Manufacturing Resource Planning

Because of the large amount of data and the number of calculations needed, the manufacturing planning and control system will probably have to be computer based. If a computer is not used, the time and labor required to make calculations manually is extensive and forces a company into compromises. Instead of scheduling requirements through the planning system, the company may have to extend lead times and build inventory to compensate for the inability to schedule quickly what is needed and when.

The system is intended to be a fully integrated planning and control system that works from the top down and has feedback from the bottom up. Strategic business planning integrates the plans and activities of marketing, finance, and production to create plans intended to achieve the overall goals of the company. In turn, master production scheduling, material requirements planning, production activity control, and purchasing are directed toward achieving the goals of the production and strategic business plans and, ultimately, the company. If priority plans have to be adjusted at any of the planning levels because of capacity problems, those changes should be reflected in the levels above. Thus, there must be feedback throughout the system.

The strategic business plan incorporates the plans of marketing, finance, and production. Marketing must agree that its plans are realistic and attainable. Finance must agree that the plans are desirable from a financial point of view, and production must agree that it can meet the required demand. The manufacturing planning and control system, as described here, is a master game plan for all departments in the company. This fully integrated planning and control system is called a manufacturing resource planning, or MRP II system. The term MRP II is used to distinguish the manufacturing resource plan (MRP II) from the material requirements plan (MRP).

MRP II provides coordination between marketing and production. Marketing, finance, and production agree on a total workable plan expressed in the production plan. Marketing and production must work together on a weekly and daily basis to adjust the plan as changes occur. Order sizes may need to be changed, orders canceled, and delivery dates adjusted. This kind of change is made through the master production schedule. Marketing managers and production managers may change master production schedules to meet changes in forecast demand. Senior management may adjust the production plan to reflect overall changes in demand or resources. However, they all work through the MRP II system. It provides the mechanism for coordinating the efforts of marketing, finance, production, and other departments in the company. MRP II is a method for the effective planning of all resources of a manufacturing company.

Note the feedback loops in the MRP II system shown in Figure 2.6

Enterprise Resource Planning

As MRP systems evolved, they tended to take advantage of two changing conditions:

Computers and information technologies (IT) becoming significantly faster, more reliable, and more powerful. People in most companies had become at least comfortable, but often very familiar, with the advantages in speed, accuracy, and capability of integrated computer-based management systems.

Movement toward integration of knowledge and decision making in all aspects of direct and indirect functions and areas that impact materials flow and materials management. This integration not only included internal functions such as marketing, engineering, human resources, accounting, and finance but also the upstream activities in supplier information and the downstream activities of distribution and delivery. That movement of integration is what is now recognized as supply chain management.

As the needs of the organization grew in the direction of a truly integrated approach toward materials management, the development of IT systems matched that need. As these systems became both larger in scope and integration when compared to the existing MRP and MRP II systems, they were given a new nameenterprise resource planning (ERP).

ERP is similar to the MRP II system except it does not dwell on manufacturing. The whole enterprise is taken into account. APICS Dictionary, 14th Edition defines ERP as a framework for organizing, defining, and standardizing the business processes necessary to effectively plan and control an organization so the organization can use its internal knowledge to seek external advantage. To fully operate, there must be applications for planning, scheduling, costing, and so forth, for all layers in an organization, work centers, sites, divisions, and corporate. Essentially, ERP encompasses the total company, whereas MRP II encompasses just manufacturing. The larger scope of ERP systems allows the tracking of orders and other important planning and control information throughout the entire company, from procurement to ultimate customer delivery. In addition, many ERP systems are capable of allowing managers to share data between firms, meaning that these managers can potentially have visibility across the complete span of the supply chain.

Although the power and capability of these highly integrated ERP systems is extremely high, there are also some large costs involved. Many of the best systems are expensive to buy. The large data requirements (for both quantity and accuracy) tend to make the systems expensive, time consuming, and for many firms, generally difficult to implement.

As the concept in supply chain grew, another planning approach was developed. Called advanced planning and scheduling (APS) systems, the approach has often included the suppliers and customers in the planning, thereby attempting to optimize the performance of the entire supply chain. Extracting information from the entire supply chain, the system attempts to create a rapid and feasible schedule for satisfying customer demand. It includes mathematical optimization and analytic tools and the principle of finite scheduling (see Chapter 6). These same concepts can also be used internally in an operation of a single company in order to try to optimize or create a more feasible solution for the customers of that operation.

Making the Production Plan

Thus far the purpose, planning horizon, and level of detail found in a production plan have been discussed. This section includes some details involved in making production plans.

Based on the market plan and available resources, the production plan sets the limits or levels of manufacturing activity for some time in the future. It integrates the capabilities and capacity of the factory with the market and financial plans to achieve the overall business goals of the company.

The production plan sets the general levels of production and inventories over the planning horizon. Its prime purpose is to establish production rates that will accomplish the objectives of the strategic plan and the strategic business plan. These include inventory levels, backlogs, market demand, customer service, low-cost plant operation, labor relations, and so on. The plan must extend far enough in the future to plan for the labor, equipment, facilities, and material needed to accomplish it. Typically, this is a period of 6 to 18 months and is done in monthly and sometimes weekly periods.

The planning process at this level ignores such details as individual products, colors, styles, or options. With the time spans involved and the uncertainty of demand over long periods, the detail would not be accurate or useful, and the plan would be expensive to create. For planning purposes, a common unit or small number of product groups is what is needed.

Establishing Product Groups

Firms that make a single product, or products that are similar, can measure their output directly by the number of units they produce. A brewery, for instance, might use barrels of beer as a common denominator. Many companies, however, make several different products, and a common denominator for measuring total output may be difficult or impossible to find. Product groups or families need to be established. Marketing naturally looks at products from the customers point of view of functionality and application, whereas manufacturing looks at products in terms of processes. Thus, firms need to establish product groups based on the similarity of manufacturing processes and resources used.

Manufacturing must provide the capacity to produce the goods needed. It is concerned more with the demand for the specific kinds of capacity needed to make the products than with the demand for the product.

Capacity is the ability to produce goods and services. It means having the resources available to satisfy demand. For the time span of a production plan, it can be expressed as the time available or, sometimes, as the number of units or dollars that can be produced in a given period. The demand for goods must be translated into the demand for capacity. At the production planning level, where little detail is needed, this requires identifying product groups, or families, of individual products based on the similarity of manufacturing process. For example, several calculator models might share the same processes and need the same kind of capacity, regardless of the variations in the models. They would be considered as a family group of products.

Over the time span of the production plan, large changes in capacity are usually not possible. Additions or subtractions in plant and equipment are impossible or very difficult to accomplish in this period. However, some things can be altered, and it is the responsibility of manufacturing management to identify and assess them. Usually the following can be varied:

People can be hired and laid off, overtime and short time can be worked, and shifts can be added or removed.

Inventory can be built up in slack periods and sold or used in periods of high demand.

Work can be subcontracted or extra equipment leased.

Each alternative has its associated benefits and costs. Manufacturing management is responsible for finding the least-cost alternative consistent with the goals and objectives of the business.

Basic Strategies

In summary, the production planning problem typically has the following characteristics:

A time horizon of 12 months or more is used, with periodic updating perhaps every month or quarter.

Production demand consists of one or a few product families or common units

Demand is fluctuating or seasonal.

Plant and equipment are fixed within the time horizon.

A variety of management objectives are set, such as low inventories, efficient plant operation, good customer service, and good labor relations.