MANUFACTURING

RESOURCE PLANNING - II

DR. MURALI KRISHNAMURTHY

1
Manufacturing
Resource
Planning Evolution of MRP II
(MRP II)

2
The Future of
MRP II Manufacturing Operations Control

• Manufacturing processes are at the centre of all value

addition activities.

MATERIAL A
MANUFACTURING FINISHED
MATERIAL B MATERIALS
PROCESS GOODS
MATERIAL C
MRP
• In 1962, in response to Toyota Manufacturing Program,
Joseph Orlicky developed Material Requirements
Planning (MRP).
3
Evolution of
MRP II Material Requirements Planning

• Black & Decker was first the company to use MRP in

1964.
• MRP systems help to better manage material
procurement for supporting manufacturing operations
• MRP translates the master production schedule into
component level demand using a bill of materials and
direct the purchasing group when to procure based on
the component lead times loaded into the MRP system
and the current inventory levels.
4
Evolution of
MRP II MRP Process Flow

5
Evolution of
MRP II Problems With MRP

• The user has to specify how long it takes a factory

to make a product from its component parts.
• The system design assumes that manufacturing
lead time will be constant every time.
• It takes no account of capacity in its calculations.
Thus it will give results that are impossible to
implement due to manpower or machine or
supplier capacity constraints.
6
Evolution of
MRP II Opportunities Beyond MRP

• 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

7
The Future of
MRP II Expanded Scope of Operational Control

OPERATOR A MAN
OPERATORS HOURS
OPERATOR B

MATERIAL A
MANUFACTURING FINISHED
MATERIAL B MATERIALS
PROCESS GOODS
MATERIAL C
MRP
EQUIPMENT
A
EQUIPMENTS MACHINE
EQUIPMENT
B MRP IIHOURS

8
Evolution of
MRP II Introducing MRP II

• In 1983 Oliver Wight along with Walter Goddard

developed Manufacturing Resource Planning (MRP II)
from MRP and also led the evolution of Production
Planning into Operations Planning.
• MRP II systems deal with resource capacities and
consist of the basic MRP I modules plus the RCCP
(Rough Cut Capacity Planning), CRP (Capacity
Requirement Planning) and SFC (Shop Floor Control)
modules.
9
Evolution of
MRP II Why MRP II?

• While MRP stops at the receiving dock, MRP II

incorporates the value stream all the way through the
manufacturing unit up to the shipping dock.
• The value stream includes demand forecasting , machine
capacity scheduling, labor planning and quality tracking.
• MRP II extends the Just in Time concept beyond
inventory and expands it into labor availability, raw
material arrival, machine availability and so on.

10
Manufacturing
Resource
Planning Definition and Features of MRP II
(MRP II)

11
 Definition
and Features
of MRP II
Definition of MRP II

• Manufacturing Resource Planning (MRP II) is defined

by APICS (American Production and Inventory Control
Society, estd. 1957) as a method for the effective
planning of all resources of a manufacturing company.
• It addresses operational planning in units, financial
planning in dollars, and has a simulation capability to
answer "what-if" questions and extension of closed-loop
MRP.

12
 Definition
and Features
of MRP II
Definition of MRP II

• MRP II is an incremental information integration

business process strategy implemented using hardware
and modular software applications linked to a central
database that stores and delivers business data and
information.
• The goal of MRP II is to provide consistent data to all
players in the manufacturing process as the product
moves through the production line.

13
 Definition
and Features
of MRP II
Features of MRP II

• MRP II concentrates on the resources, i.e. material, man

and machine for detailed production scheduling.
• Loading by resource means that capacity is taken into
account , which offers tighter control over the plant.
• The Rough Cut Capacity Planning attempts to match the
order load to the capacity available, by identifying
resource overloads and moving orders to achieve a
balance (knocking the mountains into the valleys).

14
 Definition
and Features
of MRP II
Features of MRP II

• It builds on closed-loop MRP by adopting the feedback

principle and extending it to additional areas of the
enterprise such as purchasing, marketing and finance.
• It integrates all aspects of the manufacturing process,
including materials, finance and human relations, for
planning and control purposes.
• This integration extends from strategic to operational
levels and encompasses long term planning up to short
term control.
15
 Definition
and Features
of MRP II
Features of MRP II

• Fluctuations in forecast data are taken into account by

including simulation of the master production schedule,
thus creating a long-term control.
• MRP II is a total company management concept for
using human resources more productively.
• The MRP II process is carried out by a synergistic
combination of computer and human resources. 

