Demand Forecasting

Manuf Sys Forecasting Agg.
& SOP MPS MRP Capacity
Manufacturing Information System &

. Review of Operation Management
Oran Kittithreerapronchai1
1
Department of Industrial Engineering, Chulalongkorn University
Bangkok 10330 THAILAND
last updated: November 2, 2013
ProMIS v2.0: review 1/ 79

Manuf Sys Forecasting Agg. & SOP MPS MRP Capacity
Outline
1. Keys Concepts of Manufacturing System
2. Review of Forecasting in Production Environment

3. Aggregated Planning and Sale & Operation
planning
4. Material Production Scheduling

Inventory Control
Bill of Material
5. Material Requirement Planning
6. Integrating Capacity Planning into MPS

Previously lecture...
Change is everywhere and ever increasing, so does competition

Effective response → Better communication → Right IT
Issue surrounding IT in manufacturing
Information technology is strategic advantage, not strategic necessity
This lecture...
Realize important of Manufacturing System
Review of key concepts of Operation Management, esp information flow in
manufacturing system
Illustrate how IS (i.e., MS Excel) helps with Aggregate planning, Inventory
control, MRP, CRP

Manufacturing System, who care...
Criticism Arguments
• Globalization • Exposing to global shortage &
geographic risk
• Large capital • Yielding steady revenue
• Cooperate = Evil • Similar to service industry
• Future is in service • Relating to manufacturing
(bank & software)
Manufacturing Classifications
Business Classification
Inventory Position
Product & Process Matrix

Business Classification
What: economic classification of industry and business

General: Statistic & look for information
Pro MIS: understand business, find implementation method
Sources
North America Industry Classification System–www.census.gov
Office of Industrial Economic (OIE)–www.oie.go.th
Contract Directory– www.onbid.org

Office of Industrial Economic
source: www.oie.go.th

Inventory Position
ETO
MTO
ATO
MTS
.
Engineering Procurement Fabrication Assembly Delivery
source: Adopted from Smith, S. 1989.
Engineer to Order (ETO): work with the customer to design and then make the product
Make to Order (MTO): make the customer’s product from raw mat’
Assemble to Order (ATO): combine a number of preassembled modules to meet customer’s
specifications
Make to Stock (MTS): serve customers from finished goods inventory

Production Process
source: Chase & Jacabs. 2010. Operation and Supply Chain Management.
Project: product remains in a fixed location

Work center: similar equipment or functions are grouped together
Manufacturing Cell: dedicated area where similar products are produced
Assemble line: processes are arranged according to the progressive steps
Continuous process: assembly line only the flow is continuous

System Structure
Hierarchical: decision in upper-level → constraint in lower-level

Feedback: systematic correction
Man-Machine interface: ∃/ exceptions → including man
’Single’ database & Integration: maintaining data integrity and accuracy
Transparency: understanding logic and algorithm behind system
Specific response time: designing for improvement

Related issues with operation management
source: Center for Supply Chain Research, Penn State University

From Forecasting to Shipping...
Guessing customer’s demands ⇐⇒ Forecasting

Smoothing resources ⇐⇒ Aggregated planning & Demand management
Sourcing R/M needed to produce ⇐⇒ Purchasing & Material requirement
Estimating producing time ⇐⇒ Production planing
Managing stocks ⇐⇒ Warehousing & Inventory control
Defining appropriated service level ⇐⇒ Channel & Distribution management
Ensuring commitment and delivery products⇐⇒ Shipping

Time Horizon
Decision horizon
Short-term Intermediate Long-term
• Purchasing • Forecasting • Facility

• Scheduling • Manpower. • Sale channels
• Maintenance • Distribution • Service
• Inventory • Objective
Issues
source: Nahmias, S. 2001.

