1. 11- Aggregate and Material Requirements Planning
Dr. Ron Lembke

2. 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

3. Example
You’ve started a new company. You’ve developed 2 production plans: Month Forecast Plan 1 Plan 2 Jan Feb Mar 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?

4. 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

5. 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

6. 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

7. 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

8. Aggregate Level Scheduling
Aggregate Schedule: Month Jan Feb Mar Apr May No. of Chips

9. Aggregate Schedule Example
Aggregate Schedule: Month Jan Feb Mar Apr May No. of Chips Master Production Schedule: Month Jan Feb Mar Apr May P4 1.5 ghz P4 1.7 ghz

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

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

12. 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

13. 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

14. 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

15. Graphical Methods

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

17. 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

18. 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

19. 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

20. LP Formulation

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

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

23. Material Requirements Planning

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

25. 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

26. 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

27. Success? MRP Crusade Begins

28. 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

29. 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

30. 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

31. 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

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

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

34. MRP Record
4 units short

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

36. 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

37. 1605 Snow Shovel 1605 Snow Shovel Front View 1605 Snow Shovel
Back View

38. 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)

39. 314 scoop assembly 314 scoop assembly 019 Blade (steel) 14127
2142 Scoop (aluminum)
019 Blade (steel)
14127
Rivet (6)

40. 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)

41. 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

42. 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)

43. 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

44. 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

45. 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

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

47. 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)

48. Net Requirements Sch Gross Net Part Description Inv Rec Req Req
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling

49. 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!)

50. 13122 Top Handle Assy
Order policy: Lot-for-lot
Lt = 2

51. 13122 Top Handle Assy
Order policy: Lot-for-lot
Lt = 2

52. 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)

53. 457 Wooden Dowel
One handle for
Each assembly

54. 457 Wooden Dowel
Order policy: Lot-for-lot

55. 457 Wooden Dowel
Order policy: Lot-for-lot

56. 457 Wooden Dowel
Order policy: Lot-for-lot

57. 082 Nail (2 required)
Two nails for
Each assembly
x2!!!

58. 082 Nail (2 required) x4!!! Four nails for Each shovel final assembly
+300
+200
+120
+240
+100
+80
+160
+80

59. 082 Nail (2 required)

60. 11495 Bracket Assembly
One bracket for
Each assembly

61. 11495 Bracket Assembly
Order policy: Lot-for-lot

62. 129 Top Bracket

63. 129 Top handle bracket
Order policy: Lot-for-lot

64. 1118 Top handle coupling

65. 1118 Top handle coupling
Order policy: Lot-for-lot

66. 1118 Top handle coupling

67. 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

68. 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