2. mrpandcrp

1

CAPACITY REQUIREMENTS PLANNING (CRP)

ADM 3301/Rim Jaber

2

CRP and the Planning Process

Change master production schedule?

Execute material plans

Execute capacity plans

Detail capacity plan

Material requirements plan

Master production schedule

Aggregate production plan

Change requirements?

Change capacity?

RealisticNo

Yes

Change production plan?

Is capacity plan being

met?

Is execution meeting

the plan?

3

CAPACITY REQUIREMENTS PLANNING (CRP) CRP is a process which determines

the expected capacity requirements for each period at each work station, given the MRP production schedule.

Production capacity per period is often limited. New MRP schedules must be

developed to obtain a feasible plan given the capacity constraints at all levels.

ADM 3301/Rim Jaber

4

CAPACITY REQUIREMENTS PLANNING (CRP)

The work loads of the work stations for all planning periods may need to be balanced: use of overtime; selection of alternate work centers to

perform tasks; use of external capacity (subcontracting); leveling of production: inventory vs.

stockout; renegotiation of due dates, and re-

scheduling.

ADM 3301/Rim Jaber

5

EXAMPLE 4 Going back to Example 4 of Aggregate

Planning, the optimal production plan required (obtained from the Linear Programming optimal solution): 180 units manufactured during month 1, 284 units manufactured during month 2,

280 regular time and 4 Over time 320 units manufactured during month 3, 352 units manufactured during month 4.

Demand for Product A for the next four months is 255, 294, 321, and 301 units; beg. Inv.= 85 units and end. Inv. = 50 units

6

RECAPP: EXAMPLE 4 – Relevant Data Demand for product A for the next four months

is 255, 294, 321 and 301 units. The company has 30 employees who work an

average of 20 days per month, 8 hours a day, at a rate of $20 per hour. However, due to a 1-week lead time in the production process, there are only 15 production days left in Month 1. It is possible to hire more, or to lay off some workers, and these decisions are implemented at the beginning of each month.

Each unit requires 20 hours of labour, and overtime is limited to no more than 40 hours per employee per month (30 hours for Month 1) and costs $30 per hour. Initial inventory is 85 units and the company wishes to have a final inventory of 50 units at the end of the fourth month.

7

Subcontracting (the work only: the company will provide the raw materials) is possible, but external capacity is limited to 12, 15, 15 and 17 units for the next four months respectively.

Costs for this problem are:- subcontracting: $650 per unit - inventory holding: $125 per unit per month- backlog: $250 per unit per month

(one month maximum)- hiring: $500 per worker- laying off: $750 per worker- raw materials: $500 per unit.

ADM 3301/Rim Jaber

8

Example 4: OPTIMAL SOLUTION (Using LP)

x1 = 180, x2 = 280, x3 = 320, x4 = 352, y2 = 4, s1 = 10, s4 = 50, r3 = 1, v2 = 5, v3 = 5, v4

= 4. Manufacture at regular time 180, 280, 320 and

352 units in months 1, 2, 3, and 4, respectively, as well as 4 units at over-time in month 2.

Keep in inventory 10 units at the end of month 1 and 50 units at the end of month 4.

Backorder 1 unit in month 3. Hire 5 workers in month 2, 5 in month 3 and 4 in

month 4.ADM 3301/Rim Jaber

9

Bill of Materials (BOM) Product A is made up of 1 unit of

component B, and 1 unit of part C. Component B is made up of 2 units of

part C and 3 units of part D. Part C is made of 1 unit of raw

material E and 1 unit of raw material F.