16
Manufacturing
Resource
Planning Structure and Working of MRP II
(MRP II)

17
Structure and
Working of
MRP II
Working of an MRP II System

• MRP II systems begin with MRP, which inputs the sales

forecasts from sales and marketing and determines the
demand of raw materials by analyzing the forecasts.
• The company’s strategic plans for the future are
translated into a Master Production Schedule (MPS).
• MRP II assures that the production facility is capable of
accomplishing the MPS otherwise all these plans will
result in inability to meet the promised delivery dates.

18
Structure and
Working of
MRP II
Working of an MRP II System

• This is performed in an iterative manner.

• MRP schedules are constructed to support this MPS.
• Then Capacity Requirements Planning (CRP) is
performed which tells what equipment, personnel, and
materials would be needed to meet the MRP schedules.
• If this capacity is not available, then the MPS and
possibly the strategic plans must be revised until the
MRP schedules are consistent with the plant capacity.

19
Structure and
Working of
MRP II
Working of an MRP II System

• This revision process facilitates the development of a

detailed production schedule that accounts for labor and
machine capacity.
• The schedules are released to the departments which
perform production and/or purchasing operations.
• The MRP II system draws on the revised MPS and
provides output in the form of a final labor and machine
schedule and schedules the production runs according
to the arrival of materials.
20
Structure and
Working of
MRP II
Working of an MRP II System

• The MRP II systems continuously provide production

data to accounting and finance about the production
costs in terms of machine time, labor time and
materials, as well as the final production numbers.
• The feed back of this information to the MRP/MPS
elements allow plans to be updated thereby creating a
closed loop planning and execution system.

21
Structure and
Working of
MRP II
MRP II Process Flow

22
WHAT ARE
NEURAL
NETWORKS A Typical Resource Planning Problem
?

Problem:
To schedule the resources for enabling uninterrupted
production of 100 units of product P 9 weeks from now.

Resource
Bill Of Materials Requirement
Matl A Matl B Matl C
MATL – Lead time
P (Wks)
1 2 4
I UNIT
Raw Matl
Cost (Rs)
2 5 5
MATL - MATL - MATL -
Labor Reqd
A B C
(Hrs)
10 10 2
1 UNIT 2 UNITS 3 UNITS
Machine Reqd
(Hrs)
2 2 1

23
Structure and
Working of
MRP II
Resource Estimation

Week
5 6 7 8
A. Units (lead time 1 week) 100
Labor: 10 hours each 1,000
Machine: 2 hours each 200
Payable: Rs 2 each 200
B. Units (lead time 2 weeks,
2 each required) 200
Labor: 10 hours each 2,000
Machine: 2 hours each 400
Payable: Raw material at Rs 5 each 1,000
C. Units (lead time 4 weeks,
3 each required) 300
Labor: 2 hours each600
Machine: 1 hour each 300
Payable: Raw material at Rs 10 each 3,000

24
 Definition
and Features
of MRP II
Software for MRP II

• A typical  MRP II software system employs a modular

construction.
• The modules keep track of and regulate specific
characteristics and functions of the entire organization.
• The MRP II differs fundamentally from point contact
planning, in which individual characteristics and
functions have their own dedicated systems.

25
Structure and
Working of
Primary Modules in an MRP II
MRP II Software

• Master Production Scheduling (MPS)

• Item Master Data (Technical Data)
• Bill of Materials (BOM) (Technical Data)
• Production Resources Data (Manufacturing Technical Data)
• Inventories & Orders (Inventory Control)
• Purchasing Management
• Material Requirements Planning (MRP)
• Shop Floor Control (SFC)
• Capacity planning or Capacity Requirements Planning (CRP)
• Standard Costing (Cost Control)
• Cost Reporting / Management (Cost Control)
26
Structure and
Working of
MRP II
Ancillary Modules in a MRP II Software

• Business Planning • Distribution Requirements Planning

• Lot Traceability • Distribution Resource Planning (DRP)
• Contract Management • [Automated] Warehouse Management
• Tool Management • Project Management
• Engineering Change Control • Employee attendance
• Configuration Management • Labour productivity
• Shop Floor Data Collection • Quality tracking tools
• Sales Analysis and Forecasting • Technical Records
• Finite Capacity Scheduling (FCS) • Estimating
• General Ledger • Computer-aided design/Computer-aided
• Accounts Payable (Purchase Ledger) manufacturing (CAD/CAM)
• Accounts Receivable (Sales Ledger) • Computer Aided Process Planning
• Sales Order Management (CAPP)

27
 Definition
and Features
of MRP II
Software for MRP II

• The MRP II system integrates these modules together so

that they use common data and freely exchange
information, in a model of how a manufacturing
enterprise should and can operate.
• MRP II is not exclusively a software function, but a
marriage of people skills, dedication to data base
accuracy, and computer resources.

