Manufacturing Planning

and Control Systems

Thomas E. Vollmann
International Institute for Management Development
William L. Berry
The Ohio State University
D. Clay Whybark
University of North Carolina

V liH

Fourth Edition
Ftanctfco, ^ ' -t

Irwin/McGraw-HUI
New York • St. Louis • San Francisco • Aucl<iand • Bogota
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 Contents

Chapter 1 Manufacturing Bucketless Systems 30

Planning and Control Lot Sizing 31

THE MPC SYSTEM DEFINED 2 Safety Stock and Safety Lead Time 32

Typical MPC Support Tasks 2 Low-Level Coding 33

Costs and Benefits of MPC Systems 2 Pegging 33

AN MPC SYSTEM FRAMEWORK 3 Firm Planned Orders 34

MPC System Activities 4 Service Parts 34

The System and the Framework 4 Planning Horizon 35

Matching the MPC System with the Scheduled Receipts versus Planned
Needs of the Firm 6
Order Releases 35

An MPC Classification Schema USING THE MRP SYSTEM 36

7
EVOLUTION OF THE MPC SYSTEM The MRP Planner 36
9
The Changing Competitive World Exception Codes 38
9
Bottom-Up Replanning 39
Reacting to the Changes 9
An MRP System Output 40
CONCLUDING PRINCIPLES 10
SYSTEM DYNAMICS 42

Transactions during a Period 42

Chapter 2 Material Requirements
Planning 13 Rescheduling 43

Complex Transaction Processing 44

MATERIAL REQUIREMENTS PLANNING
Procedural Inadequacies 45
IN MANUFACTURING PLANNING
AND CONTROL 14 THE MRP DATA BASE 47

MRP and MRPII 16 The Item Master File 47

RECORD PROCESSING 17 The Subordinate Item Master File 47

p ; ^ The Basic MRP Record 17 The Bill of Material File 47

] ^ Unking the MRP Records 25 The Location File 48

"^^^^^CHNICAL ISSUES 29 The Calendar File 48

Processing Frequency 29 Open Order Files 48

wll
v%iii

Other File Linkages 48 MANAGERIAL IMPLICATIONS 108

MRP SYSTEM EXAMPLES 48 Information System Implications 109
Ethan Allen Furniture Company Manufacturing Planning and Control 109
A Manual Application 49 Scorekeeping no
.me
Jet Spray—An Integrated On-Line Pros and Cons 111
4 f\
Example 49
CONCLUDING PRINCIPLES 111
CONCLUDING PRINCIPLES 52

Chapter 4 Capacity Planning 120

Chapter 3 Justin-Time 68
CAPACITY PLANNING'S ROLE IN MPC
JIT IN MANUFACTURING PLANNING SYSTEMS 121
AND CONTROL 69
Hierarchy of Capacity Planning
Major Elements of Just-in-Time 70 Decisions 121
JIT's Impact on Manufacturing Links to Other MPC System Modules 122
Planning and Control 71
CAPACITY PLANNING AND CONTROL
The Hidden Factory 73
TECHNIQUES 124
JIT Building Blocks in MPC 74
Capacity Planning Using Overall
A JIT EXAMPLE 78 Factors (CPOF) 124
Leveling the Production 78 Capacity Bills 126
Pull System Introduction 79 Resource Profiles 128
Product Design 83 Capacity Requirements Planning
Process Design 85 (CRP) 135
Bill of Material Implications 87 Input/Output Control 137
JIT APPLICATIONS 89 The Capacity "Bath Tub" 140
Single-Card Kanban 89 MANAGEMENT AND CAPACITY
Toyota 91 PLANNING 141
Hewlett-Packard 96 Capacity Planning in the MPC
NONREPETITIVE JIT 99 System 141
A Service-Enhanced View of Choosing the Measure of Capacity 142
Manufacturing 99 Choice of a Specific Technique 144
Flexible Systems 100 Using the Capacity Plan 145
Simplified Systems and Routine DATA BASE REQUIREMENTS 146
Execution 101 Data Base Design Considerations 146
JIT IN PURCHASING 102 EXAMPLES OF APPLICATIONS 147
The Basics 102 Capacity Planning at Montell
Lessons 105 USA, Inc. 147
SOFTWARE 105 Capacity Planning at Twin Disc 148
HP JIT Software 105 Capacity Planning at Applicon 152
fiiJIT Using MRP Software 108 CONCLUDING PRINCIPLES 153
 Cfmtmts \\x

