CAPACITY REQUIREMENTS PLANNING (CRP)

ADM 3301/Rim Jaber

CRP and the Planning Process

Aggregate production plan

Master production schedule

Change requirements? Change capacity? Material requirements plan

Change production plan?

Change master production schedule?

Detail capacity plan

No

Realistic
Yes

Is capacity plan being met?

Execute capacity plans Execute material plans

Is execution meeting the plan?

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.
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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.
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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 5 units and end. Inv. = 50 units

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. 6

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.
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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.
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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

BOM: PRODUCT STRUCTURE TREE

A B(1) C(2) E(1) F(1) D(3) E(2)
ADM 3301/Rim Jaber

C(1)
E(1) F(1)
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INITIAL INVENTORIES, PROCESSING AND LEAD TIMES

Item A B C D E F Lead time Processing (weeks) time 1 1 1 1 1 1 20 h 4h 5h 3h Initial inventory 85 40 140 200 450 150
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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 1week lead time in the production process, there are only 15 production days left in month 1 3 production weeks for month 1).

180/3 284/4 320/4 352/4

= = = =

60 71 80 88
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MASTER PRODUCTION SCHEDULE

Week Requirement Production Week Requirement Production Week Requirement Production Week Requirement Production 1 85 60 5 71 71 9 80 80 13 88 88 2 60 60 6 71 71 10 80 80 14 88 88 3 60 60 7 71 71 11 80 80 15 88 88 4 60 71 8 71 80 12 80 88 16 88 ???

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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
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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 15

Capacity Requirements Planning (CRP) (Excel File)

Inputs

Order releases from MRP (Units Produced in Excel file) Job times, shop load 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.

Output

Underutilization unused capacity can be used for other jobs Overutilization available capacity is insufficient to handle ADM 3301/Rim Jaber 16 requirements

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.
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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.
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TIME FENCES

Frozen

No schedule changes allowed within this window Specific changes allowed within product groups as long as parts are available

Moderately Firm

Flexible

Significant variation allowed as long as overall capacity requirements remain at the same levels
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MRP REQUIREMENTS

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

99% inventory accuracy

1984-1994 T/Maker Co.

Stable lead times

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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 rescheduling
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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

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Material Resource Planning

5 A. Units (lead time 1 week) Labor: 10 hours each Machine: 2 hours each Payable: $0 each Units (lead time 2 weeks, 2 each required) Labor: 10 hours each Machine: 2 hours each Payable: Raw material at $5 each Units (lead time 4 weeks, 3 each required) Labor: 2 hours each Machine: 1 hour each Payable: Raw material at $10 each 6 Week 7 8 100 1,000 200 0

B.

200 2,000 400 1,000

C.

300 600 300 3,000

Table 14.4

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Closed-Loop MRP System

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Figure 14.8
24

Closed-Loop MRP System

Production plan Priority Planning Capacity Planning

No

Desired master production schedule Realistic?

Yes Material requirements
(detailed)

Resource planning First cut capacity

Planning

Capacity requirements
(detailed)
Figure 14.8
25

Closed-Loop MRP System

(detailed scheduling)

Priority Control

(work center throughput)

Capacity Control

Dispatch list No Is specific capacity adequate ? No

Input/output report

Execution

Yes Execute the plan

Is average capacity adequate ?

Figure 14.8
26

Resource Requirements Profile

200
Capacity exceeded in periods 4 & 6
Lot 6 Lot 9

200

Lot 6 split Lot 11 moved

Standard labor hours

Standard labor hours

150

Lot 11

Available capacity
Lot 15

150
Lot 6

Available capacity
Lot 9 Lot 12 Lot 11

100
Lot 1

Lot 2

Lot 7 Lot 4 Lot 8

Lot 12

100
Lot 1

Lot 2

Lot 7 Lot 4 Lot 8

Lot 15

50

Lot 10

Lot 3

Lot 5

Lot 13

Lot 14

50

Lot 16

Lot 10

4 5 Period (a) 6 7 8 1

Lot 3

Lot 5

Lot 13

Lot 14

Lot 16

4 5 Period (b)

Figure 14.9
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Resource Requirements Profile

