Production Management Master Supply Chain Management
Manufacturing Planning and Control for Supply Chain Management Author: Andreas S. Melisse
Manufacturing Planning and Control for
Supply Chain Management
CHAPTER 1 – Manufacturing Planning and Control
The manufacturing planning and control (MPC) system is concerned with planning and controlling all aspects of
manufacturing, including managing materials, scheduling machines and people, and coordinating suppliers and
key customers.
The MPC System Defined
The essential task of the MPC system is to manage efficiently the flow of material, to manage the utilization of
people and equipment, and to respond to customer requirements by utilizing the capacity of our suppliers, that
of our internal facilities, and that of our customers to meet customer demand. An effective MPC system requires
a large number of professionals and all their supporting resources, including computers, training, maintenance,
and space.
In the long term, the MPC system is responsible for providing info to make decisions on the appropriate amount
of capacity to meet the market demand of the future. Long-term planning is necessary for the firm to provide
the appropriate mix of human resource capabilities, technology, and geographical locations to meet the firm’s
future needs.
In the intermediate term, the fundamental issue addressed by the system is matching supply and demand in
terms of both volume and product mix. The focus is more on providing the exact material and production capacity
needed to meet customer needs.
In the short term, detailed scheduling of resources is required to meet production requirements. Throughout
this process, communication with customers on production status and changes in expectations must be
maintained.
An MPC System Framework
Typically, the MPC system is imbedded in an enterprise resource
planning (ERP) system. This figure is essentially what one will
find as a key part of any packaged ERP system. The top third, or
front end, is the set of activities and systems for overall direction
setting. This phase establishes the overall company direction for
MPC. Demand management coordinates all activities of the
business that place demands on manufacturing capacity. Sales
and operations planning balances the sales/marketing plans
with available production resources. The master production
schedule (MPS) is the disaggregated version of the sales and
operations plan, it states which end items or product options manufacturing will build in the future. Resource
planning determines the capacity necessary to produce the required products now and in the future, it provides
the basis for matching manufacturing plans and capacity.
The middle third, or engine, encompasses the set of MPC systems for detailed material and capacity planning.
Material requirements planning (MRP) determines the time-phased plans for all component parts and raw
materials required to produce all the products in the MPS. This material plan can thereafter be utilized in the
detailed capacity planning systems to compute labour or machine centre capacity required to manufacture all
the component parts.
The bottom third, or back end, depicts MPC execution systems. Shop floor systems establishes priorities for all
shop orders at each work centre so the orders can be properly scheduled. The supplier systems provide detailed
info to the company suppliers.
In essence, purchasing is the procurement of outside work centre capacity. It must be planned and scheduled
well to maximize final customer satisfaction. Procurement involves contracting for vendor capacity and
establishing ground rules for order release and order follow-up.
1
Manufacturing Planning and Control for Supply Chain Management – Jacobs, F.R., Berry, W.L., Whybark, D.C. &
Vollmann, T.E. (6th edition, Mc Graw Hill Education, 2010)
,Production Management Master Supply Chain Management
Manufacturing Planning and Control for Supply Chain Management Author: Andreas S. Melisse
Matching the MPC System with the Needs of the Firm
Firms try to make processes more repetitive as opposed to unique in order to achieve the operational advantages
of repetitive manufacturing. Some MPC approaches are:
o Flow-oriented manufacturing process. Products are produced in streams instead of discrete batches,
virtually no time elapses between successive units. Typically, these products have relatively few
component parts.
o Repetitive manufacturing. Activities are found in many plants that assemble similar products.
o Just-in-time systems. JIT is shown as spanning a wide variety of products and processes, it is increasingly
being integrated with more traditional MRP-based systems. The goal is to achieve better MPC system
performance and to reduce costs of maintaining the MPC system.
o Material requirements planning. MRP is often the platform for ERP applications and is key to any MPC
system involving management of a complicated parts situation.
o Project type. Is applied to unique long-lead-time products. The primary concern is usually management
of the time dimension. It attempts to continually assess partially completed projects’ status in terms of
expected completion dates and costs.
Evolution of the MPC System
Shorter product life cycles come about partly because consumers have access to products from all over the world.
Today’s market insists on ever-higher quality, which in turn has led to many changes in manufacturing practices.
Cost pressures have translated into reductions of all manufacturing cost components from material and labour
to overhead and energy. But increasingly, cost and quality are the ante to play the game – winning requires
flexibility and responsiveness in dealing with even more fickle customer demands. These pressures and
responses require changes in both MPC system and underlying manufacturing process. The need for evolution
in MPC systems implies the need for periodic auditing that compares system responses to the marketplace’s
requirements.
