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Back to the Basics: An Overview of a Closed Loop Resource Planning System

Selim G. Noujaim, CFPIM

Succeeding in today’s competitive business environment dictates adopt- into the future, and time-phased to assure proper level of shipments
ing advanced but rapidly changing techniques, such as Manufacturing consistent with:
Resource Planning (MRP II), Just-in-Time (JIT),
Computer Integrated Manufacturing (CIM), and
Enterprise Resource Planning (ERP), to name a Figure 1.
few. Companies, however, are rushing to embrace
such advanced operational processes without
solidifying their position on basic operational
measures. Those measures constitute the prereq-
uisites which, if not firmly practiced, would cer-
tainly impact in a negative fashion the ability of
a company to remain viable in the marketplace.
This written document is a summarized ver-
sion of the presentation which will be made in
an interactive fashion to ensure that an under-
standing of those important factors is well com-
municated and carried back to the workplace.
A review of the basic concept of a Closed
Loop Manufacturing System (Figure 1) reveals
a top-down/bottom-up, continuous integration
and interaction amongst all disciplines of an or-
ganization. The theory behind such a principle is
to establish a game plan that is understood and
embraced by every individual who is expected
to contribute to the strategic goals of the firm.
Once adopted, it would become the blueprint to
which the culture of the organization must ad-
here. The strategic plan becomes the cornerstone
for accountability, measurement, and feedback,
until such time as the plan is revised and appro-
priately communicated and executed.
The process begins by top management de-
fining a business plan which consists of a “state-
ment of long-range strategy and revenue, cost,
and profit objectives usually accompanied by budgets, a projected bal- • Customer service objectives
ance sheet, and a cash flow statement.” (APICS Dictionary, 8th edi- • Finished inventory levels
tion). The business plan in most instances is stated in dollars and grouped • Production constraints and costs.
by product family. Establishing a long-term plan is a must for each Forecasting the events of the future does not constitute a scientific
organization, small or large, for the purpose of securing targeted ex- phenomenon. Forecasters rely on numerous factors to balance the sup-
pectations. Let us, for example, examine a simplified one-year busi- ply and demand of a corporation. Considered are the capacity to pro-
ness plan (Table 1—stated in thousands of dollars) for a service-ori- duce and ship products, the financial support required to run the corpo-
ented machine shop: ration, conditions affecting the marketplace, feedback from current and
potential customers, as well as desired penetration into the market,
Table 1. among others. The Sales and Marketing department attempts every
period to put together a “best effort” outlook into the level of products
Department/Product Production Production Production to be sold within a specified time frame. Most forecasts, however, be-
Q1 Q2 6 mo. come inaccurate, thus leading the organization to needlessly overpro-
duce, underproduce, or manufacture the wrong products. Forecasts fail
CNC machining centers 500 515 1,040 due to numerous reasons, including:
Milling/manual operations 150 150 312 • Individual bias and unrealistic expectations in reference to the popu-
Lathe/Grinding/Honing 130 140 295 larity of a product or a group of products
Other 50 55 120 • Second-guessing the response (favorable or unfavorable) toward a
new product, service, or the continuation of an existing product
Naturally, production goals are accompanied by projection of ex- • Conflicting objectives between salespeople, top management, and
penses, commonly referred to as the “cost” of doing business. It re- manufacturing
flects a period-by-period forecast of financial assessment of operations • Sudden changes in the economy.
and the liquidity of the corporation. The business plan, although sum- The plan, especially as it begins to develop and become more de-
marized, must drive all other activities within a firm to balance supply tailed, must be reviewed often and adjusted when necessary for the
and demand and to express in aggregate terms a supply plan, projected simple reason that forecast errors are expected. If corrections are not

