Manufacturing Resource
Planning
Historical Perspective
ERP- Enterprise
Resource Planning
MRP II – Manufacturing
Resource Planning
mrp – material
requirements
planning
MRP Crusade (1975)
Material Requirements Planning
 Make sure you have enough parts when
you need them

Take future demands, factor in lead times
(time phase), compare to on hand, order
 Determine order size and timing
 Control and plan purchasing vs. OSWO
inventory management

Closed-Loop MRP

Capacity Consideration:
Part routings
 Calculate loads on each work station
 See if scheduled load exceeds capacity
 Lead-time long enough to allow some
shuffling to make plan feasible

MRP II -- Manufacturing
Resource Planning

“A method for the effective planning of all
resources of a manufacturing company” (APICS
def.)





Financial accounting incorporated
Sales
Operations Planning
Simulate capacity requirements of different possible
Master Production Schedules
1989, $1.2B MRPII sales in U.S., one third of total software sales
Success?
MRP Crusade
Begins
Electronic Data Interchange

My computer talks to yours, tells you exactly
what I want to order, when
 You fill out a form, very compressed message
sent, viewed as form
 Software, hardware expensive to implement
Sample Purchase Transaction
ST88850*1
BEG*00*NE*00498765**010698
PID*X*08*MC**Large Widget
P01**5*DZ*4.55*TD
CTT*1
SE*1*1
Transaction Set identifier
Beginning of Segment
Description of Product
Baseline Item Data
Transaction Totals
End of Segment
XML


e
Xtensible Markup Language
XML provides self-describing information.
 Much easier, faster to implement or modify
than EDI.
 Expected to replace EDI.
 Standardization through RosettaNet efforts
ERP differences
Material planning
 Capacity planning
 Product design
 Information warehousing

All functions in the entire company operate
off of one common set of data
 Instantaneous updating, visibility

Historical Perspective
User PCs
Application
Server(s)
Database
Server(s)
ERP Sales

Worldwide sales of top 10 vendors
1995 $2.8 B
 1996 $4.2 B
 1997 $5.8 B


$3.2 B SAP
Fortune survey: 44% reported spending
at least 4 times as much on
implementation as on software
ERP Challenges

Modules assume “best practices:”
Change software to reflect company ($)
 Change company to follow software (?)


Accuracy of data
Drives entire system
 Ownership of / responsibility for


Ability to follow structure
ERP Novel?





“Goal-like” novel
Hero learns more about ERP,
deciding if it is right for his
company
Company rushes through
installation
General introduction to ERP
systems, what they do, how
different from MRP
SAP R/3 screen shots
3 Reasons for ERP
1. Legacy systems outdated and need
replacing anyway
2. Desire for greater communication
between locations
3. Reconfigure business to take
advantage of current and future
communications and computing
breakthroughs
Flexibility
Why ERP?
High
Common Client
Multiple Processes
Multiple Clients
Multiple Processes
Low
Common Client
“Best Practices”
Multiple Clients
Mostly “Best Practices”
High
Centralization
Low
ERP Considerations
1. Control: how much centralization, drill-down visibility?
2. Structure: How large & dispersed, how tightly
integrated does it need to be?
3. Database: desired structure, accessibility
4. Customization: out/in source, how willing? Ability to
modify in real time. Creating in-house experts vs.
continued consulting dependence
5. Best practices: how willing to embrace?
Source: Carol A. Ptak “ERP: Tools, Techniques and Applications for
Integrating the Supply Chain,” St. Lucie Press, APICS Series on
Resource Management, 1999, p. 252.
How do we

System for organizing WIP releases
Consider LT for each item
 Look at BOM to see what parts needed
 Release so they will arrive just as needed


Example – Snow Shovel
Order quantity is 50 units
 LT is one week

MRP Table
1
Gross Requirements
3
10
Scheduled receipts (begin)
Projected Available
Balance (ending)
2
4
5
40 10
50
4 54 44 44 4
Net Requirements
6
Planned Order Receipts
Planned Order Releases
6 units short
MRP Table
1
Gross Requirements
10
Scheduled receipts (begin)
Projected Available
Balance (ending)
2
3
4
5
40 10
50
4 54 44 44 4
Net Requirements
6
Planned Order Receipts
Planned Order Releases
Order 50 units week earlier
50
50
Ending Inventory
1
Gross Requirements
10
Scheduled receipts (begin)
Projected Available
Balance (ending)
2
3
4
5
40 10
50
4 54 44 44 4 44
Net Requirements
6
Planned Order Receipts
Planned Order Releases
Ending inventory
50
50
Terminology

Projected Available balance



Not on-hand (that may be greater)
Tells how many will be available (in ATP sense)
Planned order releases ≠ scheduled receipts



