Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

5.1.5 Beyond MRP II: DRP II, Integrated Resource Management, and the “Theory of Constraints”

Intended learning outcomes: Produce an overview on distribution planning, distribution inventory, and distribution resource planning (DRP II). Disclose the concept of (integrated) resource management. Explain bottleneck capacity as well as the five focusing steps in the theory of constraints (TOC) approach.

Distribution planning is one component of the ERP concept that goes beyond MRP II.

Distribution planning covers the planning activities associated with site and location planning, transportation, warehousing, inventory levels, mate­rials handling, order administration, industrial packaging, data processing, and communications networks to support distribution ([APIC16], sequence of tasks modified).

Distribution planning determines the distribution network structure, often a multi-echelon structure (see Section 3.1.3). Inventory management in this chain can be handled in principle in the same way that it is for the chain from raw material to final product, via the various structure levels. A central task of distribution planning is resource management in the distribution system, in particular inventory management.

Distribution inventory is inventory, usually spare parts and finished goods, located in the distribution system (e.g., in warehouses and in-transit between warehouses and the consumer [APIC16]). The terms pipeline inventory, or pipeline stock, are used simultaneously.[note 507]

Distribution resource planning (DRP II) is distribution planning of the key resources contained in a distribution system: warehouse space, workforce, money, trucks, freight cars, etc. ([APIC16]).

The term DRP II developed as an extension of DRP (distribution requirements planning; see Section 12.2.1), which stands for a deterministic method of management of distribution inventory. The term DRP II was coined in analogy to the term MRP II, an extension of MRP. The techniques of management of distribution inventory do not differ essentially from inventory management in production and procurement. For this reason, they will not be treated in a separate section. However, distribution control is examined in Section 15.4. There you will find a description of important distribution planning tasks and results, such as transport planning and scheduling.

Resource management is, according to [APIC16], the effective identification, planning, scheduling, execution, and control of all organizational resources to produce a good or service.

Today, the ordered sequence of the three classical tasks as shown in Figure — materials management, time management and scheduling, and capacity management — is used mainly for teaching purposes only. Originally, this sequence came about because materials management takes temporal priority in the planning process with non-time-critical production or procurement. In the classical MRP II concept, the tasks are differentiated so sharply that in materials management, there is no routing sheet. For materials management, there exists only the attribute lead-time offset, which is assigned to each item. This perspective also made concessions to the very limited processing capacity of computers of the day, when the materials management planning process of large firms (the so-called MRP run) often took an entire weekend. It took that much time again to then complete the planning process for scheduling and capacity management (the so-called CRP run). This meant that it had to be possible to perform this process separately from materials management.

When capacities are important, however, all tasks must be performed in an integrated way as resource management, in parallel fashion, in dependency upon each other. This is the case with more recent concepts, including the lean/JIT, the variant- and the processor-oriented concept, as well as advanced planning and scheduling (APS) software. More­over, limitations on computer capacity no longer exist. There is also another impetus for the (inte­gra­ted) resource management approach, namely, the more in-depth consideration of through­put and bottlenecks and — finally and more comprehensively — the theory of constraints:

Throughput is the rate at which the (production) system generates a desired output. It is expressed for a given time period (cf. [APIC16]).

A bottleneck, or a bottleneck capacity, is a work center where the required capacity is greater than the available capacity. Cf. [APIC16].

A high capacity utilization tends to result in lower costs (see here Fig. However, well-utilized capacity can also represent a bottleneck. Whenever capacity is not available to work, it directly reduces the throughput of the company and thus its output, its performance. Therefore, effective bottleneck management (and also the TOC approach) proposes:

  • Utilization of the bottlenecked work center during breaks and with the greatest possible overtime. In addition, buffer stores, both downstream and upstream of the work center, should buffer the bottlenecked work center. On the one hand, this allows maximum utilization, because the bottlenecked work center does not have to wait for delayed delivery of materials. On the other hand, if downtime occurs in the bottlenecked work center, this will not directly affect the fill rate. In addition, through some increased administrative effort, various customer orders for the same item can be produced together at the bottleneck, which increases batch size, so that machine setup time and thus load are reduced.
  • Production at non-bottlenecked work centers only when there are actual customer orders. Work centers should not make to stock — thus keeping work in process low. The reason for this is that too-early order releases do not improve capacity utiliza­tion; as a result, the work center simply does not work at a later time. In addition, goods will pile up that are not immediately required, implying carrying cost.

The theory of constraints (TOC) is an approach to integrated resource management that addresses the problem of bottlenecks in a logistics system, or — more generally — the factors that limit or constrain the throughput in the system.

The TOC was developed in the 1980s and early 1990s in North America by E. M. Goldratt ([GoCo14]). The basic premise of a theory views the planning problem in logistics and operations management as a problem-solving area limited by constraints.

A constraint is any element or factor that prevents a system from achieving a higher level of performance with respect to its objective ([APIC16]).

Constraints can take the form of limited capacity, a customer requirement such as quantity or due date, or the availability of a material, for example. They can also be managerial.

The concept of a problem-solving area limited by constraints originated in operations research, which also supplies algorithms for solutions. However, the difficulty often does not lie in the algorithms, but rather in the constrained problem area itself, which may not allow for reasonable solutions. This is the point where the TOC attempts to exploit and expand the problem-solving area, successively and in targeted fashion, according to the five focusing steps shown in Figure

The concept of a solution space limited by constraints originated in operations research, which also supplies algorithms for solutions. However, the difficulty often does not lie in the algorithms, but rather in the constrained problem area itself, which may not allow for reasonable solutions. This is the point where the TOC attempts to exploit and expand the solution space, successively and in targeted fashion, according to the five focusing steps shown in Figure A pro­duction control technique that goes with TOC is called drum-buffer-rope [note 508]. See Section 14.3.3.

Fig. The five focusing steps in the theory of constraints (TOC) approach.

Course section 5.1: Subsections and their intended learning outcomes

  • 5.1 Business Processes and Tasks in Planning & Control

    Intended learning outcomes: Describe the MRP II concept and its planning hierarchy. Explain the part processes and tasks in long-term, medium-term planning as well as in short-term planning & control. Present the reference model of processes and tasks in planning & control. Produce an overview beyond MRP II: DRP II, integrated resource management, and the “theory of constraints”.

  • 5.1.1 The MRP II Concept and Its Planning Hierarchy

    Intended learning outcomes: Explain the business processes in logistics and operations management of an enterprise, structured according to temporal range. Describe the different degrees of detail in planning. Disclose the aim of data management.

  • 5.1.2 Part Processes and Tasks in Long-Term and Medium-Term Planning

    Intended learning outcomes: Present long-term planning, also called master planning. Differentiate between master planning and master scheduling. Disclose medium-term planning & control, also called detailed planning and scheduling. Produce an overview on bid processing, customer blanket order, sales and operations planning, (detailed) resource requirements planning, requests for quotations, blanket order processing, and order proposal.

  • 5.1.3 Part Processes and Tasks in Short-Term Planning & Control

    Intended learning outcomes: Present in detail short-term planning & control, also called execution and control of operations. Produce an overview on order release, order coordination, order monitoring and order checking, delivery, job-order costing, and billing.