4. Production and Material Planning

Planning Process

Execute material plans

Execute capacity plans

Capacity plan

Material requirements plan

Master production schedule

Aggregate production plan

RealisticNo

Yes

Master Production Schedule A time-phased production plan that

specifies how many of, and when to build, each end item

Must be in accordance with the aggregate production plan, which sets the overall level of output in broad terms

MPS Example 1Months January FebruaryAggregate Production Plan 1,500 1,200(shows the totalquantity of amplifiers)Weeks 1 2 3 4 5 6 7 8Master Production Schedule(shows the specific type andquantity of amplifier to beproduced240 watt amplifier 100 100 100 100150 watt amplifier 500 500 450 45075 watt amplifier 300 100

MPS Planning Lot-for-lot or batch production policies

Ft = forecast for period tOt = (confirmed) customer orders for period tIt = end-item inventory in period tQt = MPS, manufacturing quantity in period t

MPS Example 2Io = 1600, lot for lot or batch = 2500

  W1 W2 W3 W4 W5 W6 W7 W8

Ft 1000 1000 1000 1000 2000 2000 2000 2000Ot 1200 800 300 200 100 0 0 0It  Qt                

  W1 W2 W3 W4 W5 W6 W7 W8

Ft 1000 1000 1000 1000 2000 2000 2000 2000Ot 1200 800 300 200 100 0 0 0It  Qt                

Material Requirements Planning (MRP) Determines quantity & timing of

dependent demand items Creates requirements and schedules

identifying the parts, components, and materials necessary to produce the end products specified in the MPS

Objectives of MRP Minimize inventory level Maximize operating efficiency Improve customer service

Inputs of MRP Master production schedule Specifications or bills-of-material Inventory availability Purchase orders outstanding Lead times

Structure of the MRP System

Output ReportsOutput Reports

MRP by period report

MRP by date report

Planned order report

Purchase advice

Exception reports

Order early or late or not needed

Order quantity too small or too large

Data FilesData Files

Purchasing data

BOM

Lead times

(Item master file)

Inventory data

Masterproduction schedule

Material requirement

planning programs

(computer and software)

Bill of Material (BOM) List of components, ingredients, and

materials needed to make product Provides product structure

Items above given level are called parents Items below given level are called children

Product Structure Diagram

BB(2)(2) Std. 12” Speaker kitStd. 12” Speaker kit CC(3)(3)Std. 12” Speaker kit Std. 12” Speaker kit w/ amp-boosterw/ amp-booster11

EE(2)(2)EE(2)(2) FF(2)(2)

Packing box and Packing box and installation kit of wire, installation kit of wire,

bolts, and screwsbolts, and screws

Std. 12” Speaker Std. 12” Speaker booster booster assemblyassembly

22

DD(2)(2)

12” Speaker12” Speaker

DD(2)(2)

12” Speaker12” Speaker

GG(1)(1)

Amp-boosterAmp-booster

33

Product structure for “Awesome” Product structure for “Awesome” ((AA))AA

LevelLevel00

BOMLvl Part Qty UM Description Lead time0 A 1 EA Awesome speaker kits 1 week1 B 1 EA Std. 12" speaker set 2 weeks1 C 1 EA Std. 12" speaker set w/ amp-booster 1 week2 E 1 EA packing box and installation kit 2 weeks2 F 1 EA 12" speaker & booster assembly 3 weeks3 D 1 EA 12" speaker 1 week3 G 1 EA Amp-booster 2 weeks

May add other factors such as lot size, weight, etc.

BOM Explosion

Part B: 2 x number of As = (2)(50) = 100Part C: 3 x number of As = (3)(50) = 150Part D: 2 x number of Bs

+ 2 x number of Fs = (2)(100) + (2)(300) = 800Part E: 2 x number of Bs

+ 2 x number of Cs = (2)(100) + (2)(150) = 500Part F: 2 x number of Cs = (2)(150) = 300Part G: 1 x number of Fs = (1)(300) = 300

To produce 50 part A:

Gross Requirements WeekWeek

1 2 3 4 5 6 7 8 Lead TimeA. Required date 50

Order release date 50 1 weekB. Required date 100

Order release date 100 2 weeksC. Required date 150

Order release date 150 1 weekE. Required date 200 300

Order release date 200 300 2 weeksF. Required date 300

Order release date 300 3 weeksG. Required date 600 200

Order release date 600 200 1 weekG. Required date 300

Order release date 300 2 weeks

MRPLevel 0, Part A 0 1 2 3 4 5 6 7 8 9 10

GrossRequirements 50 50 50 50 100ScheduledReceipts 50  InventoryBalance  

NetRequirements  PlannedReceipts  Planned OrderRelease                      

Level 1, Part B 0 1 2 3 4 5 6 7 8 9 10Gross Req.  Sch. Receipts 50 50  Inv. Balance 50  Net Req.  Plan. Receipts  Plan. Order                      

Level 1, Part C 0 1 2 3 4 5 6 7 8 9 10Gross Req.  Sch. Receipts 50  Inv. Balance 50  Net Req.  Plan. Receipts  Plan. Order                      

Level 2, Part E 0 1 2 3 4 5 6 7 8 9 10Gross Req.  Sch. Receipts 100 100  Inv. Balance 300  Net Req.  Plan. Receipts  Plan. Order                      

Level 2, Part F 0 1 2 3 4 5 6 7 8 9 10Gross Req.  Sch. Receipts  Inv. Balance 200  Net Req.  Plan. Receipts  Plan. Order                      

Level 3, Part D 0 1 2 3 4 5 6 7 8 9 10Gross Req.  Sch. Receipts  Inv. Balance 500  Net Req.  Plan. Receipts  Plan. Order                      

Level 3, Part G 0 1 2 3 4 5 6 7 8 9 10Gross Req.  Sch. Receipts 100 100  Inv. Balance 100  Net Req.  Plan. Receipts  Plan. Order                      

Capacity Plan MRP systems do not consider capacity

during normal planning cycles Finite capacity scheduling (FCS) recognizes

actual capacity limits By merging MRP and FCS, a finite schedule

is created with feasible capacities which facilitates rapid material movement

Example  MPS/MRP Bill of capacity (min)

  W 1 W 2 W 3 W 4 Assembly Inspection

Item A 1000 1000 1000 1000 20 2.0Item B 500 500 24 2.5Item C 1500 1500 1500 1500 22 2.0Item D 600   600   25 2.4

  Capacity required (hr) Given

  Week 1 Week 2 Week 3 Week 4 capacity

Assm. 1200Insp.         110

Enterprise Resource Planning (ERP) An extension of the MRP system to tie in

customers and suppliers Allows automation and integration of many

business processes Shares common data bases and business

practices Produces information in real time levels Coordinates business from supplier evaluation to

customer invoicing Has potential to reduce transaction costs and to

increase the speed and accuracy of information

ERP Modules Basic MRP Finance Human resources Supply chain management (SCM) Customer relationship management (CRM)

ERP Structure

Advantages of ERP Systems Provides integration of the supply-chain,

production, and administration Creates commonality of databases Can incorporate improved best processes Increases communication and

collaboration between business units and sites

Has an off-the-shelf software database May provide a strategic advantage

Disadvantages of ERP Systems Is very expensive to purchase and even

more so to customize Implementation may require major

changes in the company and its processes Is so complex that many companies

cannot adjust to it Involves an ongoing, possibly never

ending, process for implementation Expertise is limited with ongoing staffing

problems

Video Case Study Why is accurate inventory such an

important issue at Wheeled Coach? What kind of plan would you suggest for

dealing with excess inventory at Wheeled Coach?