UNIT II

PRODUCTION PLANNING AND

CONTROL AND COMPUTERISED
PROCESS PLANNING
 Process Planning
2

 Product design for each product has been developed in the design
department.

 To convert the product design into a product, a manufacturing plan is

required. Activity of developing such a plan is called process planning.

 Process planning consists of preparing sets of instructions that describe

how to manufacture the product and its parts.
 Process Planning
3

 The task of process planning consists of determining the manufacturing

operations required to transform a part from a rough (raw material) to
the finished state specified on the engineering drawing.
 Also known as operations planning.
 It is the systematic determination of the engineering processes and
systems to manufacture a product competitively and economically.
 It is a detailed specification which lists the operations, tools and
facilities.
 It is usually accomplished in manufacturing department.
 Process Planning Definition
4

 It Can be defined as “an act of preparing a detailed processing

documentation for the manufacture of a piece part or assembly.”
According to the American Society of Tool and Manufacturing
Engineers.

 Process planning is the systematic determination of the methods by

which a product is to be manufactured economically and
competitively.

 It Consists of devising, selecting and specifying processes, machine

tools and other equipment, transform the raw material into finished
product as per the specifications called for by the drawings.
 Process Planning Vs Product Planning
5
Process planning

 It is Concerned with the engineering and technological issues of how to

make the product and its parts.

 It specifies types of equipment and tooling required to fabricate the parts

and assemble the product.

Production planning

 It is concerned with the logistics issues of making the product.

 It is concerned with ordering the materials and obtaining the resources

required to make the product in sufficient quantities to satisfy demand for
it.
 Production is done only after the process planning.
 Importance of Process Planning
6
 Process planning establishes the link between engineering design and
shop floor manufacturing.

 It Determines how a part/product will be manufactured, the important

determinant of production costs and profitability.

 Production process plans should be based on in-depth knowledge of

process and equipment capabilities, tooling availability, material
processing characteristics, related costs and shop practices.

 Economic future of the industry demands that process plans that are
developed should be feasible low cost and consistent with plans for similar
parts.

 Process planning facilitates the feedback from the shop floor to design
engineering regarding the manufacturing ability of alternative.
 Details of a Process Plan
7

 Detailed process plan usually contains the route, processes, process

parameters and machine and tool selections.

 To prepare a process plan (also called as route. sheet), we require the

following information:

1. Assembly and component drawings and bill of materials (part list):

 This detail give the information regarding the general description of

part to be manufactured, raw material specification, dimensions and
tolerances required, the surface finish and treatment required.
 Details of a Process Plan
8

2.Machine and equipment details:

 (i)The various possible operations that can be performed.

 (ii) The maximum and minimum dimensions that can be machined on

the machines.

 (iii) The accuracy of the dimensions that can be obtained.

 (iv)Available feeds and speeds on the machine.

3.Standard time for each operation and details of setup time for each job.
 Details of a Process Plan
9

4.Availability of machines, equipment and tools.

 Process Planning Activities
10

The different steps or specific activities involved in process planning are:

 Analysis of the finished part requirements as specified in the

engineering design.
 Determining the sequence of operations required.
 Selecting the proper equipment to accomplish the required
operations.
 Calculating the specific operation setup times and cycle times on
each machine.
 Documenting the established process plans.
 Communicating the manufacturing knowledge to the shop floor.
 Process Planning Activities
11
 The above process planning activities are diagrammatically presented
in figure.
 Process Planning Activities
12

1) Analyse Finished Part Requirements

 First step in the process planning is to analyse the finished part

requirements as specified in the engineering design.

 Engineering design may be shown either on an engineering drawing or in

a CAD model format.

 Component drawing should be analysed in detail to identify its features,

dimensions and tolerance specifications.

 Part’s requirement defined by its feature, dimensions and tolerance

specifications determines the corresponding processing requirements
(such as operations encompassing part shape generation, inspections,
testing, heat treatment, surface coating, packaging, etc.)
 Process Planning Activities
13

2) Determine Operating Sequence

 Second step is to determine the sequence of operations required to

transform the features, dimensions and tolerances on the part from a
rough (initial) to a finished state.