Only when material has been committed to their
production
Move to scheduled receipts as late as possible
Preserves flexibility
1605 Snow Shovel
1605
Snow Shovel
314 scoop assembly
118 Shaft (wood)
14127
Rivet (4)
048
Scoop-shaft
connector
062 Nail (4)
13122
Top Handle
Assy
314 scoop assembly
314 scoop assembly
019 Blade (steel)
2142 Scoop (aluminum)
14127 Rivet (6)
13122 Top Handle Assembly
13122 Top Handle Assembly
11495 Welded
Top handle bracket
Assembly
457 Top handle
(wood)
1118
Top handle
Coupling (steel)
129 Top Handle
Bracket (steel)
082 Nail (2)
BOM Explosion

Process of translating net requirements
into components part requirements
Take into account existing inventories
 Consider also scheduled receipts

BOM Explosion Example
Need to make 100 shovels
 We are responsible for handle
assemblies.

13122 Top Handle Assembly
13122 Top Handle Assembly
11495 Welded
Top handle bracket
Assembly
457 Top handle
(wood)
1118
Top handle
Coupling (steel)
129 Top Handle
Bracket (steel)
082 Nail (2)
Net Requirements
Part Description
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling
Inv
25
22
4
27
15
39
Sch Gross
Rec Req
-100
25
50
--15
Net
Req
75
Net Requirements
Part Description
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling
Inv
25
22
4
27
15
39
Sch
Rec
-25
50
--15
Gross
Req
100
75
150
75
Net
Req
75
28
96
48
13122 Top Handle Assembly
13122 Top Handle Assembly
11495 Welded
Top handle bracket
Assembly
457 Top handle
(wood)
1118
Top handle
Coupling (steel)
129 Top Handle
Bracket (steel)
082 Nail (2)
Net Requirements
Part Description
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling
Sch
Inv
25
22
4
27
15
39
Gross
Rec Req
-100
25 75
50 150
-75
-48
15 48
Net
Req
75
28
96
48
33
--
Timing of Production

This tells us how many of each we need
Doesn’t tell when to start
 Start as soon as possible?
 Dependent events (oh no, not that!)
 Front schedule Cutting approach
 Back schedule

