MRP systems and mathematical optimization in supply chain management

Supply Chain Management Overview

The intent of this paper is to analyze how the initial development of MRP systems led to the development of optimization approaches and processes for more effectively managing supply chain, manufacturing, and demand planning strategies in organizations. Included in this analysis is an assessment of how linear programming and PERT/CPM programming have evolved. In addition to these points the challenges of services scheduling and the implications of how expert systems can improve maintenance processes and strategies is also discussed. All of these improvements in supply chain management have been predicated on the contributions MRP systems have making organizations more demand driven and quick to respond to market demand (Byrne, Jackson, 1994).

Functions Affecting an MRP System's Performance

Of the many functions that impact an MRP systems' performance the four major ones are the company's Bill of Materials (BOM), Item Master File and lead times associated with it, Inventory Data Master File and Purchasing Data master file (Byrne, Jackson, 1994). Each of these functions as systems of record for any enterprise and together comprises the Master Production Schedule (Segerstedt, 2006). MRP systems are used primarily for generating Planned Order Reports, Purchase Requirements, Exception Reports MRP planning Calendar Reports and production period Reports. In short, MRP systems are heavily impacted by the functional area of a company that most impact BOM planning, lead times, inventory and purchasing data. The most critical functions impacting the MRP systems at companies are their supply chains, quality of components and subassemblies of products produced, and techniques used for optimizing inventory and production efficiencies (Segerstedt, 2006).

PERT/CPM Scheduling Techniques

The value of the Program Evaluation and Review Technique (PERT) and Critical Path Method (CPM) is in optimizing the use of limited resources in the completion of a task. These resources could be both time and materials with the former being the more scare of the resources (D Aquila, 1993). As a result of this focus optimizing performance of systems and processes for constraints, the questions that are best answered with these two techniques include what the progress of the project is towards the completion date, if the project is on schedule or not, within budget and what the status of the critical activities are as well (Omar, 2009). In addition to all of these, there is also the issue of whether the project can be finished early and under budget in effect optimizing the performance of the entire project to constraints (Omar, 2009).

From a supply chain management standpoint, PERT and CPM are critically important for managing inbound logistics, production scheduling and in the case of build-to-order and mass customization, the coordination of specific products and components for the exact needs of a customer. CPM is critically important from a supply chain management standpoint in optimizing inventory positions by location throughout a distribution channel as well (Omar, 2009). All of these factors contribute to the automating of CPM and PERT through organizations who are heavily reliant on their supply chains to gain a competitive advantage. The optimization of inventory workflows using CPM and PERT contribute to that competitive advantage over time. PERT and CPM also can be used to measure the financial impact of these strategies over time as well. That is the future direction of ERP and Web Services in manufacturing specifically.

Services Scheduling

Services scheduling is difficult due to a variety of factors. First, services are by definition a commitment of future value delivered. Completing services may take an exceptionally longer period of time than anticipated and the act of providing a service is not a finite asset; it is rather the attainment of satisfaction with a customer (D Aquila, 1993). Scheduling services as a result is a difficult task. Second, services can vary in terms of their relative value over time, with the service provided for better management of a customer issue requiring escalation depending on the troubleshooting completed. Third, services are often sold with products in Business-to-Business (B2B) markets and as a result they are often bundled into the price of the product. This makes for a blended contribution margin and often a difficulty in separating each (D Aquila, 1993). When companies schedule services they often over-schedule them assuming customers will cancel their appointment. This is typically the case yet when an external event forces the need for service then customer responsiveness suffers.

How Expert Systems Improve Maintenance Systems

The development of expert systems that are rules- and constraint-based can be used for effectively managing maintenance systems by defining predictive relationships between components and anticipating when certain ones will need to be replaced. The concept of Maintenance, Repair and Overhaul (MRO) in the aerospace and defense industries is a case in point. Expert systems are used for managing the preventative maintenance of jets and also for scheduling updates to tooling procedures, systems used for working on the planes and also troubleshooting tasks as well. As a result the development of expert systems to support maintenance systems is commonplace in specific industries already. These systems significantly reduce overall costs and support the development of self-regulating complex systems including the last generation of jets which have expert systems onboard to self-diagnose themselves.

Conclusion

The progression of MRP systems supporting the basic functions of a manufacturing company to the development of mathematical models that seek opt optimize demand and aggregate planning shows a progression towards using intelligence to gain greater efficiencies over time. The use of PERT and CPM techniques for managing complex projects has been proven in the decades of their use and have also contributed to the financial performance of firms using them. The bottom line is that as companies seek to become more demand-driven they move from an inward focus on MPR and reporting to seeking out strategies for being more demand-driven and in touch with the market. Once this is achieved these companies seek to optimize their internal process efficiencies through the concepts discussed in this paper.