What is Material Requirements Planning (MRP)?

Material requirements planning (MRP) is an inventory management system

that is completely operated digitally through a wide variety of computer-based
platforms. MRP is exclusively designed to improve the inventory efficiency of a
business by estimating quantities of raw material and scheduling timely
deliveries.

In addition, the material requirements planning system (MRP) helps

businesses maintain low inventory levels by controlling manufacturing,
purchasing, and delivery activities.

Before the creation of hardware that could run MRP software, inventory was
scheduled by hand and was dominated by methods such as reorder point
(ROP)/reorder quantity (ROQ).

The History of Material Requirements Planning

The implementation and constant innovation surrounding the MRP inventory

system created a long-lasting effect that can still be seen today.

 Before computer-engineered systems became prevalent in the

business world, inventory was recorded by hand.
 As time went on, users became aware of how inefficient hand-kept
inventory was, creating demand in the market for the most productive
method.
 In the early 1950s, MRP was first computerized by aero-engine makers
associated with General Electric and Rolls Royce.
 Before MRP became commercialized, it was reinvented to use the
Polaris program.
 In 1964, MRP was released to specific individual businesses, being
used first by Black & Decker.
 By 1975, over 700 companies had implemented MRP as their inventory
management system.
 Since 1975, the MRP system has been continuously updated to be
made more efficient for businesses. Including several different models.
 Today, MRP is one of the most common and widely used inventory
management systems in the world.

Material Requirements Planning Objectives

When it comes to the MRP inventory management system, there are three
primary objectives that the software seeks to provide.

1. To ensure that raw materials are readily available for production and
products are readily available for delivery to consumers.
2. To sustain the lowest raw materials and finished product levels in store.
3. To organize manufacturing, delivery schedules, and purchasing
activities.
As basic as the objectives sound, organizations would be significantly less
productive if it weren’t for the implementation of the MRP inventory system.

Data Needed for MRP Systems

To successfully run an MRP inventory system in an organization, there is an

assortment of data required for successful use.

End Item: The MRP system requires the user to describe what type of product
is being created and its specific demand level.

Quantity: The system requires the user to input the amount of quantity needed
to meet specific demand schedules.

Shelf Life: The amount of time that a product is able to remain in the
warehouse is required for the planning aspect of an MRP system.

Inventory Records: Records of materials available for use, work in progress,

and completed.

Planning Data: Restraints and directions, such as labor, machine standards,

testing, techniques, and commands, are required to use the MRP system.

Bills of Materials: The system requires detailed accounts of materials and

components used to make each of the products.

After inputting all the data throughout the system, it can be run in a business.

MRP Systems vs. ERP Systems

In the manufacturing sector, the two most dominant inventory systems are
the enterprise resource planning (ERP) system and material requirements
planning (MRP) system.

In terms of functionality, they both differ in specific ways. The MRP system is
designed to progressively increase inventory efficiency in a business through
control of manufacturing, scheduling, and purchasing. On the other hand, the
ERP system provides financing, manufacturing, supply chain, purchasing,
selling, and planning in one single system.

Compositionally, MRP is a solo system that is used for its extensive focus on
providing few functions while the ERP system is integrated and provides
multiple functions in one unit. In addition, MRP systems can be easily
combined with other inventory software, but this is not the case for ERP
systems.

As a result, MRP systems are more commonly used in businesses.

Advantages and Disadvantages of MRP

When considering using an MRP inventory system within an organization, it is
crucial to know the advantages and disadvantages associated with
implementation. The advantages include:

 Maintains low inventory level

 Reduction of associated costs through material planning
 Ensure capacity utilization
 Extensively tracks every piece of inventory that comes in and goes out
 Reduces cost of warehousing product
 Increased organization throughout the business
 Scheduled shipment and delivery of the product

The disadvantages when using a material requirement planning inventory

system include:

 Reliance on the precise input information

 There are scheduling delays, wrong order quantities, and inefficient
tracking if the information is inputted inaccurately within the system
 Requires extensive maintenance of robust databases
 In order to use the system, proper training is required
 The system is not cheap and requires a substantial capital investment

Functions of Material Management:

Material management covers all aspects of material costs, supply and
utilization. The functional areas involved in material management usually
include purchasing, production control, shipping, receiving and stores.
The following functions are assigned for material management:
1. Production and Material Control:
Production manager prepares schedules of production to be carried in future.
The requirements of parts and materials are determined as per production
schedules. Production schedules are prepared on the basis of orders received
or anticipated demand for goods. It is ensured that every type or part of
material is made available so that production is carried on smoothly.
2. Purchasing:
Purchasing department is authorized to make buying arrangements on the
basis of requisitions issued by other departments. This department keeps
contracts with suppliers and collects quotations etc. at regular intervals. The
effort by this department is to purchase proper quality goods at reasonable
prices. Purchasing is a managerial activity that goes beyond the simple act of
buying and includes the planning and policy activities covering a wide range of
related and complementary activities.
3. Non-Production Stores:
Non-production materials like office supplies, perishable tools and
maintenance, repair and operating supplies are maintained as per the needs of
the business. These stores may not be required daily but their availability in
stores is essential. The non-availability of such stores may lead to stoppage of
work.
4. Transportation:
The transporting of materials from suppliers is an important function of
materials management. The traffic department is responsible for arranging
transportation service. The vehicles may be purchased for the business or
these may be chartered from outside. It all depends upon the quantity and
frequency of buying materials. The purpose is to arrange cheap and quick
transport facilities for incoming materials.
5. Materials Handling:
It is concerned with the movement of materials within a manufacturing
establishment and the cost of handling materials is kept under control. It is also
seen that there are no wastages or losses of materials during their movement.
Special equipment’s may be acquired for material handling.
6. Receiving:
The receiving department is responsible for the unloading of materials,
counting the units, determining their quality and sending them to stores etc.
The purchasing department is also informed about the receipt of various
materials.

