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Framework for Production,

Planning and Control

Sessions 6,7,8 & 9

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Definition

Gorden and Carson observe : production; planningand control involve generally the organization and planning of manufacturing process.

Especially it consists of the planning of routing,

scheduling, dispatching, inspection, and coordination,control of materials, method, machines, tools andoperating times.

The objective is the organization of the supply andmovement of materials and labour, machines

utilization and related activities, in order to bringabout the desired manufacturing results in terms ofquality, quantity, time and place.

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Production planning

Technique of foreseeing every step in a longseries of separate operations,

each step to be taken at the right time and in the

right place and each operation to be performedwith maximum efficiency.

It helps entrepreneur to work out the quantityof material, manpower, machine and money

required for producing predetermined level ofoutput in a given period of time.

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The Planning Process

Long-range plans(over one year)Research and DevelopmentNew product plansCapital investmentsFacility location/expansion

Intermediate-range plans

(3 to 18 months)Sales planningProduction planning and budgetingSetting employment, inventory,

subcontracting levelsAnalyzing operating plans

Short-range plans

(up to 3 months)Job assignmentsOrdering

Job schedulingDispatchingOvertimePart-time help

Topexecutives

Operationsmanagers

Operationsmanagers,supervisors,foremen

Responsibility Planning tasks and horizon

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Aggregate Planning

Objective is to minimize cost over theplanning period by adjusting

Production rates

Labor levels

Inventory levels

Overtime work

Subcontracting rates

Other controllable variables

Determine the quantity and timing ofproduction for the immediate future

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Aggregate Planning

A logical overall unit for measuring sales and

output A forecast of demand for an intermediate

planning period in these aggregate terms

A method for determining costs

A model that combines forecasts and costs sothat scheduling decisions can be made for the

planning period

Required for aggregate planning

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Aggregate Planning

Quarter 1

Jan Feb Mar

150,000 120,000 110,000

Quarter 2

Apr May Jun

100,000 130,000 150,000

Quarter 3

Jul Aug Sep

180,000 150,000 140,000

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Aggregate Planning

Product decisions

Process planning and

capacity decisions

Aggregate plan forproduction

Master production schedule

and

MRP systems

Resource

schedules

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Aggregate Planning

Combines appropriate resources intogeneral terms

Part of a larger production planningsystem

Disaggregation breaks the plan down

into greater detail Disaggregation results in a master

production schedule

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Aggregate Planning Strategies

1. Use inventories to absorb changes in demand

2. Accommodate changes by varying workforcesize

3. Use part-timers, overtime, or idle time toabsorb changes

4. Use subcontractors and maintain a stableworkforce

5. Change prices or other factors to influencedemand

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Capacity Options

Changing inventory levels

Increase inventory in low demandperiods to meet high demand in the

future

Increases costs associated with storage,insurance, handling, obsolescence, andcapital investment 15% to 40%

Shortages can mean lost sales due tolong lead times and poor customerservice

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Capacity Options

Varying workforce size by hiring orlayoffs

Match production rate to demand

Training and separation costs for hiringand laying off workers

New workers may have lower

productivity Laying off workers may lower morale

and productivity

C i O i

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Capacity Options

Varying production rate throughovertime or idle time

Allows constant workforce

May be difficult to meet large increasesin demand

Overtime can be costly and may drive

down productivityAbsorbing idle time may be difficult

C it O ti

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Capacity Options

Subcontracting

Temporary measure during periods ofpeak demand

May be costly

Assuring quality and timely deliverymay be difficult

Exposes your customers to a possiblecompetitor

C it O ti

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Using part-time workers

Useful for filling unskilled or low skilledpositions, especially in services

Capacity Options

D d O i

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Demand Options

Influencing demand

Use advertising or promotion toincrease demand in low periods

Attempt to shiftdemand to slow

periods

May not besufficient tobalance demandand capacity

D d O ti

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Demand Options

Back ordering during high- demandperiods

Requires customers to wait for an order

without loss of goodwill or the order

Most effective when there are few ifany substitutes for the product orservice

Often results in lost sales

D d O ti

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Counterseasonal product and servicemixing

Develop a product mix of

counterseasonal items

May lead to products or services outsidethe companys areas of expertise

Demand Options

A t Pl i O ti

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Aggregate Planning Options

Option Advantages Disadvantages Some Comments

Changing

inventory

levels

Changes in

human

resources are

gradual or none;no abrupt

production

changes.