Evaluation of Manufacturing IS
source: www.arhum.com

Closed-Looped Production Planning

L. Forecasting Agg. Planning RRP
Long-Term Plan
PO
Demand Mgt. .
MPS RCCP
S. Forecasting
Intermediate Plan
BOM
MRP CRP
Inventory
Job Shop Purchasing
source: Smith, S. 1989.

What is Forecasting?
Predicting future value with data or information, e.g. weather forecasting
Forecasting affects all activities in organization
Workforce and Capacity: hiring, training

Operation: purchasing, scheduling, WIP, negotiation, planning
Accounting: cash flow, equipment investment
Marketing: pricing, promotion, place
.
How
. much products/services do we need and at which time (which location)?

What should we aware before forecast?
Description: story, relationship with other data

Time Horizon: hour, day, week, year
Actual = Forecast + error
Pattern of Data: seasonal, trend, cycle
Forecasting Model: assumption, data required, parameters, static VS
dynamic
Accuracy: measuring, how to improve

Example: US Air Passengers 1949-1951

200
180
160
AirPassengers
140
120
100
80
Year 1949 Year 1950 Year 1951

60
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Month

Facts about Forecasting
Forecasting is, typically incorrect

Forecasting is suitable for a group of products
Forecasting is inaccurate as time horizon increases
source:Chopra, S. & Meindl 2010. pp. 199
Why do we still need Forecasting?
Incorrect future is better than knowing nothing

Incorrect result is manageable

Smoothing: Simple Forecasting Methods

Assumption: recent past ≈ future
Time Horizon: short period
Data Pattern: nearly constant
Benefit: remove randomness, reduce sizes of data
Example: Moving Average, Exponential Smoothing
3200
2800
2400
2000
Knife Sales
1600
1200
200 400 600 800
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Month
Moving Average: MA(q)
using average value of q pervious periods as forecast

.
1∑
q
Ft = At−i
q i=1
.
Ft = Smoothing value at time t

At = Actual value at time t
q = Numbers of interested period

Example of Moving Average
Month Knife Demands MA(3) MA(5)

Jan 2000 - -
Feb 1350 - -
Mar 1950 - -
Apr 1975 1767 -
May 3100 1758 -
Jun 1750 2342 2075
Jul 1550 2275 2025
Aug 1300 2133 2065
Sep 2200 1533 1935
Oct 2770 1683 1980
Nov 2350 2092 1915
Dec - 2440 2034
source: Singkarlsiri C., 1997. pp.10-25

Which is a better MA model for Knife Sales?

3200
2800
2400
●
MA(3)
●
●
● ●
2000
●
●
MA(5)
●
●
●
●
Knife Sales
● ●
●
1600
●
1200
200 400 600 800
0
Month

Accuracy of Forecasting
Idea:“average” of Actualt − Forecastt

Example: Mean Error (ME), Mean Absolute Deviation (MAD), Mean Square
Error (MSE), Mean Absolute Percentage Error(MAPE), Tracking signal (TS)
.
1∑ 1∑
N N
ME = At − Ft MSE = (At − Ft )2
N t=1 N t=1
1∑ 1 ∑ 100 |At − Ft |
N N
MAD = |At − Ft | MAPE =
N t=1 N t=1 At
∑
N ∑N
A t − Ft
bias = A t − Ft TS = ∑Nt=1
. t=1 t=1 |At − Ft |

Measurements of Error
If actual knife demand in Dec is 2400, Is MA(3) better than MA(5)?
MA(3) MA(5)
ME 152.59 41.71
MAD 639.3 488.9
MSE 567566.7 276407.4
MAPE 31.20 26.06
typically
z }| {
|ME | ≤ MAD < MSE

Exponential Smoothing Model
using a previous value and previous error as forecast

.
Ft = Ft−1 + α (At−1 − Ft−1 )

. = α At−1 + (1 − α)Ft−1
Ft = Smoothing value at time t

At = Actual value at time t
α = Exponential factor, α ∈ [0, 1]
Idea: Forecast = α Actual + (1 − α) Old Forecast

Why do we call “Exponential Smoothing”?
Ft = α At−1 + (1 − α)Ft−1
= α At−1 + (1 − α) [α At−2 + (1 − α)Ft−2 ]
= α At−1 + α(1 − α)At−2 + (1 − α)2 Ft−2
What does it mean?

