PRODUCTION AND CAPACITY PLANNING

THE MRP REVOLUTION

The MRP revolution of the 1970s was among the earliest efforts to bring manufacturing into the computer age—it took advantage of advances in computing technologies to provide software for companies that allowed "systematic planning and procuring of materials to support production" [1].  However, there were severe limitations—key among those was MRP's assumption of capacity as infinite. Although it was not a limiting factor in the early days, the subsequent manufacturing bust in the US that led to fierce competition and price pressures made the flaws apparent.

 

Besides the assumption of infinite capacity, there were two other notable flaws in MRP: the tendency of planners to artificially inflate planned times (a consequence of the infinite capacity assumption) leading to increasing inventories, and system nervousness due to frequent plan changes. In an effort to address these flaws, the MRP II framework was introduced—this became the basis for the ERP revolution that came later and also served as the precursor to the hierarchical planning approach that forms the core of Advanced Planning Systems such as SAP APO. 

 

THE MRP II PROCESS

The key innovation of MRP II (see  Figure 1) was the introduction of an overall framework for planning in which production planning and scheduling decisions were placed, thereby emphasizing integration aspects as well as time aspects (by incorporating multiple planning horizons—long, medium, and short). In Figure 1, activities numbered five through 11 are the ones relevant from a production and capacity perspective: it starts with the creation of a high-level plan for the most important finished goods (5, 6), thus enabling the checking of available capacities and material availability for production (7, 8), and finally the creation of a detailed schedule and the monitoring of execution on the shop-floor (9-11). With regards to the flaws of MRP, the capacity planning and capacity control activities enable companies to transition from treating capacities as infinite to a form of rough-cut capacity planning. This also has the consequence that buffers built into planned lead times can be relaxed due to plan adherence (as they are substantially more “feasible” than before). Finally, the hierarchical nature of planning allows piecewise re-planning that reduces system nervousness. 

Figure 1: MRP II's Hierarchical Planning Process
Figure 1: MRP II's Hierarchical Planning Process

Procedures for medium-term to long-term rough-cut capacity planning are nowadays integrated in current supply chain management solutions. These cover the entire range of capacity planning within the supply chain network, from high-performance CTM procedures to cost-based optimization algorithms, see SCM solutions such as SAP IBP and SAP APO. 

 

Separate solutions exist for the production planning of individual locations, preferably within a short-term time horizon, either ERP system based or as separate APS systems that can take the data from the upstream, rough-cut supply chain planning and refine it further (detailed scheduling, BOM explosion and resource allocation, see Integrated SCM Planning Process and APO PP/DS).

SAP IBP modules overview

 [1] Hopp, W.J. and Spearman, M.L. (2000), Factory physics: Foundations of manufacturing management, 2. ed., internat. ed., Irwin/McGraw-Hill, Boston.