28
Manufacturing
Resource
Planning Benefits and Limitations of MRP II
(MRP II)

29
Benefits and
Limitations
of MRP II
Benefits From MRP II

• Increased direct labor productivity

• High accuracy of inventory and manufacturing capacity
• Effective interaction between different functions due to
common databases and improved information flow
• Quicker implementation of engineering changes
• Simulation capability to test what-if scenarios in a risk
free environment
• Company focus shifts from crisis management to
process control
30
Benefits and
Limitations
Benefits of MRP II to Business
of MRP II Functions

• For Manufacturing Functions:

• Better control of inventories
• Improved scheduling
• Productive relationships with suppliers
• For Financial and Costing Functions :
• Reduced working capital for inventory
• Improved cash flow through quicker deliveries
• Accurate inventory records
• Timely and valid cost and profitability information
• For Design / Engineering Functions :
• Improved design control
• Better quality and quality control
31
Benefits and
Limitations
of MRP II
Limitations of MRP II

• Capacity can be considered only after the MRP schedule

has been prepared.
• It may happen that insufficient time was allowed within
the MRP schedule for the individual operations to be
completed, thus leading to erroneous data.
• All the planning, if done on the basis of misleading data,
will slow down the production process.
• If unexpected input changes occur, the planning process
has to be recalculated from start.
32
Benefits and
Limitations
of MRP II
Limitations of MRP II

• Inefficiencies will be built up in the system if feedback

about problems is not supplied on a timely, regular basis.
• MRP II is mostly run in batch environments, as it enables
rapid lot to lot course corrections to meet real world
conditions. In long production runs, corrections take time.
• MRP II software are costly and have a learning curve.
• MRP II does not integrate all aspects of development,
finance, marketing, human resources and information
technology operations .
33
Benefits and
Limitations
of MRP II
Keys to MRP II Success

• Commitment to change and improvement

• Serious evaluation of current situation and future
goals
• Active support from top management
• Full time dedicated project implementation manager
• Implementation of cross functional teams
• Methodical implementation plan
• Implementation schedule that is long enough to be
thorough but short enough to sustain momentum
34
Benefits and
Limitations
of MRP II
Keys to MRP II Success

• Unmodified off-the-shelf software package

• Database integrity before beginning implementation
• Pilot program before gradual but complete changeover
• Company wide training and education (focus on people,
not computers)
• Minimal reliance on consultants once system is
operational
• Perseverance to overcome cultural barrier

35
Manufacturing
Resource
Planning The Future of MRP II
(MRP II)

36
The Future of
MRP II Extending MRP II Over The Enterprise

HUMAN
OPERATOR A MAN FINANCES
RESOURCES
OPERATORS HOURS
OPERATOR B

MATERIAL A

ERP
MANUFACTURING FINISHED
MATERIAL B MATERIALS
PROCESS GOODS
MATERIAL C
MRP
EQUIPMENT
CUSTOMER
A
EQUIPMENTS MACHINE INFRASTRUCT RELATIONS
EQUIPMENT
B MRP IIHOURS URE MANAGEMEN
T

37
The Future of
MRP II Enterprise Resource Planning

• ERP is the next evolution of the MRP system.

• It attempts to integrate the information flow from all
departments of the company: finance, marketing,
production, logistics and human resources.
• A properly set up ERP system allows all departments to
intercommunicate and monitor a customer order at any
point in time.

38
The Future of
MRP II Enterprise Resource Planning

39
BALANCING DEMAND AND
PRODUCTIVE CAPACITY

40
Fluctuations in Demand Threaten
Productivity

41
Productive Capacity and Service Success

Services cannot be stockpiled

This is problematic for people or physical possession
services due to wide swings in demand
Goal is to utilize staff, equipment, and facilities as
productively as possible

42
Service Decision Framework:
Decisions on Matching Demand and Capacity
W h a t B u s in e s s A r e W e In ?

W h a t S e r v ic e P r o c e s s e s C a n B e U s e d in W h o A r e O u r C u s t o m e r s a n d H o w S h o u ld W e
O u r O p e r a t io n ? ( P R O C E S S ) R e la t e t o T h e m ?