Inventory holding

cost may

increase.

Shortages mayresult in lost

sales.

Applies mainly to

production, not

service,

operations.

Varying

workforce

size byhiring or

layoffs

Avoids the costs

of other

alternatives.

Hiring, layoff, and

training costs

may besignificant.

Used where size

of labor pool is

large.

A t Pl i O ti

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Varying

production

rates

throughovertime or

idle time

Matches seasonal

fluctuations

without hiring/

training costs.

Overtime

premiums; tired

workers; may not

meet demand.

Allows flexibility

within the

aggregate plan.

Sub-

contracting

Permits flexibility

and smoothing

of the firms

output.

Loss of quality

control; reduced

profits; loss of

future business.

Applies mainly in

production

settings.

A Pl i O i

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Using part-

time workers

Is less costly and

more flexible

than full-time

workers.

High turnover/

training costs;

quality suffers;

schedulingdifficult.

Good for unskilled

jobs in areas with

large temporary

labor pools.

Influencing

demand

Tries to use

excess capacity.

Discounts draw

new customers.

Uncertainty in

demand. Hard to

match demand to

supply exactly.

Creates marketing

ideas.

Overbooking

used in some

businesses.

A Pl i O i

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Back

ordering

during high-

demandperiods

May avoid

overtime. Keeps

capacity

constant.

Customer must be

willing to wait,

but goodwill is

lost.

Many companies

back order.

Counter-

seasonal

product and

servicemixing

Fully utilizes

resources;

allows stable

workforce.

May require skills

or equipment

outside the firms

areas ofexpertise.

Risky finding

products or

services with

opposite demandpatterns.


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Aggregate Production Planning

Session 7

Methods for Aggregate Planning

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Methods for Aggregate Planning

A mixed strategy may be the best way toachieve minimum costs

There are many possible mixedstrategies

Finding the optimal plan is not always

possible

Mixing Options to Develop a Plan

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Chase strategy

Match output rates to demand forecast for

each period

Vary workforce levels or vary productionrate

Favored by many service organizations


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Level strategyDaily production is uniform

Use inventory or idle time as buffer

Stable production leads to better qualityand productivity

Some combination of capacity options, amixed strategy, might be the bestsolution

G hi l M th d

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Graphical Methods

Popular techniques

Easy to understand and use

Trial-and-error approaches that do notguarantee an optimal solution

Require only limited computations

Graphical Methods

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Graphical Methods

1. Determine the demand for each period2. Determine the capacity for regular time,

overtime, and subcontracting each period

3. Find labor costs, hiring and layoff costs, andinventory holding costs

4. Consider company policy on workers and stocklevels

5. Develop alternative plans and examine theirtotal costs

R fi S li E l 1

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Roofing Supplier Example 1

Month Expected Demand Production DaysDemand Per Day

(computed)

Jan 900 22 41

Feb 700 18 39

Mar 800 21 38

Apr 1,200 21 57

May 1,500 22 68

June 1,100 20 55

6,200 124

= = 50 units per day6,200

124

Averagerequirement =

Total expected demand

Number of production days

Roofin S pplier E ample 1

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70

60

50

40

30

0 Jan Feb Mar Apr May June = Month

22 18 21 21 22 20 = Number ofworking days

Productionrateper

workingday

Level production using averagemonthly forecast demand

Forecast demand



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Cost Information

Inventory carrying cost $ 5per unit per month

Subcontracting cost per unit $10per unit

Average pay rate $ 5per hour($40per day)