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 Back to the Basics: An Overview of a Closed Loop Resource Planning System

initiated, the entire company would find itself heading on the wrong shorten the cycle time. The supplier works weekends, while the other
track toward a disaster. The formal review is known as the Sales and components are sitting in a kit or partially assembled on the shop floor
Operations Plan (Figure 2), and can extend over a two-to-five-year collecting dust and exposed to damages. This shortage of inventory cre-
period into the future. ates an “overage” of inventory for the simple reason that all other parts
The Sales and Operations Plan considers vari-
ous outside influences which may affect its sta-
bility. Those will be discussed in detail. Such Figure 2.
plans, initially stated in financial terms, are fur-
ther developed, described, and expressed in units,
per product category, perhaps per customer, or
product line. Some of the most commonly asked
questions about a production plan are:
• What will we make? How many? When?
• What does that require?
• What do we have in stock?
• What do we have to order?
• What else do we need?
This marks the evolution of master schedul-
ing, especially when accompanied by detailed
planning of material flows and capacity to sup-
port the overall plan along with proper execu-
tion in terms of detailed shop scheduling and
purchasing actions.
The process which begins with master sched-
uling and ends with a detailed capacity plan-
ning methodology is know as operations man-
agement planning. It must be noted that noth-
ing about MRP theory has changed since its in-
troduction in the 1950s. It encompassed then and
encompasses now all of the prerequisites that
must be put in place prior to executing the first
MRP run. It is essential to reaffirm that MRP
should not and must not be considered unless
and until the following preconditions as de-
scribed are met:
If... of the bicycle are ready to be sold but cannot be simply due to a lack of
• Bills of Materials are accurate a required ingredient. Company money is then being wasted, and orders
• Inventory records are correct are not shipping on time to the customer; therefore, an opportunity to
• Order dates and quantities are valid generate cash is lost forever. Feasibly, the customer might attempt to
• Lead times are properly maintained purchase the product elsewhere, and perhaps may never call again. This
• Order policy has been stated correctly is all due to a simple error in a bill.
• Master Schedule is correct and reasonably stable The same holds true for accuracy of inventories, whether in stock
Then... or on the shop floor. Discussed are the reasons that contribute to inac-
• MRP generates a material plan to ensure: curacies, as well as methods to secure that counts are on target. One
- Right material must establish an effective cycle-counting program and address on a
- Right quantity timely basis the causes of errors and a corrective action, which in-
- Right time. cludes training, accountability and employee development. Routings
It is important to reaffirm that, despite the new innovations that hold the same importance. Imagine a manufacturing order being sent
created state-of-the-art processes to manage the resources of a corpo- to the welding department (Work Center A) when it is supposed to be
ration, the basic principles of material planning have not changed since assembled in the Printed Circuit Board area (Work Center B). The con-
the early days of MRP I. Therefore, the basic information stated in the sequences are, in most instances, severe. When conditions of this mag-
above two paragraphs remains and will always be required. Otherwise, nitude exist in a company, any company, floor leaders will quickly
generating an MRP run is useless. Those requirements are now dis- abandon the use of the formal system in favor of the old fashioned,
cussed starting with the accuracy of bills. informal way of doing business. Any experienced shop floor person
According to the APICS Dictionary, 8th edition, a bill of materials is would certainly know the difference between welding and PC assem-
“a listing of all subassemblies, intermediates, parts, and raw materials, bly—therefore, the formal system which consumed time, energy, and
that go into a parent assembly showing the quantity of each required to money to be implemented becomes useless.
make an assembly.” Imagine a bill of material for a given product, say a Naturally, the master production schedule is one of the most essential
bicycle. The bill neglects to list a handle bar as a component of that ingredients of a closed loop manufacturing system. It looks into the future
assembly. If MRP is allowed to run, then parts will be purchased, subas- to anticipate the products that would be built over a certain predefined
semblies will be made, and final component assembly will take place period of time. The master schedule must be stated in specific configura-
until someone realizes that a handle bar is missing. A search of the shop tions, quantities, and dates, and must take into account all possible sources
floor and stockroom locations ensues, but to no avail. The purchasing of demand. Input to the master schedule may be derived from several
department is contacted to rush through an order from the manufacturer, sources such as customer orders, sales forecast, spare part requirements,
but capacity of the supplier is limited and lead time to deliver the miss- interplant requirements, inventory planning, and field service. Entering
ing parts is long. The general manager authorizes premium payments to into the mix are certain limitations (i.e., product lead time, plant capacity,