Part D is made of 2 units of raw material E

ADM 3301/Rim Jaber

10

BOM: PRODUCT STRUCTURE TREE

A

B(1)

C(1)C(2) D(3)

E(1) F(1) E(2) E(1) F(1)

ADM 3301/Rim Jaber

11

INITIAL INVENTORIES, PROCESSING AND LEAD TIMES

Item Lead time(weeks)

Processingtime

Initialinventory

A 1 20 h 85

B 1 4 h 40

C 1 5 h 140

D 1 3 h 200

E 1 - 450

F 1 - 150

12

MASTER PRODUCTION SCHEDULE (MPS) Split Periods 1 to 4 (month) into Weeks

1 to 16 the production plan is split equally

amongst the four weeks of each period (Due to a 1-week lead time in the production process, there are only 15 production days left in month 1 3 production weeks for month 1). 180/3 = 60 284/4 = 71 320/4 = 80 352/4 = 88 ADM 3301/Rim Jaber

13

MASTER PRODUCTION SCHEDULE

Week 1 2 3 4

Requirement

Production

85

60

60

60

60

60

60

71

Week 5 6 7 8

Requirement

Production

71

71

71

71

71

71

71

80

Week 9 10 11 12

Requirement

Production

80

80

80

80

80

80

80

88

Week 13 14 15 16

Requirement

Production

88

88

88

88

88

88

88

???

14

Material Requirements Planning (MRP) Refer to the Excel file. Gross Requirements:

For product A (end item) correspond to the weekly requirement quantities shown in the MPS.

For B, C, D, E, and F (components) these quantities are derived from the Order releases of their immediate “parents”

ADM 3301/Rim Jaber

15

Material Requirements Planning (MRP)

Available at week 1 = Initial Inventory Available at week t (where t >= 2):

Available(t) = Max(Available(t-1) – Gross Req.(t-1), 0) Net Requirements

Net Req.(t) = Max(Gross Req.(t)-Available(t), 0) Order Receipts(t) = Net Req.(t) Order releases = orders Receipts offset by

lead time If Net Req.(1) >= 0 what does this implies?

Order Receipts(1) = 0 Net Req.(1) = 0 for item A, B, C, D, E, and F

ADM 3301/Rim Jaber

16

Capacity Requirements Planning (CRP) (Excel File)

Inputs Order releases from MRP (“Units Produced” in

Excel file) Job times, shop load…

Output Conversion of quantity requirements into labor and

machine requirements. Compare these capacity requirements with

available department capacity to determine the extent to which these product utilizes capacity.

Underutilization unused capacity can be used for other jobs

Overutilization available capacity is insufficient to handle requirementsADM 3301/Rim Jaber

17

SYSTEM NERVOUSNESS The term system nervousness

describes the way a system might react to changes.

Changes to the MPS in future periods cause a chain reaction of changes in material requirements in earlier periods. If the cascade of changes continues into past periods, shortages may result.

This kind of chain reaction can be prevented by freezing the MPS. ADM 3301/Rim Jaber

18

TIME FENCES Time fences attempt to achieve a

balance by requiring higher level authorization for changes to the MPS that are closer in time, but allowing changes further removed in time to be authorized by lower levels of management.

Time fences is a series of time intervals during which order changes are allowed or restricted.ADM 3301/Rim Jaber

19

TIME FENCES Frozen

No schedule changes allowed within this window

Moderately Firm Specific changes allowed within product

groups as long as parts are available Flexible

Significant variation allowed as long as overall capacity requirements remain at the same levels ADM 3301/Rim Jaber

20

Computer system Mainly discrete products Accurate bill-of-material Accurate inventory status

99% inventory accuracy Stable lead times

© 1984-1994 T/Maker Co.

MRP REQUIREMENTS

ADM 3301/Rim Jaber

Extensions of MRP Closed-Loop MRP

MRP system provides input to the capacity plan, MPS, and production planning process

Capacity Planning MRP system generates a load report

which details capacity requirements This is used to drive the capacity

planning process Changes pass back through the MRP

system for rescheduling21© 2011 Pearson Education, Inc. publishing as Prentice Hall

Material Requirements Planning II

Once an MRP system is in place, inventory data can be augmented by other useful information Labor hours Material costs Capital costs Virtually any

resource

System is generally called MRP II or Material Resource Planning

22© 2011 Pearson Education, Inc. publishing as Prentice Hall

Material Resource PlanningWeek

5 6 7 8A. Units (lead time 1 week) 100

Labor: 10 hours each 1,000Machine: 2 hours each 200Payable: $0 each 0

B. Units (lead time 2 weeks, 2 each required) 200Labor: 10 hours each 2,000Machine: 2 hours each 400Payable: Raw material at $5 each 1,000

