Coordination

1
Topic 12 Coordination

• Master production scheduling
• Rough cut capacity planning
• Material requirements planning
• Lot sizing
• Capacity requirements planning

2
Material Requirements Planning (MRP)
Unlike many other approaches and techniques,
material requirements planning works which is
its best recommendation.
Joseph Orlicky, 1974
3
History

• Begun around 1960 as computerized approach to
  purchasing and production scheduling.
• Joseph Orlicky, Oliver Wight, and others.
• APICS launched MRP Crusade in 1972 to promote
  MRP.

4
Key Insight Assumptions

• Independent Demand finished products
• Dependent Demand components
• It makes no sense to independently forecast
  dependent demands.
• Assumptions

1. Known deterministic demands. 2. Fixed, known
production leadtimes. 3. Infinite capacity. Idea
is to back out demand for components by using
leadtimes and bills of material.
5
MRP Procedure

• 1. Netting net requirements against projected
  inventory
• 2. Lot Sizing planned order quantities
• 3. Time Phasing planned orders backed out by
  leadtime
• 4. BOM Explosion gross requirements for
  components

6
Inputs

• Master Production Schedule (MPS) due dates and
  quantities for all top level items
• Bills of Material (BOM) for all parent items
• Inventory Status (on hand plus scheduled
  receipts) for all items
• Planned Leadtimes for all items

7
Developing a Master Production Schedule

• Disaggregate the production plan into sku by sku
  forecasts corresponding to a manageable unit of
  time.
• Record customer orders accepted to date.
• Project on hand inventory as follows
• It It-1 MPSt - max(Ft or COt)
• where It projected inventory balance at the
  end of period t.
• MPSt production quantity due in period t
• Ft forecast of demand in period t
• COt customer orders booked for shipment in
  period t

8
MPS (cont.)

• Calculate production quantity (MPS) required to
  maintain inventory at or above safety stock
  levels
• Calculate the quantity of end-items marketing has
  Available to Promise (ATP) potential customers.
  
• ATP1 I0 MPS1 - CCO
• ATPt MPSt - CCO
• where ATPt available to promise in week t
• I0 current on-hand inventory
• MPSt MPS quantity in week t
• CCO cumulative customer orders until next
  MPS

9
MPS Numerical Example
Factory lot size for this sku 100 units Safety
stock required 0 units Time bucket 1 week
1
2
3
4
5
6
7
8
Forecast
30
30
40
40
50
50
60
20
Customer orders
45
20
12
10
0
0
0
0
Projected on-hand
50
5
75
35
95
45
95
35
15
MPS quantity
100
100
100
Available to promise
5
68
90
100
Average Inventory 50 Orders Placed 3
Recompute with a 50 unit batch size
10
MPS Numerical Example
Factory lot size for this sku 50 units Safety
stock required 0 units Time bucket 1 week
1
2
3
4
5
6
7
8
Forecast
30
30
40
40
50
50
60
20
Customer orders
45
20
12
10
0
0
0
0
Projected on-hand
50
5
25
35
45
45
45
35
15
MPS quantity
50
50
50
50
50
50
Available to promise
5
50
40
38
30
50
50
Average Inventory 31.25 Orders Placed 6
11
Bill of Material for the Chair
1347 Chair
Level 0
172 Leg Asm
148 Seat
047 Back Asm
Level 1
64 Leg (4)
58 Spindle(2)
71 Brace (2)
07 Back
91 Peg (2)
Level 2
1 Pine
1 Dowel
1/4 Dowel
1 Dowel
1 Pine
Level 3
Note 1Pine is treated at lowest level in which
it occurs for MRP calculations.
12
Exploding MRP Records

• Calculate Gross Requirements (GR) as the total
  demand derived from all higher order inventory
  items.
• Input open orders, called Scheduled Receipts
  (SR), for inventory items that have not been
  completed or not yet received from a vendor.
• Calculate Projected On-hand Inventory (POI)
• It It-1 SRt PRt - GRt
• Where It Projected On-hand Inventory in
  period t
• SRt Scheduled Receipts due in period t
• PRt Planned Receipts in period t
• GRt Gross Requirements in period t

13
Exploding MRP Records (cont.)

• A Planned Receipt (PR) is generated when
  projected on-hand inventory drops below safety
  stock and should be sufficient to raise
  projected on-hand inventory to at least equal
  the safety stock quantity.
• A Planned Order Release (POR) signifies when an
  inventory order should be placed and is
  normally the planned receipt offset by the
  items leadtime.

