MBA 5112 – OPERATIONS & QUALITY MANAGEMENT

OPERATIONS RESOURCE
PLANNING

MOHAMED NAEEM
acmnaeem@gmail.com
 Session Objectives

At the end of this session you should be able to

understand,
• Material Requirement Planning - MRP
• Manufacturing Resource Planning – MRP II
• Capacity Requirement Planning – CRP
• Enterprise Resource Planning – ERP
• Extended ERP – ERP II
Resource
Planning
for
Manufacturing
MRP
MRP is a tool used to plan the materials that
are required to produce a product in definite
quantities and at determined time, based on
demand.
Provides time scheduling information
specifying when each of the materials, parts,
and components should be ordered or
produced.
Let’s look at an example BOM...
For time scheduling information..

B(2) C(1)

D(3) E(3) D(1)

How do we manage order release?

We need information on delivery times!

Parts-Product Process Lead Time

A 10 days
B 15 days
C 10 days
D 15 days
E 10 days
Let’s look at an example BOM...

(10) Question:
A
When do we start producing/
ordering each part?

B(2) (15) C(1) (10)

(15)

D(3) E(3) (10) D(1) (15)

Let’s assume that we need 50 units of A…

Delivery
date for
final
product

5 days

Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…

Start
assembly
for 50 units
of A

Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…

Start assembly
for 100 units of
B

Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…

Start
assembly for
50 units of C

Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…

Order 300 units of D

for B’s process

Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…

Order 50 units of
D for C’s
assembly

Parts-Products
A
B
C
D
E
Let’s assume that we need 50 units of A…

Order 150
units of E for
C’s assembly

Parts-Products
A
B
C
D
E
MRP – Input and Output
MRP is a technique that uses The outputs are recommendations
• BOM data – quantity, lead time  to release replenish orders
etc.  to reschedule open orders
• Inventory data – on hand, (Exception messages)
buffer stock etc.
The orders could be
• MPS data – demand to purchase orders,
calculate requirements for manufacturing
materials. orders or transfer
orders.

BOM Data
Replenish Orders

Inventory Data MRP System

Reschedule open orders
MPS Data
MRP Terminology: BOM

Manufacturing Sequence
Final Product P

Sub assemblies S1 S2

Components C1 C2 C3 C4

Materials M1 M2 M3 M4 M5

Modular BOM
MRP Terminology: MPS
Master Production Schedule
Time-phased plan specifying how many and when the firm
plans to build what end item.

Aggregate Plan
(Product Groups)

MPS
(Specific End Items)
AP and MPS – An Example
Aggregate Production
Plan for Mattresses

Month 1 2

Mattress production 900 950

Master Production
Schedule for
Mattresses Models
1 2 3 4 5 6 7 8
Model 327 200 400 200 100

Model 538 100 100 150 100

Model 749 100 200 200

MRP Terminology: Gross Requirement
This is same as the demand generated from
forecast and/or customer orders

Period 1 2 3 4 5
Gross requirement 30 50 75
MRP Terminology: Projected on hand
Starting from projected on hand in the beginning,
what would be the on hand while satisfying the
demand for the period.
Period 1 2 3 4 5
Gross requirement 30 50 75
Projected on hand (40) 40 10 10 10 ?
MRP Terminology: Open Order
Previously placed orders which could be re-scheduled based
on flexibility of the source of supply.

Period 1 2 3 4 5
Gross requirement 30 50 75
Projected on hand (40) 40 10 10 10 ?
Open order 20 20
MRP Terminology: Net requirement
Final demand after reducing the on hand and open
orders.

Period 1 2 3 4 5
Gross requirement 30 50 75
Projected on hand (40) 40 10 10 10 ?
Open order 20
Net requirement 20 75
MRP Terminology: Planned order receipt
Expected quantity to be received to satisfy the net
requirement.

Period 1 2 3 4 5
Gross requirement 30 50 75
Projected on hand (40) 40 10 10 10 ?
Open order 20
Net requirement 20 75
Planned order receipt 20 75
MRP Terminology: Planned order release
The period in which the order is to be released with the
expectation of receiving on the receipt date.

Considering a lead time of 3 periods,

Period 1 2 3 4 5
Gross requirement 30 50 75
Projected on hand (40) 40 10 10 10 ?
Open order 20
Net requirement 20 75
Planned order receipt 20 75
Planned order release 20 75
MRP Logic: Example
Given the MPS for Part A, calculate the requirements and action
necessary for Parts B, C and D.
A
You need to consider the following:
• Existing orders should be
B (1) rescheduled or used before planning
new orders.
• Planned orders must be placed in
C (1) C (2) D (1) multiples of the specified order
quantity.

