule Output Reports
MRP by period report MRP by date report

Lead times
(Item master file) Planned order report

Inventory data Material requirement planning programs (computer and software)

Purchase advice

Exception reports Order early or late or not needed Order quantity too small or too large

Purchasing data

Bill of Material (BOM)


List of components, ingredients, and materials needed to make product Provides product structure

Items above given level are called parents Items below given level are called children

Product Structure Diagram


Level 0 1 Product structure for Awesome (A) A B(2) Std. 12 Speaker kit C(3) Std. 12 Speaker kit w/ amp-booster F(2) Std. 12 Speaker
booster assembly

E(2)
Packing box and installation kit of wire, bolts, and screws

E(2)

D(2)

G(1)

D(2)

Amp-booster
12 Speaker 12 Speaker

BOM
Lvl 0 1 1 2 2 3 3

Part A B C E F D G

Qty 1 1 1 1 1 1 1

UM EA EA EA EA EA EA EA

Description Awesome speaker kits Std. 12" speaker set Std. 12" speaker set w/ amp-booster packing box and installation kit 12" speaker & booster assembly 12" speaker Amp-booster

Lead time 1 week 2 weeks 1 week 2 weeks 3 weeks 1 week 2 weeks

May add other factors such as lot size, weight, etc.

BOM Explosion

To produce 50 part A:
Part B: Part C: Part D: Part E: Part F: Part G: 2 x number of As = 3 x number of As = 2 x number of Bs + 2 x number of Fs = 2 x number of Bs + 2 x number of Cs = 2 x number of Cs = 1 x number of Fs = (2)(50) = (3)(50) = 100 150

(2)(100) + (2)(300) = 800 (2)(100) + (2)(150) = 500 (2)(150) = 300 (1)(300) = 300

Gross Requirements
1 A. B. C. Required date Order release date Required date Order release date Required date Order release date 100 150 150 1 week 2 weeks 300 300 600 600 300 300 2 weeks 200 200 1 week 3 weeks 2 3

Week 4 5

7 50 100

8 Lead Time 50 1 week 2 weeks

E.
F. D. G.

Required date Order release date


Required date Order release date Required date Order release date Required date Order release date

200
200 300

300

MRP
Level 0, Part A 0 1 2 50 50 3 4 50 5 6 50 7 8 50 9 10 100

Gross Requirements
Scheduled Receipts Inventory Balance Net Requirements Planned Receipts Planned Order Release

Level 1, Part B
Gross Req. Sch. Receipts Inv. Balance Net Req. Plan. Receipts Plan. Order Level 1, Part C Gross Req. Sch. Receipts

1
50

2
50

10

50

1 50

10

Inv. Balance
Net Req. Plan. Receipts Plan. Order

50

Level 2, Part E
Gross Req. Sch. Receipts Inv. Balance Net Req. Plan. Receipts Plan. Order Level 2, Part F Gross Req. Sch. Receipts

10

100 100 300

10

Inv. Balance
Net Req. Plan. Receipts Plan. Order

200

Level 3, Part D
Gross Req. Sch. Receipts Inv. Balance Net Req. Plan. Receipts Plan. Order Level 3, Part G Gross Req. Sch. Receipts

10

500

10

100 100

Inv. Balance
Net Req. Plan. Receipts Plan. Order

100

Capacity Plan
MRP systems do not consider capacity during normal planning cycles Finite capacity scheduling (FCS) recognizes actual capacity limits By merging MRP and FCS, a finite schedule is created with feasible capacities which facilitates rapid material movement

Example
MPS/MRP W1 W2 W3 W4 Bill of capacity (min) Assembly Inspection

Item A Item B Item C Item D

1000 1500 600

1000 500 1500

1000 500 1500 600

1000 1500

20 24 22 25
Given Week 4 capacity

2.0 2.5 2.0 2.4

Capacity required (hr) Week 1 Week 2 Week 3

Assm. Insp.

1200 110

Enterprise Resource Planning (ERP)

An extension of the MRP system to tie in customers and suppliers


Allows automation and integration of many business processes Shares common data bases and business practices Produces information in real time levels Coordinates business from supplier evaluation to customer invoicing Has potential to reduce transaction costs and to increase the speed and accuracy of information

ERP Modules
Basic MRP Finance Human resources Supply chain management (SCM) Customer relationship management (CRM)

ERP Structure

Advantages of ERP Systems


Provides integration of the supply-chain, production, and administration Creates commonality of databases Can incorporate improved best processes Increases communication and collaboration between business units and sites Has an off-the-shelf software database May provide a strategic advantage

Disadvantages of ERP Systems


Is very expensive to purchase and even more so to customize Implementation may require major changes in the company and its processes Is so complex that many companies cannot adjust to it Involves an ongoing, possibly never ending, process for implementation Expertise is limited with ongoing staffing problems

Video Case Study


Why is accurate inventory such an important issue at Wheeled Coach? What kind of plan would you suggest for dealing with excess inventory at Wheeled Coach?