11- Aggregate and Material Requirements Planning Dr. Ron Lembke

Learning Objectives Describe planning Distinguish the types of plans Define aggregate scheduling Relate aggregate scheduling to the overall planning process Explain aggregate scheduling options Develop aggregate schedules

Example You’ve started a new company. You’ve developed 2 production plans: Month Forecast Plan 1 Plan 2 Jan 900 900 800 Feb 700 700 800 Mar 800 800 800 You estimate 1 worker can make 100 units per month. Which plan do you use? How many workers do you hire? How do you meet demand?

Planning Setting goals & objectives Determining steps to achieve goals Example: Meet demand within the limits of available resources at the least cost Determining steps to achieve goals Example: Hire more workers Setting start & completion dates Example: Begin hiring in Jan.; finish, Mar. Assigning responsibility

Types of Plans Management Level High Long-Range Facility location Top Executives Intermediate-Range Aggregate plans Operations Managers Short-Range Dispatching Supervisors Low Today 3 months 1 year 18 months 5 years

Aggregate Scheduling Production quantity & timing of production for intermediate future Usually 3 to 18 months into future Combines (‘aggregates’) production Expressed in common units Example: Hours, dollars, equivalents (e.g., FTE students) Time to make ‘average’ product

Relationships of Aggregate Schedule Forecast & Resource Production Firm Orders Availability Planning Work force Inventory Material Master Subcontractors Requirements Production Planning Scheduling No, modify CRP, MRP, or MPS Capacity Shop Requirements Realistic? Floor Yes Planning Schedules

Aggregate Level Scheduling Aggregate Schedule: Month Jan Feb Mar Apr May No. of Chips 600 650 620 630 640

Aggregate Schedule Example Aggregate Schedule: Month Jan Feb Mar Apr May No. of Chips 600 650 620 630 640 Master Production Schedule: Month Jan Feb Mar Apr May P4 1.5 ghz 300 200 310 300 340 P4 1.7 ghz 300 450 310 330 300

Aggregate Scheduling Goals Meet demand Use capacity efficiently Meet inventory policy Minimize cost Labor Inventory Plant & equipment Subcontract

Aggregate Scheduling Options Capacity Demand Inventory Hire or layoff Overtime or idle Subcontract Part-time workers Outsource Promotion & price Back ordering Counterseasonal product mixing

Demand Management Increasing demand Changing Timing of demand Marketing campaigns Sales force efforts, cut prices Changing Timing of demand Incentives for earlier or later delivery At capacity, don’t actively pursue more

Costs “Smoothing” costs: Holding costs - charged on inv At end Hiring: advertise, interview, train Firing: severance, bad morale, future hiring Holding costs - charged on inv At end Shortage costs Labor costs / overtime, materials Subcontracting / outsourcing

Aggregate Scheduling Strategies Level scheduling strategy Produce same amount every day Keep work force level constant Vary non-work force capacity or demand Often results in lowest production costs Chase strategy Hire / Fire workers to make production capacity meet necessary production

Graphical Methods

Aggregate Scheduling Methods Graphical & charting techniques Popular & easy-to-understand Trial & error approach Mathematical approaches Linear Programming Simulation More involved, but usually better answers

Linear Programming Parameters CH = hiring cost CF = firing cost CI = Inv. Cost CR = reg production CO = Ovt. Cost CI = idle cost CS = subcontract nt = days in period t K = daily prod. I0 = Inventory to start W0 = workers to start Dt = Demand for t

Variables It = Inventory for t Ot = Overtime Wt = workers for t Ut = idle time Ht = hired in t St = subcontracted Ft = fired in t Pt= production for t All must be >= 0

Constraints Workforce conservation Wt = Wt-1 + Ht - Ft Units Conervation It = It-1 + Pt + St - Dt Production and workforce level Pt= K*nt*Wt + Ot - Ut Each of these must be satisfied for all t

LP Formulation

LP Considerations LP can be modified to include minimum inv. level each period Negative inventory can be allowed Care needed when rounding

Conclusion Described role of aggregate planning Described types of plans Explained aggregate scheduling options Developed aggregate schedules Chase, Level, and Hybrid Linear Programming

Material Requirements Planning

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

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

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

Success? MRP Crusade Begins http://www.census.gov/econ/currentdata/dbsearch

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

ERP Sales Y2K: 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

ERP Challenges Modules assume “best practices:” Accuracy of data Change software to reflect company ($) Change company to follow software (?) Accuracy of data Drives entire system Ownership of / responsibility for Ability to follow structure

The Heart of the Matter - mrp System for organizing WIP releases Work in Process – work that has been started, but not yet finished Consider Lead Time (LT)for each item Look at BOM to see what parts needed Bill of Materials – what goes into what Release so they will arrive just as needed