Perio Demand Items On Lead Time Order Open Orders

d Hand Quantity/
(Period)
1 0 Lot size
2 30 A 10 1 Nil Nil
3 0
B 20 2 20 20 (Period 4)
4 40
C 50 1 40 40 (Period 2)
5 0
D 25 2 40 Nil
6 30
 Period 1 2 3 4 5 6

ITEM A GROSS REQUIREMENTS 30 40 30

PROJECTED ON HAND 10 10 0 0 0 0
Order Size – Nil,
LT = 1, OPEN ORDERS
On hand = 10
NET REQUIREMENTS 20 40 30
PLANNED ORDER RECEIPT 20 40 30
PLANNED ORDER RELEASE 20 40 30
 Period 1 2 3 4 5 6

ITEM A GROSS REQUIREMENTS 30 40 30

PROJECTED ON HAND 10 10 0 0 0 0
Order Size – Nil,
LT = 1, OPEN ORDERS
On hand = 10
NET REQUIREMENTS 20 40 30
PLANNED ORDER RECEIPT 20 40 30
PLANNED ORDER RELEASE 20 40 30

ITEM B GROSS REQUIREMENTS 20 40 30

Order Size – 20, PROJECTED ON HAND 20 0 0 0 0 10

LT = 2, OPEN ORDERS 20 20
On hand = 20
Open order 20 @ 4 NET REQUIREMENTS 20 30
PLANNED ORDER RECEIPT 20 40
PLANNED ORDER RELEASE 20 40
 Period 1 2 3 4 5 6

ITEM A GROSS REQUIREMENTS 30 40 30

PROJECTED ON HAND 10
Order Size – Nil,
LT = 1, OPEN ORDERS
On hand = 10
NET REQUIREMENTS 20 40 30
PLANNED ORDER RECEIPT 20 40 30
PLANNED ORDER RELEASE 20 40 30

ITEM B GROSS REQUIREMENTS 20 40 30

Order Size – 20, PROJECTED ON HAND 20 0 0 0 0 10

LT = 2, OPEN ORDERS 20 20
On hand = 20
Open order 20 @ 4 NET REQUIREMENTS 20 30
PLANNED ORDER RECEIPT 20 40
PLANNED ORDER RELEASE 20 40
ITEM C GROSS REQUIREMENTS 60 120 30

Order Size – 40, PROJECTED ON HAND 50 30 30 30 30 0

LT = 1, OPEN ORDERS 40 40
On hand = 50
Open order 40 @ 2 NET REQUIREMENTS 90
PLANNED ORDER RECEIPT 120
PLANNED ORDER RELEASE 120
 Period 1 2 3 4 5 6

ITEM A GROSS REQUIREMENTS 30 40 30

PROJECTED ON HAND 10
Order Size – Nil,
LT = 1, OPEN ORDERS
On hand = 10
NET REQUIREMENTS 20 40 30
PLANNED ORDER RECEIPT 20 40 30
PLANNED ORDER RELEASE 20 40 30

ITEM B GROSS REQUIREMENTS 20 40 30

Order Size – 20, PROJECTED ON HAND 20 10

LT = 2, OPEN ORDERS 20 20
On hand = 20
Open order 20 @ 4 NET REQUIREMENTS 20 30
PLANNED ORDER RECEIPT 20 40
PLANNED ORDER RELEASE 20 40
ITEM C GROSS REQUIREMENTS 60 120 30

Order Size – 40, PROJECTED ON HAND 50 30 30 30 30 0

LT = 1, OPEN ORDERS 40 40
On hand = 50
Open order 40 @ 2 NET REQUIREMENTS 90
PLANNED ORDER RECEIPT 120
PLANNED ORDER RELEASE 120
ITEM D GROSS REQUIREMENTS 20 40

Order Size – 40, PROJECTED ON HAND 25 5 5 5 5 5

LT = 2, OPEN ORDERS
On hand = 25
NET REQUIREMENTS 35
PLANNED ORDER RECEIPT 40
PLANNED ORDER RELEASE 40
Evolution to MRP II