Chapter 5 Production Activity MASTER PRODUCTION SCHEDULING

Control 165 TECHNIQUES 210
A FRAMEWORK FOR PRODUCTION The Time-Phased Record 210
ACTIVITY CONTROL 166 Rolling through Time 213
MPC System Linkages 167 Order Promising
The Linkages between MRP and Consuming the Forecast 217
PAC 167 Mitel Corporation: Order Promising
with ATP 220
Just-in-Time Impact on PAC 168
The Company Environment BILL OF MATERIAL STRUCTURING FOR
169
THE MPS 222
PRODUCTION ACTIVITY CONTROL
Key Definitions 224
TECHNIQUES 169
The Modular Bill of Material 225
Basic Shop-Floor Control Concepts 169
The Planning Bill of Material 227
Gantt Charts 172
THE FINAL ASSEMBLY SCHEDULE 229
Priorrty Sequencing Rules 173
Relation to the MPS
Finite Loading 174
The Hill-Rom FAS 231
Vendor Scheduling and Follow-Up 178
THE MASTER PRODUCTION
Lead Time Management 179 SCHEDULER 233
PRODUCTION ACTIVITY CONTROL The MPS as a Set of Firm Planned
EXAMPLES 180 Orders 234
Critical Ratio Shop-Floor Control at The Job
Twin Disc 181 EXAMPLES 238
The CAPOSS System at Swissair 186 The Ethan Allen Master Production
Vendor Scheduling at Steelcase 188 Schedule 238

PAC Procurement Practices under Master Production Scheduling at

Jet Spray 242
"World Class" Manufacturing 188
THE PRODUCTION ACTIVITY CONTROL MASTER PRODUCTION SCHEDULE
STABILITY 244
DATA BASE 191
Ethan Allen Stability 244
Data Acquisition and Feedback 192
Freezing and Time Fencing 246
CONCLUDING PRINCIPLES 194
MANAGING THE MPS 247
The Overstated MPS 247
Chapter 6 Master Production
MPS Measures 248
Scheduling 205
Monitoring the MPS at Ethan Allen 248
THE MASTER PRODUCTION 251
SCHEDULING ACTIVITY 206 CONCLUDING PRINCIPLES

The Anticipated Build Schedule 206 269

Chapter 7 Production Planning
Linkages to Other Company Activities 207
PRODUCTION PLANNING IN THE FIRM 270
The Business Environment for the 270
MPS 208 Sales and Operations Planning
 f^-^ents

Productfon Planning and DEMAND MANAGEMENT TECHNIQUES 319

Management 270 Aggregating and Disaggregating
Production Planning and MPC Forecasts 320
Systems 272 Make-to-Stock Demand Management 325
Payoffs 274 Assemble-to-Order Demand
THE PRODUCTION-PLANNING Management 327
PROCESS 275 Make-to-Order Demand Management 330
Routinizing Production and Game MANAGING DEMAND 331
Planning 276 Organizing for Demand Management 332
The Basic Trade-Offs 278 Managing Service Levels 333
Evaluating Alternatives 282 Using the System 335
THE NEW MANAGEMENT COMPANY EXAMPLES 336
OBLIGATIONS 286
Forecasting at Ross Laboratories 336
Top-Management Role 286
Customer Order Promising at Kirk
Functional Roles 287 Motors, Ltd. 340
Integrating Strategic Planning 288 Make-to-Order Products at Elliott
Controlling the Production Plan 289 Company, Division of Carrier
OPERATING PRODUCTION-PLANNING Corporation 342
SYSTEMS 290 CONCLUDING PRINCIPLES 342
Production Planning at
Compugraphic 290 Chapter 9 Integrated MPC
Mohawk's Integrated Planning Systems 354
Process 293 MPC DESIGN OPTIONS 354
Hill-Rom's Use of Planning Bills of Master Production Scheduling
Material 300 Options 355
CONCLUDING PRINCIPLES 302 Detailed Material Planning Options 357
Shop-Floor System Options 358
Chapter 8 Demand Management 312
CHOOSING THE OPTIONS 361
DEMAND MANAGEMENT IN Market Requirements 361
MANUFACTURING PLANNING AND
The Manufacturing Task 362
CONTROL SYSTEMS 313
Manufacturing Process Design 363
Demand Management and
Production Planning 314 MPC System Design 364

Demand Management and Master THE CHOICES IN PRACTICE 369

Production Scheduling 314 Moog, Inc., Space Products Division 369
Make to Demand 316 Kawasaki, U.S.A. 372
Outbound Product Flow 318 Applicon 374
Data Capture 318 The Driver Is the Marketplace 377
Dealing with Day-to-Day Customer INTEGRATING MRP AND JIT 377
Orders 319 The Need to Integrate 377

