2 Production Planning

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2 2 Production Planning "The wise man must be wise before, not after, the event." (Epicharmus, approx. 550 BC 460 BC) In this chapter I will present the basic planning approaches used in the SAP system. I will also present the most important planning strategies and outline the example used in subsequent chapters. 2.1 Planning Approaches MRP II (manufacturing resource planning) is a planning concept that is a further development of material requirements planning (MRP). In this concept, based on the quantity calculation, preceding and subsequent planning steps have been defined to enable an integrated production planning. Thus, sales and operations planning and demand program planning for defining primary requirements quantities (known as "independent requirements") have been placed before material requirements planning, while scheduling with consideration of limited capacities for detailed planning has been added after MRP. The diagram below (see Figure 2.1) shows all phases of the MRP II concept that I will address in more detail below. 6

3 Figure 2.1: Planning phases of the MRP II concept 7

4 Sales and operations planning involves itemizing the quantity of planned sales of products and spare parts. It can take place at an aggregated level (e.g., for product groups) or based on individual materials. During operations planning, rough-cut planning profiles are used to create loads for the sales figures determined in order to estimate the feasibility of the planning. These profiles reflect the resource requirements at aggregated level and enable an initial analysis of feasibility. The results can lead to input being checked with the sales department. The requirement figures that have been subject to this plausibility check are then handed over to the demand management organization. Here, the requirements, which were previously available at aggregated level (based on time and hierarchy), are broken down. The planned independent requirements now available at material level are compared with any existing specific sales orders. The planning strategy defined for this material also determines how this comparison is performed and in what period (see Chapter 2.2). From the independent, planned, and customer requirements, material requirements planning determines the quantities of assemblies, components, standard parts, and raw materials required. The dates for which the quantities are required are also calculated. These requirements are compared with existing stocks and any expected stock receipts in order to calculate any material quantity that needs to be procured. If, during lead time scheduling, receipt elements are created and the requirements for these elements cannot be covered in time, this is where the second feasibility check level comes in to play. For example, the MRP controller can check whether the lead time can be reduced and, if this is not possible, can initiate an adjustment of the independent requirements to this bottleneck. 8

5 Before the production department starts to implement the planning, the MRP controller can plan capacity requirements. To do so, he compares the capacity requirements created at the resources with the available capacity. If the result shows a capacity overload situation, he can use a planning table to perform specific sequencing against the limited capacity available and thus resolve the overload. Shop floor control monitors and corrects production execution. This includes creating and releasing production orders, printing production documents, and reporting production progress. This last activity is particularly relevant for the MRP controllers, as they use the reports to determine whether production is progressing according to plan or whether an adjustment is required. As you can see, the MRP II concept is divided into phases that do include internal check loops but that are connected only by an aligned forwarding of values. When IT systems were first developed, and processor performance and storage were seriously restricted, this structure had the immense advantage that every phase could be considered and modeled in isolation. Thus, the limited complexity enabled the programming of systems that could calculate solutions within a finite time. As a result, the MRP II concept established itself in most corporate programs. 2.2 Planning Strategy A decisive criterion for planning is the order penetration point. On one hand, this describes the step in the value-added chain from which the sales order "pulls" the procurement, i.e., the point at which the customer for whom something is being produced is clear. On the other hand, it defines the step by which 9

6 the procurement is "pushed" from preliminary planning or forecasting, i.e., is only produced anonymously (see Figure 2.2). Figure 2.2: Planning strategies and order penetration point Make-to-stock is the simplest planning strategy. Here, a product is procured and produced, including all components, based only on preliminary planning up to the point that it arrives in the shipping warehouse. This strategy enables good alignment of the production of all components, as well as high utilization of production resources. It also guarantees the shortest delivery times of all strategies. However, in contrast to these advantages, there is a risk of over-production and resulting excessive stocks. Short planning can also be problematic though as it (often) restricts the production flexibility. Any impending deficit is difficult to prevent, and thus the expected delivery time can be difficult to achieve or cannot be achieved at all. The assemble-to-order strategy can be used to alleviate the stock risk to some extent. With this strategy, only the components are procured or produced based on planning. They are then only assembled to create a finished product when a sales order is received. The level of the hoped for effect of lower stocks depends to a large extent on the proportion of value 10

7 added by the assembly. Also, the greater the number of variants for a product, the greater the benefits of this strategy, as less value is tied in to the less frequently required variants. The prerequisite for successful implementation of this strategy is flexible assembly that enables customer requirements with regard to delivery time to be implemented. Make-to-order is the approach in which products designed and prepared for production are only produced on customer request. As the company generally only stores the raw materials, the delivery time using this strategy is considerably longer than the approaches above. However, to enable a short delivery time as required by the customer, the machines and the employees must be flexible, i.e., be available on demand. One advantage of this strategy is that the stock risk is minimized. Finally, engineer-to-order describes a concept for products requested by customers that have not yet been designed when the order is received and have to be produced individually. This strategy has the longest delivery time of all of the approaches presented, and there is a further problem for planning: as an ordered product has not been defined precisely as yet, it is particularly difficult to plan the delivery date precisely. Empirical values from similar products are usually used to help determine the delivery time. But what about the components? They can only be procured once the design has been completed. For example, the risk that this time special steel is used instead of standard steel is too high. This special material or the exceptional purchased part represents the greatest risk for meeting the deadline. If the materials required are not clear until after the design, this is sometimes too late to order the materials punctually. 11