Effects of actual value and error exponentially decay
α controls the decay rate; F1 is initial forecast value
if α = 0, no effect of actual value
if α = 1, no effect of forecast value

How to choose F1 and α?

Good News: effect of F0 will decay; typically F1 = A1
Bad News: select ‘right’ α is difficult → try out and error
Month Knife Demands α = 0.1 α = 0.5 α = 0.9

Jan 2000 - - -
Feb 1350 2000 2000 2000
Mar 1950 1935 1675 1415
Apr 1975 1937 1813 1897
May 3100 1940 1894 1967
Jun 1750 2056 2497 2987
Jul 1550 2026 2123 1874
Aug 1300 1978 1837 1582
Sep 2200 1910 1568 1328
Oct 2770 1939 1884 2113
Nov 2350 2023 2330 2709
Dec - 2056 2340 2386

Which α is a better?
3200
●
2800
●
2400
α = 0.5
● ●
●
α = 0.1 ●
2000
● ●
● ●
●
● ●
● ● ● ●
● ● ●
●
Knife Sales
●
●
●
●
1600
● ●
α = 0.9
●
1200
200 400 600 800
0
Month

Model Selection: Which one is better?
Moving Avg. Expo

MA(3) MA(5) α = 0.1 α = 0.5 α = 0.9
ME 152.59 41.71 55.11 67.71 42.83
MAD 639.3 488.9 477.13 569.12 612.23
MSE 567566.7 276407.4 343032.73 433846.25 502956.28
MAPE 31.20 26.06 24.57 29.20 30.78
What is the best parameter of these two models?

What do they suggest?
Fluctuation comes from randomness?

Guideline for Selection
Method Observations Patterns Ranges

Regression 10-20 stationary, 2-18 months
trend,
seasonality
Moving average or 6-12 stationary ≤ 3 months
Exponential smoothing
Weighted moving 5-10 stationary ≤ 3 months
average
Exponential smoothing 5-10 stationary trend ≤ 3 months
with trend
source:Jacob. etal 2011.
.
.What if data is not stationary?

Item Master File
Item number:
Sale ID. UPC Barcode (12 digits in US and 13 digits in other)
Lot/batch number: e.g., pharmaceutical, ceramic tiles
Color/size code: shade color, (UF case)
Buyer code: link to receivable bank a/c
Supplier code: link to payable bank a/c
SKU ID. shortage and retrieving code
Drawing code: link to engineering database
Family group: category, e.g.,
Group technology code: dimension, # holes, type material, strength

BOM & Routing File
BOM File: describing qtys to manufacturing item

Component item number:
Parent item number:
Quantity & Unit:
Scrap allowance:
Routing file: describing work to manufacturing item

Routing number:
for each operation
Operation number:
Machine number & Tool number & WC number:
Drawing number:
Shrinkage:
Std labor & Std. setup time

Work Center & Tool File

Work center: describing groups of machine/tool
Work center number:
Location:
Efficient & Utilization:
Hours & Shift:
Rate
Tool File: describing machines/tool and their status → maintainace

Tool number:
Status:
Storage location:
Current assignment:
Tool life & Use since last repair:
Next repair date

Aggregated Planning
What: planning for family of product

Idea: smoothing demands & key resources (workers, # machine)
Occurred: beginning of fiscal year (unit: month of sale)
Input: long-term forecasting + key resources, policy (overtime, subcontract,
backlog, machine capacity)
Output: production plan, capacity, inventory

SkyCell: Aggregated planning
SkyCell, a European cell phone manufacturer, and its customers, service providers, come up with
monthly forecast (in thousand cell phone) as follow:
Month Demand Month Demand Month Demand