Overtime pay rate$ 7per hour

(above 8hours per day)

Labor-hours to produce a unit 1.6hours per unit

Cost of increasing daily production rate

(hiring and training)

$300per unit

Cost of decreasing daily production rate

(layoffs)

$600per unit



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Table 13.3

Cost Information

Inventory carry cost $ 5per unit per month








$300per unit


(layoffs)

$600per unit

Month

Production at

50Units per DayDemand

Forecast

MonthlyInventory

Change

Ending

Inventory

Jan 1,100 900 +200 200

Feb 900 700 +200 400

Mar 1,050 800 +250 650

Apr 1,050 1,200 -150 500

May 1,100 1,500 -400 100

June 1,000 1,100 -100 0

1,850

Total units of inventory carried over from onemonth to the next = 1,850 units

Workforce required to produce 50 units per day = 10 workers



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Table 13.3

Cost Information









$300per unit


(layoffs)

$600per unit

Month

Production at

50Units per DayDemand

Forecast

MonthlyInventory

Change

Ending

Inventory

Jan 1,100 900 +200 200

Feb 900 700 +200 400

Mar 1,050 800 +250 650

Apr 1,050 1,200 -150 500

May 1,100 1,500 -400 100

June 1,000 1,100 -100 0

1,850

Total units of inventory carried over from onemonth to the next = 1,850 units

Workforce required to produce 50 units per day = 10 workers

Costs Calculations

Inventory carrying $9,250 (= 1,850units carried x $5per unit)

Regular-time labor 49,600 (= 10workers x $40per day

x 124 days)Other costs (overtime,

hiring, layoffs,

subcontracting) 0

Total cost $58,850



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Cumulativedeman

dunits

7,000

6,000

5,000

4,000

3,000

2,000

1,000

Jan Feb Mar Apr May June

Cumulative forecastrequirements

Cumulative levelproduction using

average monthlyforecastrequirements

Reductionof inventory

Excess inventory

6,200 units



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(computed)

Jan 900 22 41

Feb 700 18 39

Mar 800 21 38

Apr 1,200 21 57

May 1,500 22 68

June 1,100 20 55

6,200 124

Minimum requirement= 38 units per day



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70

60

50

40

30



Productionrateper

workingday

Level productionusing lowest monthly

forecast demand

Forecast demand



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Table 13.3

Cost Information









$300per unit


(layoffs)

$600per unit



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Table 13.3

Cost Information









$300per unit


(layoffs)

$600per unit

In-house production = 38 units per day

x124 days

= 4,712 units

Subcontract units = 6,200 - 4,712

= 1,488 units



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Table 13.3

Cost Information









$300per unit


(layoffs)

$600per unit

In-house production = 38 units per day

x124 days

= 4,712 units

Subcontract units = 6,200 - 4,712

= 1,488 units

Costs Calculations

Regular-time labor $37,696 (= 7.6workers x $40perday x 124 days)

Subcontracting 14,880 (= 1,488units x $10perunit)

Total cost $52,576



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(computed)

Jan 900 22 41

Feb 700 18 39

Mar 800 21 38

Apr 1,200 21 57May 1,500 22 68

June 1,100 20 55

6,200 124

Production = Expected Demand



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70

60

50

40

30



Productionrateper

workingday

Forecast demand and

monthly production



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Cost Information




Overtime pay rate $ 7per hour





$300per unit


(layoffs)

$600per unit



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Table 13.3

Cost Information




Overtime pay rate $ 7per hour(above 8hours per day)




$300per unit


(layoffs)

$600per unit

Month

Forecast

(units)

Daily

Prod

Rate

BasicProduction

Cost (demandx 1.6hrs/unit

x $5/hr)

Extra Cost of

Increasing

Production

(hiring cost)