200
Capacity exceeded in periods 4 & 6
Lot 6 Lot 9

200

Lot 6 split Lot 11 moved

Standard labor hours

Standard labor hours

150

Lot 11

Available capacity
Lot 15

150
Lot 6

Available capacity
Lot 9 Lot 12 Lot 11

100
Lot 1

Lot 2

Lot 7 Lot 4

Lot 12

100
Lot 1

Lot 2

Lot 7 Lot 4

Lot 15

50

Lot Lot It is also possibleLot split lots 6 Lot 11 and Lot to and Lot moveLot 16 16 13 13 Lot Lot 8 8 Lot 3 3 them earlier in the schedule.This would avoid any 5 5 2 potential problems with late orders but5would 8 3 4 5 6 7 8 1 2 3 4 6 7 Period Period increase inventory holding cost.

Lot 10

Lot 14

50

Lot 10

Lot 14

(a)

(b)

Figure 14.9
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Smoothing Tactics
1. 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
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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
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MRP in Services
(a) PRODUCT STRUCTURE TREE Veal picante #10001

Chef; Work Center #1

Helper one; Work Center #2

Cooked linguini #20002

Spinach #20004

Prepared veal and sauce #20003

Asst. Chef; Work Center #3

Figure 14.10

Uncooked linguini #30004

Sauce #30006

Veal #30005

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MRP in Services
(b) BILL OF MATERIALS

Part Number 10001 20002 20003 20004 30004 30005 30006

Description
Veal picante Cooked linguini Prepared veal and sauce Spinach Uncooked linguini Veal Sauce

Quantity
1 1 1 0.1 0.5 1 1

Unit of Measure Serving Serving Serving Bag Pound Serving Serving

Unit cost 0.94 2.15 0.80

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MRP in Services
(c) BILL OF LABOR FOR VEAL PICANTE

Labor Hours

Work Center
1 2 3

Operation
Cook linguini Cook veal and sauce

Labor Type
Helper one Assistant Chef

Setup Time
.0069 .0005 .0125

Run Time
.0041 .0022 .0500

Assemble dish Chef

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

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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 structure
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Enterprise Resource Planning (ERP)

An extension of the MRP system to tie in customers and suppliers
1. 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

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Enterprise Resource Planning (ERP)

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

Figure 14.11
38

ERP and MRP

Customer Relationship Management
Sales Order (order entry, product configuration, sales management) Shipping Distributors, retailers, and end users

Invoicing

Figure 14.11
ADM 3301/Rim Jaber 39

ERP and MRP

Master Production Schedule

Inventory Management

Bills of Material

MRP
Work Orders

Purchasing and Lead Times Table 13.6 Figure 14.11

Routings and Lead Times

40

ERP and MRP

Supply Chain Management

Vendor Communication (schedules, EDI, advanced shipping notice, e-commerce, etc.)
Figure 14.11
41

ERP and MRP

Finance/ Accounting
Accounts Receivable

General Ledger

Accounts Payable

Payroll

Table Figure 14.11 13.6

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Enterprise Resource Planning (ERP)

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
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Enterprise Resource Planning (ERP)

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

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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 advantage
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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
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SAPs ERP Modules

Cash to Cash
Covers all financial related activity: Accounts receivable Accounts payable General ledger Treasury

Figure 14.12

Cash management Asset management

Promote to Deliver

Covers front-end customer-oriented activities: Marketing Quote and order processing Transportation Documentation and labeling After sales service Warranty and guarantees

Design to Manufacture

Covers internal production activities: Design Shop floor engineering reporting Production Contract/project engineering management Plant Subcontractor maintenance management

Procure to Pay

Recruit to Hire

Covers all HR- and payroll-oriented activity: Time and attendance Payroll Travel and expenses

Covers sourcing activities: Vendor sourcing Purchase requisitioning Purchase ordering Purchase contracts Inbound logistics Supplier invoicing/ matching Supplier payment/ settlement Supplier performance

Dock to Dispatch

Covers internal inventory management: Warehousing Forecasting Distribution planning Replenishment planning 2011 Pearson Education, Inc. publishing as Prentice Hall

Physical inventory Material handling 47

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
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