Et ZC342-L2 PDF

ETZC 342
MATERIALS MANAGEMENT
BITS Pilani
Pilani Campus
Anil Jindal
Department of Mechanical Engineering
BITS Pilani
Pilani Campus
Production Planning System (partial)

Master scheduling
Production Planning System

Priority vs. Capacity
Manufacturing requirement plan
Strategic business plan
Production plan
Master production schedule
Material requirements plan
Purchasing and production activity control
BITS Pilani, Pilani Campus
Manufacturing Resource
Planning (MRP-II)
Called MRP-II in order to differentiate from MRP ( material
requirement plan)
Needs more responsive and an integrated approach that
works from top down & bottom up feedback
Fully integrated planning and control system is called MRP-II
(Manufacturing resource plan)
It integrates the plans and activities of marketing, finance
and production
To adjust priority plans the changes are to incorporated at all
the planning levels. Thus a feedback is must throughout the
system
Manufacturing Resource
Planning (MRP-II)
More evolved form of MRP
Computers and information technologies (IT)
becoming fast,and more powerful led to
development of MRP II
It is more advantageous in speed, accuracy, and
capability of integrated
computer based
management
Movement towards integration of knowledge and
decision making in areas that impact material flow
and materials management
Enterprise Resource Planning

(ERP)
ERP is an accounting oriented information system for
identifying and planning the organization.
ERP does not dwell on manufacturing alone
ERP encompasses the total company and MRP II is
concerned with manufacturing alone
ERP allows tracking of orders across whole supply
chain
Large costs are involved
Time consuming
Difficult to implement
Making the production plan

Based on market demand and resources available,
production plan set the limits or levels of
manufacturing activity.
It integrates the capabilities and capacity of factory
with market and plans to achieve the company goal.
It sets the general levels of production and
inventories over the planning horizon
Prime purpose is to establish production rates by
taking in to account inventory levels, backlog,
market demand, customer service, low cost plant
operations, labor relations etc
Establishing product groups

Multi product firms need to establish product
groups based on similarity of manufacturing
process
Demands of goods must be translated to demand
for capacity
Example: several calculator models must share the
same processes and need same types of capacity,
regardless of the variations in the models
Production Planning
Production planning has the following characteristics:
A time horizon of 12 months is used, with periodic updating
perhaps every month or quarter
Production demand consists of one or a few product families
or common unit
Demand is fluctuating or seasonal

Plant & equipment are fixed within the time horizon
A variety of management objectives such as low inventories,
efficient plant operation, good customer service, and good
labor relations
Basic strategies for

developing a production plan:
Chase strategy
Production leveling
Subcontracting
Chase (demand matching)

strategy:
Producing the amounts demanded at any given
time. Inventory levels remain stable while
production varies to meet demand.
Company must have enough capacity to be able
to meet the peak demand
Companies have to hire and train people for the
peak periods and lay them off when the peak is
past.
The advantage is that inventories can be kept to a
minimum
Production leveling
Production leveling is continually producing an
amount equal to the average demand
The advantage of a production leveling strategy is
that it results in a smooth level of operation that
avoids the costs of changing production levels.
The disadvantage is that inventory will build up in

low demand periods.
This inventory will cost money to carry
Subcontracting
Subcontracting means always producing at the level of
minimum demand and meeting any additional demand
through subcontracting. Subcontracting can mean buying
the extra amounts demanded or turning away extra
demand.
The major advantage of this strategy is cost. Costs

associated with excess capacity are avoided, and because
production is leveled, there are no costs associated with
changing production levels.
The disadvantage is that the cost of purchasing (item cost,
purchasing, transportation, and inspection costs) may be
greater than if the item were made in the plant
PROBLEM
A plant makes a product group and wants to develop a production plan
for them. The expected opening inventory is 100 cases, and they want
to reduce that to 80 cases by the end of the planning period. The no of
working days is the same for each period. There are no back orders.
Changing the production level by one case costs $20. The expected
demand for the product group is as follows:
I.
II.
III.
IV.
How much should be produced each period?

What is the ending inventory for each period?
If the cost of carrying inventory is $5 per case per period based on
ending inventory, what is the total cost of carrying inventory?
What will be the total cost of the plan?
Solution:
Total production required = 600+80-100 =580 cases

Production each period =580 / 5=116 cases
Ending inventory = opening inventory + productiondemand
Ending inventory after first period = 100+116-110= 106

cases
Ending inventory (period 2)=106+116- 120 =102cases
Solution:
Period
Total
Forecast (cases)
110
120
130
120
120
600
Production
116
116
116
116
116
580
Ending inventory 100
106
102
88
84
80
The total cost of carrying inventory would be:

( 106+102+88+84+80)($5)= $2300
Since there were no stock-outs and no changes in the level
of production, this would be the total cost of the plan.
Chase strategy:
The opening inventory is 100 cases and the company wishes to bring
this down to 80 cases in the first period. The required production in the
first period would then be: 110-(100-80)=90 cases.
Assuming that production in the period before period 1 was 100 cases,
below fig shows the changes in production levels and in ending
inventory.
Period
Demand (cases)
Production
100
Change in production
Ending inventory
100
Total
110
120
130
120
120
600
90
120
130
120
120
580
10
30
10
10
60
80
80
80
80
80
Solution:
The cost of the plan :
Cost of changing production level
= ( 60)( $20)=$1200
Cost of carrying inventory =
(80 cases) ( 5 periods ) ( $5) = $ 2000
Total cost of the plan
= $ 1200 + $ 2000 = $ 3200
Total cost of the plan =$2300 (Production leveling)
BITS Pilani
Pilani Campus
Master scheduling
Master production schedule (MPS)

After production planning, it is the next step to prepare the
MPS.
It is a planning tool and forms the basis for
communication between sales and manufacturing
MPS forms link between production planning and what
manufacturing will actually build
Forms basis for calculating the capacity and resources
needed
MPS drives the material requirement plan
As a schedule of items to be made, the MPS and BOM
determine what components are needed from
manufacturing and purchasing

Production plan deals in families of products while
MPS deals with end items
It breaks the production plan into the requirements
for individual end items, in each family, by date
and quantity
Total no. of items in MPS should not be different
from the total shown on the production plan
MPS is priority plan for manufacturing
It reflects the needs of the market place and the
capacity of manufacturing and forms a priority plan
for manufacturing

MPS forms a link between sales and production
MPS makes possible valid order promises. It is a
plan of what is to be produced and when
Tells sales and manufacturing when goods will be
available for delivery i.e. it is a contract b/w sales
and manufacturing
What are the requirements?

The information needed to develop an MPS is
provided by
1. The production plan
2. Forecasts for individual end items
3. Actual orders received from customers and for stock
replenishment
4. Inventory levels for individual end items
5. Capacity restraints
Relationship to Production plan

Suppose the following production plan is developed
for a family of 3 items
Week
Aggregate forecast (units)
160
160
160
160
215
250
Production plan
205
205
205
205
205
205
Aggregate Inventory (units)
545
590
635
680
670
625
Relationship to Production plan

Opening inventories (units) are:
Product A
350
Product B
100
Product C
050
Total
500
Forecast demand for each item in the product family
Week
Product A
70
70
70
70
70
80
Product B
40
40
40
40
95
120
Product C
50
50
50
50
50
50
Total
160
160
160
160
215
250
Possible solution
With previous data, the mater scheduler must now devise a plan to fit the
constraints
Master schedule
Week
Product A
6
205
Product B
205
205
205
Product C
Total
205
205
205
205
205
205
205
205
Inventory
Week
Product A
280
210
140
70
125
Product B
265
430
595
555
460
340
Product C
-50
-100
55
210
160
Total
545
640
735
680
670
625
Is the schedule satisfactory?

YES !!!!
It tells the plant when to start and stop production
of individual items
Capacity is consistent with the production plan
NO!!!!
It has a poor inventory balance compared to total
inventory
It results in a stock out for product C in periods 2
and 3
Objectives in developing MPS
To maintain the desired level of customer service

by maintaining finished goods inventory levels or by
scheduling to meet customer delivery requirements.
To make the best use of material, labor, and

equipment.
To maintain inventory investment at the desired
levels.
Three steps in preparing MPS

1. Develop a preliminary MPS
2. Check the preliminary MPS against available
capacity.
3. Resolve differences between the preliminary
MPS and capacity availability.
Develop a preliminary MPS

The process of building an MPS occurs for each
item in the family.
The total planned production of all the items in the
family and the total inventory should be equal.
If not matching, some adjustments to the individual
plans must be made so that the total production
must be same.
Rough-Cut Capacity Planning

It checks whether critical resources are available
to support the preliminary master production
schedules
Critical operations include bottleneck operations,
labor, and critical materials
Similar to resource requirement planning used in
production planning process
Difference is that now we are working with
product instead of family
Resolution of differences
Next step is to compare the total time required to
the available capacity of the work center
If the available capacity is greater than required
capacity, the MPs is workable.
If not, the methods to increase the capacity like
adjusting available capacity with overtime, extra
worker, routing through other work centers, and
subcontracting etc. are to be planned.
Judging the MPS

MPS must be judged by:
Resource use: Is the MPS within capacity
restraints in each period of the plan? Does it make
the best use of resources?
Customer service: Will due dates be met and will
delivery performances be acceptable?
Cost: Is the plan economical, or will excess costs
be incurred for overtime, subcontracting,
expediting or transportation
Master Schedule Decisions