14
MRP Numerical Example
Lot size 25 units Safety stock 10 units
Leadtime 1 week
Item 172 Description Leg assembly
1
2
3
4
5
6
7
8
Gross requirements
100
0
100
0
100
0
0
0
Scheduled receipts
150
25
0
0
0
0
0
0
Projected on-hand
21
71
96
21
21
21
21
21
21
Planned receipts
25
100
Planned order releases

25
100
15
MRP Numerical Example (cont.)
Lot size 5 units Safety stock 5 units
Leadtime 2 weeks
Item 148 Description Seat
1
2
3
4
5
6
7
8
Gross requirements
100
0
100
0
100
0
0
0
Scheduled receipts
40
25
0
0
0
0
0
0
Projected on-hand
39
9
34
9
9
9
9
9
9
Planned receipts
75
100
30
Planned order releases

105
100
Action Notice 30 units ordered 2 weeks late
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MRP Numerical Example (cont.)
Lot size 1 unit Safety stock 50 units
Leadtime 1 week
Item 047 Description Back assembly
1
2
3
4
5
6
7
8
Gross requirements
100
0
100
0
100
0
0
0
Scheduled receipts
72
0
0
0
0
0
0
0
Projected on-hand
19
50
50
50
50
50
50
50
50
Planned receipts
100
100
59
Planned order releases

59
100
100
Action Notice 59 units ordered 1 week late
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MRP Numerical Example (cont.)
Lot size 200 units Safety stock 100 units
Leadtime 1 week
Item 064 Description Leg
1
2
3
4
5
6
7
8
Gross requirements
100
0
0
0
400
0
0
0
Scheduled receipts
200
0
0
0
0
0
0
0
Projected on-hand
120
320
220
220
220
220
220
220
220
Planned receipts
400
Planned order releases

400
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MRP Numerical Example (cont.)
Lot size 50 units Safety stock 20 units
Leadtime 1 week
Item 071 Description Brace
1
2
3
4
5
6
7
8
Gross requirements
200
118
0
0
200
0
0
0
Scheduled receipts
100
0
0
0
0
0
0
0
Projected on-hand
20
52
52
52
52
52
52
52
52
Planned receipts
200
50
200
Planned order releases

200
250
Action Notice 50 units ordered 1 week late
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MRP Numerical Example (cont.)
Lot size L4L Safety stock 100 units
Leadtime 1 week
Item Raw material Description 1 Dowel
1
2
3
4
5
6
7
8
Gross requirements
0
250
600
0
0
0
0
0
Scheduled receipts
300
0
0
0
0
0
0
0
Projected on-hand
100
150
150
100
100
100
100
100
100
Planned receipts
550
Planned order releases

550
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Lot Sizing in MRP

• Lot-for-lot chase demand
• Fixed order quantity method constant lot sizes
• EOQ using average demand
• Other convenient lot size
• Fixed order period method use constant lot
  intervals
• Part period balancing try to make
  setup/ordering cost equal to holding cost
• Wagner-Whitin optimal method

21
Lot Sizing Example using EOQ

• EOQ

Note EOQ is a special case of fixed order
quantity.
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Lot Sizing Using Fixed Order Period (POQ)
Lot size L4L Safety stock 0 units Leadtime
1 week
Item 1023 Description sprocket
1
2
3
4
5
6
7
8
Gross requirements
100
100
200
300
100
0
200
100
Scheduled receipts
100
Projected on-hand
75
75
0
0
0
0
0
0
0
Planned receipts
25
200
300
100
200
100
Planned order releases
25
200
300
100
200
100

Average Inventory 75/89.375 per week Orders
Placed 6
23
Lot Sizing Using Fixed Order Period (POQ)
Lot size POQ-3 Safety stock 0 units
Leadtime 1 week
Item 1023 Description sprocket
1
2
3
4
5
6
7
8
Gross requirements
100
100
200
300
100
0
200
100
Scheduled receipts
100
Projected on-hand
75
75
300
100
0
200
200
0
0
Planned receipts
325
500
100
Planned order releases
325
500