 Basic aim of this step is to determine the type of processing operation

that has the capability to generate the various types of features, given
the tolerance requirements.
 Process Planning Activities
14

3) Select "Machines"

 Once the appropriate type of manufacturing process has been

determined, the next step in process planning is to select appropriate
machines equipment and tools to accomplish the required operations.

 There are many factors which influence the selection of machines.

 Process Planning Activities
15
The following considerations are to be made while selecting a machine:

(i) Economic considerations: Due analysis should be made with respect to the initial cost,
maintenance and running cost. An alternative which results in lower total cost should be
selected.

(ii) Production rate and unit cost of production.

(iii) Durability and dependability.

(iv) Lower process rejection.

(v) Minimum set up and put away times.

(vi) Longer productive life of machines or equipment.

(vii) Functional versatility i.e. ability to perform more than one functions.
 Process Planning Activities
16

4) Material Selection Parameters

 Selection of a sound, economic material is an another important
aspect of process planning.
Primary parameters affecting the choice of a material are given below:

 Function : Many of the parameters developed for material selection

are related to the functions the product must perform in terms of
mechanical, physical, electrical and thermal properties of materials.

 Appearance: The aesthetic value of the material must be considered

while selecting the material.
 Process Planning Activities
17

 Reliability : Important criterion for material selection because of

increasing consumer demands for trouble free products.

 Service life: The length of service life over which the material maintains
its desirable characteristics is a very important consideration in
material selection.

 Environment: The environment to which the material is exposed during

the product life is a very important consideration, depending on
whether the environment is beneficial or harmful.
 Process Planning Activities
18

5) Calculate Processing Times

 After an appropriate set of required machines is selected, next step is

to calculate the specific operation setup times and cycle times on
each machine.

 Determination of setup times requires knowledge of available tooling

and the sequence of steps necessary to prepare the machine for
processing the given work piece.

 For establishing accurate setup times, detailed knowledge of

equipment capability, tooling and shop practice is required.
 Process Planning Activities
19

6) Document Process Planning

 Having selected the best processing alternatives and associated

machines, the next step in process planning is to document clearly all the
information in detail.

 Resulting process plan is generally documented as a job routing or

operation sheet.

 Operation sheet is also called “route sheet”, “instruction sheet”, “traveller”

or “planner”.

 Route sheet lists the production operations and associated machine tools
for each component and sub assembly of the product.
 Manual Process Planning
20

 In traditional process planning systems the process plan is prepared

manually.

 It involves examining and interpreting engineering drawings, making

decisions on machining processes selection, equipment selection,
operations sequence and shop practices.

 The manual process plan is very much dependent on the skill,

judgement and experience of the process planner.

 If different planners were asked to develop a process plan for the

same part, they would probably come up with different plans.
 Advantages of Manual Process Planning
21

 Manual process planning is very much suitable for small scale

companies with few process plans to generate.

 Highly flexible.

 Requires low investment costs.

 Computer Aided Process Planning (CAPP)
22

 To overcome the drawbacks of manual process planning, the

computer- aided process planning (CAPP) is used. With the use of
computers in the process planning, one can reduce the routine
clerical work of manufacturing engineers.

 It provides the opportunity to generate, rational consistent and

optimal plans. In addition CAPP provides the interface between CAD
and CAM.
 Benefits of CAPP
23
The benefits of implementing CAPP include the following:

 Process rationalization and standardization: CAPP leads to more logical

and consistent process plans than manual process planning.

 Productivity improvement: As a result of standard process plan, the

productivity is improved.

 Product cost reduction: Standard plans tend to result in lower

manufacturing costs and higher product quality.

 Elimination of human error.

 Reduction in time: As a result of computerised work, a job that used to

take several days, is now done in a few minutes.
 Benefits of CAPP
24
 Reduced clerical effort and paper work

 Improved legibility: Computer-prepared route sheets are neater and

easier to read than manually prepared route sheets.

 Faster response to engineering changes: Since the logic is stored in the

memory of the computer, CAPP becomes more responsive to any
changes in the production parameters than the manual method of
process planning.