(MRP ) MATERIALS REQUIREMENT PLANNING

The main function of MRP is to guarantee material availability on time.
MRP is required to procure or produce the required quantities on time for in-
house purpose or for fulfilling customer demand.
The main objective is to plan the supply based on requirements and
considering the current stock in hand and meets
the shortages.
MRP Process flow

With MRP, inventory can be optimized via planning receipts according to the
needs so that surplus inventory
could be avoided.
Sales and distribution give concrete customer requirements from the market.
In Demand Management, sales are planned in advance via a sales forecast.
The sales forecast is entered in demand
management in the form of Planned Independent Requirement (PIR), i.e., the
requirement for the finished product.

In order to cover these requirements, MRP does net requirement calculation

and plans procurement quantities
and dates on which the material needs to be procured or produced.

If a material is produced in-house, the system explodes the BOM and

calculates the dependent requirements, that is,
the quantity of components required to produce the finished product.

If a material shortage exists, planned orders are created at every BOM level to
fulfill the requirements and purchase
requisitions are generated for externally procured raw materials. You can also
create planned orders for externally
procured materials which can be converted to purchase requisition.
MRP does lead time scheduling and calculates planned order dates based on
routing times. Basically, it does
backward scheduling starting from requirement date minus (GR processing
times, in-house production time, float
time before production ) and calculates the duration of planned orders.

Production orders or Purchase orders are created after conversion of planned

orders and purchase requisition
respectively.

MRP type "PD" in material master MRP 1 view is essential to run the MRP for
the materials. If, you don't want to run MRP on the material then MRP type
"ND" can be maintained in the material master.Master Production Schedule
(MPS) It is used specifically for critical materials usually high valued products
where you do not want changes in your production plan within planning time
fence in next MPS run, and production plan gets firmed automatically as soon
as it comes within planning time fence unlike MRP run.
A separate run occurs for the MPS items; they are not included in the MRP
run.
Basically, it ensures the availability of the critical resources, which should
not hamper the production by maintaining the stock.

Planning time fence (number of days starting from current date) is useful in
case of MPS scenario where one can save the procurement proposals
(planned orders) from undergoing any change since the last MRP run.

No automatic changes happen to the procurement proposals once they enter

in the planning time fence (PTF is maintained in material master). So, all
planned orders in planning time fence get automatically firmed by the system.

MRP type " P0" to "P3" in material master should be maintained to run MPS for
materials.
MRP Planning Parameters MRP parameters are required for MRP run in terms
of considering the requirements (PIR) in planning horizon, scheduling
parameters and about the usage of BOM and routing data.
1. Processing Key
1. Net change (NETCH): In this run, the system considers those materials in
the planning run from their last MRP run which have undergone some changes
pertaining to receipts and issues or any stock changes.
2. Net Change in Planning Horizon (NETPL): In this run, the system considers
those materials in the planning run from their last MRP run which have
undergone some changes pertaining to receipts and issues or any stock
changes. It considers the requirements in a pre-defined planning horizon,
unlike NETCH key which considers the total futuristic requirements.
3. Regenerative Planning (NEUPL): It plans all the materials for the MRP Run
irrespective of the changes they undergo. This plan is not so widely used. It
takes a long time to obtain the final result.
2. Planning Mode
1. Adapt planning data: It only processes the changed data.
2. Re explodes BOM and Routing: Read BOM and routing data again for the
existing orders.
3. Delete and recreate planning data: It completely deletes the planning data
(all receipts) and creates again.
3. Scheduling
1. Basic Scheduling: MRP calculates only basic dates for the orders and in
house production time for the material master is used.
2. Lead Time Scheduling: The production dates are determined by the lead
time scheduling for planned orders. The routings are read to schedule and
calculate the capacity requirements on work centers.How to run MRP for all
Products
Step 1) From SAP easy access screen, open transaction MD01, we will run
MRP at Plant level.
1. Enter your manufacturing Plant for which you want to take MRP run.
2. Enter Processing key as "NETCH" ( Net change in total horizon)
3. Input "1" in Create Purchase req. Which means for externally procured
materials, MRP will generate purchase requisitions instead of planned orders.
4. Enter "3" for schedule lines which means MRP will generate schedule lines
for raw materials having scheduling agreement.
5. Enter "1" in MRP List and system will create MRP list similar to stock
/requirement list for later analysis of previous MRP run.
6. Enter Planning mode "3" as we will delete and recreate all planning data for
all materials.
7. Enter Scheduling indicator "2" which means MRP will do lead time
scheduling and consider routing times to calculate planned order dates.

BREAKING DOWN 'Materials Requirement Planning - MRP'

MRP was the earliest of the integrated information systems dealing with
improvements in productivity for businesses with the use of computers and
software technology to provide meaningful data to managers. With the advent
of such systems, production efficiency could be greatly improved. As the
analysis of data and the technology to capture it became more sophisticated,
more comprehensive systems were developed to integrate MRP with other
aspects of the manufacturing process.

MAKE-OR-BUY DECISION
The make-or-buy decision is the action of deciding between manufacturing an
item internally (or in-house) or buying it from an external supplier (also known
as outsourcing). Such decisions are typically taken when a firm that has
manufactured a part or product, or else considerably modified it, is having
issues with current suppliers, or has reducing capacity or varying demand.
Another way to define make-or-buy decision that is closely related to the first
definition is this: a decision to perform one of the activities in the value chain
in-house, instead of purchasing externally from a supplier. A value chain is the
complete range of tasks – such as design, manufacture, marketing and
distribution of a product / service that businesses must get done to take a
service or product from conception to their customers Some companies
manage all of the tasks in the value chain from manufacturing raw materials all
through to the ultimate distribution of the completed goods and provision of
after-sales services. Some other companies are happy just to integrate on a
smaller scale by buying a lot of the parts and materials that are required for
their finished products. When a business is involved in more than one activity
in the whole value chain, it is vertically integrated. This kind of integration is
quite common.