D^
 Contents XXI

Physical Changes That Support AUDITING

Integration 424
378
Cross-Checking the Data Base 424
Some Techniques for Integrating
Reconciling Data Base Errors 425
MRP and JIT 378
The Just-in-Time Approach to Data
Strategy for Combining MRP and JIT 379
Accuracy 425
CONCLUDING PRINCIPLES 380
A Detailed Checklist for the
MRP-Based System 427
Chapter 10 Implementation of
The Audit Process 428
MPC Systems 389
Continual Improvement 430
INITIATING THE PROJECT 390 CONCLUDING PRINCIPLES 430
The Yardstick of Performance 390
The Company Environment 393 Chapter 11 Advanced Concepts
Justification 394 in Material
An Evolutionary Point of View 399 Requirements
ESSENTIAL PREREQUISITES 400 Planning 439
Matching the Manufacturing Task to DETERMINING MANUFACTURING
System Design 401 ORDER QUANTITIES 440
MPC Data Base Integrity 402 Economic Order Quantities (EDO) 441
Discipline to Use the Formal System 405 Periodic Order Quantities (POQ) 442
ORGANIZATIONAL ISSUES 405 Part Period Balancing (PPB) 4^3
Top-Management Commitment 406 McLaren's Order Moment (MOM) 445
Waste or "Slack" Reduction 406 Wagner-Whitin Algorithm 447
Job Design 407 Simulation Experiments 447
THE IMPLEMENTATION PROJECT DETERMINING PURCHASE ORDER
TEAM 408 QUANTITIES 449
Project Team Structure 408 The Purchasing Discount Problem 449
The Primary Project Team 409 Look-Ahead Feature 453
Team Building 410 Performance Comparisons 453
EDUCATION 412 BUFFERING CONCEPTS 455
Education Levels and Requirements 413 Categories of Uncertainty 456
An Education Program 415 Safety Stock and Safety Lead Time 457
Problem Solving 416 Safety Stock and Safety Lead Time
Coping with Change 418 Performance Comparisons 459

PROJECT MANAGEMENT 419 Other Buffering Mechanisms 461

Defining the Scope 419 NERVOUSNESS 461

Where to Start 420 Sources of MRP System

Nervousness 462
Project Planning 420
Reducing MRP System Nervousness 462
Project Control 421
OTHER ADVANCED MRP CONCEPTS 464
When to Quit 423
 Timing Conventions 464 Queuing Model Approaches 533
Bucketless Systems 465 Sequencing Rules 533
Phantom Assemblies 465 Sequencing Research Results 535
Scrap Allowances 466 ADVANCED RESEARCH FINDINGS 537
Automatic Updating 467 Due Date Setting Procedures 537
CONCLUDING PRINCIPLES 467 Dynamic Due Dates 540
Labor-Limited Systems 544
Chapter 12 Advanced Concepts in Lessons for Practice 546
Just-in-Time 480 EMERGING ISSUES IN SCHEDULING 548
A JIT RESEARCH FRAMEWORK 481 Scheduling Cellular Manufacturing
SCHEDULING 481 Systems 548

Scheduling Mixed Model Assembly Scheduling Manned Cellular

Lines under JIT 484 Manufacturing Systems 549

Schedule Stability in Implementing Scheduling FMS Systems 553

JIT 488 CONCLUDING PRINCIPLES 560
SUPPLIER MANAGEMENT 489
Chapter 14 Advanced Concepts in
PRODUCTION FLOOR MANAGEMENT 497
Master Production
Setup Time Reduction 498
Scheduling 574
Determining the Optimal Number of
Kanbans 502 TWO-LEVEL MASTER PRODUCTION
JIT PERFORMANCE AND OPERATING SCHEDULING 575
CONDITIONS 507 Two-Level MPS Example 575

Variability in Operating Conditions 507 Booking Customer Orders 577

Lot Size 509 Managing with a Two-Level MPS 578

Comparing MPC System Approaches 511 TWO-LEVEL MPS AT MITEL

CORPORATION 579
CONCLUDING PRINCIPLES 515
MPS Planning 579
Chapter 13 Advanced Concepts in MPS Detail 581
Scheduling 524 ADDITIONAL TECHNIQUES 582
Alternative ATP Explosion
A SCHEDULING FRAMEWORK 525
Conventions 582
Performance Criteria 525
Consumption by Actual Orders 584
Shop Structure 526
Capacity Planning 586
Product Structure 527
METHODS FOR CONSTRUCTING
Work Center Capacities 528
PLANNING BILLS OF MATERIAL 587
BASIC SCHEDULING RESEARCH 528
The Matrix Bill of Material Approach 588
C W Static Scheduling Approaches 529
Commonality and Bill of Material
Dynamic Scheduling Approaches 529 Depth 588
The One-Machine Case 530 Component Commonality Analysis
The Two-Machine Case 531 System 591