Concluding Principles
This chapter lays the groundwork for the rest of the book. Defining and adjusting the MPC system to support the
manufacturing activity are an ongoing challenge. From this chapter, the following principles are:
• The framework for MPC is general, and all three phases must be performed, but specific applications
necessarily reflect particular company conditions and objectives.
• In supply chain environments, the MPC system must coordinate the planning and control efforts across
all companies involved.
• Manufacturing planning and control systems should support the strategy and tactics pursued by the
firm in which they are implemented.
• Different manufacturing processes often dictate the need for different designs of the MPC system.
• The MPC system should evolve to meet changing requirements in the market, technology, products,
and manufacturing processes.
• The MPC system should be comprehensive in supporting the management of all manufacturing
resources.
• An effective MPC system can contribute to competitive performance by lowering costs and providing
greater responsiveness to the market.
• In firms that have an integrated ERP system and database, the MPC system should integrate with and
support cross-functional planning through the ERP system.
Why companies relocate production: labour costs; vicinity to key customers; access to new markets; taxes, levies,
subsidies; and access to new knowledge, technologies and clusters.
Why companies backshore production: quality; flexibility and ability to deliver on time; labour costs; coordination
and monitoring costs; and availability and fluctuation of qualified personnel.
Strategic production environment impacts on production strategy → but can be influenced.
Reasons to relocate are continuously changing.
The extent of congruence of organizational structure and culture affects the performance.
Technology allows for information exchange.
2
Manufacturing Planning and Control for Supply Chain Management – Jacobs, F.R., Berry, W.L., Whybark, D.C. &
Vollmann, T.E. (6th edition, Mc Graw Hill Education, 2010)
, Production Management Master Supply Chain Management
Manufacturing Planning and Control for Supply Chain Management Author: Andreas S. Melisse
CHAPTER 1A – Enterprise Resource Planning (ERP)
What is ERP?
ERP represents a comprehensive software approach to support decisions concurrent with planning and
controlling the business. It is a term to describe a software system that integrates application programs in
finance, manufacturing, logistics, sales and marketing, human resources, and the other functions of the firm. ERP
systems typically are very efficient at handling the many transactions that document the activities of a company.
- An enterprise-wide set of management tools that helps balance demand and supply.
- Containing the ability to link customers and suppliers into a complete supply chain.
- Employing proven business processes for decision making.
- Providing high degrees of cross-functional integration among sales, marketing, manufacturing,
operations, logistics, purchasing, finance, new product development, and human resources.
- Thereby, enabling people to run their business with high levels of customer service and productivity,
and simultaneously lower costs and inventories, and providing the foundation for effective e-commerce.
An ERP system is most appropriate for a company seeking the benefits of data and process integration supported
by its info system. Benefit is gained from the elimination of redundant processes, increased accuracy in info,
superior processes, and improved speed in responding to customer requirements.
Transaction processing relates to the posting and tracking of the activities that document the business. Decision
support relates to how well the system helps the user make intelligent judgments about how to run the business.
Performance Metrics to Evaluate Integrated System Effectiveness
An ERP system can provide the data needed for a comprehensive set of performance measures to evaluate
strategic alignment of the various functions with the firm’s strategy.
Cash-to-cash cycle time = Inventory days of supply + Days of sales outstanding – Average payment period for material.
Cash-to-cash cycle time is a measure of cash flow. Cash flow indicates where cash comes from, where cash is
spent, and the net change in cash for the year. This cycle time determines, to a large extent, the amount of capital
needed to start and operate a business.
What Is the Experience with ERP?
In practice, process reengineering is more difficult to achieve than the implementation of ERP computer
hardware and software. Moreover, if processes are not changed, the ERP system will usually create additional
work for people rather than less.
Concluding Principles
The value of ERP to a company depends to a great extent on the potential savings that can be derived from the
ability to centralize info and decision making. It is important to recognize that the value of the system is derived
from the synergies obtained from quick access to info from multiple functions in the company. ERP is especially
valuable when these functions are located at many different sites within a country or around the world.
Regarding implementation of an ERP system, the following principles are:
• To achieve efficiencies, redundant transactions must be reduced.
• Data accuracy and efficiencies can be realized if info is captured at the initial entry and the transactions
that document a process are preserved.
• Installing the computer hardware and implementing the software is only a part of the process of
implementing ERP. Processes need to be changed in a manner that efficiently supports the data needs
of the ERP system.
• The company must define a comprehensive set of performance measures together with policies and
goals that correspond to these measures.
• Info technology-related economies of scale can be obtained from the need to support fewer software
and hardware platforms with an ERP implementation.
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Manufacturing Planning and Control for Supply Chain Management – Jacobs, F.R., Berry, W.L., Whybark, D.C. &
Vollmann, T.E. (6th edition, Mc Graw Hill Education, 2010)