Extra Cost of

Decreasing

Production

(layoff cost) Total Cost

Jan 900 41 $ 7,200 $ 7,200

Feb 700 39 5,600

$1,200(= 2 x $600) 6,800

Mar 800 38 6,400 $600

(= 1 x $600)7,000

Apr 1,200 57 9,600$5,700

(= 19 x $300) 15,300

May 1,500 68 12,000$3,300

(= 11 x $300)

15,300

June 1,100 55 8,800 $7,800

(= 13 x $600)16,600

$49,600 $9,000 $9,600 $68,200

Table 13.4


Comparison of Three Plans

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Comparison of Three Plans

Cost Plan 1 Plan 2 Plan 3

Inventory carrying $ 9,250 $ 0 $ 0

Regular labor 49,600 37,696 49,600

Overtime labor 0 0 0

Hiring 0 0 9,000

Layoffs 0 0 9,600

Subcontracting 0 14,880 0Total cost $58,850 $52,576 $68,200

Plan 2 is the lowest cost option

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MPS, MRP AND ERP

Session 8 and 9

Benefits of MRP

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Benefits of MRP

1. Better response to customer orders

2. Faster response to market changes

3. Improved utilization of facilities and

labor

4. Reduced inventory levels

Dependent Demand

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Dependent Demand

The demand for one item is related to thedemand for another item

Given a quantity for the end item, thedemand for all parts and components can

be calculated

In general, used whenever a schedule canbe established for an item

MRP is the common technique

Dependent Demand

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Dependent Demand

1. Master production schedule

2. Specifications or bill of material

3. Inventory availability4. Purchase orders outstanding

5. Lead times

Effective use of dependent demandinventory models requires the following

Master Production Schedule (MPS)

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Specifies what is to be made and when

Must be in accordance with the aggregateproduction plan

Inputs from financial plans, customer demand,

engineering, supplier performance As the process moves from planning to execution,

each step must be tested for feasibility

The MPS is the result of the production planningprocess


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MPS is established in terms of specific products

Schedule must be followed for a reasonablelength of time

The MPS is quite often fixed or frozen in the nearterm part of the plan

The MPS is a rolling schedule

The MPS is a statement of what is to beproduced, not a forecast of demand



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Changeproduction

plan?Master production

schedule

ManagementReturn oninvestmentCapital

EngineeringDesigncompletion

Aggregateproduction

plan

ProcurementSupplier

performance

Human resourcesManpower

planning

ProductionCapacityInventory

MarketingCustomerdemand

FinanceCash flow


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Figure 14.1

Is capacityplan being

met?

Is executionmeeting the

plan?

Changemaster

productionschedule?

Change capacity?

Changerequirements?

No

Executematerial plans

Execute capacityplans

Yes

Realistic?

Capacityrequirements plan

Materialrequirements plan

Master productionschedule

Aggregate Production Plan

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gg g

Months January February

Aggregate Production Plan 1,500 1,200(Shows the totalquantity of amplifiers)

Weeks 1 2 3 4 5 6 7 8

Master Production Schedule(Shows the specific type andquantity of amplifier to beproduced

240-watt amplifier 100 100 100 100

150-watt amplifier 500 500 450 450

75-watt amplifier 300 100


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A customer order in a job shop (make-to-order) company

Modules in a repetitive (assemble-to-order orforecast) company

An end item in a continuous (stock-to-forecast) company

Can be expressed in any of thefollowing terms:

Focus for Different Process Strategies

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Focus for Different Process Strategies

Stock to Forecast

(Product Focus)

Schedule finishedproduct

Assemble to Order orForecast

(Repetitive)

Schedule modules

Make to Order

(Process Focus)

Schedule orders

Examples: Print shop Motorcycles Steel, Beer, Bread

Machine shop Autos, TVs Lightbulbs

Fine-dining restaurant Fast-food restaurant Paper

Typical focus of themaster production

schedule

Number ofend items

Number ofinputs

MPS Examples

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MPS Examples

Gross Requirements for Crabmeat Quiche

Gross Requirements for Spinach Quiche

Day 6 7 8 9 10 11 12 13 14 and so onAmount 50 100 47 60 110 75

Day 7 8 9 10 11 12 13 14 15 16 and so on

Amount 100 200 150 60 75 100

For Nancys Specialty Foods

Bills of Material

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List of components, ingredients, andmaterials needed to make product