 Incorporation of other application programs : The CAPP program can

be interfaced with other application programs, such as cost estimating
and work standards.
 Approaches of CAPP
25

The two basic approaches or types of CAPP system are:

1. Retrieval (or variant) CAPP system.

2. Generative CAPP system.

 A CAPP tool can be represented as having three separate functions:

(i) Retrieval
(ii) Technological analysis
(iii) Computational
 Approaches of CAPP
26
 CAPP System for Engineering Data
27
 Retrieval (or Variant) CAPP System
28

 It is also called a variant CAPP system and has been widely used in
machining applications.

 Basic idea behind the retrieval CAPP is that similar parts will have
similar process plans.

 A process plan for a new part is created by recalling, identifying and

retrieving an existing plan for a similar part and making the necessary
modifications for the new part.

 Variant CAPP is a computer-assisted extension of the manual

approach.
 Advantages of Retrieval CAPP System
29

 Once a standard plan has been written, a variety of parts can be

planned.
 Comparatively simple programming and installation (compared with
generative CAPP systems) is required to implement a planning system.
 Efficient processing and evaluation of complicated activities and
decisions, thus reducing the time and labour requirements.
 Standardized procedures by structuring manufacturing knowledge of
the process planners to company’s needs.
 Lower development and hardware costs.
 Shorter development times.
 The system is understandable and the planner has control of the final
plan.
 It is easy to learn and easy to use.
 Disadvantages of Retrieval CAPP System
30

 The components to be planned are limited to similar components

previously planned.

 Maintaining consistency in editing is difficult.

 Experienced process planners are still required to modify the standard

plan for the specific component.
 Components of a Generative CAPP
31
System
The various components of a generative system are:

 A part description, which identifies a series of component

characteristics, including geometric features, dimensions, tolerances
and surface condition.

 A subsystem to define the machining parameters, for example using

look-up tables and analytical results for cutting parameters.

 A database of available machines and tooling.

 A report generator which prepares the process plan report.

 Structure of a Generative CAPP System
32
 Advantages of Generative CAPP System
33

The generative CAPP has the following advantages:

 It can generate consistent process plans rapidly.

 New components can be planned as easily as existing components.

 It has potential for integrating with an automated manufacturing facility

to provide detailed control information.
 Drawbacks of Generative CAPP System
34

 The generative approach is complex.

 It is very difficult to develop.

 CMPP Process Planning Functions
35
The CMPP system can perform the following four process planning
functions:

 CMPP generates a sequence of operations in a summary format.

 The summary format contains for each operation an operation, number

and description, type of machine orientation of the work piece on the
machine, surfaces cut and heat treatment.

 CMPP determines the dimensioning reference surfaces for each cut in

each operation. CMPP selects the clamping and locating surfaces.

 CMPP determines machining dimensions, tolerances and stock removals

for each surface cut in each operation.
 CMPP Process Planning Functions
36

CMPP produces three process plan documents:

(i) A printed summary of operations.

(ii) A printed tolerance analysis

(iii) Dimensional work piece sketches for each machining operation.

 CMPP Process Planning Functions
37

Even though the CMPP system has received limited use in the industrial
environment, the CMPP system is considered very significant because of
the following three reasons:

(i) CMPP represent one of the most successful attempts at developing a

generative system.

(ii) CMPP achieves a higher degree of automated process planning.

(iii) CMPP is being used as a basis for further search into automated
process planning.
 Selection of a CAPP System
38

 Evaluation and selection of the best process planning system for a

particular firm involves numerous engineering management decisions.

 Process involves identifying, weighing and comparing various

interrelated factors.
 Logical Steps in Computer Aided Process
39
Planning
Step 1: Define the coding scheme

 Adopt existing coding or classification schemes to label parts for the

purpose of classification. In some extreme cases, a new coding scheme
may be developed.

Step 2: Group the parts into part families

 Group the part families using the coding scheme defined in Step 1
based on some common part features. A standard process plan is
attached to each part family (see: Step 3).
 Often, a number of part types are associated with a family, thereby
reducing the total number of standard process plans.
 Logical Steps in Computer Aided Process
40
Planning
Step 3: Develop a standard process plan

 Develop a standard process plan for each part family based on the
common features of the part types.
 This process plan can be used for every part type within the family with
suitable modifications.