Bike Production Frame OCLV Carbon Drivetrain Wheels Assemble Parts Arrive Seat, Bars Due 1 7 14 21 28 4 Mar 11 18 Apr

Snow Shovels Simple Bill of Materials - BOM Example – Snow Shovel Order quantity is 50 units LT is one week Simple Bill of Materials - BOM

MRP Record 4 units short

MRP Record Ordering policy is 50 units at a time, LT=1wk Order 1 week earlier

Terminology Projected Available balance Not on-hand (that may be greater) Tells how many will be available Available to Promise – the units aren’t spoken for yet, we can assign them to a customer Planned order releases ≠ scheduled receipts Only when material has been committed to their production Move to scheduled receipts as late as possible Preserves flexibility

1605 Snow Shovel 1605 Snow Shovel Front View 1605 Snow Shovel Back View

1605 Snow Shovel 1605 Snow Shovel 082 Nail (4) 13122 048 Top Handle Scoop-shaft connector 13122 Top Handle Assy 118 Shaft (wood) 14127 Rivet (4) 314 scoop assembly 082 Nail (4)

314 scoop assembly 314 scoop assembly 019 Blade (steel) 14127 2142 Scoop (aluminum) 019 Blade (steel) 14127 Rivet (6)

13122 Top Handle Assembly 13122 Top Handle Assembly 457 Top handle (wood) 082 Nail (2) 11495 Welded Top handle bracket Assembly 1118 Top handle Coupling (steel) 129 Top Handle Bracket (steel)

Linking the Records Process of translating net requirements for one product into Gross Requirements for its component parts Take into account existing inventories Consider also scheduled receipts AKA Bill of Materials Explosion

Put in the Scoop Pieces 1605 Snow Shovel 118 Shaft (wood) 048 Scoop-shaft connector 13122 Top Handle Assy 082 Nail (4) 14127 Rivet (4) 314 scoop assembly 2142 Scoop (aluminum) 14127 Rivet (6) 019 Blade (steel)

Entire BOM 1605 Snow Shovel 13122 Top Handle Assy 118 Shaft (wood) 082 Nail (4) 048 Scoop-shaft connector 14127 Rivet (4) 314 scoop assembly 14127 Rivet (6) 019 Blade (steel) 2142 Scoop (aluminum) 11495 Welded 457 handle 082 Nail (2) 1118 Coupling 129 Top Bracket

Product Structure Diagram 1605 Snow Shovel 118 Shaft 13122 Top Handle Assy 082 Nail (4) 048 connector 14127 Rivet (4) 314 scoop assembly 2142 Scoop 14127 Rivet (6) 019 Blade 082 Nail (2) 11495 Welded 457 handle 1118 Coupling 129 Top Bracket

Product Structure Diagram 1605 Snow Shovel LEVEL 0 13122 Top Handle Assy 118 Shaft 048 connector LEVEL 1 314 scoop assembly LEVEL 2 2142 Scoop 14127 Rivet (6) 14127 Rivet (4) 019 Blade 11495 Welded 457 handle 082 Nail (2) 082 Nail (4) 1118 Coupling 129 Top Bracket LEVEL 3

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

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)

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 --

Timing of Production This tells us how many of each we need Doesn’t tell when to start Start as soon as possible? Dependent events (oh no, not that!)

13122 Top Handle Assy Order policy: Lot-for-lot Lt = 2

13122 Top Handle Assy Order policy: Lot-for-lot Lt = 2

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)

457 Wooden Dowel One handle for Each assembly

457 Wooden Dowel Order policy: Lot-for-lot

457 Wooden Dowel Order policy: Lot-for-lot

457 Wooden Dowel Order policy: Lot-for-lot

082 Nail (2 required) Two nails for Each assembly x2!!!

082 Nail (2 required) x4!!! Four nails for Each shovel final assembly +300 +200 +120 +240 +100 +80 +160 +80

082 Nail (2 required)

11495 Bracket Assembly One bracket for Each assembly

11495 Bracket Assembly Order policy: Lot-for-lot

129 Top Bracket

129 Top handle bracket Order policy: Lot-for-lot

1118 Top handle coupling

1118 Top handle coupling Order policy: Lot-for-lot

1118 Top handle coupling

Other considerations Safety stock if uncertainty in demand or supply quantity Don’t let available go down to 0 Safety LT if uncertainty in arrival time Place order earlier than necessary Order quantities EOQ – Economic Order Quantity, Fixed Size If that’s not enough, order what you need, OR order two or more of the Fixed Size Lot-For-Lot, Periodic Order quantity, others

Summary Demand for final products Compute needs for it and Dependent Demand for components Look at all parts of the Bill of Materials Complete the Table for each Bottom row (Pl Order Releases) becomes top row (Gross Requirements) of input components (also called children) Multiplied by # needed for each parent