Jan. 1000 May 1500 Sep. 1100
Feb. 1100 Jun 1600 Oct. 800
Mar. 1000 Jul 1600 Nov. 1400
Apr. 1200 Aug 900 Dec. 1700
The manufacturing process is govern by numbers of assembly worker, totally 1250 workers. Each
worker can assemble each cell phone every 10 minute. The plant operate 20 days a month, 8
hours a day and paid $20 per hour and 1.5 time wage for any overtime (maximum 20 hour per
worker-month). Total raw materials cost $20, and handling cost is $3 per unit-month. At the
mean time, the company has no-lay off policy. SkyCell has inventory of 50,000 units in Jan and
like to have the same level of inventory.
source: Chopra, S. & Meindl 2010. pp. 243

SkyCell: Question
Answer with following questions.

1 Assuming no backlog, no subcontractor, and no new hire/leave, what is optimal
production scheduling?
2 Is any value to increase overtime from 20 hours per worker-month to 40 hour per
worker-month
3 How the solution in (a) and (b) change if the numbers of assembly workers is 1200
and 1300 workers, respectively
4 What SkyCell can do to smooth its production (open-end question)?

SkyCell: Formulation
Objective Function: minimize total costs of production, inventory, and

wages
Decision Variables: units produced, units storage, overtime
xprod
t = units produced in month t
xinv
t = units storage at the ending of month t
yreg
t = man-hours of regular-time in month t
yover
t = man-hours overtime in month t
Constraints:
cell phone balancing each month
regular-time and overtime workloads of assembly worker each mouth
workloads required to produce cell phones in each month

SkyCell: Formulation
∑ ∑ ∑ ∑
min z = 20 xprod
t +3 xinv
t +(20)(8)(20) wt +30 yover
t
t t t t
s.t.
balancing; xprod
t + xinv
t−1 = Dt + xinv
t ∀t∈ T
production; 10xprod
t = yover
t + yreg
t ∀t∈ T
limit overtime; yover
t ≤ 20wt ∀t∈ T
limit regular-time; yreg
t ≤ 160wt ∀t∈ T
non neg.; xinv
t ≥0 ∀ t ∈ T ∪ {0}
non neg.; xprod
t , yreg over
t , yt ≥0 ∀t∈ T

Trial & Error 1: No Inventory
1 2 3 4 5 6
Demand 1000 1100 1000 1200 1500 1600
RT prod. 950 1100 1000 1200 1200 1200
OT prod. 150 150
Outsource 150 250
Inventory 50 0 0 0 0 0 0
7 8 9 10 11 12
Demand 1600 900 1100 800 1400 1700
RT prod. 1200 900 1100 800 1200 1200
OT prod. 150 150 150
Outsource 250 50 400
Inventory 0 0 0 0 0 50

Trial & Error 2: Constant Workforce
1 2 3 4 5 6
Demand 1000 1100 1000 1200 1500 1600
RT prod. 1200 1200 1200 1200 1200 1200
OT prod. 42 42 42 42 42 42
Outsource
Inventory 50 292 434 676 718 460 102
7 8 9 10 11 12
Demand 1600 900 1100 800 1400 1700
RT prod. 1200 1200 1200 1200 1200 1150
OT prod. 42
Outsource 256
Inventory 0 300 400 800 600 50

Optimal
1 2 3 4 5 6
Demand 1000 1100 1000 1200 1500 1600
RT prod. 950 1200 1200 1200 1200 1200
OT prod. 50 150 150 150 150
Outsource
Inventory 50 0 150 500 650 500 250
7 8 9 10 11 12
Demand 1600 900 1100 800 1400 1700
RT prod. 1200 900 1100 1200 1200 1200
OT prod. 150 50 150 150
Outsource
Inventory 0 0 0 450 400 50

