MRP-ERP

Dealing with the Problem Complexity through Decomposition

Forecasting Aggregate Unit Demand End Item (SKU) Demand

Aggregate (Plan.Planning Time Unit: 1 Hor.: 1 year, month)

Capacity and Aggregate Production Plans

Master Production (Plan. Hor.: a few months, Time Unit: 1 Scheduling

week)

Manufacturing and Procurement lead times Part process plans

SKU-level Production Plans

Materials Requirement (Plan. Hor.: a few months, Time Unit: 1 Planning

week)

Component Production lots and due dates

Shop floor-level Production (Plan. Hor.: Control a day or a shift, Time Unit: realtime)

Aggregate Planning

Know the demand We would have to know each forecast value for the time period of our aggregate plan. Consider the following forecasting information.

Aggregate Planning
Concerned with planning overall production of all the products, over a planning horizon (generally next 3 months or 6 months) for a given (forecast) demand schedule.

Define an aggregate unit An aggregate unit, such as the labor hour or the machine hour must be selected in order to translate the demand for the different products into the same units. This unit must be related to the capacity you want to plan (machine or manpower).

Production Plan
1500 1250 1000 750 500 250 0 Quantity Produced during a period

Requirements

|||| 1234 Quarter

Methods of Aggregate Planning

Level Strategy - Constant Work Force, and as demand changes Vary Only Inventory & Stock outs Chase Strategy - as demand changes, hire and layoff to produce the units required. Some inventory also has to be accounted for, because of rounding errors

LEVEL STRATEGY Example

Know the demand We would have to know each forecast value for the time period of our aggregate plan. Consider the following forecasting information.

Safety stock Its purpose is to satisfy demand when demand is greater than what we expect ( the forecasted value). A very simple method based on company policy can be used to calculate safety stock. For eg. The safety stock value could be 25% of the forecasted value for that period.

The beginning inventory value (in this case for Jan.) would have to be known before we could continue. In some cases one can assume the value is zero to continue with calculations. The remaining beginning inventory values are determined from the safety stock in the previous period.

Production Required is determined by adding the forecast plus the safety stock and subtracting the beginning inventory for each period: FORECAST + SAFETY STOCK - BEGINNING INVENTORY

The first question is How many workers?

How many workers? 8,125 units need to be produced during Jan. - June Assume that each unit requires 5 labor hours and each worker works 8 hours/day The 6-month period Jan. - June includes 125 work days (8,125 units X 5 hours/unit) / (8 hours/person day X 125 days) = 40.6 persons 40.6 is rounded up (to 41), because if we round down we will not produce the required 8125 units.

Cumulative Produced These values are calculated from the formula: (number of workers X hours/day X number of days) / (5 hours/unit) For Jan.: (41 workers X 8 hours/day X 22 days) / (5 hours/unit) = 1443.2 and rounding normally to 1443. For Feb the only difference is 41 cumulative days in place of 22. The result is 2689.6 and rounded to 2690

Excess or (Short) = (Cumulative Production Required) - (Cumulative Produced) Shortage Costs This cost is the number short in any period X the stock out cost For Jan it is (407 units) X stock out cost Storage Costs This cost is the number excess in any period X the storage cost For April it is (320 units) X shortage cost

If we have 36 workers in the beginning of the planning horizon, Hiring Cost = (41 required workers 36 available workers) X hiring cost Lay-off Cost = 0 Total Cost = storage + shortage + hiring + Lay-off

Chase Strategy

Workers Required From the Beginning Information and Starting Conditions we know: 1,850 units need to be produced during Jan. Each unit requires 5 labor hours Each worker works 8 hours/day The month of Jan. has 22 work days (1850 units) X (5 hours/unit) / (8 hours/person-day) X (22 days) = 52.56 persons 52.56 is rounded up (to 53), because if we round down we will not produce the required 1850 units. Remember that a chase strategy doesn't allow stock outs

Units Produced In Jan. if each person works 8 hours each of the 22 days, the number of worker hours available to produce products will be: (53 people) X (8 hours/day) X (22 days) = 9328 worker hours The number of units that can be produced in Jan. will be the total worker-hours available in Jan. divided by the number of worker-hours required for each unit. For Jan.: (9328 worker hours) / (5 worker hours/unit) = 1865.6 units We can round it to 1866

Workers Hired People Hired is the number of additional people needed to meet the demand. For Jan. it is the difference between 53 (people required in Jan.) and the 36 people at the start. 53 - 36 = 17 Hiring Cost In Jan. company hired 17 additional employees. The cost of hiring 17 people is 17 X Hiring cost

People Laid Off This is similar to people hired. It is the number of fewer workers we need as demand declines. For Feb., it is 53 - 47 = 6. Layoff Cost The cost of Laying Off 6 people is 6 X lay-off cost

Ending Inventory Ending inventory is the number of cumulative unused units at the end of any one month. Cumulative means we need to consider not only what happens this month, but also what happened the previous month.

Inventory Cost Number of units in Ending Inv. for any one month x holding Cost

The beginning inventory for Jan. is 0. We need 1850 units and we produce 1866. The difference (1866 - 1850 = 16) is the Ending Inv. for Jan. For Feb. one needs to consider the inventory in the previous month (16 for Jan.) In Feb. with 47 people one can produce 1429 units. 1429 is 4 more than than the production required (1425). These 4 additional units added to Jan. Ending Inv. gives 20 units of Ending Inv. in Feb.