C. Units (lead time 4 weeks, 3 each required) 300Labor: 2 hours each 600Machine: 1 hour each 300Payable: Raw material at $10 each 3,000

Table 14.4


Closed-Loop MRP System

Figure 14.8

24

© 2011 Pearson Education, Inc. publishing as Prentice Hall


Figure 14.8

Capacity Planning

Resource planningFirst cut capacity

No

Capacity requirements (detailed)

Yes

Material requirements

(detailed)

Priority Planning

Desired master

production scheduleRealistic?

Production plan

Planning

25


Figure 14.8

Capacity Control(work center throughput)

Priority Control(detailed scheduling)

Execution

Yes

Execute the plan

No No

Input/output report

Isaverage capacity adequate

?

Dispatch list

Isspecific capacity adequate

?

26

Resource Requirements Profile

Figure 14.9

Lot1

Lot2 Lot

4

Lot7

Lot8Lot

3Lot5

Lot10 Lot

13

Lot9 Lot

12

Lot14 Lot

16

Lot6

Lot15

Lot11

Available capacity

Capacity exceeded in

periods 4 & 6

Lot1

Lot2 Lot

4

Lot7

Lot8Lot

3Lot5

Lot10 Lot

13

Lot9 Lot

12

Lot14 Lot

16

Lot6

Lot15

Lot11

Available capacity

Lot 6 “split”Lot 11 moved200 –

150 –

100 –

50 –

–1 2 3 4 5 6 7 8

Period(a)

Sta

ndard

labor

hours

200 –

150 –

100 –

50 –

–1 2 3 4 5 6 7 8

Period(b)

Sta

ndard

labor

hours


Resource Requirements Profile

Figure 14.9

Lot1

Lot2 Lot

4

Lot7

Lot8Lot

3Lot5

Lot10 Lot

13

Lot9 Lot

12

Lot14 Lot

16

Lot6

Lot15

Lot11

Available capacity

Capacity exceeded in

periods 4 & 6

Lot1

Lot2 Lot

4

Lot7

Lot8Lot

3Lot5

Lot10 Lot

13

Lot9 Lot

12

Lot14 Lot

16

Lot6

Lot15

Lot11

Available capacity

Lot 6 “split”Lot 11 moved200 –

150 –

100 –

50 –

–1 2 3 4 5 6 7 8

Period(a)

Sta

ndard

labor

hours

200 –

150 –

100 –

50 –

–1 2 3 4 5 6 7 8

Period(b)

Sta

ndard

labor

hours

It is also possible to split lots 6 and 11 and move them earlier in the schedule. This

would avoid any potential problems with late orders but would increase inventory holding

cost.


Smoothing Tactics1. Overlapping

Sends part of the work to following operations before the entire lot is complete

Reduces lead time 2. Operations splitting

Sends the lot to two different machines for the same operation

Shorter throughput time but increased setup costs

3. Order or lot splitting Breaking up the order into smaller lots and

running part ahead of schedule 29

MRP in Services Some services or service items

are directly linked to demand for other services

These can be treated as dependent demand services or items Restaurants Hospitals Hotels