100

Average Inventory 875/8109.375 per week Orders
Placed 3
24
Lot Sizing Using Part-Period Balancing
Assume ratio of setup to holding 200
PPB make the carrying cost as close to the
setup cost as possible
Safety stock 0 units Leadtime 1 week
Item 1023 Description sprocket
1
2
3
4
5
6
7
8
9
10
GR
44
41
84
84
42
86
7
18
49
30
SR
PoH
120
79
35
126
84
0
74
67
49
0
0
PR
175
160
30
POR
175
160
30
86 units gt 0 part periods 93 units gt 7 part
periods 111 units gt 43 part periods 160 units gt
190 part periods 190 units gt 310 part periods
49 units gt 0 part periods 91 units gt 42 part
periods 175 units gt 210 part periods
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Wagner-Whitin Property

• Under an optimal lot-sizing policy either the
  inventory carried to period t1 from a previous
  period will be zero or the production quantity in
  period t1 will be zero.

Basic Idea of Wagner-Whitin Algorithm
By WW Property I, either Qt0 or QtD1Dk for
some k. If jk last period of production
in a k period problem then we will produce
exactly DkDT in period jk. We can then
consider periods 1, , jk-1 as if they are an
independent jk-1 period problem.
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Nervousness

• Note we are using FOP lot-sizing rule.

27
Nervousness Example (cont.)

• Past Due
• Note Small reduction in requirements caused
  large change in orders and made schedule
  infeasible.

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Reducing Nervousness

• Reduce Causes of Plan Changes
• Stabilize MPS (e.g., frozen zones and time
  fences)
• Reduce unplanned demands by incorporating spare
  parts forecasts into gross requirements
• Use discipline in following MRP plan for releases
• Control changes in safety stocks or leadtimes
• Alter Lot-Sizing Procedures
• Fixed order quantities at top level
• Lot for lot at intermediate levels
• Fixed order intervals at bottom level
• Use Firm Planned Orders
• Planned orders that do not automatically change
  when conditions change
• Managerial action required to change a FPO

29
Safety Stocks and Safety Leadtimes

• Safety Stocks
• generate net requirements to ensure min level of
  inventory at all times
• used as hedge against quantity uncertainties
  (e.g., yield loss)
• Safety Leadtimes
• inflate production leadtimes in part record
• used as hedge against time uncertainty (e.g.,
  delivery delays)

30
Safety Stock vs. Safety Leadtime
Average Inventory 20
Average Inventory 40
31
Safety Stock vs. Safety Leadtime (cont.)
Average Inventory 30
32
Master Production Scheduling (MPS)

• MPS drives MRP
• Should be accurate in near term (firm orders)
• May be inaccurate in long term (forecasts)
• Software supports
• forecasting
• order entry
• netting against inventory
• Frequently establishes a frozen zone in MPS

33
Rough Cut Capacity Planning (RCCP)

• Quick check on capacity of key resources
• Use Bill of Resource (BOR) for each item in MPS
• Infeasibilities addressed by altering MPS or
  adding capacity (e.g., overtime)

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Rough Cut Capacity Planning Using Overall Factors
WW1 DK5011550 Z101.4910 364
SK60 6360 Z105.3910 273
Critical 910
Z107.3910 273
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Change MPS requirements of SK to 30 per week
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Solution Using Capacity Bills
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Capacity Requirements Planning (CRP)

• Uses routing data (work centers and times) for
  all items
• Explodes orders against routing information
• Generates usage profile of all work centers
• Identifies overload conditions
• More detailed than RCCP
• No provision for fixing problems
• Leadtimes remain fixed despite queueing

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Develop a CRP for department 12
Drill Component D (.5 hours), G (1.25 hours), H
(1 hour)
43
CRP for Department 12 Drill
Week Planned Actual Total Hours Hours Hours
1 170 180 350 2 0 3
125 125 4 10 10 5
0 6
0
44
Production Activity Control (PAC)

• Sometimes called shop floor control
• Provides routing/standard time information
• Sets planned start times
• Can be used for prioritizing/expediting
• Can perform input-output control (compare planned
  with actual throughput)
• Modern term is MES (Manufacturing Execution
  System), which represents functions between
  Planning and Control.

45
Input / Output Reporting
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MRP Conclusions

• Insight distinction between independent and
  dependent demands
• Advantages
• General approach
• Supports planning hierarchy (MRP II)
• Problems
• Assumptions especially infinite capacity
• Cultural factors e.g., data accuracy, training,
  etc.
• Focus authority delegated to computer