SkyCell: Analysis
Pre-solve analysis
Capacity Reg_time: 1250 × 160 × 60/10 = 1,200,000 units/ month
Capacity over_time: 1250 × 20 × 60/10 = 150,000 units/ month
Average Demands: ≈ 1,242,000 unit/month
Inventory VS Overtime VS Outsource: minimize outsource
6 + $3 × t = $ 23.33 + 3t
Inventory: $20 + $20
Overtime: $20 + 6 × 1.5 = $25
$20
Outsource: $40
Cost Comparison
No Inv. Const Prod Optimal
Material 276,000 292,880 298,000
RT Labor 43,500 47,833 45,833
OT Labor 3,750 1,470 5,750
Inventory 150 14,496 8,850
Outsouce 66,000 15,360 0
Total 389,400 372,039 358,433

Problems with aggregated planning
Method
Price taker: price can influence demand or negotiation (what if) → S&OP
Inventory of component: lack of components → MPS & MRP
Capacity issues: simplified production constraints → RCCP & CRP
Application
Aggregated product: no information on exact product → communication
Delivery plan: frequency, product mixed, lot size → communication

Sales and Operations Planning (S&OP)
What: manage supply or demand to smooth production given predictable

variability by involving related parties
Idea: seasonal consumer demand, but fixed plant capacity
Who: marketing, production, logistic, finance, HR
Man-Power Strategy: chasing (hire VS fire), constant workforce, level
(build inventory)
Managing supply: capacity (flexible workforce & machine, subcontracting),
investing (common component)
Managing demand: shift or manipulate demand (using price) or promotion;
may result to
low demand: smooth demand → low margin/ high inv. cost items
peak demand: steal share, expansion → high margin items

SkyCell: S&OP Question
Answer with following questions.

5 How solution in (a) change if backlog is allowed? The estimated cost of backlog is
$70 per unit-month
6 How solution in (a) change if temporary worker is allowed? Assuming that each
new hire costs $500 and has 50% of productivity in his first month
7 If SkyCell has a promotion that can increase 25% of one month demand but
decreases 20% of demands next two months. Which month should SkyCell apply
the promotion?

Master Production Schedule (MPS)
What: planning for finish good (end-item Planning)

Idea: rough plan for produce or stock, time, capacity
Occurred: beginning of each quarter (unit: week of sale)
Output: time, production quantity

Linkage between S&OP and MPS
source:Jacob. et al 2011.

Which item should we do its MPS?
Customer oriented: focus on FG & sub. assembly → smoothing production

& communicating with customer
Resources: consist of small & manageable (# → times)
Structure: have BOM
Capacity: address key capacity of factory (WD)
Role and Responsibility of MPS?

Planning: create/maintain MPS
Production: verify MPS, check capacity
Purchasing: ensure & track inventory receiving
Warehouse/ Store: ensure quantity & quality of inventory

Key components in MPS
Production constraints: lead time, site

Demands: same time scale
Sale forecast: (MTS), e.g., forecast & prod. forecast
Customer order: (MTO), e.g., actual demand
Safety stock:
Seasonal build: SongKran, X-mas (QAD)
Inventory: on-hand VS on-order, received all?
Planning BOM:
Ordering policy: how to lump order together

Why does inventory = evil?

Real World: Random Demand and Lead Time
source: Chase and Jacob. 2011.
Review Methods:
Periodic review: check inventory using chronological criteria, e.g., every
fixed period
Non-Periodic review: check inventory non-chronological criteria, e.g.,
quantity, order from customer, visual inspection,
Popular lot Sizing Rules

Excluding Costs (QAD):
Lot-for-Lot (LFL): order = demand in each period
Period Order Quantity (POQ): order = total demand in fixed periods; LFL
=? POQ(t=?)
Fixed Order Quantity (FOQ): order = fixed quantity follow condition, e.g,
min, max, multiple
One Time Only (OTO): order one unit and one time
Including Costs: handling cost & ordering cost

