ISE 421 QUANTATIVE PRODUCTION PLANNING

LECTURE III

MRP, MRPII, ERP, APS

Dr. Arslan ÖRNEK

2013 – 2014 Fall Term

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PRODUCTION PLANNING &

SCHEDULING (PP&S)

• PP&S is one of the most critical activities in

a manufacturing firm.

• PP&S involves determining the volume and

timing of the production while considering

both customer requirements and capacity

limitations.

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PP&S SYSTEMS HISTORY

MRP-70’s

MRP-II-80’s

ERP-90’s

APS-2000

MRP

MRP-II

ERP

APS

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MRP

• MRP attempts to provide the right part at

the right time for the customer

• MRP aims to plan the end item

requirements of the master production

schedule (MPS) by using Bill of Material

(BOM) and inventory records

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MRP ADVANTAGES

• Rapid adaptability to dynamic changes in

customer needs

• Ability to know what is required several

periods in advance

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MRP DISADVANTAGES

• Inability to perform comprehensive capacity

planning

• Lack of a fluent shop floor extension

• Constant and inflated lead times

• All data known with certainty

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MRP-II = MRP +

Capacity Planning and Scheduling

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MRP-II COMPONENTS • Independent Demand over the Planning Horizon

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MRP-II COMPONENTS

• Bill of Materials (BOM) to Compute Dependent

Demand

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MRP-II COMPONENTS

Procurement and Production Lead-Times

•Time between the relase and the completion time of a

procurement or production order.

•Lead time includes preparation, administration, waiting,

production, quality control and tests, and delivery.

•Lead times are measured as an integer number of time periods.

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MRP-II COMPONENTS

Routing of Components

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MRP-II COMPONENTS

Capacity of Resources

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MRP-II COMPONENTS

Inventory Records

•on-hand inventory: physical inventory in the warehouses;

• allocated or reserved inventory: which is the part of the on-hand

inventory that is reserved for production orders that have already

been released,

• back-orders: late component orders,and will be satisfied at the next

reception; and

• on-order inventory :quantity of components already ordered

(purchase or production) but not yet received, and for each such

released order the scheduled receipt time period is known.

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MRP-II COMPONENTS

Planning Rules

safety stocks: for variations in demand

safety times : for variations in lead time

lot-sizing rules : transforms the net requirement to an economical

production or procurement order

component data : the procurement or production cost, the inventory

holding cost, and so on to determine optimal lot size.

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MRP-II PLANNING PROCESS

Planning Process for an MTS policy

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MRP-II PLANNING PROCESS Planning Process for an MTO policy

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MRP-II PLANNING PROCESS

1. Master Production Scheduling (MPS)

2. Rough Cut Capacity Planning (RCCP)

3. Final Assembly Scheduling (FAS)*

4. Material Requirements Planning (MRP)

5. Capacity Requirements Planning (CRP)

*: processed for only MTO production policy

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MRP-II PLANNING PROCESS

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MRP-II PLANNING PROCESS

1. Master Production Scheduling (MPS)

Production plan for finished products

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• The gross requirements are defined, by convention, as the maximum of

firm orders and forecasts in each time period, and correspond to updated

forecasts.

• The required ending inventory plays the same role as an additional demand

forecast for period 6.

• The net requirements are the minimal additional production quantities

needed to satisfy the gross requirements, or equivalently the minimal

quantities needed for the projected inventory to reach the safety stock level.

• The MPS is chosen to correspond to the net requirements and, therefore, the

projected inventory corresponds to the safety stock after the consumption of

the initial stock (and where the projected inventory in each period is equal to

initial inventory plus scheduled receipt plus finished MPS orders minus gross

requirements).

• The planned MPS orders have to start one period (the lead-time) before

their completion.

• The available to promise (ATP) row gives the basic information needed to

accept new customer orders; it indicates how many units of FP become

available to satisfy new customer orders in each period.

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MRP-II PLANNING PROCESS

2. Rough Cut Capacity Planning (RCCP)

• RCCP checks the feasibility of the MPS with respect to

capacity utilization.

•If the load exceeds the capacity, the planner has to adapt the

MPS or increase the capacity manually.

•In more sophisticated systems, modification of the MPS or the

increase of capacity are suggested by the system.

•RCCP is rough (approximate) because it does not take into

account production stages other than the final one

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MRP-II PLANNING PROCESS

3. Final Assembly Scheduling (FAS)*

• In the case of MTO production policy, MPS and RCCP are

established for semi-finished products.

•To calculate customer demands for MPS of semi-finished

products, customer demand forecasts are computed.

•Then, assuming that these semi-finished products are

available in stock, the FAS determines when to realize the

operations required to transform them to finished products, in

order to meet customer orders on time.

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MRP-II PLANNING PROCESS

4. Material Requirements Planning (MRP)

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MRP-II PLANNING PROCESS 4. Material Requirements Planning (MRP)

MRP Process: Step 1. Computation of the gross requirements.

