Intro Supply Chain Management Chapter 6: Resource Planning Systems

Manufacturing Resource Planning (MRP II) circa 1980s

Combined MRP with MPS, rough-cut capacity planning, capacity requirement planning and other operations planning softwares. This would eventually evolve into enterprise resource planning or ERP in the 1990s.

Scheduled Receipt

A committed order awaiting delivery for a specific period. It is an order released in past period and due to be received in a specific later period. This information is automatically updated by the MRP.

*Firmed Planned Order*

A planned order that the MRP software system cannot automatically change when conditions change. Prevents system nervousness.

Planned Order Releases

A specific order to be released to the shop or to the supplier to ensure that it is available on the need date.

Electronic Data Interchange (EDI)

Allows manufacturers to relay planned order releases to their suppliers.

Low-Level Coding

Assigns lowest level on the bill of materials to all common components to avoid duplicate MRP computations.

Advantages of Distribution Requirements Planning

Extends manufacturing planning and control visibility into the distribution system. This allows the firm to adjust its production plans to avoid stocking excessive finished goods inventory.

Rough Cut Capacity Plan (RCCP)

Medium range capacity plan. Used to check the feasibility of the *master production schedule.* Options for increasing capacity at the medium range include: - overtime - subcontracting - adding resources - alternate routing of the production sequence.

Master Production Schedule (MPS)

Medium-range materials plan more detailed than the APP. It involves minor changes in capacity such as changes in employment levels.

Match or Tracking Capacity Strategy

Moderate strategy adjust capacity in small amounts in response to demand an changing market conditions.

Components

Parts demanded by the parent.

Single Integrator

Picks all the desired applications from a single vendor for the ERP system. Advantage - All of the applications should be compatible.

Best-of-breed Solution

Picks the best application or module for each individual function in the supply chain. Advantage- Becoming easier to implement. Disadvantage - Multiple software infrastructures and databases may have to be used to link the multiple applications obtained from different vendors. This could affect the ability for the system to update its databases rapidly and efficiently, a similar problem with the legacy MRP systems.

Lead Capacity Strategy

Proactive approach that adds or subtracts capacity in anticipation of future market conditions and demand.

Make-to-order Manufacturing Firms

Produce one of a kind, specialty goods based on customer specifications. They cannot build ahead of schedule since they do not know the actual specifications of the finished goods.

Make-to-stock Manufacturing Firms

Produce standard goods at relatively low prices, emphasizing immediate delivery off the shelf.

Project on-hand inventory

Projected inventory at the end of the period. It equals the beginning inventory minus the gross requirement, plus the scheduled receipt and any planned receipt from an earlier planned order release.

*Safety Stock*

Protects against uncertainties in demand, supply, quality and lead time. Its implication in MRP logic is that the minimum projected on hand inventory should not fall below the safety stock level.

Advantages of MRP

Provides planning information.

Lag Capacity Strategy

Reactive approach that adjusts capacity in response to demand. It is a conservative approach that can often result in excess inventory and idle capacity. Doesn't add capacity until the firm is operating at full capacity.

Capacity

Refers to a firm's labor and machine resources, it is the maximum amount of output that an organization is capable of completing in a given period of time. Excess capacity wastes valuable resources such as idle equipment and facilities. Insufficient capacity adversely affects quality levels and customer service.

Pegging

Relates gross requirements for a component to the planned order releases that created the requirments.

Dependent Demand

Requirements for all materials or items below level 0 on the BOM.

Capacity Requirements Planning (CRP)

Short range capacity planning technique that is used to check the feasibility of the *MRP.*

Materials Requirements Planning (MRP)

Short-range materials plan. The most detailed and specific to the exact end items and quantities to make on weekly, daily, or even hourly basis.

System Nervousness

Situation when a small change in the upper-level production plan causes a major change in the lower-level production plan.