Economic Order Quantity (EOQ): FOQ @ handling + ordering
Wagner-Whitin: Optimal of handling + ordering
Part Period Balancing (PPB): order = total demand in period @ handling
≈ ordering
Silver-Meal/least period cost: total demand in period @ min(
handling+ordering
period )

Important constraints in lot sizing rule
Batch: ensuring color or expiration date, e.g., textiles, leather, chemical

Multiple: easy to handling, economic of scale, e.g., boxes, chemicals,
Min-Max: similar to multiple or batch
req qty
Spoilage: order qty. =
1−spoil rate

Example: Comparing lot sizing rule
Consider this net requirement:

week 1 2 3 4 5 6 7 8 9 10 11 12
item A 40 15 35 50 30 60 35 80 15
If, the handling cost is $1 per week and ordering cost is $100 per order, compare
the released order and total cost of the following lot sizing rule: lot-for-lot, EOQ,
POQ, S-M, W-W, LUC, LPC

Example: Lot sizing rules
√
2 (100) (30units
per week)
EOQ: Q = = 77.45 ≈ 77
1$
per week
77units per order
POQ: t = = 2.58; 2 or 3 periods
30units per week
Part Period Balancing:

week handling ordering total total
week net req. holding cost cost cost units
1 40 0 0 100 100 40
2 15 1 15 100 115 55
3 0 2 15+0 100 115 55
4 35 3 15+105 100 220 90

Example: Lot sizing rules
Least Unit Cost:

week handling ordering total total unit
week net req. holding cost cost cost units cost
1 40 0 0 100 100 40 2.5
2 15 1 15 100 115 55 2.09
3 0 2 15+0 100 115 55 2.09
4 35 3 15+105 100 220 90 2.44
Least Period Cost/ Silver-Meal

week handling ordering total total period
week net req. holding cost cost cost units cost
1 40 0 0 100 100 40 100
2 15 1 15 100 115 55 57.5
3 0 2 15+0 100 115 55 38.3
4 35 3 15+105 100 220 90 55.0

Example: Comparing lot sizing rule
1 2 3 4 5 6 7 8 9 10 11 12
Lot-for-lot 40 15 35 50 30 60 35 80 15
EOQ 77 77 77 77 77
POQ 55 115 175 15
W-W 55 115 95 95
PPB 90 80 95 95
LUC 55 85 90 115 15
LPC 55 115 95 95

Character item affecting inventory
Item value: high value → low cycle stock

Impact of shortage: → safety stock,
Frequency of requests:
Lead time: custom made → long lead time → high safety stock
Other: e.g., alternative shipping, substitution product, price change, variation

Bill of Material (BOM)
What: qty of components needed for FG

total demand = independents demand + dependent demands
Warning: low-level code → time to run in MRP
BOM Terminology
Low-Level Code: lowest level that a component is assembled
Summarized BOMs: BOM listed total quantity of components
Indented BOMs: BOM listed order of components
Modular BOMs: BOM listed group of components
Phantom assembly: sub-assembly that sometime available
Point of use: material at specific location in production

Example of Bill of Material
Summarized BOM Extended BOM

Level Item No. Quantity Unit Level Item No. Quantity Unit
1 M 1 each 1 M 1 each
.2 P 1 each .2 P 1 each
.2 N 2 each .3 R 1 each
.3 R 3 each .4 S 1 each
.3 Q 2 each .2 N 2 each
.4 S 3 each .3 Q 1 each
.4 S 1 each
.3 R 1 each

Regular BOM
source:Smith, S. B. 1989.