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Back to the Basics: An Overview of a Closed Loop Resource Planning System
constraints and bottlenecks, backlog, management objectives), as well as
any conditions revealed during the monthly sales and operating planning
process. The master schedule drives the plan by being the catalyst for
material requirements planning (MRP). The master scheduler has the task
of balancing supply and demand, of fielding the production requirements
of top management, the customer service needs of marketing, the invest-
ment targets of finance, the manpower planning of manufacturing, and the
design improvement of engineering. All of the referenced factors enter
into preparing and effective and do-able master schedule.
MRP provides the logical tie between the master production sched-
ule and inventories. It is essentially a method for effective planning of
all the resources of a company. It refers to operational planning in units,
to financial planning in dollars, and answers through simulation all
“what-if” questions. When all functions of an organization are linked
together, MRP determines:
• What to order
• How much to order
• When to order
• When to schedule deliveries.
MRP maintains priorities current for:
• Inventory planning
• Capacity requirements planning
• Production activity control.
However, MRP is insensitive to capacity. It assigns orders within a
time period without any regard to constraints. Therefore, order sched-
uling and capacity planning must interface with MRP to quantify load
by time period using information conveyed by:
• Order quantity
• Due date.
Because MRP is insensitive to capacity, many software packages
offer finite scheduling techniques and management of constraints. This
enables shop personnel to assess the efficiency of operations, thus maxi-
mizing productivity and quality while reducing cycle time for the pur-
pose of introducing their products to the market in the shortest time
possible. Additionally, market fluctuation dictates flexibility in sched-
uling the shop floor and agility in making the appropriate adjustments
when necessary. All of these add to the effectiveness of integrated op-
erations and eventually total customer satisfaction. The presentation
will discuss in details those important factors.
So far, all discussions have centered around a plan. If not well ex-
ecuted, the plan will remain exactly that—a plan. Production Activity
Control (PAC), also known as Shop Floor Control, ensures that opera-
tions conform to plans. Many contend that shop operations are the most
important element of a manufacturing operation. It is where the rubber
meets the road, and where the action resides. The role of the shop floor
addresses, but is not inclusive to the following:
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• Monitoring and controlling lead times
• Releasing orders to production
• Establishing a schedule for start dates and completion dates of or-
ders (when order numbering system is utilized)
• Establishing priorities for production orders and revising priorities
when necessary
• Reporting work center efficiencies.
Purchasing plays an important role in improving overall opera-
tions. This includes supplier selection, improvement of product de-
signs, establishing long-term contracts, determining appropriate
measurements and feedback techniques, and setting corrective ac-
tions when necessary. Personnel must focus on quality improve-
ments and gradual elimination of inspection. Positive results can
also be achieved through organizing “vendor symposiums” to
achieve cost savings and improve quality. They must adopt a win-
win philosophy which will certainly translate into cycle time re-
duction and cost saving.
Accountability, measurement, and feedback are most essential in
establishing responsibilities, determining corrective action, and ensur-
ing that execution of plans takes place as designed. If an action is not
measured, the result cannot be improved. Continuous improvement
requires feedback to strengthen the positive and eliminate the nega-
tive. Performance measurement is very important in closing the loop
within operations management.
ABOUT THE AUTHOR
Selim Noujaim, CFPIM, is a principal of the family-founded and
operated Noujaim Tool Company, Inc., in Oakville, Connecticut.
Previously, he held several senior management positions with lead-
ing corporations and led the implementation of successful MRP II
and ISO 9000 projects. He is a qualified Train the Trainer instruc-
tor, and in 1995 he retained the position of international president
and CEO of APICS. He has presented numerous motivational semi-
nars, keynote speeches, and technical presentations throughout the
United States, Europe, and New Zealand. He is certified by APICS
at the Fellow level (CFPIM), and is a graduate of Teikyo Post Uni-
versity, Central Connecticut State University, and the University of
New Haven, where he received an M.B.A. with additional studies
in labor relations. He has been an adjunct professor at Teikyo Post
University since 1985. He also teaches at Naugatuck Valley Com-
munity Technical College and is a member of the President’s Coun-
cil of both institutions. He was nominated to the 1997 edition of
Who’s Who in International Business Professionals. In February
1998, his company was named “Manufacturer of the Year” by the
Greater Waterbury, Connecticut, Chamber of Commerce.
APICS—The Educational Society for Resource Management