2-E-1 Implement or utilize requirements planning (xAP- for example, EAP, MAP, MAP II, DRP, DAP II) to align supply management and operations activities to support organizational strategy
1) Key Principles of xRP
According to the ISM Glossary xRP is an acronym for requirements. planning" systems where the "x" may be materials, enterprise or distribution.
A) Enterprise integration -Dependent demand planning systems, based on the fundamental hierarchal linkages of material requirements planning (MRP), have used the power of computers and communication systems to provide highly integrated and relatively easy to use software that gives high visibility across extensive portions of the supply chains for an organization. The early integration of such systems (often called MRP II) provided the ability to provide plans for several key areas of the organization, but most of those were internal. More recent systems, often called enterprise resource planning systems (ERP), have expanded the ability to plan areas of the supply chain well beyond those included in the MRP II systems.
Material requirements planning (MRP) -This is a system used to determine the quantity and timing requirements of dependent demand materials used in a manufacturing operation. Materials can be purchased externally or produced in-house. This utilizes a master production schedule, bill of materials, and current inventory data to determine current new requirements and timing.
Enterprise integration provides the ability to plan and replenish inventory needs much better than basic reorder point systems by including actual orders rather than inventory levels. Enterprise systems integrate several basic data systems, including inventory, bills of material, master schedules (including both customer orders and forecasts), open orders, and production scheduling systems. Using the master schedules generated in the master production schedule (MPS), the basic system •expands the master schedule requirements level by level down the bill of material. lt will net the actual requirements by including the existing inventory levels (as well as future expected inventory levels, as captured in the purchase orders and production orders), and offset the requirements based on planned lead time. The primary output is a series of planned orders that can be used to generate production orders and purchase orders. The forward looking visibility and "what if" analysis power of such systems provide a major improvement over reorder point systems for dependent inventory environments by allowing the linkage to actual requirements and to time replenishment order more effectively. Supply management provides a major source of information (including lead times and the open order data base) . and is a major user of use system, in that many of the planned orders generated by the system can be used to develop purchase orders. A fundamental requirement for MRP to work effectively is having the key data maintained with a high level of accuracy, including timely inputs of transactions. The minimum data requirements to run a basic MRP system include:
• Inventory records.
• Existing orders, both customer orders and purchase orders.
• Bills of materials.
• Lead times.
Manufacturing resource planning II (MRP II) -This is a method for the effective planning of all resources used in a manufacturing organization. Ideally, it addresses operational planning in units and financial planning in dollars, and has a simulation capacity to answer "what if' questions. It is composed of a variety of functions, each linked: business planning, sales and operations planning, production planning, master production scheduling, material requirements planning, capacity requirements planning and the execution support systems for capacity and materials. Manufacturing resource planning is a direct outgrowth and extension of closed-loop material requirements planning (MRP).
Basic MRP systems are capacity insensitive. When the existing and planned orders from MRP are included in a capacity planning module, however, the planning system is greatly enhanced in several aspects, including:
• Orders can be "smoothed" and otherwise adjusted to lessen the impact on and cost for production work, transportation and supplier orders. This additional information can allow supply management professionals to work with suppliers to potentially decrease lead times and provide more accurate estimates for those lead times.
• The results of the capacity plans can be used to manage the master schedule more effectively, including the ability to meet customer orders more efficiently. The enhanced information can be used to time marketing approaches such as promotions, price changes or advertising campaigns.
• Requirements for and timing of capacities and material can be used to plan resource needs, including human resource needs and cash flows.
While adding these features to the basic MRP system greatly improves planning, MRP II does require additional information. As with basic MRP, the data. systems that provide the information must be accurate and maintained in a timely manner. MRP II includes more functions in the organization, and as such can start to change the "culture" of the organization itself, including the need for more cross functional integration and changing the performance measures and their relative priority in the organization's evaluation systems.
Distribution requirements planning (DRP) -The ISM Glossary defines DRP as a supply chain management term for the time-based demand from the distribution center to balance the customer fill rate against inventory investment.