Dealing with the Problem Complexity through Decomposition

Forecasting Aggregate Unit Demand End Item (SKU) Demand

Aggregate (Plan.Planning Time Unit: 1 Hor.: 1 year, month)

Capacity and Aggregate Production Plans

Master Production (Plan. Hor.: a few months, Time Unit: 1 Scheduling

week)

Manufacturing and Procurement lead times Part process plans

SKU-level Production Plans

Materials Requirement (Plan. Hor.: a few months, Time Unit: 1 Planning

week)

Component Production lots and due dates

Shop floor-level Production (Plan. Hor.: Control a day or a shift, Time Unit: realtime)

Master Production Scheduling

Master Production Scheduling

Months Aggregate Production Plan shows the total quantity of bicycles Weeks Master Production Schedule Shows the specific type and quantity of bike to be produced Road bike Hybrid bike Mountain bike 100 500 300 100 500 100 450 100 100 450 1 January February

1,500 2 3 4 5

1,200 6 7 8

Master Production Scheduling

Arizona Instruments produces bar code scanners for consumers and other manufacturers on a produce-to-stock basis. The production planner is developing an MPS for scanners for the next 6 weeks. The minimum lot size is 1,500. There are currently 1,120 scanners in inventory. The estimates of demand for scanners in the next 6 weeks are shown on the next slide.

Master Production Scheduling

Demand Estimates
1
CUSTOMERS BRANCH WAREHOUSES MARKET RESEARCH PRODUCTION RESEARCH

WEEK

2 3 4 5 6 100 100 500 200 700 500 0 0 200 300 400 500 300 200 0 10 50 0 0 0 0 0 10 0 0 0

Master Production Scheduling

WEEK

CUSTOMERS BRANCH WAREHOUSES MARKET RESEARCH PRODUCTION RESEARCH TOTAL DEMAND BEGINNING INVENTORY REQUIRED PRODUCTION ENDING INVENTORY

2 3 4 5 6 100 100 500 500 200 700 0 0 200 300 400 500 300 200 0 10 50 0 0 0 0 0 10 0 0 0

135 101 120 710 900 700 0 0 0 112 410 560 1160 460 950 0 150 150 0 1500 0 1500 0 0 410 560 1160 460 950 1250

Master Production Scheduling

WEEK

1
SCANNER PRODUCTION

2 3 150 1500 0

4 0

5 6 150 1500 0

Dealing with the Problem Complexity through Decomposition

Forecasting Aggregate Unit Demand End Item (SKU) Demand

Aggregate (Plan.Planning Time Unit: 1 Hor.: 1 year, month)

Capacity and Aggregate Production Plans

Master Production (Plan. Hor.: a few months, Time Unit: 1 Scheduling

week)

Manufacturing and Procurement lead times Part process plans

SKU-level Production Plans

Materials Requirement (Plan. Hor.: a few months, Time Unit: 1 Planning

week)

Component Production lots and due dates

Shop floor-level Production (Plan. Hor.: Control a day or a shift, Time Unit: realtime)

Materials Requirement Planning

Demand Characteristics
Independent demand Dependent demand

100 x 1 = 100 tabletops

100 tables

100 x 4 = 400 table legs

400 300 200 100 No. of tables

Continuous demand
400 300 200 100 No. of tables

Discrete demand

12345 Week

M T W Th F M T W Th F

MRP
Material requirements planning (MRP): Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.

Inputs & Outputs of MRP

BOM Lead Times

MPS Current Availabilitie s

MRP

Planned Order Releases Priority Planning

Inputs to MRP Process: Master Production Schedule (MPS)

Drives MRP process with a schedule of finished products
Months Aggregate Production Plan shows the total quantity of bicycles Weeks Master Production Schedule Shows the specific type and quantity of bike to be produced Road bike Hybrid bike Mountain bike 100 500 300 100 500 100 450 100 100 450 1 January February

1,500 2 3 4 5

1,200 6 7 8

Inputs to MRP Process: Bill of Material

Product structure file Determines which component items need to be scheduled
Product Structure Record Clipboar d Level 0

Pressboard (1)

Clip Assembly (1)

Rivets (2)

Level 1

Top Clip (1)

Bottom Clip (1)

Pivot (1)

Spring (1)

Level 2

Inputs to MRP Process: Lead Time, Current inv

MRP Example
X A(2) C(3 ) C(2 ) B(1) D(5 )

A(2)

It takes 2 As for each X

A(2)

B(1 )

It takes 1 B for each X

A(2)

B(1 )

C(3)

It takes 3 Cs for each A

A(2)

B(1 )

C(3)

C(2)

It takes 2 Cs for each B

A(2)

B(1 ) D(5 )

C(3)

C(2)

It takes 5 Ds for each B

MRP II

Manufacturing Resource Planning (MRP II)

Goal: Plan and monitor all resources of a manufacturing firm (closed loop):
o manufacturing o marketing o finance o engineering

ERP

Information Islands

ERP
Enterprise Resource Planning Systems (ERP) - information system connecting all functional areas & operations of an organization &, in some cases, suppliers and customers via common software infrastructure and database
ERP provides means for supply chain members to share information so that scarce resources can be fully utilized to meet demand, while minimizing supply chain inventories.

ERP Modules
[Figure 12.2 ERPs Central Database]
Finance & Accounting

Sales & Marketing

ERP Data Repository

Production & Materials Management

Human Resources

Development of ERP Systems

ERP Software Applications

Major ERP applications consist of:
o Accounting and finance: o Customer relationship management o Human resource management o Manufacturing o Supplier relationship management o Warehouse management o Supply chain management

Selected Enterprise Software Vendors