W h a t S h o u ld b e t h e C o r e a n d S u p p le m e n ta r y E le m e n ts
o f O u r S e r v ic e P r o d u c t? (P R O D U C T E LE M E N T S )

W h a t P r ic e S h o u ld W e C h a r g e ? H o w t o C o m m u n ic a te ? ( P R O M O T IO N &
(P R IC E A N D O T H E R U S E R O U TLA Y S ) E D U C A T IO N , P H Y S IC A L E V ID E N C E )

O p t io n s fo r D e liv e r y ? ( P L A C E , C Y B E R S P A C E H o w C a n W e B a la n c e
& T IM E , P H Y S IC A L E V ID E N C E ) P R O D U C T IV IT Y A N D Q U A L IT Y ?

H O W S H O U LD W E M A T C H D EM A N D A N D P R O D U C T IV E C A P A C IT Y ?

W h a t A r e A p p r o p r ia te R o le s fo r P e o p le a n d Te c h n o lo g y ? ( P E O P L E )

H o w C a n O u r F ir m A c h ie v e S e r v ic e L e a d e r s h ip ?

43
How Should We Match Demand and
Productive Capacity?
How do we define our productive
capacity? (e.g., buildings, physical space,
machines, brawn, brains?)
What are demand levels for our service
and do they exceed capacity at any time?
What explains variations in demand?
What strategies can we employ to match
demand and capacity?
How should we design waiting lines and
reservations systems?

44
 From Excess Demand to Excess Capacity
Four conditions potentially faced
by fixed-capacity services:
Excess demand
◦ Too much demand relative to
capacity at a given time
Demand exceeds optimum
capacity – Maximum Capacity
◦ Upper limit to a firm’s ability to
meet demand at a given time
Optimum capacity
◦ Point beyond which service
quality declines as more
customers are serviced
Excess capacity
◦ Too much capacity relative to
demand at a given time
45
Addressing the Problem of
Fluctuating Demand
Two basic approaches:
Adjust level of
capacity to meet
demand
◦ Need to understand
productive capacity
and how it varies on
an incremental
basis
Manage level of
demand
46
 Defining Productive Capacity in
Services

 Physical facilities to contain customers

 Physical facilities to store or process goods

 Physical equipment to process people, possessions, or

information
 Labor used for physical or mental work
 Public/private infrastructure

47
Alternative Capacity Management Strategies

Level capacity (fixed level at all times)

Stretch and shrink
◦ Offer inferior extra capacity at peaks (e.g., bus/train standees)
◦ Vary seated space per customer (e.g., elbow room, leg room)
◦ Extend/cut hours of service
Chase demand (adjust capacity to match demand)
Flexible capacity (vary mix by segment)
48
 Adjusting Capacity to Match Demand
Schedule downtime during periods of low demand
Use part-time employees
Rent or share extra facilities and equipment
Ask customers to share
Invite customers to perform self-service
Cross-train employees

49
Patterns and Determinants of Demand

50
 Predictable Demand Patterns and
Their Underlying Causes
Predictable Cycles Underlying Causes of
of Demand Levels Cyclical Variations
◦ day ◦ employment
◦ week ◦ billing or tax
◦ month payments/refunds
◦ year ◦ pay days
◦ school hours/holidays
◦ other
◦ seasonal climate changes
◦ public/religious holidays
◦ natural cycles
(e.g., coastal tides)

51
 Causes of Seemingly
Random Changes in Demand Levels
 Weather
 Health problems
 Accidents, Fires, Crime
 Natural disasters

Question: Which of these events can be predicted?

 Analyzing Drivers of Demand
 Understand why customers from specific market
segments select this service
 Keep good records of transactions to analyze demand
patterns
◦ Sophisticated software can help to track customer
consumption patterns
 Record weather conditions and other special factors that
might influence demand

53
 Overall Usage Levels Comprise
Demand from Different Segments
 Notall demand is desirable
 Keep peak demand levels within service capacity of organization
 Marketing cannot smooth out random fluctuations in demand
◦ Fluctuations caused by factors beyond organization’s control (for
example: weather)
◦ Detailed market analysis may reveal that one segment’s demand cycle is
concealed within a broader, random pattern

54
Analyzing Demand by Market Segment
Different customers have different
demand patterns by day or by season
(e.g., business travelers vs. tourists)
Some users have little choice in timing of
demand, others are flexible (e.g.
commuters vs. shoppers)
Some demand is undesirable and should
be discouraged (e.g., inappropriate calls to
emergency services)
55
Identifying Variations in Demand
by Time Period
Season of Year
Off-peak Shoulder Peak
Time of Day
Morning
peak

Midday

Afternoon
peak
Day of Week
Evening/ Weekday
night
Weekend

56
Demand Levels Can Be Managed

57
Alternative Demand-Management Strategies
 Take no action
◦ Let customers sort it out
 Reduce demand
◦ Higher prices
◦ Communication promoting
alternative times
 Increase demand
◦ Lower prices
◦ Communication, including
promotional incentives
◦ Vary product features to
increase desirability
◦ More convenient delivery
times and places
 Inventory demand by reservation system
 Inventory demand by formalized queuing

