Chapter 6: Production and Resource Planning

Manufacturing Resource Planning

Manufacturing Resource Planning (MRP II) aims to keep required amount of resources at the time and place they are needed, in order to increase the efficiency of the production. It consists of tools that utilize information in a common database. These tools provide the senior management a better decision-making process aligned with the strategies of the company.

Manufacturing Resource Planning is mentioned in the literature with the abbreviation MRP II to avoid confusion with the Material Requirements Planning (MRP).

Basic features of MRP II:

• In a business, the production system and the financial system are identical. Both have the same operations and the same numbers. Based on this feature, MRP II ensures that the numbers generated at the time of the transaction are reflected in the financial system.
• A good system should be the simulation of the real system. MRP II gives the opportunity to examine the results of different master production schedules or different policies with what-if analysis.
• MRP II is a system that integrates basic components of planning and control such as sales, products, inventories, business centers, production schedules, cash flows and so on.

Nowadays, APICS’s MRP II terminology and definitions are used universally and the MRP II standards are set which are commonly followed by software developers. For more information, visit the APICS website at www.apics.org

The Evolution of MRP II

The opportunities provided by the computers were transferred to the production management by taking inventory tracking in the computer environment. However, MRP approach is the most important start in the renewal of the production planning and control activities and transformation to computer-aided format.

Material requirements planning (MRP) is a computerized information system developed specifically to help manufacturers manage dependent demand inventory and schedule replenishment orders.

After the MRP, a more efficient system called “Closed Loop MRP” (CL-MRP) was developed in order to overcome some of the inadequacies of MRP. With CLMRP companies were able to answer additional questions such as: “Is there enough capacity for the orders received?” and “Which resources are the bottleneck resources?”.

Closed-loop MRP is an MRP system that includes production planning, master production scheduling, and capacity requirements planning.

In 1980s, MRP II systems covering all activities related to the production of production companies started to become widespread. Thanks to the new developments, MRP II systems have not only covered stocks and procurement but also production planning, production control, capacity planning, product costing, accounting and limited financial management. MRP II systems collect all company-level resources in a common database and enable all employees within the company to speak the same language.

MRP II has three major components: management planning, operations planning, and operations execution. The company’s strategy is translated into business objectives for the current year. These objectives drive the development of the marketing plan that in turn drives the development of the production plan. The production plan identifies the resources available to manufacturing to achieve the output needed by marketing. Then the master production schedule shows how the resources from the production plan are to be used. Operations planning is the MRP function. One of the primary inputs of the MRP system is the master production schedule. The output from the system is the order release schedule. Operations execution brings the plan to life. Raw materials and components are purchased, subassemblies and final assemblies are scheduled, quality is assured, labor is managed, and production is completed. Problems encountered in production are fed back to the MRP component. Ongoing performance evaluation provides feedback to business planning for any necessary corrective actions.

With the strong changes in the market, technological developments and the orientation towards the institutionalization of the organizational structure of the companies, a new concept, Enterprise Resource Planning (ERP), has emerged. Thus, the opportunity to benefit from the synergy created by the simultaneous planning of the resources of the facilities located in different geographical regions was born. MRP II is an integrated system in itself and is also an important component of ERP. Since the MRP II methodology is used mainly in manufacturing sectors, it can be perceived as having two different methods with a common misconception.

The third generation of ERP, which is described as the future of ERP emerged in 2010’s. It includes the cooperation of Web 2.0 technology with the ERP functions, provides enterprises with an extroverted and interactive environment in corporate management. The most fundamental feature of the new ERP solution is that it covers all the processes of the business. It meets the requirements of all units, including more customeroriented and value-oriented functions, and completely internet-based.

Basic Modules and Applications in MRP II

Production and sales planning is the process of planning the amount and timing of output in the medium to long  term by regulating production speed, workforce size, inventory and other controllable resources.

Master Production Schedule (MPS) is the process of preparing a schedule to show the date and amount of all materials to be sold or to be produced within a certain planning horizon. The master production schedule is the main input of MRP and MRP II.

The purpose of the master production schedule;

• To keep customer satisfaction as high as possible. To do so, balance product stock levels and delivery dates to customers.
• To ensure the best use of material, labor and production tools.
• To keep the level of investment in the material at the desired level.

The master production schedule is the basic mechanism that directs the MRP process. This plan is a detailed list showing which products are produced, when and how much. Two main factors are considered when determining the main production plan:

• Sales forecasts
• Customer orders

Rough cut capacity planning (RCCP) is the approach of roughly estimating and determining the required level of capacity problems in order to realize the master production schedule. It can also be considered as a transformed form of the master production schedule into workloads. The planning horizon is the same as the main production program and usually one year. Time periods and review times are

The production plan is generally carried out by transforming it into a master production schedule with more specific details than product and product models.