[P®
 Contents XXIll

Material Handling Equipment The Basic Exponential Smoothing

Manufacturer Example 591 Model 657
CONCLUDING PRINCIPLES 595 ENHANCING THE BASIC EXPONENTIAL
SMOOTHING MODEL 660
Chapter 15 Advanced Concepts in Trend Enhancement 660
Production Planning 612
Seasonal Enhancement 662
MATHEMATICAL PROGRAMMING Trend and Seasonal Enhancement 665
APPROACHES 613 Other Enhancements 666
Linear Programming 613 FOCUS FORECASTING 666
Mixed Integer Programming 615 COMPARISONS OF METHODS 667
OTHER APPROACHES 617 The Forecasting Competition 667
The Linear Decision Rule 617 The Focus Forecasting Comparison 668
The Management Coefficients Model 619 USING THE FORECASTING SYSTEM 670
Search Decision Rules 620 Incorporating External Information 670
DISAGGREGATION 620 Getting Started 671
The Disaggregation Problem 620 Demand Filter Monitoring 672
Hierarchical Production Planning 621 Tracking Signal Monitoring 673
Disaggregation through Mathematical Strategic Issues 674
Programming 623
FORECASTING IN INDUSTRY 676
COMPANY EXAMPLE 627
CONCLUDING PRINCIPLES 677
Owens-Corning Fiberglas: Anderson,
South Carolina, Plant 627
Chapter 17 Independent Demand
Aggregate Production Planning 628 Inventory
Disaggregating the Production Plan 631 Management 688

APPLICATIONS POTENTIAL 633

BASIC CONCEPTS 689
Application of Modeling Techniques 634
Independent versus Dependent
Data Issues 634 Demand Items 689

The Future 635 Functions of Inventory 691

CONCLUDING PRINCIPLES 636 MANAGEMENT ISSUES 692

Routine Inventory Decisions 692

Chapter 16 Short-Term Determining Inventory System
O Jl D
Forecasting Systems 648 Performance 693

Timing the Implementation 693

THE FORECASTING PROBLEM 649
INVENTORY-RELATED COSTS 694
Forecasting Perspectives 649
Order Preparation Costs 694
Forecast Evaluation 650
Inventory Carrying Costs 694
BASIC FORECASTING TECHNIQUES 653

Example Forecasting Situation 653 Shortage and Customer Service

695
Moving Averages 656 Costs
\\1% t i ''il '^'^

Incremental Inventory Costs 696 DRP and Demand Management 746

Example Cost Trade-Offs 696 DRP and Master Production

698 Scheduling 747
ECONOMIC ORDER QUANTITY MODEL
699 DRP TECHNIQUES 748
Solving the EDO Model
701
The Basic DRP Record 748
QUANTITY DISCOUNT MODEL
702
Time-Phased Order Point (TPOP) 750
ORDER TIMING DECISIONS
Linking Several Warehouse Records 751
Sources of Demand and Supply
Uncertainty 702 Managing Day-to-Day Variations
704 from Plan 754
The Introduction of Safety Stock
Safety Stock in DRP 758
Continuous Distributions 707
MANAGEMENT ISSUES WITH DRP 761
Probability of Stocking-Out Criterion 708
Customer Service Criterion 710
Data Integrity and Completeness 761

Time Period Correction Factor 710

Organizational Support 762

Forecast Error Distribution 712

Problem Solving 765

ORDER QUANTITY AND REORDER COMPANY EXAMPLE 768

POINT INTERACTIONS 713 CONCLUDING PRINCIPLES 773

Service Levels and Order Quantities 714

Chapter 19 MPC Frontiers 787
Total Cost Criterion 717
Grid Search Procedure 718 THE MPC SYSTEM SCHEMATIC 788

The Iterative (Q, R) Procedure 719 The Standard for MPC Systems 788

MULTI-ITEM MANAGEMENT 720 Beyond the Schematic 789

Single-Criterion ABC Analysis 720 OPTIMIZED PRODUCTION

Multiple-Criterion ABC Analysis 722 TECHNOLOGY (OPT) 789

MULTIPLE ITEMS FROM A SINGLE Basic Concepts of OPT 790

SOURCE 725 OPT and the MPC Framework 795
Methods Based on Individual Item Philosophical Underpinnings 796
Reorder Points 727 Theory of Constraints 798
Methods Based on Group Reorder Implementation Issues 798
Points 730 The Repetitive Lot Concept 799
A Group Service Level Method 731 MPC FOR THE PROCESS INDUSTRIES
Simulation Experiments 732 (PRISM) 802
CONCLUDING PRINCIPLES 733 Production Resources 803
Production Models 804
Chapter 18 Distribution
Transaction Processing 804
Requirements
Performance Measurement 805
Planning 743
Implications for MPC Practice 807
DRP IN MANUFACTURING PLANNING INTEGRATED SUPPLY CHAIN
AND CONTROL SYSTEMS 744 MANAGEMENT THE NEXT FRONTIER 807
DRP and the Marketplace 745 Supply Chain Complexity 808
 Contents xxv

Best Practices 808

Implications for MPC Systems 810
CONCLUDING PRINCIPLES 812

Index 823