A modern enterprise resource planning (ERP) system like IFS Applications supports multiple planning methods. The important thing is to decide which of these methods will produce the best results for you.
The original version of this blog was published in 2017 and since then several new planning options have been added to the new version of IFS. In this updated blog we cover the most common planning methods available in IFS Applications 10 and recommendations on when to apply them.
Planning Method 1) Sales and Operations Planning
Sales and operations planning (S&OP) is a process that aims to balance supply and demand in the aggregate. Sales, supply and stocks are planned by product family over a 12-18 month horizon.
Plans are used to calculate various resource requirements, such as bottleneck production capacity, supplier capacity, or storage space requirements. It allows you to analyze various scenarios to see the potential impact of a new contract, investment, outsourcing, etc.
S&OP is a process that serves to create a common and approved plan. It helps your company to achieve a balance between supply and demand over time. In this way, imbalances such as excess stocks, shortages and sudden orders are avoided, thus preventing costly symptoms.
The solution offered by IFS Applications is suitable for both stock production and custom production companies.
Planning Method 2) Master Schedule and Material Requirement Planning
Master Schedule (MS) calculates the projected inventory and creates supply offers using forecasts and firm orders. It also takes into account the safety stock and lot sizes. The result is a production plan called Master Production Schedule (MPS).
Material Requirement Planning (MRP) will use MPS in conjunction with the bill of materials (BOM) to create a procurement plan for semi-finished products and component requirements. Options for determining lot sizes include least cost lot or one-for-one lot . MRP can be run for a single material, a single site, multiple sites, or a project. MRP is typically run once a day.
MS and MRP emerged in the 1960s and are the most commonly used planning methods in the manufacturing industry today. Since then, solutions have gradually improved. The latest additions to IFS Applications are safety stocks that can be manually defined for the desired component or automatically calculated by the system. If the production amount varies seasonally, different safety stocks are defined for different date ranges.
Safety stocks that change according to seasonal periods allow you to dynamically adapt stock levels to demand. The result is higher availability at lower costs than what can be achieved with static safety stocks. In addition, you have the opportunity to respond to dependent and independent demands. MPS converts the sum of the forecasts it calculates into supply offers thanks to MRP. This feature is also necessary for planning component spare parts and parts sold outside the kit.
The main benefit of this type of planning is a reliable supply plan that extends over the forecast horizon. This plan is often used to share supply forecasts with suppliers and calculate future capacity requirements. A few disadvantages of MRP include:
- Forecasting: Requires a forecast of at least the total amount of lead time, which means it is less useful for planning orders without forecasts.
- BOM: The bill of materials must be defined. This may not be possible if you have products with custom engineering or configurations.
- Overly precise: MRP is very precise, therefore, in some cases, it can generate many warning messages in lower level calculations.
MS/MRP is still the best option for those with a fairly stable, forecast-driven, make-to-stock (MTS) system. MRP can be a good option for some make-to-order (MTO) scenarios, such as when a mass product is made after an order is received.
Planning Method 3) Demand Driven MRP
Demand Driven MRP (DDMRP) is a new concept introduced in IFS Applications 10 (2018). DDMRP means determining strategic buffer stocks in the bill of materials. Buffer stocks are positioned to reduce lead times, ensure availability to consumers, and protect upstream resources from demand fluctuations.
DDMRP helps companies cope with today’s challenges of poor forecast accuracy, high product variety, and long lead times. It is a simple, visual solution to complex challenges.
IFS’ DDMRP solution meets the requirements of the Demand Driven Institute . It is an embedded part of MRP in IFS Applications 10. This means you can introduce the solution gradually and examine its effects without any upfront investment or complex integration.
For more information on DDMRP, please check out a few older blog posts that go into more detail about DDMRP:
Planning Method 4) Order-specific Planning
Custom planning (MTO) has different requirements compared to predictive planning, it is the planning of products made to order.
It is important to be able to relate material supply to demand. First of all, it supports change management on product structure and ensures that materials are consumed at the appropriate demand source after they are produced.
They are linked to track demand associated with a supply order. Compared to MRP concepts, MTO planning requires greater flexibility. MTO usually includes configurable products with a dynamic bill of materials. The IFS planning module for order-specific manufacturing is called Dynamic Order Tracking (DOP) to address this need for flexibility.
Planning Method 5) Reorder Point
A reorder point (ROP) is simply the triggering of a supply order when the quantity on hand falls below a defined inventory level.
To calculate the safety stock and resupply quantities, highly advanced concepts are taken into account, for example targeted services. In addition, ROP-based planning takes into account fluctuations in line with trends and seasonality by taking into account the demand forecast.
Unlike MRP, ROP planning works independently of other materials. This can be problematic when the demand for a part is primarily a result of the demand for other parts. On the other hand, it is a robust and reliable planning method that works well in the trade for spare parts and consumables.
Planning Method 6) Kanban
Kanban is a pull system in which demand triggers supply down the product structure. The Kanban cycle is defined by standard crates and associated information cards. When the crate is empty, it is transported back to the supply point for replenishment.
The pull system inherently minimizes work in process and excess inventory. Each material flow (supply point, part number, and consumption point) must be defined separately. Kanban works best in repetitive processes, such as one work center feeding another.
Which method should be used?
The decision on which planning method to use depends primarily on how manufacturing is triggered (custom order, stock, etc.) and the nature of the procurement process. Below we define and explain six different procurement processes:
- Project: Complex production (ETO) usually designed for a one-off order
- Jobbing: Production in small volumes, usually focused on functionality according to customer specifications.
- Batch: Production of standard parts in lots
- Repetitive: Speed-based production of standard products
- Trade: Distribution of products ranging from high to low volume across a supply network
- Spare Parts: Distribution of parts that are generally in low and unpredictable demand.
Situational recommendations
The table below provides our suggestions on which planning strategies to consider in different situations.
Points to consider:
- IFS’s MRP can operate to supply a single part within a new order, to a single site, and to a planning network that includes multiple sites. The planning network enables coordinated planning between the supplier site and the assembly site, for example.
- Although MRP also works in custom manufacturing and repetitive scenarios, the more specific functionality offered by DOP and Kanban often achieves better results.
- DDMRP buffers work best when demand is more stable and predictable. This is often the case when custom manufacturing involves common components.
- ROP-based planning is also used to create buffers in situations where there is excess demand, whether to shorten lead times for critical materials or to absorb demand variability.
- High volume distribution scenarios with a limited number of parts benefit from MS. Flows with high demand variability and a large number of parts are better planned using ROP.
Should you consider combining methods?
Most companies should look at a combination of these methods. At IFS, this is called mixed-mode planning, and it happens in two ways:
- Some products are in stock and other products are made to order.
- The position of the order decoupling point: To reduce delays in delivery times and commitments to produce final specifications, it is common to use demand decoupling points. It is an inventory buffer where the replenishment process begins after an order is placed. A different production strategy can be used at the level where products are more similar, and a different production strategy can be used at the point where products differ.
The vast majority of manufacturing companies will benefit from mixed-mode planning. How planning methods can be combined in mixed mode will be discussed in future articles.
I hope you found this brief overview of the various planning methods (and when to consider them) helpful. 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 Summar
Bu blog yazısı, Solution Architect IFS Nordics ve Jakob Björklund ve CPIM IFS Ar-Ge Program Yöneticisi Mats Johansson tarafından yazılmıştır.