Modular BOM/ Multilevel BOM

Time Fence
Demand Time Fence (DTF): changing order is very expensive

Production Time Fence (PTF): changing order is annoying
Time Horizon: forecasting time period

SkyCell: Time Fence (DTF & PTF)

x351 x356
LT: 1 LT: 2
.
pad35 cpu351 ca351 pad35 cpu356 ca356
LT: 1 LT: 3 LT: 2 LT: 1 LT: 4 LT: 2

MPS Terminology
Requirement Related
Gross requirements:total requirements (MRP term)
Net requirements: requirements after calculating scheduled receipt (MRP
term)
Inventory Related:
Planned order release: releasing period of an order (back scheduling of
planned order due)
Planned order due: received period of an order
Scheduled receipts: actual delivery period of an order
On-Hand inventory/ Projected available: WIP that should have if nothing
wrong
Available to promise (ATP): available qty. for other additional customers
Available to located: qty. less than orders

SkyCell: Firmed order & BOM
inventory (1000 unit)

item no. on-hand on-order safety policy
x351 140 150t=3 30 POQt=3
x356 110 180t=3 0 POQt=4
280t=6
1 2 3 4 5 6 7 8 9 10
x351 forecast 50 30 80 20 70 50 80 40 100 70
(MTS) order 70
x356 forecast 70 80 50 50 100 110 60 90 150 80
(MTS/MTO) order 40 60 50 30/60 20/40 10/20 10

SkyCell: x351 week 01-09

SkyCell: x356 week 01-09

Concepts of MRP
.
Principle of dependent demand
.
Total
. quantities required = independent + dependent quantities required
Clarification
Gross requirement: total qty. after netting process
Net requirement: total qty. after considering inventory and scheduled
receipts
planned receipts: projected qty receipted
planned inventory: projected on-hand inventory according to planned
receipts

Differences btw MPS & MRP
MPS MRP
What master production material requirement
Scope Level 0 all components
Process find lot sizing expand & combine net req
Input forecasting/order MPS + BOM + distribution
Output MRP PO & job shop plan
Update new forecast
any changes

SkyCell: Inventory Information
inventory (1000 unit)

item no. on-hand on-order policy
x351 - - lot-for-lot
x356 - - lot-for-lot
pad35 400 - min=300, max=1000
cpu351 100 1000 (week 10) (q,Q) = (200,1000)
cpu356 520 - (q,Q) = (200,1000)
ca351 200 300 (week 11) min=200, max=1000
ca356 350 - min=200, max=1000

SkyCell: MRP
cpu356: (q,Q) = (200,1000)
ca356: min = 200, max = 1000

Limitation MRP
Deterministic data: assuming that every parameters is deterministic,

including ’firm order’
Capacity planning: assuming that key constraint is material requirement or
infinite capacity
System nerviness: rolling horizon and lot-sizing rule → different MRP
Lead time depends on quantities:
Data integration: purchasing forgets to order; supplier delays

RRP vs RCCP vs CRP

Production Resource
plan plan
MPS RCCP
.
MRP CRP
Production activity control
RRP: long-term (3-5 years/month), purchasing machines, expansion

RCCP: mid-time (one year/week), hiring permanent staff, ignore
components, using std man-hour
CRP: short time (one year/week), over-time, consider components, using
exact lot size
SkyCell: Standard time & lot size
WC # # MC Run time Run time Setup time Avg. lot

(hr/batch) (hr/unit) (hr/lot) size (unit)
pad35 10 5 0.5 - - 1000
ca351 20 3 0.20 - - 1000
30 500 - 0.01 - ∞
ca356 20 3 0.25 - - 1000
30 500 0.03 - ∞
x351 30 500 0.10 0.1 ∞
x356 30 500 0.20 0.1 100

Bill of Capacity
.
.Bill of Capacity Average hour used to produce each product
Avg cycle time