Material requirement planning is a more useful technique in the management and control of production operations when compared to other systems. The primary task of MRP is to determine when all parts and components for the products included in master production schedule should be ordered individually by going backwards from gross requirements and lead times. One of the most important reasons that the system is based on time is that each of the parts has different lead times in determining the material requirements.

MRP is a very useful system for the companies that assemble mixed materials and companies that want to make the material priorities and capacity control in the best way.

MRP collects MPS quantities, combines them with product structure information and stock records, resulting in production / purchase schedules in terms of quantity and time for each part.

The orders given to each of the actions that must be taken in order to obtain the product are called work orders. Work orders that detail the daily activities of workers are prepared using MRP outputs.

In order to introduce the product structure, bill of materials or a product tree tool is used. Bill of Materials (BOM) is a list of materials, components and subassemblies for the production of a unit end product and their usage quantities. BOM is a list of materials; or an engineering document that includes a list of subassemblies, components and components that define the product and form the product. The schematic representation of the material list is called the product tree. In general, it shows the components of any product and the amount (units, kg, lt, etc.) per unit.

Inventory records are a set of data for all materials in the warehouse such as material entry, exit, order, supply time, availability, order quantities. Some of the materials will be in the warehouse (the stock amount at hand), and some will arrive at the warehouse within a certain delivery time (orders to be taken).

The basic concepts used in MRP operations can be defined as follows:

• Gross Requirement: Gross requirements are derived from MPS data for end products from the combined requirements for other components. It indicates the estimated amount required by the end of the planning period.
• Scheduled receipt: Shows orders that have been ordered but not yet received for delivery at the beginning of the term.
• Projected inventory: Indicates the amount expected to be available at the end of the period. This value is calculated by subtracting the gross requirement values from the sum of the orders that are received at the end of the previous period and planned to be received and are to be received.
• Net Requirement: The net amount needed during the period. It is calculated from the gross requirements by deducting the orders to be received with the available stocks at the end of the previous period.
• Planned receipts: It is the order of material to be given to a vendor at the beginning of the relevant period or work orders to be produced in the enterprise. This value is either equal to the net requirement value, or it is calculated based on a batch size determination.
• Planned order release: It is the amount of material to be ordered in the relevant period. The period that the order is to be given shall be determined by taking back the requirement from the moment of supply until the material comes in the planned period. After the orders are placed, these orders will be converted into orders to be received.

MRP explosion is a process that converts the requirements of various final products into a material requirements plan that specifies the replenishment schedules of all the subassemblies, components, and raw materials needed to produce final products.

Capacity Requirements Planning (CRP) includes efforts to ensure the compatibility between an enterprise’s MPS and its production capacity. CRP determines the short term and medium-term bottleneck resources according to the time axis by determining the required labor force and hardware resources for the implementation of MRP plan prepared in line with the main production program.

CRP supports management in the following areas:

• Design of new plant and manufacturing systems or dispatch work
• Checking whether the current capacity is sufficient to obtain a new job
• To examine the utilization levels of existing or planned facilities
• Evaluation of different routes or priority rules
• Determining the parts that are in the process and determining the facilities that are idle

The route shows the orders of business centers, and operations a product pass through.

Capacity Requirements Planning (CRP) uses detailed MRP outputs and production capacity requirements of products and parts.

Enterprise Resource Planning

Enterprise Resource Planning (ERP) is an integrated management system that enables the efficient use of resources such as labor, machinery and materials required for the production of goods and services. Enterprise Resource Planning, as a system designed to integrate all the functions of the enterprise and to use the resources efficiently, has a wide area of use in production enterprises, non-profit organizations such as foundations and government institutions. ERP aims to monitor all processes and resources of institutions.

The ERP System aims to reduce procurement times and costs with an enterprise-wide understanding. It is a system where work at all levels is carried out with the idea of a single global operation.

Even though first-generation ERP systems gave planners plenty of statistics about what happened in the company, in terms of costs and financial performance, the reports were merely snapshots of the business at a single point in time. These reports did not support the nonstop planning required in in supply chain management. This insufficiency prompted the advancement of planning systems focused on decision making. These new systems are called as SCM (supply chain management) software. SCM system is designed to improve decision making in the supply chain. It helps answer such questions as (Reid et al., 2012):

1. What is the best way to ship a product to a specific customer?
2. What is the optimal production plan?
3. How much product should ship to specific intermediaries?
4. How can outbound and inbound transportation costs be minimized?

After implementing an ERP system, the following strategic and financial benefits were noted:

• elimination of redundant financial systems;
• improved timeliness and accuracy of key reports;
• improved vendor relations and increased negotiating power;
• improved visibility;
• compliance with the latest government reporting requirements;
• more staff time for value-added tasks; and • increased vendor payment discounts.