Vertical integration provides its own set of advantages. An integrated company

depends less on its suppliers and so can be certain of a smoother flow of
materials and parts for the manufacture than a non-integrated company. In
addition, some companies believe they can manage quality better by
manufacturing their own parts and materials instead of depending on the
quality control standards of external suppliers. What’s more, an integrated
company
realizes revenue from the parts and material that it is “making” rather than
“buying” in addition to income from its usual operations.
The benefits of vertical integration are counterbalanced by the benefits of
using outside suppliers. By combining demand from different companie, a
supplier can enjoy econoies of scale. These economies of scale can cause
better quality and lower expenses than would be possible if the business were
to endeavor to manufacture the parts or provide a service by itself. At the same
time, a business should be careful to retain control over those tasks that are
necessary for maintaining its competitive position. Case in point: Hewlett
Packard manages the software for laser printers that it manufactures in
collaboration with Canon Inc. of Japan.

FACTORS INFLUENCING THE DECISION

To come to a make-or-buy decision, it is essential to thoroughly analyze, all of
the expenses associated with product development in addition to expenses
associated with buying the product. The assessment should include qualitative
and quantitative factors. It should also separate relevant expenses from
irrelevant ones and consider only the former.
The study should also look at the availability of the product and its quality
under each of the two situations.

Introduction to quantitative and qualitative analysis

Quantitative aspects can be calculated and compared whereas qualitative
aspects call for subjective judgment and,frequently require multiple opinions.
In addition, some of the associated factors can be quantified with sureness
while it is necessary to estimate other factors. The make-or-buy decision calls
for a thorough assessment from all angles.
Quantitative aspects are essentially the incremental costs stemming from
making or purchasing the component.
Factors of this type to look at may incorporate things such as availability of
manufacturing facilities, needed resources and manufacturing capacity. This
may also incorporate variable and fixed expenses that can be found out either
by way of estimation or with certainty. Similarly, quantitative expenses would
incorporate the cost of the good under consideration as the price is determined
by suppliers offering the product for sale in the marketplace.
Qualitative factors to look at call for more subjective assessment. Examples of
such factors include control over component quality, the reliability and
reputation of the suppliers, the possibility of modifying the decision in the future,
the long-term viewpoint concerning manufacture or purchase of the product,
and the impact of the decision on customers and suppliers.

Introduction to relevant and irrelevant expenses

As mentioned earlier, distinguishing between these two kinds of expenses is

necessary to come to a make-or-buy decision. Relevant costs for
manufacturing the good are all the expenses that could be avoided by not
manufacturing the product in addition to the opportunity cost resulting from
utilizing production facilities to manufacture the good as against the next best
alternative utilization of the manufacturing facilities. Relevant costs for buying
the product
are all the expenses relating to purchasing a product from suppliers. Irrelevant
costs are the expenses involved irrespective of whether the good is produced
internally or bought externally.
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Step-by-step guide to Make or Buy Decision
Manufacturing businesses have to consider cost-lowering decisions on a daily
basis. This article will take you through all the basic things you need to know
with respect to the vital cost-saving decision known as make-or-buy.
You’ll learn 1) what is make-or-buy decision? 2) factors influencing the
decision, 3) how to arrive at a make- or-buy decision, and an 4) example.

WHAT IS MAKE-OR-BUY DECISION?

The make-or-buy decision is the action of deciding between manufacturing an
item internally (or in-house) or buying it from an external supplier (also known
as outsourcing). Such decisions are typically taken when a firm that has
manufactured a part or product, or else considerably modified it, is having
issues with current suppliers, or has reducing capacity or varying demand.
Another way to define make-or-buy decision that is closely related to the first
definition is this: a decision to perform one of the activities in the value chain
in-house, instead of purchasing externally from a supplier. A value chain is the
complete range of tasks – such as design, manufacture, marketing and
distribution of a product / service that businesses must get done to take a
service or product from conception to their customers.
Some companies manage all of the tasks in the value chain from
manufacturing raw materials all through to the ultimate distribution of the
completed goods and provision of after-sales services. Some other companies
are happy just to integrate on a smaller scale by buying a lot of the parts and
materials that are required for their finished products. When a business is
involved in more than one activity in the whole value chain, it is vertically
integrated.
This kind of integration is quite common.
Vertical integration provides its own set of advantages. An integrated company
depends less on its suppliers and so can be certain of a smoother flow of
materials and parts for the manufacture than a non-integrated company. In
addition, some companies believe they can manage quality better by
manufacturing their own parts and materials instead of depending on the
quality control standards of external suppliers. What’s more, an integrated
company
realizes revenue from the parts and material that it is “making” rather than
“buying” in addition to income from its usual operations.
The benefits of vertical integration are counterbalanced by the benefits of
using outside suppliers. By combining demand from different companie, a
supplier can enjoy econoies of scale. These economies of scale can cause
better quality and lower expenses than would be possible if the business were
to endeavor to manufacture the parts or provide a service by itself. At the same
time, a business should be careful to retain control over those tasks that are
necessary for maintaining its competitive position. Case in point: Hewlett
Packard manages the software for laser printers that it manufactures in
collaboration with Canon Inc. of Japan.

FACTORS INFLUENCING THE DECISION

To come to a make-or-buy decision, it is essential to thoroughly analyze, all of
the expenses associated with product development in addition to expenses
associated with buying the product. The assessment should include qualitative
and quantitative factors. It should also separate relevant expenses from
irrelevant ones and consider only the former.
The study should also look at the availability of the product and its quality
under each of the two situations.

Introduction to quantitative and qualitative analysis

Quantitative aspects can be calculated and compared whereas qualitative
aspects call for subjective judgment and, frequently require multiple opinions.
In addition, some of the associated factors can be quantified with sureness
while it is necessary to estimate other factors. The make-or-buy decision calls
for a thorough assessment from all
angles.
Quantitative aspects are essentially the incremental costs stemming from
making or purchasing the component.
Factors of this type to look at may incorporate things such as availability of
manufacturing facilities, needed resources and manufacturing capacity. This
may also incorporate variable and fixed expenses that can be found out either
by way of estimation or with certainty. Similarly, quantitative expenses would
incorporate the cost of the good under consideration as the price is determined
by suppliers offering the product for sale in the marketplace.
Qualitative factors to look at call for more subjective assessment. Examples of
such factors include control over component quality, the reliability and
reputation of the suppliers, the possibility of modifying the decision in the future,
the long-term viewpoint concerning
manufacture or purchase of the product, and the impact of the decision on
customers and suppliers.
Introduction to relevant and irrelevant expenses
As mentioned earlier, distinguishing between these two kinds of expenses is
necessary to come to a make-or-buy decision. Relevant costs for
manufacturing the good are all the expenses that could be avoided by not
manufacturing the product in addition to the opportunity cost resulting from
utilizing production facilities to manufacture the good as against the next best
alternative utilization of the manufacturing facilities. Relevant costs for buying
the product
are all the expenses relating to purchasing a product from suppliers. Irrelevant
costs are the expenses involved irrespective of whether the good is produced
internally or bought externally.