MRP Schedule Materials

Closed Loop Schedule Materials

MRP Incorporate Feedback

Schedule & Purchase

MRP II Materials
Coordinate w/ Mfg
Resources
Closed Loop MRP
Production Planning
Master Production Scheduling
Material Requirements
Planning
Capacity Requirements
Planning

No
Realistic? Feedback
Feedback
Yes
Execute:
Capacity Plans
Material Plans
MRP II – Defined
MRP II is a method for the effective planning of all
resources (material, machine, man power, other
facilities) of a manufacturing company.
Capacity Requirements Planning (CRP)
• Creates a load profile
• Identifies under-loads and over-loads
• Inputs
 Planned order releases
 Routing file
 Open orders file
CRP
MRP planned
order
releases

Capacity Open
Routing
requirements orders
file
planning file

Load profile for

each process
Calculating Capacity
• Maximum capability to produce
• Rated Capacity
• Theoretical output that could be attained if a
process were operating at full speed without
interruption, exceptions, or downtime
• Effective Capacity
• Takes into account the efficiency with which a
particular product or customer can be processed
and the utilization of the scheduled hours or
work
Effective Daily Capacity = (no. of machines or workers) x
(hours per shift) x (no. of shifts) x (utilization) x (efficiency)
Calculating Capacity..
• Utilization
• Percentage of available time spent on working
• Efficiency
• How well a machine or worker performs assigned
tasks compared to a standard output level
• Load
• Standard hours of work assigned to a facility
• Load Percentage
• Ratio of load to capacity

Load
Load Percentage = x 100%
Capacity
 Load Profiles
• Graphical comparison of load versus capacity
• Leveling underloaded conditions:
• Acquire more work
• Pull work ahead that is scheduled for later time periods
• Reduce normal capacity
• Load leveling
• Process of balancing underloads and overloads
Reducing Over-load Conditions
• Eliminate unnecessary requirements
• Reroute jobs to alternative machines, workers,
or work centers
• Split lots between two or more machines
• Increase normal capacity
• Subcontract
• Increase efficiency of the operation
• Push work back to later time periods
• Revise Master Production Schedule (MPS)
Example Capacity Calculation
Copying Machine
A shop has two high-speed copiers that can be operated by
one operator. There are 2 shifts per day and a shift
operates for 8 hours. The facility functions 5 days/week
and there are no breaks during the day, however, there are
30 minutes for lunch or dinner during the shift hours.
Machine service time is 30 minutes at the beginning of
each shift and the machine has an efficiency of 90%.
Calculate the capacity of this operation.

Capacity = 2 copiers * 2 shifts * 8 hrs/day * 7/8

utilization * 0.90 efficiency
= 25.2 hours/day or
1,512 minutes/day
Example Capacity Calculation
Copying Machine
The shop has 5 jobs to be performed and the details of the
jobs in terms of the number of copies to be done, required
set up time for the job, required run time for each unit are
given in the table below:

Job No. of Copies Set up Time (Min) Run Time (Min/unit)

1 500 5.2 0.08
2 1,000 10.6 0.10
3 5,000 3.4 0.12
4 4,500 11.2 0.14
5 2,000 15.3 0.10
Example Capacity Calculation
Copying Machine…

The load calculation of the jobs are as follows:

Job Calculation Total Time (Min)

1 5.2 + (500 X 0.08) 45.20
2 10.6 + (1,000 X 0.10) 110.60
3 3.4 + (5,000 X 0.12) 603.40
4 11.2 + (4,500 X 0.14) 641.20
5 15.3 + (2,000 X 0.10) 215.30
1,615.70

Available capacity per day = 1512 minutes

Loading
Load
Load Percentage = x 100%
Capacity

1,615.70
Load Percentage = x 100%
1,512

Load Percentage = 106.8%

Overloaded by 6.8%.
Loading..
To overcome the Overload situation:
Option 1: Extends working day by approximately 34 minutes
Capacity = 2 copiers * 2 shifts * (8x60+34)min /day *
7/8 utilization * 0.90 efficiency
= 1,619 minutes/day

Option 2: Increase utilization from 7/8 to a higher value

Option 3: Increase efficiency from 90% to a higher value

Initial Load Profile

120 –
110 –
100 –
Hours of capacity

90 –
80 –
70 –
60 –
50 –
40 –
Normal
capacity
30 –
20 –
10 –
0–
1 2 3 4 5 6
Time (weeks)
 Adjusted Load Profile