Provides product structure

Items above given level are called parents

Items below given level are called children

BOM Example

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p

B(2)Std. 12 Speaker kit C(3)Std. 12 Speaker kit w/amp-booster

1

E(2)E(2) F(2)

Packing box and installationkit of wire, bolts, and screws

Std. 12 Speakerbooster assembly

2

D(2)

12 Speaker

D(2)

12 Speaker

G(1)

Amp-booster

3

Product structure for Awesome (A)

A

Level

0

BOM Example

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p

B(2)Std. 12 Speaker kit C(3)Std. 12 Speaker kit w/amp-booster

1

E(2)E(2) F(2)

Packing box and installationkit of wire, bolts, and screws

Std. 12 Speakerbooster assembly

2

D(2)

12 Speaker

D(2)

12 Speaker

G(1)

Amp-booster

3

Product structure for Awesome (A)

A

Level

0

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

Bills of Material

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Modular Bills

Modules are not final products butcomponents that can be assembled intomultiple end items

Can significantly simplify planning andscheduling

Bills of Material

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Planning Bills (Pseudo Bills)

Created to assign an artificial parent to theBOM

Used to group subassemblies to reduce thenumber of items planned and scheduled

Used to create standard kits for

production

Bills of Material

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Phantom Bills

Describe subassemblies that exist onlytemporarily

Are part of another assembly and never gointo inventory

Low-Level Coding

Item is coded at the lowest level at which itoccurs

BOMs are processed one level at a time

Accurate Records

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Accurate inventory records areabsolutely required for MRP (or anydependent demand system) to operatecorrectly

Generally MRP systems require 99%accuracy

Outstanding purchase orders must

accurately reflect quantities andscheduled receipts

Lead Times

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The time required to purchase,

produce, or assemble an item

For production the sum of the order,wait, move, setup, store, and run times

For purchased items the time betweenthe recognition of a need and theavailability of the item for production

Time-Phased Product Structure

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| | | | | | | |

1 2 3 4 5 6 7 8

Time in weeks

F

2 weeks

3 weeks

1 week

A

2 weeks

1 week

D

E

2 weeks

D

G

1 week

1 week

2 weeks toproduce

B

C

E

Start production of DMust have D and Ecompleted here so

production can begin onB

MRP Structure

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Output Reports

MRP by periodreport

MRP by datereport

Planned orderreport

Purchase advice

Exception reports

Order early or late ornot needed

Order quantity toosmall or too large

Data Files

Purchasing data

BOM

Lead times

(Item master file)

Inventory data

Masterproduction schedule

Materialrequirement

planning programs

(computer andsoftware)

Determining Gross Requirements

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g q

Starts with a production schedule for the enditem 50 units of Item A in week 8

Using the lead time for the item, determine theweek in which the order should be released a 1

week lead time means the order for 50 unitsshould be released in week 7

This step is often called lead time offset ortime phasing


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From the BOM, every Item A requires 2 Item Bs100 Item Bs are required in week 7 to satisfy theorder release for Item A

The lead time for the Item B is 2 weeks release

an order for 100 units of Item B in week 5 The timing and quantity for component

requirements are determined by the orderrelease of the parent(s)

g q


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The process continues through the entire BOMone level at a timeoften called explosion

By processing the BOM by level, items withmultiple parents are only processed once, saving

time and resources and reducing confusion Low-level coding ensures that each item appears

at only one level in the BOM

Gross Requirements Plan

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Week

1 2 3 4 5 6 7 8 Lead Time

A. Required date 50Order release date 50 1 week

B. Required date 100Order release date 100 2 weeks

C. Required date 150Order release date 150 1 week

E. Required date 200 300Order release date 200 300 2 weeks

F. Required date 300Order release date 300 3 weeks

D. Required date 600 200Order release date 600 200 1 week

G. Required date 300Order release date 300 2 weeks

Net Requirements Plan

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Determining Net Requirements

