Jakob Björklund, Senior Advisor IFS R&D, and Mats Johansson, Product Architect CPIM IFS R&D, provide a brief overview of the various planning methods available to manufacturers and when they are considered most useful.
This blog post was co-authored by Jakob Björklund, Senior Advisor IFS R&D, and Mats Johansson, Product Architect CPIM IFS R&D.
A modern enterprise resource planning (ERP) system such as IFS Applications supports a wide range of planning methods. Sometimes it is not obvious which of the available methods will generate the best results. In this blog post, we will cover the most common options available in IFS Applications along with a recommendation of when they should be applied.
Planning Method #1) Master Schedule & Materials Requirement Planning
Master Schedule (MS), plans items using forecasts and actual demand, calculates projected inventory and generates supply proposals. Safety stock policies and lot sizing rules are considered as well. The result is a time-phased supply proposal called the Master Production Schedule (MPS).
The Material Requirements Planning (MRP) will use the MPS together with the bill of material (BOM) to create a time-phased supply plan for semi-finished goods and component requirements. Various lot-sizing options such as time coverage, least unit cost or lot-for-lot are available. The MRP calculation can be done for a certain part, across a single site, multiple sites or a project. MRP is usually performed once per day.
MS and MRP originated in the 1960s and today they are the most commonly used planning methods in the manufacturing industry. Benefits include a reliable supply plan that stretches throughout the forecast horizon. A couple of drawbacks related for MRP include:
- Forecasting: It needs the ability to forecast at least as long into the future as the accumulated lead-time. This sometimes makes it less useful for to-order planning, where item level forecasts are not available.
- BOM: The bill of material needs to be defined. This might not always be the case when dealing with short product lifecycles or configured products.
- Overly precise: MRP is precise, thus it may become nervous and generate massive amounts of change messages at lower levels.
MS/MRP a still the best option in a fairly stable, forecast-driven, make-to-stock (MTS) environment. MRP can also be a good option for some make-to-order (MTO) scenarios when, for example, a batch of product is made once an order is taken.
Planning Method #2) Make-to-Order Planning
Make-to-order planning is the planning of products made to order, representing a different set of requirements compared to forecast-driven planning. It becomes important to be able to link supply with demand through multiple levels of the structure. Reasons primarily being to support up and downstream change management and to make sure that materials are supplied to the appropriate source of demand once finished. Keeping track of related demand for a supply order is called pegging. In comparison to MRP concepts, MTO planning also requires a higher level of flexibility. MTO often involves configurable products with a dynamic BOM. To emphasize this need for flexibility, the IFS planning module for MTO is called Dynamic Order Processing (DOP).
Planning Method #3) Reorder Point Planning
Reorder point (ROP) planning, which in its simplest form, just means that once the inventory goes below a pre-defined level a replenishment order is triggered. Some fairly advanced concepts are available to calculate the ROP, safety stock and replenishment quantity to meet, for example, service level targets. Also, ROP-based planning can benefit from a demand forecast to allow the reorder point to fluctuate in line with trends and seasonality. In contrast to MRP, ROP planning works independently of other parts. This may be problematic when the demand for a part is mainly the result of the demand for other parts. On the other hand, it is a robust and reliable planning method that works well in trade, for spare parts and consumables.
Planning Method #4) Kanban
Kanban is a pull system where downstream demand triggers supply actions. A Kanban circuit is defined by the use of standard containers and attached cards. Once the downstream point of consumption has emptied the container, it is moved back to the source of supply for replenishment. Using the pull principle will by nature, minimize WIP and excess inventory. Since each unique stream of material (supply point, part number and point of consumption) needs to be defined individually, Kanban works best in repetitive environments where, for example, one work center feeds another.
Which method should be used?
From a high level, the decision about which planning method to use depends mainly on how manufacturing is triggered (make-to-order, make-to-stock, etc.) as well as the nature of the supply process. Below we have identified and explained six different supply processes:
- Project: Typically complex manufacturing of one-offs that are usually engineered-to-order (ETO)
- Jobbing: Production in the functionally-oriented layout in small volumes often to customer specification
- Batch: Production of standard parts in lots
- Repetitive: Rate-based manufacturing of standard products
- Trade: Distribution of products through a supply network with volumes ranging from very high to low
- Spare parts: Distribution of parts with usually low and unpredictable demand
Recommendations based on situation
The table below is our recommendation for which of the available planning strategies to consider in different situations.
Points to consider:
- IFS’s MRP can operate from a single part to create supply for a new order, by site and by planning network, which includes multiple sites. The planning network makes it possible to coordinate planning between, for example, one site feeding components to the assembly site.
- While MRP will also work in make-to-order and repetitive scenarios, the more specific functionality offered by DOP and Kanban often gain better results.
- ROP- based planning is also often used to create buffers in environments with primarily dependent demand. The reason might be to cut lead times for critical materials or to absorb demand variation.
- High volume distribution scenarios with a limited number of items will benefit from MS. Flows with high demand variation and a high number of parts are better-planned using reorder points.
Should you consider combining methods?
Most companies will have to look at a combination of these methods. At IFS, we call this mixed-mode planning and it occurs in two shapes:
- Some products are made to stock and other products are made to order.
- The position of the order decoupling point: To reduce lead-times and delay the commitment to produce the final specification, it is common to use demand-decoupling points. This is simply an inventory buffer from which the order fulfillment process starts once the order is present. Different planning strategies apply both up and downstream from the decoupling point
The vast majority of manufacturing companies would benefit from mixed-mode planning. How planning methods can be combined in a mixed-mode environment will be covered in future articles. Hopefully, you have found this brief overview of various planning methods (and when they should be considered) useful. For more information on planning, you may be interested in the following resources:
IFS Applications for Demand Planning | Brochure
IFS Inventory Planning and Replenishment | Executive Summary
Minimize waste through continuous improvement with IFS Kanban | Executive Summary
Do you have questions or comments about planning methods?
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