Work center x351 x356
10 0.0005 0.0005
20 0.0002 0.00025
30 0.01+0.1 0.03+0.201

SkyCell: MPS & RCCP
11 12 13 14 15 16 17 18 19 20 21 22
x351 100 100 150 150 100 100 100 100 100 100 100 100
x356 100 100 100 150 150 200 200 200 150 150 150 150
If MPS using lot-for-lot policy, then RCCP (resource of each work center) becomes
week
Capmax 11 12 13 14 15 16
10 40 × 5 100 100 125 150 125 150
20 40 × 3 45 45 55 67.5 57.5 70
30 40 × 500 × 3 34100 34100 39600 51150 45650 57200
Max 17 18 19 20 21 22
10 40 × 5 150 150 125 125 125 125
20 40 × 3 70 70 57.5 57.5 57.5 57.5
30 40 × 500 × 3 57200 57200 45650 45650 45650 45650

Limitation of RCCP and Extension

Assumption of RCCP
not consider queuing in each work center → lead time in BOC
not address efficiency and switch-over time → lead time in BOC
transition time from one WC to other WC → lead time in BOC
excluding time that need each component → CRP
Time Phased Bill of Capacity (TPBOC)

What: create rough & realistic schedule of each WC to modify the standard
time
Idea: queue & transition time impacts lead time, not standard time
Elapsed time: minimal working time for first lot
std hour/unit×lot size
Elapsed time =
util.×eff
Offset time: minimal completed time for first lot
transitto + queue time + elapsed time + transitfrom

Quiz I
1 Name companies and explain their operations that enables its information
technology (IT)/information system (IS) to gain following strategic
advantages:
Cost reduction
Creating new products/services
Enhance products/services
2 What are factors contribute to a low success rate of information technology
in manufacturing environment?
3 Explain similarities and differences between Material Requirement Planning
(MRP) and Enterprise Resource Planning (ERP)

Demand Forecasting

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What are some of the main concepts discussed in the document?

What are some of the main concepts discussed in the document?

What are some of the manufacturing classifications mentioned?

What are some of the manufacturing classifications mentioned?

Manuf Sys Forecasting Agg.

& SOP MPS MRP Capacity

Manufacturing Information System &

last updated: November 2, 2013

ProMIS v2.0: review 1/ 79

1. Keys Concepts of Manufacturing System

2. Review of Forecasting in Production Environment

4. Material Production Scheduling

5. Material Requirement Planning

6. Integrating Capacity Planning into MPS

ProMIS v2.0: review 2/ 79

Change is everywhere and ever increasing, so does competition

ProMIS v2.0: review 3/ 79

Manufacturing System, who care...

ProMIS v2.0: review 4/ 79

What: economic classiﬁcation of industry and business

ProMIS v2.0: review 5/ 79

Office of Industrial Economic

ProMIS v2.0: review 6/ 79

source: Adopted from Smith, S. 1989.

ProMIS v2.0: review 7/ 79

Project: product remains in a ﬁxed location

ProMIS v2.0: review 8/ 79

Hierarchical: decision in upper-level → constraint in lower-level

ProMIS v2.0: review 9/ 79

Related issues with operation management

source: Center for Supply Chain Research, Penn State University

ProMIS v2.0: review 10/ 79

From Forecasting to Shipping...

Guessing customer’s demands ⇐⇒ Forecasting

ProMIS v2.0: review 11/ 79

Short-term Intermediate Long-term

• Purchasing • Forecasting • Facility

source: Nahmias, S. 2001.

ProMIS v2.0: review 12/ 79

ProMIS v2.0: review 13/ 79

Closed-Looped Production Planning

Job Shop Purchasing

source: Smith, S. 1989.

ProMIS v2.0: review 14/ 79

Predicting future value with data or information, e.g. weather forecasting

Forecasting affects all activities in organization

Workforce and Capacity: hiring, training

ProMIS v2.0: review 15/ 79

What should we aware before forecast?

Description: story, relationship with other data

ProMIS v2.0: review 16/ 79

Example: US Air Passengers 1949-1951

Year 1949 Year 1950 Year 1951

ProMIS v2.0: review 17/ 79

Facts about Forecasting

Forecasting is, typically incorrect

source:Chopra, S. & Meindl 2010. pp. 199

Why do we still need Forecasting?

Incorrect future is better than knowing nothing