These are time-phased requirements equal to the sum of dependent

and independent demand.

MRP Process: Step 2. Netting or computation of net requirements.

Minimal additional (i.e., in addition to available stock and scheduled

receipts) production quantities needed to satisfy the gross

requirements.

MRP Process: Step 3. Planning or uncapacitated lot-sizing.

This last step consists in solving the single-item planning subproblem

to determine the production plan meeting the net requirements. A

production batch of an item in a period is called a suggested order.

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MRP-II PLANNING PROCESS

4. Material Requirements Planning (MRP)

MRP Process:

Step 3. Planning or

uncapacitated lot-

sizing.

Cost of

production

ignored

Cost of

production

included

Lot for Lot

Static demand

with setup and

inventory

costs

Dynamic demand

with setup,

inventory and

production costs

EOQ

POQ

PPB

LUC

LPC

MIP

DP

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MRP-II PLANNING PROCESS

4. Material Requirements Planning (MRP)

• There is no independent demand for item C.

• The planning rule used is the fixed-order size rule (EOQ), and

an order of size 130.

• The suggested MRP orders have to start two periods (the lead-

time duration) before their completion.

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MRP-II PLANNING PROCESS

4. Material Requirements Planning (MRP), Execution

The role of the planer (i.e., the user of the MRP system) in the

fourth phase is first to check the availability of the components and

of the resources to perform the orders suggested in the coming or

next few periods, and then to release the corresponding orders to

the shop floor or to the supplier.

In some cases, the MRP system makes infeasible or inadequate

suggestions, mainly because it does not take capacity into account

during the MRP process, and the planner has to adapt or improve

the suggested plan manually.

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MRP-II PLANNING PROCESS 5. Capacity Requirements Planning (CRP)

•CRP check the capacity feasibility of MRP orders.

• Each workcenter is loaded according to the detailed description of

the sequence of operations in the routing data of component items.

• If the load exceeds the capacity in a workcenter, the planner has to

adapt the sugested orders –by starting earlier or later to smooth the

load- and to create firm suggested orders, or has to increase the

capacity, manually.

• In more sophisticated systems, the modifications are automatically

suggested by the system.

• In all cases, this approach remains suboptimal. Generate

uncapacitated production plans first, then make local movements.

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LIMITATIONS OF MRP II

• Single level decomposition => suboptimal productivity (More inventory and production costs)

• Single item decomposition => infinite capacity planning

• Infinite capacity planning => Constant and inflated lead times => Increased Inventory

• Unnecessary backlogging.

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LIMITATIONS OF MRP II

Demand for the finished product (i=1) is (10,15,20). Ordering cost for (i=1) and (i=2) is

(100,200). Inventory holding cost is 5 for all items and periods. No capacity restrictions.

Single level decomposition => suboptimal productivity (More inventory and production costs)

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LIMITATIONS OF MRP II Constant and inflated lead times => Increased Inventory

•Unfortunately, in an infinite capacity planning approach, the load of the

resources cannot be estimated or anticipated.

•Actual production lead-time for each operation is the sum of the technical or

minimum production lead-time and the waiting time for the availability of the

resources.

•This waiting or queue time clearly depends on the resource load, and

consequently varies over time for each resource.

•Because these waiting times cannot be anticipated, a worst-case approach has to

be taken, and the constant lead-time used in MRP is inflated by a large enough

safety time to guarantee that the lead-time can be met in all cases.

•This inflated lead times increrases WIP inventory.

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ERP =MRP-II +

Non-Production Operations

(sales planning, warehouse

management, transport planning...)

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IT SYSTEMS BEHIND

Transactional IT Systems Analytical IT Systems

•MRP

•MRP-II

•ERP

•APS

Transactional IT systems (existence and storage of transactional data, as well

as faster and cheaper data communication) do not automatically lead to

improved decisions.

Analytical IT systems include effective decision-support systems to improve

supply chain operations

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ADVANCED PLANNING

SYSTEMS (APS)

• APS uses the transactional data gathered from an ERP system.

• Main characteristics of an APS are:

– Integral or global planning : planning of the entire supply chain

– Optimization focus : definition of alternatives, objectives and constraints for all the planning tasks

– Hierarchical approach : the decomposition into planning modules, and their vertical and horizontal coordination by information flows

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THE SUPPLY CHAIN PLANNING MATRIX

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ARCHITECTURE of ADVANCED

PLANNING SYSTEMS

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The MRP process presented adequately represents the planning

problem faced by many companies, but a global solution and

optimization approach is needed in order to reach the desired

goal of improving the productivity and flexibility simultaneously.

This global optimization approach depends on the expertise

needed to build correct and adequate mathematical models.

In this course, we focus on understanding and modeling various

types of PP&S problems by mixed integer programming.