Uncooked linguini #30004

Sauce #3000

6

Veal #3000

5

MRP in Services

Chef;Work

Center #1

Helper one;Work

Center #2

Asst. Chef;Work

Center #3

Cooked linguini #20002

Spinach #20004

Prepared veal and sauce #20003

(a) PRODUCT STRUCTURE TREE Veal picante #10001

Figure 14.10


MRP in Services

(b) BILL OF MATERIALS

Part Number Description Quantity

Unit of Measure

Unit cost

10001 Veal picante 1 Serving —

20002 Cooked linguini 1 Serving —

20003 Prepared veal and sauce 1 Serving —

20004 Spinach 0.1 Bag 0.94

30004 Uncooked linguini 0.5 Pound —

30005 Veal 1 Serving 2.15

30006 Sauce 1 Serving 0.80 32© 2011 Pearson Education, Inc. publishing as Prentice Hall

MRP in Services

(c) BILL OF LABOR FOR VEAL PICANTE

Labor Hours

Work Center Operation Labor Type Setup Time Run Time

1 Assemble dish Chef .0069 .0041

2 Cook linguini Helper one .0005 .0022

3 Cook veal and sauce

Assistant Chef.0125 .0500


34

Product Structure, Bill of Materials, Bill of Labor for Veal Picante

© 2011 Pearson Education, Inc. publishing as Prentice Hall

Distribution Resource Planning (DRP)

Using dependent demand techniques through the supply chain

Expected demand or sales forecasts become gross requirements

Minimum levels of inventory to meet customer service levels

Accurate lead times Definition of the distribution

structure35© 2011 Pearson Education, Inc. publishing as Prentice Hall

Enterprise Resource Planning (ERP)

An extension of the MRP system to tie in customers and suppliers1. Allows automation and integration

of many business processes

2. Shares common data bases and business practices

3. Produces information in real time

Coordinates business from supplier evaluation to customer invoicing 36© 2011 Pearson Education, Inc. publishing as Prentice Hall


ERP modules include Basic MRP Finance Human resources Supply chain management (SCM) Customer relationship

management (CRM)


ERP and MRP

Figure 14.11

38

ERP and MRP

Figure 14.11

Customer Relationship Management

Invoicing

ShippingDistributors,

retailers,and end users

Sales Order(order entry,

product configuration,

sales management)

39ADM 3301/Rim Jaber

Table 13.6

Bills of Material

Work Orders

Purchasingand

Lead Times

Routingsand

Lead Times

Master Production Schedule

Inventory Management

ERP and MRP

Figure 14.11

MRP

40

ERP and MRP

Figure 14.11

Supply Chain Management

Vendor Communication(schedules, EDI, advanced shipping notice,

e-commerce, etc.)

41

ERP and MRP

Figure 14.11Table 13.6

Finance/Accounting

General Ledger

Accounts Receivable

Payroll

Accounts Payable

42


ERP can be highly customized to meet specific business requirements

Enterprise application integration software (EAI) allows ERP systems to be integrated with Warehouse management Logistics Electronic catalogs Quality management 43


ERP systems have the potential to Reduce transaction costs Increase the speed and accuracy of

information

Facilitates a strategic emphasis on JIT systems and integration


Advantages of ERP Systems

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 collaboration between business units and sites

5. Has an off-the-shelf software database

6. May provide a strategic advantage45© 2011 Pearson Education, Inc. publishing as Prentice Hall

Disadvantages of ERP Systems

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

2. Implementation may require major changes in the company and its processes

3. 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


SAP’s ERP ModulesFigure 14.12

Cash to CashCovers all financial related activity:Accounts receivable General ledger Cash managementAccounts payable Treasury Asset management

Dock to DispatchCovers internal inventory management:Warehousing Forecasting Physical inventoryDistribution planning Replenishment planning Material handling

Promote to DeliverCovers front-end customer-oriented activities:MarketingQuote and order processingTransportationDocumentation and labelingAfter sales serviceWarranty and guarantees

Procure to PayCovers sourcing activities:Vendor sourcingPurchase requisitioningPurchase orderingPurchase contractsInbound logisticsSupplier invoicing/ matchingSupplier payment/ settlementSupplier performance

Design to ManufactureCovers internal production activities:Design Shop floor engineering reportingProduction

Contract/project engineering

managementPlant Subcontractor maintenance

managementRecruit to HireCovers all HR- and payroll-oriented activity:Time and attendance PayrollTravel and expenses


ERP in the Service Sector

ERP systems have been developed for health care, government, retail stores, hotels, and financial services

Also called efficient consumer response (ECR) systems

Objective is to tie sales to buying, inventory, logistics, and production


All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.


2. mrpandcrp

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capacity requirements

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capacity requirements

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