Step 4: Retrieve and modify the standard plan

 When a new part enters the system, it is assigned to a part family based
on the coding and classification scheme.
 Then the corresponding standard process plan is retrieved and modified
to accommodate the unique features of the new part.
 Retrieval CAPP System Procedure
41
 Aggregate Production Planning and the
42
Master Production Schedule
Aggregate Production Planning

 Aggregate planning is concerned with determining the quantity and

timing of production for the intermediate future (often 3 to 8 months)
ahead, setting employment, inventory and subcontracting.

 Aggregate plans should be coordinated among various functions in the

firm, including product design, production, marketing and sales.
 Aggregate Production Planning and the
43
Master Production Schedule
Aggregate Production Planning

 The aggregate production planning strategy provides the data to plan

the variable resources, which include full and temporary employment
levels, total labour hours per period and number of subcontractors.

 In addition, the aggregate production plan, along with forecasted

customer demand, provides the aggregate information from which the
disaggregate master production schedule (MPS) is produced.
 Aggregate Production Planning
44
 Aggregate Production Planning and the
45
Master Production Schedule
Master Production Schedule

 The aggregate production plan must be converted into master production

schedule (MPS).

 Master production schedule is a listing of the products to be manufactured,

when they are to be delivered and in what quantities.

 Aggregate plan lists the production quantities of the major product lines,
whereas MPS provides a very specific schedule of individual products.

 Usually MPS is developed from customer orders and forecasts of future

demand.
 Basic Characteristics of MRP
46

 Two basic characteristics of MRP are:

1. Drives demand for components, sub assemblies, materials, etc. from

demand for and production schedules of parent items.

2. Offsets replenishment orders (purchase orders or production schedules)

relative to the date when replenishment is needed.
 Information Needed for MRP
47

The following information are needed for MRP:

 Demand for all products.

 Lead times for all finished goods, components, parts and raw materials.

 Lot sizing policies for all parts.

 Opening inventory levels.

 Safety stock requirements.

 Any orders previously placed but which haven’t arrived yet.

 Inputs to MRP
48

The three important inputs to MRP are:

1.Master production schedule,

2.Bill of materials file and

3.Inventory record file.

 Inputs to MRP
49
 Master Production Schedule (MPS)
50
 It is a detailed plan that states how many end items (i.e. the final
product to be sold to the customer) will be available for sale or
distribution during specific periods.

Purpose of the master production schedule:

(i) To set due dates for the availability of end items.

(ii) To provide information regarding resources and materials required to

support the aggregate plan.

(iii) Input to MRP will set specific production schedules for parts and
components used in end items.
 Master Production Schedule (MPS)
51
 Inputs to MPS:
The MPS inputs are:
1.Market requirements.
2.Production plan from aggregate planning
3.Resources available.

 MRP Output:

 It is the list of end items available every period that is feasible with
respect to demand and capacity.
 Bill of Materials File
52

 Designates what items and how many of each are used to make up a
specified final product.

 Used to compute the raw material and component requirements for

end products listed in the master schedule.

 It Provides information on the product structure by listing the component

parts and subassemblies that make up each product.
 Product structure
53
 Structure of an assembled product, in the form of a pyramid, can be
depicted as shown in Fig.
 It can be seen from Figure. that the product P1 is the parent of sub
assemblies SA1, SA2, and SA3. similarly SA1 is the parent of components
C1, C2 and C3, and so on.
 Inventory Record File
54

 All the data related to the inventory are recorded in the inventory
record file.

 The inventory record file contains the following three segment.

(i) Item Master Data Segment

(ii) Inventory Status Segment
(iii) Subsidiary Data Segment
 Working of MRP
55

 MPS provides a period-by-period list of final products required.

 BOM defines what materials and components are needed for each
product.

 Inventory record file contains information on the current and future

inventory status of each component. using these three inputs, the MRP
processor computes the number of each component and raw material
required for the given final product.
 MRP Output Reports
56
 Benefits of MRP
57
The various benefits of implementing MRP system are:

 Reduced inventory levels.

 Better production scheduling.
 Reduced production lead time.
 Reduced setup cost.
 Reduced product changeover cost.
 Better machine utilization.
 Improved product quality.
 Quicker response to changes in demand.
 Capacity Planning
58

 It is a major business problem Dependent on the type of company and

the state of business;

 Much easier if the work load is declining.