Factors favoring in-house manufacture

Wish to integrate plant operations
Need for direct control over manufacturing and/or quality
Cost considerations (costs less to make the part)
Improved quality control
No competent suppliers and/or unreliable suppliers
Quantity too little to interest a supplier
Design secrecy is necessary to protect proprietary technology
Control of transportation, lead time, and warehousing expenses
Political, environmental, or social reasons
Productive utilization of excess plant capacity to assist with absorbing fixed
overhead (utilizing existing idle capacity)
Wish to keep up a stable workforce (in times when there are declining sales)
Greater guarantee of continual supply

Factors favoring purchase from outside

Suppliers’ specialized know-how and research are more than that of the
buyer
Lack of expertise
Small-volume needs
Cost aspects (costs less to purchase the item)
Wish to sustain a multiple source policy
Item not necessary to the firm’s strategy
Limited facilities for a manufacture or inadequate capacity
Brand preference
Inventory and procurement considerations

Costs for the make analysis

Direct labor expenses
Incremental inventory-carrying expenses
Incremental capital expenses Incremental purchasing expenses
Incremental factory operating expenses
Incremental managerial expenses
Delivered purchased material expenses
Any follow-on expenses resulting from quality and associated problems
Cost factors for the buy analysis
Transportation expenses
Purchase price of the part
Incremental purchasing expenses
Receiving and inspection expenses
Any follow-on expenses associated with service or quality

Though the cost is rarely the sole criterion utilized to come to a make-or-buy
decision, easy break-even analysis can be a useful way to quickly guess the
expense implications within a decision.

SCHEDULING AND CONTROL OF PRODUCTION OPERATIONS

Aggregate planning is an "intermediate-range capacity planning technique,
usually covering a time frame of 2-12 months for a production process, in order
to keep the costs of operations at a minimum." Companies use aggregate
planning to help make decisions about their capacity because seasonal
variations in demand are difficult to predict accurately. The main goal of the
company is to match resources with the expected demand. This goal is
achieved by taking into account a diverse amount of factors such as: decisions
on output rates, overtime, employment levels and changes, inventory levels
and changes, back orders ,and subcontracting work.
A more extensive form of aggregate planning is sales and operations planning.
Sales and operations planning are "intermediate-range decisions to balance
supply and demand, integrating financial and operations planning". Sales and
operations planning decisions are made using demand forecasts, financial
limits, and organization's capacity constraints. The sales and operations plan
carries information that impacts the supply chain.

Factors Affecting Aggregate Planning

Aggregate planning is an operational activity critical to the organization as it
looks to balance long-term strategic planning with short term production
success. Following factors are critical before an aggregate planning process
can actually start;
A complete information is required about available production facility and
raw materials.
A solid demand forecast covering the medium-range period
Financial planning surrounding the production cost which includes raw
material, labor, inventory planning, etc.
Organization policy around labor management, quality management, etc.
For aggregate planning to be a success, following inputs are required;
An aggregate demand forecast for the relevant period
Evaluation of all the available means to manage capacity planning like
sub-contracting, outsourcing, etc.
 Existing operational status of workforce (number, skill set, etc.), inventory
level and production efficiency
Aggregate planning will ensure that organization can plan for workforce level,
inventory level and production rate in line with its strategic goal and
objective.Aggregate planning as an Operational Tool. Aggregate planning
helps achieve balance between operation goal, financial goal and overall
strategic objective of the organization. It serves as a platform to manage
capacity and demand planning.
In a scenario where demand is not matching the capacity, an organization can
try to balance both by pricing, promotion, order management and new demand
creation.
In scenario where capacity is not matching demand, an organization can try to
balance the both by various alternatives such as.
Laying off/hiring excess/inadequate excess/inadequate excess/inadequate
workforce until demand decrease/increase.
Including overtime as part of scheduling there by creating additional
capacity.
Hiring a temporary workforce for a fix period or outsourcing activity to a
sub-contrator.
Importance of Aggregate Planning
Aggregate planning plays an important part in achieving long-term objectives
of the organization.
Aggregate planning helps in:
Achieving financial goals by reducing overall variable cost and improving the
bottom line
Maximum utilization of the available production facility
Provide customer delight by matching demand and reducing wait time for
customers
Reduce investment in inventory stocking
Able to meet scheduling goals there by creating a happy and satisfied work
force

Aggregate Planning Strategies

There are three types of aggregate planning strategies available for
organization to choose from. They are as follows.
1. Level Strategy
As the name suggests, level strategy looks to maintain a steady production
rate and workforce level. In this strategy, organization requires a robust
forecast demand as to increase or decrease production in anticipation of lower
or higher customer demand. Advantage of level strategy is steady workforce.
Disadvantage of level strategy is high inventory and increase back logs.
2. Chase Strategy
As the name suggests, chase strategy looks to dynamically match demand
with production. Advantage of chase strategy is lower inventory levels and
back logs. Disadvantage is lower productivity, quality and depressed work
force.
3. Hybrid Strategy
As the name suggests, hybrid strategy looks to balance between level strategy
and chase strategy. Scheduling is an important tool for manufacturing and
engineering, where it can have a major impact on the productivity of a process.
In manufacturing, the purpose of scheduling is to minimize the production time
and costs, by telling a production facility what to make, when, with which
resource, and on which equipment. Production scheduling aims to maximize
the efficiency of the operation and reduce costs.

Production scheduling provides scheduler with powerful graphical interfaces

which can be used to visually optimize real-time workloads in various stages of
production, and pattern recognition allows the software to automatically create
scheduling opportunities which might not be apparent without this view into the
data.

