13 - Manufacturing Resource

Planning
Dr. Ron Tibben-Lembke
Historical Perspective
mrp material
requirements
planning
MRP II Manufacturing
Resource Planning
ERP- Enterprise
Resource 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
Success?
MRP Crusade
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
eXtensible 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
Database
Server(s)
Application
Server(s)
User PCs
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?
Common Client
Multiple Processes

Multiple Clients
Multiple Processes
Common Client
Best Practices

Multiple Clients
Mostly Best Practices
High Low
Centralization
High



Low
F
l
e
x
i
b
i
l
i
t
y

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

1 2 3 4 5
Gross Requirements
10 40 10
Scheduled receipts (begin)
50
Projected Available
Balance (ending) 4

54

44

44

4


Net Requirements
6
Planned Order Receipts

Planned Order Releases



6 units short
MRP Table

1 2 3 4 5
Gross Requirements
10 40 10
Scheduled receipts (begin)
50
Projected Available
Balance (ending) 4

54

44

44

4


Net Requirements
6
Planned Order Receipts
50
Planned Order Releases
50


Order 50 units week earlier
Ending Inventory

1 2 3 4 5
Gross Requirements
10 40 10
Scheduled receipts (begin)
50
Projected Available
Balance (ending) 4

54

44

44

4

44
Net Requirements
6
Planned Order Receipts
50
Planned Order Releases
50


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
048
Scoop-shaft
connector
13122
Top Handle
Assy
314 scoop assembly
118 Shaft (wood)
062 Nail (4)
14127
Rivet (4)
314 scoop assembly
314 scoop assembly
14127 Rivet (6)
019 Blade (steel)
2142 Scoop (aluminum)
13122 Top Handle Assembly
1118
Top handle
Coupling (steel)
11495 Welded
Top handle bracket
Assembly
13122 Top Handle Assembly
457 Top handle
(wood)
129 Top Handle
Bracket (steel)
082 Nail (2)
BOM Explosion
Process of 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
1118
Top handle
Coupling (steel)
11495 Welded
Top handle bracket
Assembly
13122 Top Handle Assembly
457 Top handle
(wood)
129 Top Handle
Bracket (steel)
082 Nail (2)
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
1118
Top handle
Coupling (steel)
11495 Welded
Top handle bracket
Assembly
13122 Top Handle Assembly
457 Top handle
(wood)
129 Top Handle
Bracket (steel)
082 Nail (2)
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
Doesnt 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

1

2

3

4

5

6

7

8

9

10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

25

25

5

5



Net Req 5
Pl Order Rec 5
Pl Order Rel 5


13122 Top Handle Assy-2

13122 Top handle
LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

25

25

5

5

0

0

0

0

0

0

0
Net Req 5 20 35 10
Pl Order Rec 5 20 35 10
Pl Order Rel 5 20 35 10


13122 Top Handle Assy -3

13122 Top handle
LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

25

25

5

5

0

0

0

0

0

0

0
Net Req 5 20 5 35 10
Pl Order Rec 5 20 5 35 10
Pl Order Rel 5 20 5 35 10


457 Top Handle

13122 Top handle
LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

25

25

5

5

0

0

0

0

0

0

0
Net Req 5 20 5 35 10
Pl Order Rec 5 20 5 35 10
Pl Order Rel 5 20 5 35 10



LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 5 20 5 35 10
Sch receipts 25
Proj. Avail Bal
(ending)

22

22





Net Req
Pl Order Rec
Pl Order Rel


One handle for
Each assembly
457 Top Handle


LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 5 20 5 35 10
Sch receipts 25
Proj. Avail Bal
(ending)

22

22

17



Net Req
Pl Order Rec
Pl Order Rel


457 Top Handle


LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 5 20 5 35 10
Sch receipts 25
Proj. Avail Bal
(ending)

22

22

17

42

22

17

17

Net Req 18 10
Pl Order Rec 18 10
Pl Order Rel 18 10


082 Nail (2 required)

LT = 1
Lot Size = 50

1

2

3

4

5

6

7

8

9

10
Gross Req 10 40 10 70 20
Sch receipts 50
Proj. Avail Bal
(ending)

4

54



Net Req
Pl Order Rec
Pl Order Rel



13122 Top handle
LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

25

25

5

5

0

0

0

0

0

0

0
Net Req 5 20 5 35 10
Pl Order Rec 5 20 5 35 10
Pl Order Rel 5 20 5 35 10


Two nails for
Each assembly
082 Nail (2 required)