13122 Top Handle Assy
13122 Top handle
LT = 2
Gross Req
1
2
20
3
25 25
5
5
4
10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
5
Pl Order Rec
Pl Order Rel
5
5
5
6 7
20 5
8
9 10
35 10
13122 Top Handle Assy-2
13122 Top handle
LT = 2
Gross Req
1
2
20
3
4
10
5
6 7
20 5
8
9 10
35 10
25 25
5
5
0
5
0
0 0
20
0
0 0
35 10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
5
5
20
20
35 10
35 10
13122 Top Handle Assy -3
13122 Top handle
LT = 2
Gross Req
1
2
20
3
4
10
5
6 7
20 5
8
9 10
35 10
25 25
5
5
0
5
0
0 0
20 5
0
0 0
35 10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
5
5
20
20 5
5
35 10
35 10
457 Top Handle
13122 Top handle
LT = 2
Gross Req
1
2
20
3
4
10
5
6 7
20 5
8
9 10
35 10
25 25
5
5
0
5
0
0 0
20 5
0
0 0
35 10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
5
Pl Order Rel
One handle for
Each assembly
LT = 2
Gross Req
5
1
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
2
5
3
25
22 22
20 5
20
5
4
20
5
5
35 10
35 10
6
7 8
35 10
9
10
457 Top Handle
LT = 2
Gross Req
1
2
5
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
3
25
22 22 17
4
20
5
5
6
7 8
35 10
9
10
457 Top Handle
LT = 2
Gross Req
Sch receipts
Proj. Avail Bal
(ending)
Net Req
1
2
5
3
4
20
5
5
6
25
22 22 17 42
22 17 17
18 10
Pl Order Rec
Pl Order Rel
7 8
35 10
18 10
18 10
9
10
082 Nail (2 required)
13122 Top handle
LT = 2
Gross Req
1
2
20
3
4
10
5
6 7
20 5
8
9 10
35 10
25 25
5
5
0
5
0
0 0
20 5
0
0 0
35 10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
5
Pl Order Rel
Two nails for
Each assembly
5
LT = 1
Lot Size = 50
Gross Req
1
Sch receipts
50
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
4 54
2
10
20
3
20 5
5
4 5
40 10
35 10
35 10
6
7 8
70 20
9
10
082 Nail (2 required)
LT = 1
Lot Size = 50
Gross Req
1
Sch receipts
50
Proj. Avail Bal
(ending)
Net Req
2
10
3
4 54 44 44
4 5
40 10
4
6
Pl Order Rec
Pl Order Rel
50
50
6
7 8
70 20
9
10
082 Nail (2 required)
LT = 1
Lot Size = 50
Gross Req
1
Sch receipts
50
Proj. Avail Bal
(ending)
Net Req
2
10
3
4 54 44 44
4 5
40 10
4
Pl Order Rec
Pl Order Rel
44
6
50
50
6
7 8
70 20
26 20
9
10
082 Nail (2 required)
LT = 1
Lot Size = 50
Gross Req
1
Sch receipts
50
Proj. Avail Bal
(ending)
Net Req
2
10
3
4 54 44 44
4 5
40 10
4
Pl Order Rec
Pl Order Rel
7 8
70 20
44 44 24
6
26
50
50
6
50
4
9
10
4
4
11495 Bracket Assembly
13122 Top handle
LT = 2
Gross Req
1
2
20
3
4
10
5
6 7
20 5
8
9 10
35 10
25 25
5
5
0
5
0
0 0
20 5
0
0 0
35 10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
5
Pl Order Rel
One bracket for
Each assembly
5
LT = 2
Gross Req
1
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
27
2
3
20 5
20
5
4
5
35 10
35 10
6
7
8
9
10
11495 Bracket Assembly
13122 Top handle
LT = 2
Gross Req
1
2
20
3
4
10
5
6 7
20 5
8
9 10
35 10
25 25
5
5
0
5
0
0 0
20 5
0
0 0
35 10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
5
Pl Order Rel
One bracket for
Each assembly
5
LT = 2
Gross Req
1
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
27
2
5
3
20 5
20
5
4
5
35 10
35 10
6
7
8
9
10
11495 Bracket Assembly
13122 Top handle
LT = 2
Gross Req
1
2
20
3
4
10
5
6 7
20 5
8
9 10
35 10
25 25
5
5
0
5
0
0 0
20 5
0
0 0
35 10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
5
Pl Order Rel
One bracket for
Each assembly
5
LT = 2
Gross Req
1
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
27
2
5
3
20 5
20
5
4
20
5
5
35 10
35 10
6
7 8
35 10
9
10
11495 Bracket Assembly
LT = 2
Gross Req
1
2
5
3
4
20
22 22
2
5
5
6
7 8
35 10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
27
Pl Order Rec
Pl Order Rel
3
3
35 10
3
35 10
35 10
9
10
129 Top Bracket
LT = 2
Gross Req
1
2
5
3
4
20
5
5
6
7 8
35 10
9
10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
27
22 22
2
Pl Order Rec
Pl Order Rel
3
LT = 1
Gross Req
1
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
15
2
3
3
3
35 10
3
35 10
35 10
4
5 6 7
35 10
8
9
10
129 Top handle bracket
LT = 1
Gross Req
1
2
3
3
4
5 6 7
35 10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
15 15 15 12 12
23 10
23 10
23 10
8
9
10
1118 Top handle coupling
LT = 2
Gross Req
1
2
5
3
4
20
5
5
6
7 8
35 10
9
10
Sch receipts
Proj. Avail Bal
(ending)
Net Req
27
22 22
2
Pl Order Rec
Pl Order Rel
3
LT = 3
Safety Stock = 20
Gross Req
1
Sch receipts
Proj. Avail Bal
(ending)
Net Req
Pl Order Rec
Pl Order Rel
39
2
3
35 10
3
35 10
35 10
3
3
4
5
6
35 10
7
8
9
10
1118 Top handle coupling
LT = 3
Safety Stock = 20
Gross Req
Sch receipts
Proj. Avail Bal
(ending)
Net Req
1
2
3
3
4
15
39 39 54 51 51 16
4
Pl Order Rec
Pl Order Rel
5 6 7
35 10
4
4
8
9
10
1118 Top handle coupling
LT = 3
Safety Stock = 20
Gross Req
Sch receipts
Proj. Avail Bal
(ending)
Net Req
1
2
3
3
4
8
9
10
15
39 39 54 51 51 20 20 20 20 20 20
4 10
Pl Order Rec
Pl Order Rel
5 6 7
35 10
4
4
10
10
Other considerations

Safety stock if uncertainty in demand or
supply quantity


Safety LT if uncertainty in arrival time of
supply


Don’t let available go down to 0
Place order earlier than necessary
Order quantities

EOQ, Lot-For-Lot, Periodic Order quantity,
others
MRP Priorities

First:
Get installed, part of ongoing managerial
process, get users trained
 Understand critical linkages with other areas
 Achieve high levels of data integrity
 Link MRP with front end, engine, back end


Then:
Determine order quantities more exactly
 Buffering concepts
 Nervousness

Ordering Policies

Dependent Demand
Not independent demand
 Discrete – not continuous
 Lumpy – may have surges


Complexity
Reduces costs – ordering & holding
 Anything other than lot-for-lot Increases
lumpiness downstream

Assumptions
All requirements must be available at start
of period
 All future requirements must be met, and
can’t be backordered
 System operated on periodic basis (e.g.
weekly)
 Requirements properly offset for LTs
 Parts used uniformly through a period