58
 Marketing Strategies Can
Reshape Some Demand Patterns
Useprice and other costs to manage demand
Change product elements
Modify place and time of delivery
◦ No change
◦ Vary times when service is available
◦ Offer service to customers at a new location
Promotion and education

59
 Hotel Room Demand Curves by
Segment and Season
Price per
room night
Bl Bh
Th Bh = business travelers in high season
Bl = business travelers in low season
Tl Th = tourist in high season

Tl = tourist in low season

Th
Bh
Bl Tl
Quantity of rooms demanded at each price
by travelers in each segment in each season
Note: hypothetical example

60
Inventory Demand through Waiting
Lines and Reservations

61
 Waiting Is a Universal Phenomenon!

 An average person may spend up to 30 minutes/day waiting in line

—equivalent to over a week per year!
 Almost nobody likes to wait
 It's boring, time-wasting, and sometimes physically uncomfortable

62
Why Do Waiting Lines Occur?
Because the number of arrivals at a facility exceeds capacity
of system to process them at a specific point in the process
Queues are basically a symptom of unresolved capacity
management problems
Not all queues take form of a physical waiting line in a single
location

63
Saving Customers from
Burdensome Waits
 Add extra capacity so that demand can be met at most times (problem:
may increase costs too much)
 Rethink design of queuing system to give priority to certain customers
or transactions
 Redesign processes to shorten transaction time
 Manage customer behaviour and perceptions of wait
 Install a reservations system

64
Alternative Queue Configurations
Single line, single server, single stage

Single line, single servers, sequential stages

Parallel lines to multiple servers

Designated lines to designated servers

Single line to multiple servers (“snake”)

21
29
28
20
“Take a number” (single or multiple servers) 30
26
25
24
31 27
32 23

65
 Criteria for Allocating Different Market
Segments to Designated Lines
 Urgency of job
◦ Emergencies versus non-
emergencies
 Duration of service
transaction
◦ Number of items to transact
◦ Complexity of task
 Payment of premium price
◦ First class versus economy
 Importance of customer
◦ Frequent users/high volume
purchasers versus others

66
Minimize Perceptions of Waiting Time

67
 Ten Propositions on Psychology of
Waiting Lines
1.Unoccupied time feels longer than occupied time
2. Pre- and post-process waits feel longer than in-process waits
3. Anxiety makes waits seem longer
4. Uncertain waits are longer than known, finite waits
5. Unexplained waits are longer than explained waits

68
 Ten Propositions on Psychology of
Waiting Lines
6. Unfair waits are longer than equitable waiting
7. People will wait longer for more valuable services
8. Waiting alone feels longer than waiting in groups
9. Physically uncomfortable waits feel longer
10. Waits seem longer to new or occasional users

69
Create an Effective Reservation System

70
 Benefits of Reservations
Controls and smoothes demand
Pre-sells service
Informs and educates customers in advance
of arrival
Saves customers from having to wait in line
for service (if reservation times are
honored)
Data captured helps organizations
◦ Prepare financial projections
◦ Plan operations and staffing levels
71
 Characteristics of Well-Designed
Reservations System
Fast and user-friendly for customers and staff
Answers customer questions
Offers options for self service (e.g., the Web)
Accommodates preferences (e.g., room with view)
Deflects demand from unavailable first choices to
alternative times and locations
Includes strategies for no-shows and overbooking
◦ Requiring deposits to discourage no-shows
◦ Canceling unpaid bookings after designated time
◦ Compensating victims of over-booking
72
 Setting Hotel Room Sales Targets by
Segment and Time Period
Capacity
(% rooms) Week 7 Week 36
(Low Season) (High Season)
100%
Out of commission for renovation Loyalty Program Members

Loyalty Program
Members
Transient guests
Weekend
package
50% W/E
package
Transient guests
Groups and conventions

Groups (no conventions)

Airline contracts Airline contracts

Time Nights: M Tu W Th F S Su M Tu W Th F S Su

73
 Information Needed for Demand and
Capacity Management Strategies
 Historical data on demand level and composition,
noting responses to marketing variables
 Demand forecasts by segment under specified
conditions
 Segment-by-segment data
 Fixed and variable cost data, profitability of
incremental sales
 Meaningful location-by-location demand variations
 Customer attitudes toward queuing
 Customer opinions of quality at different levels of
capacity utilization
74