120 –
110 –
100 –
Hours of capacity

90 –
80 –
70 – Work
an
60 – extra Push back
Pull ahead
50 – shift
Overtime Push back Normal
40 –
capacity
30 –
20 –
10 –
0–
1 2 3 4 5 6
Time (weeks)
ERP – Defined

Information Technology (IT) solution that addresses

the needs of an enterprise, taking business process
view of it to meet organizational goals tightly
integrating all functions.
Also you can say…
History and Evolution
ERP II
• Material Planning
• Inventory Control
• JIT
• Capacity Planning
ERP • Master Scheduling
• CRM
• Cost Management
• Material Planning • Plant Maintenance
• Inventory Control • Budgeting
• JIT • Purchasing
• Capacity Planning
•
• Order Entry
Master Scheduling
MRP II • Cost Management
• Sales & Marketing
• Plant Maintenance
• Integration
• Material Planning •
MRP • Budgeting More focus on
• Inventory Control • customers
• Inventory Purchasing
• JIT • Order Entry • Networking with
Control •
• Material Capacity Planning • Sales & Marketing suppliers
• Master Scheduling • Integration • Total supply chain
Planning
focus
Typical ERP Modules

Human
Resources
Customer
Service Payroll
Purchasing Accounts
Payable
Order
Processing MRP
Inventory Financials
Estimating Shop Floor
Control
Sales Accounts
Analysis Receivable
Scheduling
Extended ERP – ERP II
Order Delivery – Before ERP
Order Delivery – With ERP
Parallel Processing in ERP / Example
Integration of ERP
Advantages of ERP
 Ease of use, ready made solution to most of
business problems
 Payback is earlier than in house developing
solutions
 Increased operations & time efficiency
 Dependency on human is eliminated
 Customers and suppliers could be with on line
communication
Disadvantages of ERP
 Longer project implementation period and more
time to stabilize
 Higher investment and all the companies cannot
afford
 High possibility of failures when the project is not
managed properly
 Implementation difficulties – handling knowledge
gap, change management etc.
Separate Planning Functions !!
Material planning MRP/CRP

and capacity Demand

planning are two

Over
independent Material Plan
functions. Firm

Do
Capacity Plan

Feasible
Plan?

Release

Dispatch
How to over come?

Need a synchronized APS

material and capacity Demand

planning –
Go for APS: APS Engine

Advanced Planning and Firm/Release

Scheduling
Dispatch
What is APS? The Definition…

A method of concurrent
synchronization of capacity and
material to customer orders.
Planning Approach of APS

MRP II APS
Plan the needs of Plan the whole
• Item A for all network for
• Order 1, including
orders
• Item B for all items A-Z
• Order 2, including A-
orders
• Item C for all Z needs
• Order 3 …
orders …
APS - Planning Approaches

MRP II APS
• Assuming • Considering finite
infinite capacity capacity if you
• Without regard want to
to the current • “Pushing” from
time current time if
necessary
APS – Order Promising Example
Two work centers with white space showing available time
slots. A customer order with a request date for a product
requires two operation in WC1 and WC2
Order Promising Example …
Step 1: Backward schedule from request date. Operation 2
can be scheduled, but operation 1 cannot.

Op 1

WC1

WC2 Op 2

Today Request Date Time

Order Promising Example …
Step 2: Switch to forward scheduling.

Op 1

WC1

WC2
Op 2

Today Request Date Time

Order Promising Example …
Step 3: Backward schedule to remove queue. Return
promise date to sales order

Op 1

WC1

WC2 Op 2

Promise Date
Today Request Date Time
Benefits of APS
• Improved customer service
• Reduced costs
• Less inventory
• Less expediting
• Maximized throughput
• More effective use of critical resources
• Reduced lead times
Worldwide Key ERP Players
 SAP
 Oracle
 INFOR
 Microsoft
 IFS
many more… Search in Google.com
Implementation Challenges
• Filling the gaps in knowledge/expertise
• Lack of senior management involvement
• Finding a good leader for the implementation –
Need somebody from the business not from IT
• Winning the mind of users and ensure the
ownership /responsibility for the project
• Handling unnecessary automation requirement -
tendency to automate manual process, as-is
• Handling over expectations from users
• Educating users to think differently as ERP is not a
manual system they had in the past
In Summary…
We have learnt and familiar with..
• Material Requirement Planning - MRP
• Manufacturing Resource Planning – MRP II
• Capacity Requirement Planning – CRP
• Enterprise Resource Planning – ERP
• Extended ERP – ERP II