DRP uses essentially the same logic• as does MRP, but instead of planning requirements for production, DRP plans the net requirements on a central distribution point or a production facility by combining the net requirements from satellite warehouses or distribution centers. DRP, like MRP II, time phases the requirements based on the lead time for replenishment of the product to these satellite centers. The information can be used to reduce costs of shipping, storage, packaging and receiving materials in the distribution center. The data from DRP can be used as an input to the Master Production Schedule (MPS) to aid in planning the production of inventory for the distribution system. As with MRP based systems, purchasing orders are an important input to the projected inventory system, and these DRP systems can be used to effectively plan purchasing requirements and supplier optimization.
Distribution resource planning (DRPII) -This is a time phased computerized inventory system to replenish inventory in multi-echelon warehousing systems. It includes planning for warehouse space, manpower requirements, transportation alternatives and financial flows. (ISM Glossary, 2006.)
Enterprise resource planning (ERP) -This refers to a particular type of computer software package that integrates various functions within an organization. It may be used to enable processes such as forecasting, materials management, procurement, accounting, finance, engineering and customer service.
B) Data source consolidation -As computer systems and information technologies improved, the fundamental concepts of MRP II were expanded to incorporate more aspects of the full enterprise, including other plants, divisions, the corporate structure of the organization, suppliers and customers. These ERP systems are often designed to accommodate different languages and exchange rates for different currencies. As should be expected, these highly integrated software packages require many more data sources, expanding both the integration aspect of the organization and the pressure on the accuracy and timeliness of data. These systems tend to be complex and time consuming to organize and implement because of their highly integrated nature, but when implemented properly have the capability to provide a very powerful tool for an organization to plan, schedule and control virtually all aspects of production and all elements in the supply chain for that production.
C) Information sharing - Enterprise-wide systems allow for the sharing and use of data by all business units in the organization. Things to consider with determining what information should be shared are: What information is available? How is the information accessed? Who should have access to what information? The sharing of information with key suppliers often leads to improved performance. After reviewing the supply base, the supply management professional should determine what information the suppliers need. Determine what information can be shared and under what conditions.
2) System development life cycle (SDLC)
System development life cycle (SDLC) is a method to develop, maintain and replace information systems. Typical phases in the SDLC are: analysis, design, development, integration and testing and implementation and maintenance.
A) Analysis -There are many systems and software programs available to assist in the effective management of an organization. While many of these systems can be effectively used in their basic out-of-the-box form, most organizations want and implement some customizing. The organization should, therefore, conduct a comprehensive analysis to determine the system or systems that will provide the optimal level of support at the minimal cost. Included in the analysis should be:
• Information output requirements, including level of detail, frequency of need and timing.
• Existing data and information support systems.
• Extent of integration required.
• Capacity available, both labor and hardware.
B) Design -The analysis should define what the final systems should include, and these design parameters include:
• Data requirements, including level of detail, timing and accuracy.
• Integration plan based on the extent and types of integration required.
• Cost.
• Implementation plan, including responsibilities and timing.
• Capacity requiren1ents, including labor and hardware.
• Training plans.
Once the details of the design are developed, commercial software packages should be evaluated with respect to the ideal design parameters. In most cases, existing software packages, even if not perfectly matching the design parameters, are usually preferable to developing a software application internally because of timing and cost.
C) Development -The development phase involves buying or writing the code for any software designed uniquely for the organization. In some cases there are changes made to package software programs or "add-on" modules written to work with packaged software in order to meet the unique needs of the system designed. In most customizations there will be an initial added cost on the software and there may be the need to have the software retrofitted each time there is a software update.- In addition, changes must be made in the organization to support the new system, including: • Any new hardware or communication systems.
• Updating of policies, procedures and work instructions.
• Training programs.
• Hiring any new employees needed to support the system.
• Changing functional relationships as needed.
• Implementing any new measurement or evaluation programs needed to support the new system.
D) Testing - If the analysis and design portion of .the development are done properly, there are explicit criteria (measures) to determine if the implemented system is operating according to the design. The testing phase should carefully operate the system under all expected operating conditions and the results be evaluated against the criteria.