For example, an airline might wish to minimize the number of airport gates
required for its aircraft, in order to reduce costs, and scheduling software can
allow the planners to see how this can be done, by analyzing time tables,
aircraft usage, or the flow of passengers.

MASTER PRODUCTION SCHEDULE (MPS): AN OVERVIEW

A Master Production Schedule (MPS) is a plan for production, staffing,
inventory and resources. It is usually linked to manufacturing where the plan
indicates when and how much of each product will be demanded. This plan
quantifies significant processes, parts, and other resources in order to optimize
production, to identify bottlenecks, and to anticipate needs and completed
goods.

Master Production Scheduler’s schedules every possible aspect of production

such as forecast demand, production costs, inventory costs, lead time, working
hours, capacity, inventory levels, available storage, and parts supply. The
MPS is a statement of what the company expects to produce and purchase(i.e.
quantity to be produced, staffing levels,
dates, available to promise and projected balance).
The MPS translates the business plan, including forecast demand, into a
production plan using planned orders in a true multi-level optional component
scheduling environment. Using MPS helps avoid shortages, costly expediting,
last minute scheduling, and inefficient allocation of resources. Working with
MPS allows businesses to con solidate planned parts, produce master
schedules and forecasts for any level of the Bill of Material (BOM) for any type
of part.

Scheduling Types
Companies use backward and forward scheduling to allocate plant and
machinery resources, plan human resources, plan production processes and
purchase materials.
Forward scheduling is planning the tasks from the date resources become
available to determine the
shipping date or the due date.
Backward scheduling is planning the tasks from the due date or required-by
date to determine the start date and/or
any changes in capacity required.

MPS Purpose & Relationship

The Master Schedule’s primary purpose is to translate the strategic initiatives
of top manage ment into workable day to- day actions that result in making and
shipping products to customers, providing service and earning their
satisfaction.
MPS relationships between three important processes: Master Planning,
Detail Planning and Planning Execution.Supporting these three processes is
the Information System represented by the Bills of Material, Inventory,
Process/Routings and other important data bases. Holding all these processes
together are the linkages and feedback loops that show how information flows
between each functional area. The gauge for finding out the effectiveness of
the total
process is Performance Measurement.
· Master Production Schedule Planning (MPS)
· Material Resource Planning (MRP)
· Capacity Requirements Planning (CRP)

Master scheduling (MS) calculates the quantity required to meet demand

requirements from all sources. Material requirements planning (MRP) is used
to calculate the quantity required. The MS enables marketing to make
legitimate delivery commitments to field warehouses and final customers. It
enables production to evaluate capacity requirements in a more detailed
manner. It also provides the necessary information for production and
marketing to agree on a course of action when customer requests cannot be
met by normal capacity.
Finally, it provides to management the opportunity to ascertain whether the
business plan and its strategic objectives will be achieved.
Benefits of MPS · Production plan with resource, schedule and available
inventory (It all starts with what do we want to make, when do we want to make,
what does it take to make it, What we have got)
· Increased visibility and operational control
· Process change-over reduction
· Translates a business plan with forecasted demand
· Inventory reduction, leveling
· Reduced production bottlenecks and idle equipment – Reduce manual and
inconsistent scheduling efforts at each production level
· Increase production efficiency- Increased resource utilization and lowered
manufacturing costs
· Labor load leveling
· Accurate delivery date quotes – Improved on-time delivery performance
Real time information

OPERATIONS SCHEDULING
Scheduling pertains to establishing both the timing and use of resources within
an organization. Under the operations function (both manufacturing and
services), scheduling relates to use of equipment and facilities, the scheduling
of human activities, and receipt of materials.
While issues relating to facility location and plant and equipment acquisition
are considered long term and aggregate planning is considered intermediate
term, operations scheduling is considered to be a short-term issue. As such, in
the decision-making hierarchy, scheduling is usually the final step in the
transformation process before the actual output (e.g., finished goods) is
produced. Consequently, scheduling decisions are made within the constraints
established by these longer term decisions . generally s che duling obje ctive s
de a ls with trade offs among conflicting goa ls for efficie nt utiliza tion of la bor
a nd e quipme nt, le a d time , inve ntory le ve ls , a nd processing times.

Byron Finch notes that effective scheduling has recently increased in

importance. This increase is due in part to the popularity of lean manufacturing
and just-in-time. The resulting drop in inventory levels and subsequent
increased replenishment frequency has greatly increased the probability of the
occurrence of stock-outs. In addition, the Internet has increased pressure to
schedule effectively. "Business to customer" (B2C) and "business to business"
(B2B) relationships have drastically reduced the time needed to compare
prices, check product availability, make the purchase, etc. Such instantaneous
transactions have increased the expectations of customers, thereby, making
effective scheduling a key to customer satisfaction. It is noteworthy that there
are over 100 software scheduling
packages that can perform schedule evaluation, schedule generation, and
automated scheduling. However, their results can often be improved through a
human scheduler's judgment and experience.

There are two general approaches to scheduling: forward scheduling and

backward scheduling. As long as the concepts are applied properly, the choice
of methods is not significant. In fact, if process lead times (move, queue and
setup times) add to the job lead time and process time is assumed to occur at
the end of process time, then forward
scheduling and backward scheduling yield the same result. With forward
scheduling, the scheduler selects a planned order release date and schedules
all activities from this point forward in time.

