13 - Manufacturing Resource

Planning
Dr. Ron Tibben-Lembke

Historical Perspective
ERP- Enterprise
Resource Planning
MRP II Manufacturing
Resource Planning
mrp material
requirements
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
BEG*00*NE*00498765**010698
PID*X*08*MC**Large Widget
P01**5*DZ*4.55*TD
CTT*1
SE*1*1

Transaction Set identifier

Beginning of Segment
Description of Product
Baseline Item Data
Transaction Totals
End of Segment

XML

Xtensible 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

User PCs

Application
Server(s)

Database
Server(s)

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

Flexibility

Why ERP?

High

Common Client
Multiple Processes

Multiple Clients
Multiple Processes

Low

Common Client
Best Practices

Multiple Clients
Mostly Best Practices

High

Centralization

Low

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
Gross Requirements

10

Scheduled receipts (begin)

Projected Available
Balance (ending)

40 10

50

4 54 44 44 4

Net Requirements

Planned Order Receipts

Planned Order Releases
6 units short

MRP Table
1
Gross Requirements

10

Scheduled receipts (begin)

Projected Available
Balance (ending)

40 10

50

4 54 44 44 4

Net Requirements

Planned Order Receipts

Planned Order Releases
Order 50 units week earlier

50
50

Ending Inventory
1
Gross Requirements

10

Scheduled receipts (begin)

Projected Available
Balance (ending)

40 10

50

4 54 44 44 4 44

Net Requirements

Planned Order Receipts

Planned Order Releases
Ending inventory

50
50

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

314 scoop assembly

118 Shaft (wood)

14127
Rivet (4)

048
Scoop-shaft
connector

062 Nail (4)

13122
Top Handle
Assy

314 scoop assembly

314 scoop assembly

019 Blade (steel)

2142 Scoop (aluminum)

14127 Rivet (6)

13122 Top Handle Assembly

13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118
Top handle
Coupling (steel)

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

13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118
Top handle
Coupling (steel)

129 Top Handle

Bracket (steel)

082 Nail (2)

Net Requirements
Part Description
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling

Inv
25
22
4
27
15
39

Sch Gross
Rec Req
-100
25
50
--15

Net
Req
75

Net Requirements
Part Description
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling

Inv
25
22
4
27
15
39

Sch
Rec
-25
50
--15

Gross
Req
100
75
150
75

Net
Req
75
28
96
48

13122 Top Handle Assembly

13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118
Top handle
Coupling (steel)

129 Top Handle

Bracket (steel)

082 Nail (2)

Net Requirements
Part Description
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling

Sch
Inv
25
22
4
27
15
39

Gross
Rec Req
-100
25 75
50 150
-75
-48
15 48

Net
Req
75
28
96
48
33
--

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
Gross Req

2
20

25 25

4
10

Sch receipts
Proj. Avail Bal
(ending)
Net Req

Pl Order Rec
Pl Order Rel

5
5

6 7
20 5

9 10
35 10

13122 Top Handle Assy-2

13122 Top handle

LT = 2
Gross Req

2
20

4
10

6 7
20 5

9 10
35 10

25 25

0
5

0 0
20

0 0
35 10

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel

5
5

20

20

35 10
35 10

13122 Top Handle Assy -3

13122 Top handle
LT = 2
Gross Req

2
20

4
10

6 7
20 5

9 10
35 10

25 25

0
5

0 0
20 5

0 0
35 10

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel

5
5

20

20 5
5

35 10

35 10

457 Top Handle

13122 Top handle
LT = 2
Gross Req

2
20

4
10

6 7
20 5

9 10
35 10

25 25

0
5

0 0
20 5

0 0
35 10

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec

Pl Order Rel

One handle for

Each assembly

LT = 2
Gross Req

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel

2
5

3
25

22 22

20 5

20

4
20

5
5

35 10

35 10

7 8
35 10

10

457 Top Handle

LT = 2
Gross Req

2
5

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel

3
25

22 22 17

4
20

5
5

7 8
35 10

10

457 Top Handle

LT = 2
Gross Req
Sch receipts
Proj. Avail Bal
(ending)
Net Req

2
5

4
20

5
5

25
22 22 17 42

22 17 17
18 10

Pl Order Rec
Pl Order Rel

7 8
35 10

18 10
18 10

10

082 Nail (2 required)

13122 Top handle
LT = 2
Gross Req

2
20

4
10

6 7
20 5

9 10
35 10

25 25

0
5

0 0
20 5

0 0
35 10

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec

Pl Order Rel

Two nails for

Each assembly

LT = 1
Lot Size = 50
Gross Req

Sch receipts

50

Proj. Avail Bal

(ending)
Net Req
Pl Order Rec
Pl Order Rel

4 54

2
10

20

20 5
5

4 5
40 10

35 10

35 10

7 8
70 20

10

082 Nail (2 required)

LT = 1
Lot Size = 50
Gross Req

Sch receipts

50

Proj. Avail Bal

(ending)
Net Req

2
10

4 54 44 44

4 5
40 10

4
6

Pl Order Rec
Pl Order Rel

50
50

7 8
70 20

10

082 Nail (2 required)

LT = 1
Lot Size = 50
Gross Req

Sch receipts

50

Proj. Avail Bal

(ending)
Net Req

2
10

4 54 44 44

4 5
40 10

Pl Order Rec
Pl Order Rel

44
6
50

50

7 8
70 20

26 20

10

082 Nail (2 required)

LT = 1
Lot Size = 50
Gross Req

Sch receipts

50

Proj. Avail Bal

(ending)
Net Req

2
10

4 54 44 44

4 5
40 10

Pl Order Rec
Pl Order Rel

7 8
70 20

44 44 24
6
26
50

50

50

10

11495 Bracket Assembly

13122 Top handle
LT = 2
Gross Req

2
20

4
10

6 7
20 5

9 10
35 10

25 25

0
5

0 0
20 5

0 0
35 10

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec

Pl Order Rel

One bracket for

Each assembly

LT = 2
Gross Req

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel

27

20 5

20

35 10

35 10

10

11495 Bracket Assembly

13122 Top handle
LT = 2
Gross Req

2
20

4
10

6 7
20 5

9 10
35 10

25 25

0
5

0 0
20 5

0 0
35 10

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec

Pl Order Rel

One bracket for

Each assembly

LT = 2
Gross Req

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel

27

2
5

20 5

20

35 10

35 10

10

11495 Bracket Assembly

13122 Top handle
LT = 2
Gross Req

2
20

4
10

6 7
20 5

9 10
35 10

25 25

0
5

0 0
20 5

0 0
35 10

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec

Pl Order Rel

One bracket for

Each assembly

LT = 2
Gross Req

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel

27

2
5

20 5

20

4
20

5
5

35 10

35 10

7 8
35 10

10

11495 Bracket Assembly

LT = 2
Gross Req

2
5

4
20

22 22

5
5

7 8
35 10

Sch receipts
Proj. Avail Bal
(ending)
Net Req

27

Pl Order Rec
Pl Order Rel

35 10

35 10

35 10

10

129 Top Bracket

LT = 2
Gross Req

2
5

4
20

5
5

7 8
35 10

10

Sch receipts
Proj. Avail Bal
(ending)
Net Req

27

22 22

Pl Order Rec
Pl Order Rel

LT = 1
Gross Req

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel

15

3
3

35 10

35 10

35 10

5 6 7
35 10

10

129 Top handle bracket

LT = 1
Gross Req

3
3

5 6 7
35 10

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel

15 15 15 12 12
23 10
23 10
23 10

10

1118 Top handle coupling

LT = 2
Gross Req

2
5

4
20

5
5

7 8
35 10

10

Sch receipts
Proj. Avail Bal
(ending)
Net Req

27

22 22

Pl Order Rec
Pl Order Rel

LT = 3
Safety Stock = 20
Gross Req

Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel

39

35 10

35 10

35 10

3
3

5
6
35 10

10

1118 Top handle coupling

LT = 3
Safety Stock = 20
Gross Req
Sch receipts
Proj. Avail Bal
(ending)
Net Req

3
3

15
39 39 54 51 51 16
4

Pl Order Rec
Pl Order Rel

5 6 7
35 10

4
4

10

1118 Top handle coupling

LT = 3
Safety Stock = 20
Gross Req
Sch receipts
Proj. Avail Bal
(ending)
Net Req

3
3

10

15
39 39 54 51 51 20 20 20 20 20 20
4 10

Pl Order Rec
Pl Order Rel

5 6 7
35 10

4
4

10

10

Other considerations

Safety stock if uncertainty in demand or

supply quantity

Safety LT if uncertainty in arrival time of

supply

Dont let available go down to 0

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 = CP

Inventory Carrying cost = $2 / unit/ week = CH
Avg Demand = 92.1 / wk = D
Week number
Requirements

1 2 3 4 5
6
7
8
9 10 11 12
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:

2CP D
ELS
CH

Where:

D = avg demand
CP = ordering cost
CH = holding cost

EOQ

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

Week number
Requirements

1
10

Order Quant

166

Begin Inv
Ending Inv

2
10

3
15

4
20

5
70

6
7
8
9
180 250 270 230

10
40

11
0

12
10

EOQ
Week number
Requirements

1
10

Order Quant

166

Begin Inv

166 156 146 131 111 207 250 270 230 166 126 126

Ending Inv

156 146 131 111 41

2
10

3
15

4
20

5
6
7
8
9 10
70 180 250 270 230 40

Ordering cost = 6 * 300 =

Inv carry cost = 1,532.5 * 2 =
Total

11
0

12
10

166 223 270 230 166

27

$1,800
$3,065
$4,865

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
Req.
10
Orders
20
Begin
20
End
10
Avg Inv

15

2
10

4
20

10
0

3
15
35
35
20

5
6
7
8
9
10 11 12
70 180 250 270 230 40
0 10
250
520
270
10
20 250 180 520 270 270 40 10 10
0 180
0 270
0 40
0 10
0

28

10 215

Ordering cost = 6 * 300 =

Inv carry cost =1,082.5 * 2 =
Total

90 395 135 155

$1,800
$2,145
$3,945

20

10

Part Period Balancing

(Least Total Cost)

Increase the quantity until holding costs equal

the ordering cost

Week No. 1
Req.
10

2
10

3
15

4
20

5
6
7
8
9
10 11 12
70 180 250 270 230 40
0 10

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

Part Period Balancing

Week No. 1
Req.
10
Orders
55

2
10
0

3
15
0

4
20
0

5
6
7
8
9
10 11 12
70 180 250 270 230 40
0 10

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.

Part Period Balancing

Week No. 1
Req.
10
Orders
55

2
10
0

3
15
0

4
20
0

5
6
7
8
9
10 11 12
70 180 250 270 230 40
0 10
70 180 250 270

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

Part Period Balancing

Week No. 1
Req.
10
Orders
55
Begin
55
End
45

2
10
0
45
35

3
15
0
35
20

4
20
0
20
0

5
6
7
8
9
10 11 12
70 180 250 270 230 40
0 10
70 180 250 270 280
0
0
0
70 180 250 270 280 50 10 10
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