 Simplified if the factory has been laid out, after careful simulation, for a
planned production level.

 It takes place in three phases, which need to be reviewed within CIM

systems.

 Finite capacity calculations are often optimistic, because they do not

show the effect of future work, i.e. work not yet released to the factory.
 Logic Required In Capacity Planning Under
59
CIM

 The logic for detailed finite capacity planning (i.e. calculations based
on actual capacity) must include the ability to summarize the various
priority factors such as lateness on due date, important customer,
accumulated cost, into a single numeric value so that queues can be
sequenced.
 Logic Required In Capacity Planning Under
60
CIM
In addition, a number of other process routines that are as follows:

 Reduction of standard inter-operation (or move) time for urgent jobs.

 Overlapping of jobs across different work centres, e.g. the first items in a
batch being heat treated while the last items are still being machined.

 Splitting of batches across identical machines,

 Use of alternative routing data, i.e. there may be different ways of

making a product that could be chosen, depending on the load at the
time on different work centres.
 Control Systems
61
Shop Floor Control
 This control Manages the detailed flow of materials inside the
production facility.
 It Encompasses the principles, approaches and techniques needed to
schedule, control, measure and evaluate the effectiveness of
production operations.
 Is an activity of production control one of the activity of process
planning and control (PPC).
 To understand the significance of the shop floor control, it is essential to
have the basic knowledge of various activities of PPC and their relations
to shop floor control.
 It is defined as a system for utilizing data from the shop floor as well as
data processing files to maintain and communicate status information
on shop orders and work centre.
 Shop Floor Control
62
Shop Floor Control
 Shop Floor Control
63
Shop floor control (SFC) is concerned with:

(i) The release of production orders to the factory.

(ii) Monitoring and controlling the progress of the orders through the
various work centres.

(iii) Acquiring information on the status of the orders.

(iv) Shop floor control deals with managing the work-in-process.

 Shop Floor Control
64
Functions of Shop Floor Control

 The major functions of shop floor control are:

1. Assigning priority of each shop order (Scheduling).

2. Maintaining work-in-process quantity information (Dispatching).

3. Conveying shop-order status information to the office (Follow up).

4. Providing actual output data for capacity control purposes.

5. Providing quantity by location by shop order for work-in-process inventory and

accounting purposes.

6. Providing measurement of efficiency, utilisation and productivity of manpower

and machines.
 Shop Floor Control
65

 The functions of SFC are:

1. Scheduling

2. Dispatching and

3. Follow-up or Expediting.
 Shop Floor Control
66
Phases of SFC

The three important phases of SFC are:

1.Order release

2.Order scheduling and

3.Order progress.

It Depicts the three phases and their relationship to other functions in the
production management system.

In a computer integrated manufacturing system these phases are managed

by computer software.
 Shop Floor Control
67

 In a typical factory which works on manual processing of data, the

above documents move with the production order and are used to
track the progress through the shop.
 In a CIM factory, more automated methods are used to track the
progress of the production orders.
 Shop Floor Control
68
i) The first input is the authorization to produce (that derives from master
schedule). This authorisation proceeds through MRP which generates work
orders with scheduling information.

(ii) The second input is the engineering and manufacturing database.

 This database contains engineering data (such as the product design,

component material specifications, bills of materials, process plans, etc.)
required to make the components and assemble the products.

 Database input provides the product structure and process planning

information needed to prepare the various documents that
accompany the order through the shop.
 Shop Floor Control
69
2) Order Scheduling

 The two inputs required to the order scheduling are:

(i) The order release and

(ii) The priority control information

 It Priority control is used in production planning and control to denote

the function that maintains the appropriate levels for the various
production orders in the shop.
 Shop Floor Control
70
The order scheduling module is used to solve the following two problems in
production controls:

 Machine loading: Allocating orders to work centres is known as machine

loading.

 The term shop loading is used when loading of all machines in the plant are
done.

 Job sequencing: Determining the priority in which the jobs should be

processed is termed as job sequencing.

 Each work centre will have a queue of orders waiting to be processed.

Queue problem can be solved by job sequencing.

