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.
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