Material Requirements Planning (Part 2)

Software based production planning and inventory control system that has been used widely by manufacturing firms for computing dependent demand and timing requirements. *MRP Requires:* - *The independent demand information.* - *Parent-component relationships from the BOM, ie: lead time information.* - *Inventory status of final product & components. * - *Planned Order Releases (output of the MRP system)*

*Explosion*

The common term used to describe the process of converting a parent item's planned order releases into component gross requirements.

Independent Demand

The final product, illustrated in the BOM, requires dependent demand materials. Level 0 on BOM.

*Planning Factor*

The number of components needed to produce one unit of the parent item.

*Lot Size*

The order size for MRP logic.

Time Bucket

The time period used on the MRP. It is usually expressed in days or weeks. The current period is the action time bucket.

Net Requirement

The unsatisfied item requirement for a specific time period. It equals the gross requirements for that period minus the current on hand inventory and any scheduled receipts.

Advantages of ERP Systems

1. Added visibility reduce supply chain inventories. 2. Helps to standardize manufacturing processes. 3. Measure performance & communicate via a standardized.

Types of ERP Implementation

1. Best of Breed 2. Single Integrator Solution

ERP Implementation Problems

1. Lack of top management commitment. Some are used to old systems such as legacy. 2. Lack of adequate resources. Longterm capital is required. 3. Lack of proper training. 4. Lack of communication. 5. Incompatible system environment.

Disadvantages of ERP System

1. Substantial time & capital investment 2. Complexity, it is designed around a specific business model based on specific business practices. 3. Firms adapt processes to meet ERP systems.

Distribution Requirements Planning (DRP)

A time phased finished good inventory replenishment plan in distribution network. It is a logical extension of the MRP system, & ties physical distribution to manufacturing planning and control system. *DRP is driven by customer demand of finished goods, rather than production schedule, which drives the MRP.*

Gross Requirements

A time-phased requirement prior to considering on-hand inventory and lead time to obtain the item. The gross retirement is satisfied from inventory and production.

Legacy Materials Requirements Planning System

Broad label used to describe an older information system with limited communication functions and visibility across functional areas. NOT USER FRIENDLY. Doesn't provide analytics, only data. Legacy MRP systems were replaced by ERP systems that operated from a single, centralized database due to the globalization of the business environment.

Enterprise Resource Planning Systems (ERP) continued...

Broadly used industrial term to describe the multi-module application software for managing an enterprise's functional activities, suppliers, and customers. Information is entered once at the source and made available to all users.

Development of ERP Systems

ERP systems have spread from manufacturing to the service sector as well. The rapid development of computer technology has contributed to the positive growth of ERP systems.

Advantages of ERP

Enables an organization to deal directly with key suppliers to assess the availability of their resources. Allows key customers to access the firms inventory information and delivery schedules. ERP allows Supply Chain members to share information so that scarce resources can be fully utilized to meet demand, while minimizing supply chain inventories. Eliminates the inconsistency created when different functional areas use different systems with overlapping data. Capable of automating business processes rapidly and accurately. Bullwhip effect is minimized along with supply chain inventories, through the increased responsiveness to demand. Decrease in delivery lead times.

Bill of Materials

Engineering document that shows an inclusive listing of all component parts and subassemblies making up the end item.

Enterprise Resource Planning Systems (ERP)

Information system, connecting all functional areas & operations of an organization, and in some cases, supplier and customers via common software infrastructure and database. It is an umbrella system that ties together a variety of specialized systems, such as production and inventory planning, purchasing, logistics, warehousing, financing, accounting, human resource management.

Parent

Item generating the demand for lower level components. Level o is the final product. It is the parent of all level 1 components. And so on..

Resource Requirements Planning (RRP)

Long range capacity planning module. Used to check whether aggregate resources are capable of satisfying the *aggregate production plan.* Options for increasing capacity at the long range include: - New machines or facilities

Aggregate Production Plan (APP)

Long-range materials plan that can involve major strategic decisions in capacity such as the construction of new facilities and purchase of capital equipment.

Disadvantages

Loss of visibility, especially true for products with a deep BOM. It also ignores capacity and shop floor conditions.