 Priority sequencing rules, also known as dispatching rules, have been

developed to establish priorities for production orders in the plant.
 Shop Floor Control
71
Some of the commonly used priority sequencing rules are presented below.
 SOT (shortest operating time ): Run the job with the shortest completion
time first, next shortest second and so on.
 Earliest due date: Run the job with the earliest due date first.
 STR (slack time remaining): This is calculated as the difference between
the time remaining before the due date minus the processing time
remaining. Orders with the STR are run first.
 STR/OP (slack time per operation): Orders with shortest STR/OP are run
first. STR/OP is calculated as follows:

 CR (critical ratio): This is calculated as the difference between the due

date and the current date divided by the number of work days
remaining. Orders with the smallest CR are run first.
 Shop Floor Control
72
Some of the commonly used priority sequencing rules are presented below.

 QR (queue ratio): This is calculated as the slack time remaining in the

schedule divided by the planned remaining queue time. Orders with the
smallest QR are run first.

 FCFS (first-come, first-served): Orders are run in the order they arrive in
the department.

 LCFS (last-come, first-served): As orders arrive, they are placed on the

top of the stock and are run first.
 Shop Floor Control
73
3) Order Progress

 The third and final phase of SFC is order progress phase.

 The order progress phase monitors the status of the various orders in the
plant, work-in-progress (WIP)

 Order progress collects data from shop floor and generates reports to
assist production management.

 Function of order progress module is to provide information that is useful

in managing the factory based on data collected from the factory.
 Shop Floor Control
74

 Progress reports: These reports indicate the performance of the shop

during a certain time period (say, week or month in the master schedule).

 Typical information listed in these reports include how many orders were
completed during the period, how many orders that should have been
completed during the period were not completed.

 Exception reports: These reports indicate the deviations from the

production schedule (e.g. overdue jobs), and similar exception
information.
 Shop Floor Control
75
The three forms of order progress reports that are presented to production
management are;

 Work order status reports : These reports indicate the current status o
each shop through the shop.

 It provides information on the current work centre where each order is

located, processing hours remaining before completion of each order,
whether the job is on-time or behind schedule and priority level.
 Control Systems
76
Inventory Control

 Inventory Management:
It is defined as the scientific method of determining what to order, when to order and
how much to order and how much to stock so that costs associated with buying and
storing are optimal without interrupting production and sales.

 Inventory decisions:
There are two basic decisions to be made for every item in the inventory. They are:

(i) How much of an item to order when the inventory of that item is to be replenished?
(i.e. order quantity) and

(ii) When to replenish the inventory of that item?

The use of inventory models answer the above two questions.

 Inventory Control
77
 Objective of Inventory Control

The main objectives of inventory control are:

(i) To ensure continuous supply of materials so that production should not suffer
at any time.

(ii ) To maintain the overall investment in inventory at the lowest level,

consistent with operating requirements.

(iii ) To minimize holding, replacement and shortage cost of inventories and

maximize the efficiency in production and distribution.

(iv) To keep inactive, waste, surplus, scrap and obsolete items at the minimum
level.
 Inventory Control
78
 Objective of Inventory Control

(v) To supply the product, raw material, WIP, etc., to its users as per their
requirements at right time and at right price.

(vi) To ensure timely action for replenishment.

(vii) To maintain timely record of inventories of all the items and to maintain
the stock within the desired limits.

(viii) To avoid both over-stocking and under-stocking of inventory.

 Inventory Control
79
 Costs Associated with Inventory (What are Inventory Costs?)

The major costs associated with procuring and holding inventories are:

1. Ordering costs

2. Carrying (or holding) costs

3. Shortage (or stock out) costs and

4. Purchase costs.
 Inventory Control
80
1) Ordering costs
There are costs associated with the placement of an order for the
acquisition of inventories.
 It is Refer to the managerial and clerical costs to prepare the purchase
or production order.
 It is also known by the names procurement costs, replenishment costs
and acquisition costs.

These costs include:

(i) Costs of staff of purchase department,
(ii) Costs of stationery consumed for ordering, postage, telephone
bills, etc.
(iii) Depreciation costs and expenses for maintaining equipment
required for ordering, receiving and inspecting incoming items.
(iv) Inspection costs of incoming materials.
 Inventory Control
81
2) Holding (or inventory carrying) costs

 Inventory carrying costs are the costs associated with holding a given level
of inventory on hand.
 It varies in direct proportion to the amount of holding and period of holding
the stock in stores. This cost will not occur if inventory is not carried out.