With backward scheduling, the scheduler begins with a planned receipt date or
due date and moves backward in time, according to the required processing
times, until he or she reaches the point where the order will be released.
Of course there are other variables to consider other than due dates or
shipping dates. Other factors which directly impact the scheduling process
include: the types of jobs to be processed and the different resources that can
process each, process routings, processing times, setup times, changeover
times, resource availability, number of shifts, downtime, and planned
maintenance.
LOADING
Loading involves assigning jobs to work centers and to various machines in
the work centers. If a job can be processed on only one machine, no difficulty
is presented. However, if a job can be loaded on multiple work centers or
machines, and there are multiple jobs to process, the assignment process
becomes more complicated. The scheduler needs some way to assign jobs to
the centers in such a way that processing and setups are minimized along with
idle time and throughput time.
Two approaches are used for loading work centers: infinite loading and finite
loading. With infinite loading jobs are assigned to work centers without regard
for capacity of the work center. Priority rules are appropriate for use under the
infinite loading approach. Jobs are loaded at work centers according to the
chosen priority rule. This is known as vertical loading.
Finite loading projects the actual start and stop times of each job at each work
center. Finite loading considers the capacity of each work center and
compares the processing time so that process time does not exceed capacity.
With finite loading the scheduler loads the job that has the highest priority on
all work centers it will require. Then the job with the next highest priority is
loaded on all required work centers, and so on. This process is referred to as
horizontal loading. The scheduler using finite loading can then project the
number of hours each work center will operate.

A drawback of horizontal loading is that jobs may be kept waiting at a work

center, even though the work center is idle. This happens when a higher
priority job is expected to arrive shortly. The work center is kept idle so that it
will be ready to process the higher priority job as soon as it arrives. With
vertical loading the work center would be fully loaded. Of course, this would
mean that a higher priority job would then have to wait to be processed since
the work center was already busy. The scheduler will have to weigh the
relative costs of keeping higher priority jobs waiting, the cost of idle work
centers, the number of jobs and work centers, and the potential for disruptions,
new jobs and cancellations.
If the firm has limited capacity (e.g., already running three shifts), finite loading
would be appropriate since it reflects an upper limit on capacity. If infinite
loading is used, capacity may have to be increased through overtime,
subcontracting, or expansion, or work may have to be shifted to other periods
or machines.

SEQUENCING
Sequencing is concerned with determining the order in which jobs are
processed. Not only must the order be determined for processing jobs at work
centers but also for work processed at individual work stations. When work
centers are heavily loaded and lengthy jobs are involved, the situation can
become complicated. The order of processing can be crucial when it comes to
the cost of waiting to be processed and the cost of idle time at work centers.
There are a number of priority rules or heuristics that can be used to select the
order of jobs waiting for processing. Some well known ones are presented in a
list adapted from Vollmann, Berry, Whybark, and Jacobs (2005):
Random (R). Pick any job in the queue with equal probability. This rule is
often used as a benchmark for other rules.
First come/first served (FC/FS). This rule is sometimes deemed to be fair
since jobs are processed in the order in which they arrive.
Shortest processing time (SPT). The job with the shortest processing time
requirement goes first. This rule tends to reduce work-in-process inventory,
average throughput time, and average job lateness.

Earliest due date (EDD). The job with the earliest due date goes first. This
seems to work well if the firm performance is judged by job lateness.
Critical ratio (CR). To use this rule one must calculate a priority index using the
formula (due date–now)/(lead time remaining). This rule is widely used in
practice.

Least work remaining (LWR). An extension of SPT, this rule dictates that work
be scheduled according to the processing time remaining before the job is
considered to be complete. The less work remaining in a job, the earlier it is in
the production schedule.

Fewest operations remaining (FOR). This rule is another variant of SPT; it

sequences jobs based on the number of successive operations remaining until
the job is considered complete. The fewer operations that remain, the earlier
the job is scheduled.

Slack time (ST). This rule is a variant of EDD; it utilizes a variable known as
slack. Slack is computed by subtracting the sum of setup and processing times
from the time remaining until the job's due date. Jobs are run in order of the
smallest amount of slack.

Slack time per operation (ST/O). This is a variant of ST. The slack time is
divided by the number of operations remaining until the job is complete with
the smallest values being scheduled first.

Next queue (NQ). NQ is based on machine utilization. The idea is to consider

queues (waiting lines) at each of the succeeding work centers at which the
jobs will go. One then selects the job for processing that is going to the
smallest queue, measured either in hours or jobs.

Least setup (LSU). This rule maximizes utilization. The process calls for
scheduling first the job that minimizes changeover time on a given machine.

These rules assume that setup time and setup cost are independent of the
processing sequence. However, this is not always the case. Jobs that require
similar setups can reduce setup times if sequenced back to back. In addition to
this assumption, the priority rules also assume that setup time and processing
times are deterministic and not variable, there will be no interruptions in
processing, the set of jobs is known, no new jobs arrive after processing
begins, and no jobs are canceled. While little of this is true in practice, it does
make the scheduling problem manageable.

GANTT CHARTS
Gantt charts are named for Henry Gantt, a management pioneer of the early
1900s. He proposed the use of a visual aid for loading and scheduling.
Appropriately, this visual aid is known as a Gantt chart. This Gantt chart is
used to organize and clarify actual or intended use of resources within a time
framework. Generally, time is represented horizontally with scheduled
resources listed vertically. Managers are able to use the Gantt chart to make
trial-and- error schedules to get some sense of the impact of different
arrangements.
There are a number of different types of Gantt charts, but the most common
ones, and the ones most appropri ate to our discussion, are the load chart and
schedule chart. A load chart displays the loading and idle times for machines
or departments; this shows when certain jobs are scheduled to start and finish
and where idle time can be expected. This can help the scheduler redo loading
assignments for better utilization of the work centers. A schedule chart is used
to monitor job progress. On this type of Gantt chart, the vertical axis shows the
orders or jobs in progress while the horizontal axis represents time. A quick
glance at the chart reveals which jobs are on schedule and which jobs are on
time.
Gantt charts are the most widely used scheduling tools. However, they do
have some limitations. The chart must be repeatedly updated to keep it current.
Also, the chart does not directly revealcosts of alternate loadings nor does it
consider that processing times may vary among work centers.

What Is a Gantt Chart Used for in Project Management?

The uses of a Gantt chart, as you can see by the sheer number of teams and
roles who can benefit from using Gantt charts, are many. Here are just a few:
Plan & Schedule Projects
Plan & Schedule Tasks
Plan & Schedule Tasks across multiple projects
View Tasks Over Time
Plan in Sprints
Team Collaboration
Resource Management
Scheduling Teams’ Work
Determining Planned versus Actual Timelines on a Project
How to Make a Gantt Chart

On this page we will explain how to make a Gantt chart. If you need to
understand the concept of the Gantt chart, you can read: What is a Gantt
Chart?