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Starts with a production schedule for the enditem 50 units of Item A in week 8

Because there are 10 Item As on hand, only 40are actually required (net requirement) =(gross requirement - on- hand inventory)

The planned order receipt for Item A in week 8 is

40 units 40 = 50 - 10


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Following the lead time offset procedure, theplanned order release for Item A is now 40 unitsin week 7

The gross requirement for Item B is now 80 units

in week 7 There are 15 units of Item B on hand, so the net

requirement is 65 units in week 7

A planned order receipt of 65 units in week 7generates a planned order release of 65 units inweek 5


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A planned order receipt of 65 units in week 7generates a planned order release of 65 units inweek 5

The on-hand inventory record for Item B is

updated to reflect the use of the 15 items ininventory and shows no on-hand inventory inweek 8

This is referred to as the Gross-to-Net calculation

and is the third basic function of the MRPprocess


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The logic of net requirements

Available inventory

Net requirementsOn hand Scheduledreceipts+ =

Total requirements

Gross requirementsAllocations+

Gross Requirements Schedule

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A

B C

5 6 7 8 9 10 11

40 50 15

Lead time = 4 for A

Master schedule for A

S

B C

12 138 9 10 11

20 3040

Lead time = 6 for S

Master schedule for S

1 2 3

10 10

Master schedule

for B

sold directly

Periods

Therefore, these arethe grossrequirements for B

Gross requirements: B 10 40 50 2040+10 15+30

=50 =45

1 2 3 4 5 6 7 8Periods

MRP Planning Sheet

7/28/2019 Session 6,7, 8 & 9 SEM 5

79/86

Safety Stock

7/28/2019 Session 6,7, 8 & 9 SEM 5

80/86

BOMs, inventory records, purchase andproduction quantities may not be perfect

Consideration of safety stock may beprudent

Should be minimized and ultimatelyeliminated

Typically built into projected on-hand

inventory

MRP Management

7/28/2019 Session 6,7, 8 & 9 SEM 5

81/86

MRP is a dynamic system

Facilitates replanning when changes occur

System nervousness can result from toomany changes

Time fences put limits on replanning

Pegging links each item to its parentallowing effective analysis of changes

Enterprise Resource Planning (ERP)

7/28/2019 Session 6,7, 8 & 9 SEM 5

82/86

ERP can be highly customized to meetspecific business requirements

Enterprise application integration software(EAI) allows ERP systems to be integrated

with

Warehouse management

Logistics

Electronic catalogs

Quality management

Enterprise Resource Planning (ERP)

7/28/2019 Session 6,7, 8 & 9 SEM 5

83/86

ERP systems have the potential to

Reduce transaction costs

Increase the speed and accuracy of

information

Facilitates a strategic emphasis on JITsystems and integration

Advantages of ERP Systems

7/28/2019 Session 6,7, 8 & 9 SEM 5

84/86

1. Provides integration of the supply chain,production, and administration

2. Creates commonality of databases

3. Can incorporate improved best processes

4. Increases communication and collaborationbetween business units and sites

5. Has an off-the-shelf software database

6. May provide a strategic advantage

Disadvantages of ERP Systems

7/28/2019 Session 6,7, 8 & 9 SEM 5

85/86

1. Is very expensive to purchase and even more so tocustomize

2. Implementation may require major changes in the

company and its processes3. Is so complex that many companies cannot adjust

to it

4. Involves an ongoing, possibly never completed,process for implementation

5. Expertise is limited with ongoing staffing problems

Summary

7/28/2019 Session 6,7, 8 & 9 SEM 5

86/86

Scope of production planning and control Inputs of MRP

Enterprise Resource Planning

Documents

Session 6,7, 8 & 9 SEM 5