The holding costs include:

(i ) Costs for storage facilities.
(ii) Handling costs.
(iii) Depreciation, taxes and insurance.
(iv) Costs on record keeping.
(v) Losses due to pilferage, spoilage, deterioration and
obsolescence.
(vi)Opportunity cost of capital.
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3) Shortage (or stock-out) costs
When the stock of an item is depleted and there is a demand for it, then
the shortage cost will occur.
Shortage cost is the cost associated with stock-out.

The shortage costs include:

(i) Back order costs.
(ii) Loss of future sales.
(iii) Loss of customer goodwill.
(iv) Loss of profit contribution by lost sales revenue.
(iv) Extra cost associated with urgent, small quantity ordering costs.
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4) Purchase (or production) costs

 These are the costs incurred to purchase/or produce the item. This Costs
include the price paid or the labour, material and overhead charges
necessary to produce the item.
 Manufacturing Resource Planning (MRP-II)
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 It Represents the natural evolution of closed-loop MRP (materials

requirements planning).

 It is an integrated information system that synchronize all aspects of the

business.

 It is Coordinates sales, purchasing, manufacturing, finance and

engineering by adopting a focal production plan and by using one
unified database to plan and update the activities in all the systems.

 MRP II consists of virtually all the functions in the PPC system (presented
in Figure) plus additional business functions that are related to
production.
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 Important MRP II system functions include:

1.Management planning — business strategy, aggregate production planning,

master production scheduling, rough-cut capacity planning and budget
planning.

2.Customer services — sales forecasting, order entry, sales analysis and finished
goods inventory.

3.Operations planning — purchase order and work order release.

4.Operations execution — purchasing, product scheduling and control, work-in

- process inventory control, shop floor control and labour hour tracking.

5. Financial functions — cost accounting, accounts receivable, accounts

payable, general ledger and payroll.
 Manufacturing Resource Planning (MRP-II)
86

Now-a-days many commercial software are available incorporating MRP II

functions with more features.

Some of them include:

 Enterprise Resource Planning (ERP)

 Customer-Oriented Manufacturing Management Systems (COMMS)

 Manufacturing Execution Systems (MES)

 Customer-Oriented Management Systems (COMS).

 Enterprise Resource Planning (ERP)
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 It latest step in this evolution is Enterprise Resource Planning (ERP).

 Fundamentals of ERP are the same as with MRP II.
 Predicts and balances demand and supply.
 It is an enterprise-wide set of forecasting, planning and scheduling tools.
 Links customers and suppliers into a complete supply chain, Employs
proven processes for decision-making and Coordinates sales,
marketing, operations, logistics, purchasing, finance, product
development and human resources.
 Goals include high levels of customer service, productivity, cost
reduction and inventory turnover and it provides the foundation for
effective supply chain management and e-commerce.
 Enterprise Resource Planning (ERP)
88
 Enterprise Resource Planning (ERP)
89
 Enterprise Resource Planning is a direct outgrowth and extension of
Manufacturing Resource Planning and as such includes all of MRP II’s
capabilities.

a) Applies a single set of resource planning tools across the entire

enterprise,

b) Provides real-time integration of sales, operating and financial data and

c) Connects resource planning approaches to the extended supply chain

of customers and suppliers.

 Primary purpose of implementing Enterprise Resource Planning is to run

the business, in a rapidly changing and highly competitive environment,
far better than before.
 Enterprise Resource Planning (ERP)
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 The Applicability of ERP
ERP and its predecessor, MRP II, have been successfully implemented in
companies with the following characteristics:

• Make-to-stock • Make-to-order

• Design-to-order • Complex product

• Simple product • Multiple plants

• Single plant • Contract manufacturers

• Manufacturers with distribution networks • Sell direct to end users

 Enterprise Resource Planning (ERP)
91

ERP problems fall into these four types:

 The system itself is bad.

 The system is good, but it's set up incorrectly.

 The system is good, but it's not being used.

 The system is good, but it's being used ineffectively.