Gantt charts are created using project management information system (PMIS)
applications, such as Primavera Project Planner®, Microsoft Project®,
and MindView®. A typical approach for creating a schedule is to hold meetings
with selected project team members and to begin identifying activities. While
this approach will result in a schedule, it may not be a complete schedule. A
complete schedule contains enough activities to ensure compliance with
the 100% Rule. The 100% Rule requires that the scope baseline addresses
100% of the project scope. The scope baseline components are the primary
sources used to identify the schedule activities. If the scope baseline
addresses 100% of the project scope, then the schedule activities address
100% of the project scope. Following these steps will ensure that the final
project schedule is a complete schedule.

6 Steps to Make a Gantt Chart

Step 1 - Review Scope Baseline

Gather the team and review the approved scope baseline, which consists of
three components: 1) the Scope Statement, 2) the Work Breakdown
Structure (WBS) and 3) the WBS Dictionary. The project team member should
confirm that the scope baseline addresses 100% of the project scope.

Step 2 - Create Activities

Using a technique called Decomposition, the project team breaks down each
WBS work package into activities. Just like when creating the WBS work
packages, the team needs to set rules for creating schedule activities. The
final schedule needs to be the one that is effective and efficient. Too many
activities can be as bad as too few. It is also important to identify deadlines and
milestones while decomposing the project.
Step 3 - Sequence Activities

Every activity is related to one or more other activities. Every activity, except
the first and last, has a relationship with a predecessor and a successor.
Sequencing activities means placing the activities in the right order using the
right relationships. There are four types of relationships:

 1. Finish to Start – Cannot start the successor activity until its

predecessor Is finished.
 2. Start to Start – Cannot start the successor activity until its
predecessor has started.
 3. Start to Finish – Cannot finish the successor activity until its
predecessor had started.
 4. Finish to Finish – Cannot finish the successor activity until its
predecessor has finished.

Relationships 1 and 2 are the most commonly used. Finish to Start is a

sequential relationship and Start to Start is typically a parallel or over-lapping
relationship.

Step 4 - Estimate Resources

Before the durations can be estimated, resources must be identified and

estimated. Resources include labor, material and equipment. There are
several estimating techniques used including Analogous, Parametric,
Three-Point and Bottom Up. Skills, competencies and technology are key
factors to consider in the basis of the estimate. After estimating the resources,
they are loaded in the schedule against the respective activities. A resource
calendar is also created to show when resources are needed and available.

Step 5 - Estimate Durations

Duration is the time between the start and end of an activity. Review the
resources, relationships and sequencing, then estimate the duration for each
activity. The same estimating techniques used for estimating resources can be
used to estimate durations, but make sure you identify constraints. Which are
limitations or restrictions on an activity.

Step 6 - Develop Schedule

Create the Gantt chart by loading all information into a project management
software tool. Review the schedule and ensure that all schedule risks have
been addressed. Check that response plans and schedule contingencies have
been included. A typical way to address schedule contingencies is to add
Buffers at the activity level, the project level or both. A Buffer is an activity with
no resources or scope to provide additional time and reduce schedule risks.
Resource optimization techniques, such as resource smoothing or leveling are
used to create realistic schedules. Review and approve the schedule. The
approved Gantt chart schedule becomes the schedule baseline.

SCHEDULING SERVICE OPERATIONS

The scheduling of services often encounters problems not seen in
manufacturing. Much of this is due to the nature of service, i.e., the intangibility
of services and the inability to inventory or store services and the fact that
demand for services is usually random. Random demand makes the
scheduling of labor extremely difficult as seen in restaurants, movie theaters,
and amusement parks. Since customers don't like to wait, labor must be
scheduled so that customer wait is minimized. This sometimes requires the
use of queuing theory or waiting line theory. Queuing theory uses estimate
arrival rates and service rates to calculate an optimum staffing plan. In addition,
flexibility can often be built into the service operation through the use of casual
labor, on-call employees, and cross-training.
Scheduling of services can also be complicated when it is necessary to
coordinate and schedule more than one resource. For example, when
hospitals schedule surgery, not only is the scheduling of surgeons involved but
also the scheduling of operating room facilities, support staff, and special
equipment. Along with the scheduling of classes, universities must also
schedule faculty, classrooms, labs, audiovisual and computer equipment, and
students. To further complicate matters, cancellations are also common and
can add further disruption and confusion to the scheduling process.
Instead of scheduling labor, service firms frequently try to facilitate their service
operations by scheduling demand.
This is done through the use of appointment systems and reservations.