Use average inventory levels for holding cost
Example Demands

Try several lot-sizing methods




Economic Order Quantity
Periodic Order Quantity
Part Period Balancing
Wagner Within

Order cost = $300 per order = CP
 Inventory Carrying cost = $2 / unit/ week = CH
 Avg Demand = 92.1 / wk = D
Week number
Requirements
1 2 3 4 5
6
7
8
9 10 11 12
10 10 15 20 70 180 250 270 230 40 0 10
EOQ

Minimizes total
ordering & holding
costs
 Assumes demand
same every period


Definitely not always
true for this use
Avg. demand and
holding cost need
same time units (e.g.
per week)

Economic Lot Size:
2CP D
ELS 
CH

Where:



D = avg demand
CP = ordering cost
CH = holding cost
EOQ

Sqrt( 2 * 300 * 92.1 / 2) = 166
Week number
Requirements
1
10
Order Quant
166
Begin Inv
Ending Inv
2
10
3
15
4
20
5
70
6
7
8
9
180 250 270 230
10
40
11
0
12
10
EOQ
Week number
Requirements
1
10
Order Quant
166
Begin Inv
166 156 146 131 111 207 250 270 230 166 126 126
Ending Inv
156 146 131 111 41



2
10
3
15
4
20
5
6
7
8
9 10
70 180 250 270 230 40
Ordering cost = 6 * 300 =
Inv carry cost = 1,532.5 * 2 =
Total
11
0
12
10
166 223 270 230 166
27
0
$1,800
$3,065
$4,865
0
0
126 126 116
Periodic Order Quantities

EOQ
Gave good tradeoff between ordering &
holding
 resulted in a lot of leftovers.

Only order enough to get through a
certain number of periods – no leftovers
 How many? EOQ / avg. demand


166 / 92.1 = 1.805 ~ 2 weeks’ worth
Periodic Order Quantities
Week No. 1
Req.
10
Orders
20
Begin
20
End
10
Avg Inv

15
2
10
4
20
10
0
3
15
35
35
20
5
6
7
8
9
10 11 12
70 180 250 270 230 40
0 10
250
520
270
10
20 250 180 520 270 270 40 10 10
0 180
0 270
0 40
0 10
0
5
28
10 215
Ordering cost = 6 * 300 =
 Inv carry cost =1,082.5 * 2 =
 Total
90 395 135 155
$1,800
$2,145
$3,945
20
10
5
Part Period Balancing
(Least Total Cost)

Increase the quantity until holding costs equal
the ordering cost
Week No. 1
Req.
10





2
10
3
15
4
20
5
6
7
8
9
10 11 12
70 180 250 270 230 40
0 10
Order 10 – holding = 10/2*2 = 10
Order 20 – holding = 10 + 10*1.5*2 = $40
Order 35 = 40 + 15*2.5*2 = $115
Order 55 = 115 + 20*3.5*2 = $255
Order 125 = 255 + 70*4.5*2 = $85
Part Period Balancing
Week No. 1
Req.
10
Orders
55
2
10
0
3
15
0
4
20
0
5
6
7
8
9
10 11 12
70 180 250 270 230 40
0 10

Week 5:
 Order 70: Holding = 10*0.5*2 = $10
 Order 250: 10 + 180*1.5*2 = $550
 So I could:



Order 250 units, pay $300 in ordering and $540 holding,
for a total of $840,
Order 70 now, 180 next week, and pay $600 in ordering
and $10 + 180*0.5*2=180 in holding = $790
Seems like the second option is best.
Part Period Balancing
Week No. 1
Req.
10
Orders
55






2
10
0
3
15
0
4
20
0
5
6
7
8
9
10 11 12
70 180 250 270 230 40
0 10
70 180 250 270
When should we place a separate order? If
1.5*$2*D > 300. D>300/3 = 100
Whenever demand is >= 100, we might as well
place a separate order.
What about week 9?
Order 230: holding = 230*0.5*2 = $230
Order 270: = 230 + 40*1.5*2 = $350
Order 280: = 350 + 10*3.5*2 = $420
Part Period Balancing
Week No. 1
Req.
10
Orders
55
Begin
55
End
45
2
10
0
45
35
3
15
0
35
20
4
20
0
20
0
5
6
7
8
9
10 11 12
70 180 250 270 230 40
0 10
70 180 250 270 280
0
0
0
70 180 250 270 280 50 10 10
0
0
0
0 50 10 10
0
Wagner-Within
Mathematically optimal
 Work back from planning period farthest
in the future
 Consider all possibilities:

Order for 5, 4 and 5, 3 and 4, then 5, etc.
 Uses “dynamic programming” – similar to
linear programming

Simulation Experiments

What is best under real-world
conditions?
Multiple levels to be concerned about
 Real-time changes