MPS must represent as efficiently as possible what
manufacturing will make
If too many items are included , it will lead to
difficulties in forecasting and managing the MPS
Make- tostock
Make- toorder
End Product
End Product
Assemblyto-order
End Product
FAS
MPS
FAS
MPS
MPS
Raw
material
Raw
material
Raw
material
Different MPS Environments

Final Assembly Schedule (FAS)

Is the last step to forecast
Assembly to customer order is generally planned
using a FAS
Is a schedule of what will be assembled
It is used when there are many options and it is
difficult to forecast which combination the
customers will want
MPS is done at component level
FAS schedules customer orders as they are
received and is based on components planned in
MPS
Relation b/w MPS,FAS and

other planning activities
Order entry and
promise
Productio
n plan
Final
assembly
and
schedule
Resource
requirement
plan
Long range
MPS
Rough cut
capacity
plan
Medium range
MRP
Capacity
requirement
plan
Short range
Purchasing
and
production
activity
control
Input/Output
control and
operation
sequencing
Immediate range
Planning horizon for MPS

It is the time span for which plans are made
It must cover period at least equal to the time
required to accomplish the plan
The min. planning horizon is the longest cumulative
or end- to-end lead time
The longer the planning horizon, the greater the
visibility
As a min., the planning horizon for a FAS must
include time to assemble customers order
Planning horizon for MPS

In the following product structure
A
LT=2
B
LT=6
A is Master schedule Item
C
LT=5
The longest cumulative lead time is 26 i.e. A+ D+E

MPS must have a planning horizon of at least 26 weeks
D
LT=8
E
LT=16
MPS and delivery promises

In make-to-order or assemble-to-order environments,
demand is satisfied from productive capacity
capacity
units
Booked
orders
time
ATP is that part of inventory and planned

production that is not already committed
and is available to customer
available to
promise (ATP) ATP is calculated by adding scheduled
receipts to the beginning inventory and
then subtracting actual orders scheduled
before the next scheduled receipt
Scheduled Receipt is an order that has been issued either to manufacturing

or to a supplier
Projected available balance (PAB)

It is calculated depending on whether the period is before
or after the demand time fence
Demand time fence is the number of periods , beginning
with period 1, in which changes are not expected due to
excessive cost caused by scheduled disruption
PAB=prior period PAB or on hand balance +

MPS customers orders
PAB= prior period PAB + MPS - greater of
customer orders or forecast
Time Fences
In the following product structure
A
LT=2
B
LT=6
A is Master schedule Item
C
LT=5
The longest cumulative lead time is 26 i.e. A+ D+E

MPS must have a planning horizon of at least 26 weeks
D
LT=8
E
LT=16
Changing production Schedule

Changes in production schedule will occur due to
Customer cancel or changes the order
Changing capacity due to machines
breakdown or adding the new machines
Supplier have problems and miss delivery
dates
Processes create more span than expected.

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ETZC 342

Production Planning System (partial)

Production Planning System

Strategic business plan

Master production schedule

Material requirements plan

Purchasing and production activity control

BITS Pilani, Pilani Campus

BITS Pilani, Pilani Campus

Enterprise Resource Planning

Making the production plan

Establishing product groups

BITS Pilani, Pilani Campus

Demand is fluctuating or seasonal

BITS Pilani, Pilani Campus

Basic strategies for

BITS Pilani, Pilani Campus

Chase (demand matching)

The disadvantage is that inventory will build up in

BITS Pilani, Pilani Campus

The major advantage of this strategy is cost. Costs

How much should be produced each period?

BITS Pilani, Pilani Campus

Total production required = 600+80-100 =580 cases

Ending inventory = opening inventory + productiondemand

Ending inventory after first period = 100+116-110= 106

Ending inventory (period 2)=106+116- 120 =102cases

BITS Pilani, Pilani Campus

Ending inventory 100

The total cost of carrying inventory would be:

BITS Pilani, Pilani Campus

Master production schedule (MPS)

Master production schedule (MPS)

Master production schedule (MPS)

BITS Pilani, Pilani Campus

What are the requirements?

BITS Pilani, Pilani Campus

Relationship to Production plan

Aggregate forecast (units)

Aggregate Inventory (units)

BITS Pilani, Pilani Campus

Relationship to Production plan

Is the schedule satisfactory?

Objectives in developing MPS

To maintain the desired level of customer service

To make the best use of material, labor, and

BITS Pilani, Pilani Campus

Three steps in preparing MPS

BITS Pilani, Pilani Campus

Develop a preliminary MPS

BITS Pilani, Pilani Campus

Rough-Cut Capacity Planning

BITS Pilani, Pilani Campus

Judging the MPS

Master Schedule Decisions

Different MPS Environments

Final Assembly Schedule (FAS)

Relation b/w MPS,FAS and

BITS Pilani, Pilani Campus

Planning horizon for MPS

BITS Pilani, Pilani Campus

Planning horizon for MPS

A is Master schedule Item