LT = 1
Lot Size = 50

1

2

3

4

5

6

7

8

9

10
Gross Req 10 40 10 70 20
Sch receipts 50
Proj. Avail Bal
(ending)

4

54

44

44

4



Net Req 6
Pl Order Rec 50
Pl Order Rel 50


082 Nail (2 required)

LT = 1
Lot Size = 50

1

2

3

4

5

6

7

8

9

10
Gross Req 10 40 10 70 20
Sch receipts 50
Proj. Avail Bal
(ending)

4

54

44

44

4

44

Net Req 6 26 20
Pl Order Rec 50
Pl Order Rel 50


082 Nail (2 required)

LT = 1
Lot Size = 50

1

2

3

4

5

6

7

8

9

10
Gross Req 10 40 10 70 20
Sch receipts 50
Proj. Avail Bal
(ending)

4

54

44

44

4

44

44

24

4

4

4
Net Req 6 26
Pl Order Rec 50 50
Pl Order Rel 50


11495 Bracket Assembly

13122 Top handle
LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

25

25

5

5

0

0

0

0

0

0

0
Net Req 5 20 5 35 10
Pl Order Rec 5 20 5 35 10
Pl Order Rel 5 20 5 35 10



LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req
Sch receipts
Proj. Avail Bal
(ending)

27







Net Req
Pl Order Rec
Pl Order Rel


One bracket for
Each assembly
11495 Bracket Assembly

13122 Top handle
LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

25

25

5

5

0

0

0

0

0

0

0
Net Req 5 20 5 35 10
Pl Order Rec 5 20 5 35 10
Pl Order Rel 5 20 5 35 10



LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 5
Sch receipts
Proj. Avail Bal
(ending)

27







Net Req
Pl Order Rec
Pl Order Rel


One bracket for
Each assembly
11495 Bracket Assembly

13122 Top handle
LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

25

25

5

5

0

0

0

0

0

0

0
Net Req 5 20 5 35 10
Pl Order Rec 5 20 5 35 10
Pl Order Rel 5 20 5 35 10



LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 5 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

27







Net Req
Pl Order Rec
Pl Order Rel


One bracket for
Each assembly
11495 Bracket Assembly


LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 5 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

27

22

22

2





Net Req 3 35 10
Pl Order Rec 3 35 10
Pl Order Rel 3 35 10


129 Top Bracket


LT = 1

1

2

3

4

5

6

7

8

9

10
Gross Req 3 35 10
Sch receipts
Proj. Avail Bal
(ending)

15



Net Req
Pl Order Rec
Pl Order Rel




LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 5 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

27

22

22

2





Net Req 3 35 10
Pl Order Rec 3 35 10
Pl Order Rel 3 35 10


129 Top handle bracket


LT = 1

1

2

3

4

5

6

7

8

9

10
Gross Req 3 35 10
Sch receipts
Proj. Avail Bal
(ending)

15

15

15

12

12



Net Req 23 10
Pl Order Rec 23 10
Pl Order Rel 23 10


1118 Top handle coupling

LT = 3
Safety Stock = 20

1

2

3

4

5

6

7

8

9

10
Gross Req 3 35 10
Sch receipts
Proj. Avail Bal
(ending)

39



Net Req
Pl Order Rec
Pl Order Rel




LT = 2

1

2

3

4

5

6

7

8

9

10
Gross Req 5 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending)

27

22

22

2





Net Req 3 35 10
Pl Order Rec 3 35 10
Pl Order Rel 3 35 10


1118 Top handle coupling

LT = 3
Safety Stock = 20

1

2

3

4

5

6

7

8

9

10
Gross Req 3 35 10
Sch receipts 15
Proj. Avail Bal
(ending)

39

39

54

51

51

16

Net Req 4
Pl Order Rec 4
Pl Order Rel 4


1118 Top handle coupling

LT = 3
Safety Stock = 20

1

2

3

4

5

6

7

8

9

10
Gross Req 3 35 10
Sch receipts 15
Proj. Avail Bal
(ending)

39

39

54

51

51

20

20

20

20

20

20
Net Req 4 10
Pl Order Rec 4 10
Pl Order Rel 4 10


Other considerations
Safety stock if uncertainty in demand or
supply quantity
Dont 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
cant 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 = C
P

Inventory Carrying cost = $2 / unit/ week = C
H

Avg Demand = 92.1 / wk = D


Week number

1

2

3

4

5

6

7

8

9

10

11

12
Requirements 10 10 15 20 70 180 250 270 230 40 0 10


EOQ
Minimizes total
ordering & holding
costs
Assumes demand
same every period
Definitely not always
true for this use
Avg. demand and
holding cost need
same time units (e.g.
per week)
Economic Lot Size:



Where:
D = avg demand
C
P
= ordering cost
C
H
= holding cost
H
P
C
D C
ELS
2

EOQ
Sqrt( 2 * 300 * 92.1 / 2) = 166


Week number

1

2

3

4

5

6

7

8

9

10

11

12
Requirements 10 10 15 20 70 180 250 270 230 40 0 10
Order Quant 166
Begin Inv
Ending Inv


EOQ
Ordering cost = 6 * 300 = $1,800
Inv carry cost = 1,532.5 * 2 = $3,065
Total $4,865


Week number

1

2

3

4

5

6

7

8

9

10

11

12
Requirements 10 10 15 20 70 180 250 270 230 40 0 10
Order Quant 166 166 223 270 230 166
Begin Inv 166 156 146 131 111 207 250 270 230 166 126 126
Ending Inv 156 146 131 111 41 27 0 0 0 126 126 116


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


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
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
Part Period Balancing
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.
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
Part Period Balancing
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
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
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?
Multiple levels to be concerned about
Real-time changes