ISE 421 QUANTATIVE PRODUCTION PLANNING

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1 ISE 421 QUANTATIVE PRODUCTION PLANNING LECTURE III MRP, MRPII, ERP, APS Dr. Arslan ÖRNEK Fall Term

2 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. 2

3 PP&S SYSTEMS HISTORY MRP-70 s MRP-II-80 s ERP-90 s APS ERP MRP-II MRP APS

4 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 4

5 MRP ADVANTAGES Rapid adaptability to dynamic changes in customer needs Ability to know what is required several periods in advance 5

6 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 6

7 MRP-II = MRP + Capacity Planning and Scheduling 7

8 MRP-II COMPONENTS Independent Demand over the Planning Horizon 8

9 MRP-II COMPONENTS Bill of Materials (BOM) to Compute Dependent Demand 9

10 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. 10

11 MRP-II COMPONENTS Routing of Components 11

12 MRP-II COMPONENTS Capacity of Resources 12

13 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. 13

14 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. 14

15 MRP-II PLANNING PROCESS Planning Process for an MTS policy 15

16 MRP-II PLANNING PROCESS Planning Process for an MTO policy 16

17 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 17

18 MRP-II PLANNING PROCESS 18

19 MRP-II PLANNING PROCESS 1. Master Production Scheduling (MPS) Production plan for finished products 19

20 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. 20

21 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 21

22 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. 22

23 MRP-II PLANNING PROCESS 4. Material Requirements Planning (MRP) 23

24 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. 24

25 MRP-II PLANNING PROCESS 4. Material Requirements Planning (MRP) MRP Process: Step 3. Planning or uncapacitated lotsizing. 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 25

26 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 leadtime duration) before their completion. 26

27 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. 27

28 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. 28

29 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. 29

30 LIMITATIONS OF MRP II Single level decomposition => suboptimal productivity (More inventory and production costs) 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. 30

31 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. 31

32 ERP =MRP-II + Non-Production Operations (sales planning, warehouse management, transport planning...) 32

33 IT SYSTEMS BEHIND Transactional IT Systems MRP MRP-II ERP Analytical IT Systems 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 33

34 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 34

35 THE SUPPLY CHAIN PLANNING MATRIX 35

36 ARCHITECTURE of ADVANCED PLANNING SYSTEMS 36

37 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. 37

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