4. Production and Material Planning

Planning Process Aggregate production plan Master production schedule Material requirements plan Capacity plan Realistic No Yes Execute capacity plans Execute material plans

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 1 Months January February Aggregate Production Plan 1,500 1,200 (shows the total quantity of amplifiers) Weeks 1 2 3 4 5 6 7 8 Master Production Schedule (shows the specific type and quantity of amplifier to be produced 240 watt amplifier 100 100 100 100 150 watt amplifier 500 500 450 450 75 watt amplifier 300 100

MPS Planning Lot-for-lot or batch production policies Ft = forecast for period t Ot = (confirmed) customer orders for period t It = end-item inventory in period t Qt = MPS, manufacturing quantity in period t

MPS Example 2 Io = 1600, lot for lot or batch = 2500   W1 W2 W3 W4 W5 W6 W7 W8 Ft 1000 2000 Ot 1200 800 300 200 100 It Qt   W1 W2 W3 W4 W5 W6 W7 W8 Ft 1000 2000 Ot 1200 800 300 200 100 It 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 Data Files Purchasing data BOM Lead times (Item master file) Inventory data Output 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 Master production 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 Product structure for “Awesome” (A) A Level B(2) Std. 12” Speaker kit C(3) Std. 12” Speaker kit w/ amp-booster 1 E(2) F(2) Packing box and installation kit of wire, bolts, and screws Std. 12” Speaker booster assembly 2 D(2) 12” Speaker G(1) Amp-booster 3

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

BOM Explosion To produce 50 part A: Part B: 2 x number of As = (2)(50) = 100 Part C: 3 x number of As = (3)(50) = 150 Part D: 2 x number of Bs + 2 x number of Fs = (2)(100) + (2)(300) = 800 Part E: 2 x number of Bs + 2 x number of Cs = (2)(100) + (2)(150) = 500 Part F: 2 x number of Cs = (2)(150) = 300 Part G: 1 x number of Fs = (1)(300) = 300

Gross Requirements Week 1 2 3 4 5 6 7 8 Lead Time Required date 50 Order release date 50 1 week Required date 100 Order release date 100 2 weeks Required date 150 Order release date 150 1 week Required date 200 300 Order release date 200 300 2 weeks Required date 300 Order release date 300 3 weeks Required date 600 200 Order release date 600 200 1 week Required date 300 Order release date 300 2 weeks

MRP Level 0, Part A 1 2 3 4 5 6 7 8 9 10 Gross Requirements 50 100 1 2 3 4 5 6 7 8 9 10 Gross Requirements 50 100 Scheduled Receipts   Inventory Balance Net Planned Planned Order Release

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

Level 2, Part E 1 2 3 4 5 6 7 8 9 10 Gross Req.   Sch. Receipts 100 Inv. Balance 300 Net Req. Plan. Receipts Plan. Order Level 2, Part F 200

Level 3, Part D 1 2 3 4 5 6 7 8 9 10 Gross Req.   Sch. Receipts Inv. Balance 500 Net Req. Plan. Receipts Plan. Order Level 3, Part G 100

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

Capacity required (hr) Example   MPS/MRP Bill of capacity (min) W 1 W 2 W 3 W 4 Assembly Inspection Item A 1000 20 2.0 Item B 500 24 2.5 Item C 1500 22 Item D 600 25 2.4   Capacity required (hr) Given Week 1 Week 2 Week 3 Week 4 capacity Assm. 1200 Insp. 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?