13 - Manufacturing Resource Planning

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13 - Manufacturing Resource Planning

• Dr. Ron Tibben-Lembke

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Historical Perspective
ERP- Enterprise Resource Planning
MRP II Manufacturing Resource Planning
mrp material requirements planning
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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

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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

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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

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Success?
MRP Crusade Begins
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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
• ST888501 Transaction Set identifier
• BEG00NE00498765010698 Beginning of Segment
• PIDX08MCLarge Widget Description of Product
• P015DZ4.55TD Baseline Item Data
• CTT1 Transaction Totals
• SE11 End of Segment

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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

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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

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Historical Perspective
Database Server(s)
Application Server(s)
User PCs
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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

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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

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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

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3 Reasons for ERP

• Legacy systems outdated and need replacing anyway
  
• Desire for greater communication between
  locations
• Reconfigure business to take advantage of current
  and future communications and computing
  breakthroughs

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Why ERP?
Common Client Multiple Processes

• Multiple Clients
• Multiple Processes

High Low
Flexibility

• Multiple Clients
• Mostly Best Practices

Common Client Best Practices
High Low Centralization
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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.

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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

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MRP Table
6 units short
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MRP Table
Order 50 units week earlier
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Ending Inventory
Ending inventory
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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

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1605 Snow Shovel
1605 Snow Shovel
13122 Top Handle Assy
062 Nail (4)
048 Scoop-shaft connector
14127 Rivet (4)
314 scoop assembly
118 Shaft (wood)
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314 scoop assembly
314 scoop assembly
019 Blade (steel)
14127 Rivet (6)
2142 Scoop (aluminum)
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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)
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BOM Explosion

• Process of translating net requirements into
  components part requirements
• Take into account existing inventories
• Consider also scheduled receipts

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BOM Explosion Example

• Need to make 100 shovels
• We are responsible for handle assemblies.

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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)
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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

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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

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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)
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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 --

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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

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13122 Top Handle Assy
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13122 Top Handle Assy-2
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13122 Top Handle Assy -3
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457 Top Handle
One handle for Each assembly
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457 Top Handle
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457 Top Handle
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082 Nail (2 required)
Two nails for Each assembly
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082 Nail (2 required)
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082 Nail (2 required)
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082 Nail (2 required)
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11495 Bracket Assembly
One bracket for Each assembly
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11495 Bracket Assembly
One bracket for Each assembly
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11495 Bracket Assembly
One bracket for Each assembly
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11495 Bracket Assembly
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129 Top Bracket
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129 Top handle bracket
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1118 Top handle coupling
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1118 Top handle coupling
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1118 Top handle coupling
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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

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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

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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

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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

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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

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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
• CP ordering cost
• CH holding cost

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EOQ

• Sqrt( 2 300 92.1 / 2) 166

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EOQ

• Ordering cost 6 300 1,800
• Inv carry cost 1,532.5 2 3,065
• Total 4,865

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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

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Periodic Order Quantities

• Ordering cost 6 300 1,800
• Inv carry cost 1,082.5 2 2,145
• Total 3,945

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Part Period Balancing(Least Total Cost)

• Increase the quantity until holding costs equal
  the ordering cost
• Order 10 holding 10/22 10
• Order 20 holding 10 101.52 40
• Order 35 40 152.52 115
• Order 55 115 203.52 255
• Order 125 255 704.52 85

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Part Period Balancing

• Week 5
• Order 70 Holding 100.52 10
• Order 250 10 1801.52 550
• 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 1800.52180 in holding
  790
• Seems like the second option is best.

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Part Period Balancing

• When should we place a separate order? If
  1.52D gt 300. Dgt300/3 100
• Whenever demand is gt 100, we might as well place
  a separate order.
• What about week 9?
• Order 230 holding 2300.52 230
• Order 270 230 401.52 350
• Order 280 350 103.52 420

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Part Period Balancing
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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

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Simulation Experiments

• What is best under real-world conditions?
• Multiple levels to be concerned about
• Real-time changes