MAINTENANCE MANAGEMENT
Maintenance management is the process of overseeing maintenance
resources so that the organization does not experience downtime from broken
equipment or waste money on inefficient maintenance procedures.
Maintenance management software programs can assist with the process.
The primary objectives of maintenance management are to schedule work
efficiently, control costs and ensure regulatory compliance.
Importance
Maintenance management is essential to the success of any organization
because a poorly- organized maintenance program can bring the entire
company to a halt. For instance, if maintenance employees are fixing a broken
photocopier instead of an essential piece of production equipment, a factory
can stop producing anything. If the maintenance manager doesn't understand
company processes well enough to know what is most important, this type
of scheduling problem becomes more likely. If the maintenance manager
schedules four employees when only one is needed, the company will lose
money. If materials such as chemicals are not stored and disposed of properly,
the company could have compliance issues.
IMPORTANCE AND OBJECTIVES OF MAINTENANCE MANAGEMENT
Maintenance is an important factor in quality assurance, which is another basis
for the successful competitive edge.
Inconsistencies in equipments lead to variability in product characteristics and
result in defective parts that fail to meet the established specifications. Beyond
just preventing break downs, it is necessary to keep equipments operating
within specifications (i.e. process capability) that will produce high level of
quality.
Good maintenance management is important for the company as a cost
control. As companies go in for automation
to become more competitive, they increasingly rely on equipments to produce
a greater percentage of their output. It becomes more important that,
equipments operate reliably within specifications. The cost of idle time is
higher as equipment becomes more high- tech and expensive e.g. NC/CNC
machines and robots.
Dependability of service is one of the performance measures by which a
company can distinguish itself from others.
To establish a competitive edge and to provide good customer service,
companies must have reliable equipments that will respond to customer
demands when needed. Equipments must be kept in reliable condition without
costly work stoppage and down time due to repairs, if the company is to
remain productive and competitive.
Many manufacturing organizations, particularly those with JIT (Just-In-Time)
programs are operating with inventories so low that, they offer no protection in
the event of a lengthy equipment failure. Beyond the cost of idle equipment,
idle labor, and lost ales that can result from a breakdown, there is a danger of
permanently losing market shares to companies that are more reliable.
Maintenance function can help prevent such as occurrence.Organizations like
airlines and oil refineries have huge investments in the equipment. Equipment
failure will be disastrous for such companies. They need proper maintenance
to keep the equipment in good condition.
Impact of Poor Maintenance
Maintenance operations include all efforts to keep production facilities and
equipments in an acceptable operating condition. Failure or ml-functioning of
machines and equipments in manufacturing and service industries have a
direct impact on the following:
1. Production capacity:
Machines idled by breakdowns cannot produce, thus the capacity of the
system is reduced.
2. Production costs:
Labor costs per unit rise because of idle labor due to machine breakdowns.
When machine malfunctions result in scrap, unit labor and material costs
increase. Besides, cost of maintenance which includes such costs as costs of
providing repair facilities, repair crews, preventive maintenance inspections,
spare parts and stand by machines will
increase as machines break down frequently.
3. Product and service quality:
Poorly maintained equipments produce low quality products. Equipments that
have not been properly maintained have frequent break downs and cannot
provide adequate service to customers. For example, air craft fleets of the
airline, railway and road transport services not maintained well can result in
poor service to customers.
4. Employee or customer safety:
Worn-out equipment is likely to fail at any moment and these failures can
cause injuries to the workers, working on those equipments. Products such as
two wheelers and automobiles, if not serviced periodically, can break down
suddenly and cause injuries to the stress.
5. Customer satisfaction:
When production equipments break own, products often can not be produced
according to the master production schedules, due to work stoppages. This will
lead to delayed deliveries of products to the customers.Objectives of
Maintenance Management

The following are some of the objectives of maintenance management:

Minimizing the loss of productive time because of equipment failure (i.e.
minimizing idle time of equipment due to break down).
Minimizing the repair time and repair cost.
Minimizing the loss due to production stoppages.

Efficient use of maintenance personnel and equipments.

Prolonging the life of capital assets by minimizing the rate of wear and tear.
To keep all productive assets in good working conditions.
To maximize efficiency and economy in production through optimum use of
facilities.
To minimize accidents through regular inspection and repair of safety
devices.
To minimize the total maintenance cost which includes the cost of repair,
cost of preventive maintenance and inventory carrying costs, due to spare
parts inventory.
To improve the quality of products and to improve productivity.
Types of Maintenance
1. Breakdown maintenance
It means that people waits until equipment fails and repair it. Such a thing
could be used when the equipment failure does not significantly affect the
operation or production or generate any significant loss other than repair cost.
2. Preventive maintenance ( 1951 )
It is a daily maintenance ( cleaning, inspection, oiling and re-tightening ),
design to retain the healthy condition of equipment and prevent failure through
the prevention of deterioration, periodic inspection or equipment condition
diagnosis, to measure deterioration. It is further divided into periodic
maintenance and predictive maintenance. Just like human life is extended by
preventive medicine, the equipment service life can be prolonged by doing
preventive
maintenance.
2a. Periodic maintenance ( Time based maintenance - TBM)Time based
maintenance consists of periodically inspecting, servicing and cleaning
equipment and replacing parts to
prevent sudden failure and process problems.
2b. Predictive maintenance
This is a method in which the service life of important part is predicted based
on inspection or diagnosis, in order to use the parts to the limit of their service
life. Compared to periodic maintenance, predictive maintenance is condition
based maintenance. It manages trend values, by measuring and analyzing
data about deterioration and employs a surveillance
system, designed to monitor conditions through an on-line system.
3. Corrective maintenance ( 1957 )
It improves equipment and its components so that preventive maintenance can
be carried out reliably. Equipment with design weakness must be redesigned
to improve reliability or improving maintainability
4. Maintenance prevention ( 1960 )
It indicates the design of a new equipment. Weakness of current machines are
sufficiently studied ( on site information leading to failure prevention, easier
maintenance and prevents of defects, safety and ease of manufacturing ) and
are incorporated before commissioning a new equipment.
Breakdown maintenance is maintenance performed on equipment that has
broken down and is unusable. It is based on a breakdown maintenance trigger.
It may be either planned or it can be unplanned. An example of planned
maintenance is run-to- failure maintenance, while examples of unplanned
maintenance include corrective maintenance and reactive maintenance.
Breakdown maintenance can be more costly than preventative maintenance.
Maintenance Policies:
1. Breakdown (repair) maintenance
2. Preventive maintenance

What is Project Crashing in Project Management?

No matter how much time and attention you pay to plan for your project,
obstacles can still arise and delay completion. That’s where project crashing
comes in. Project crashing in project management is a method used to speed
up a project’s timeline by adding additional resources without changing the
scope of the project. Crashing activities in project management could include
adding extra personnel to a task to finish it more quickly, or it could involve
paying a premium for a faster result.

Crashing in project management example

Let’s consider this simple project crashing example. Your team is tasked with
launching a magazine to celebrate your company’s 50th anniversary, but
delays in approving the lead feature have caused the project to fall behind. In
order to ensure the magazine is in hand by the anniversary party, an element
of the project’s scope that can’t be changed, you choose to pay a rush fee for
the printer. This project crashing step helped you meet the immovable
deadline, but it also increased your project budget.

A construction contractor might choose to employ a different type of project

crashing. Inclement weather caused a delay in pouring a house’s foundation,
which subsequently delayed each step. Unfortunately, the roofers are only
available during the dates scheduled for your project, so the contractor has a
choice. They can either pay extra workers to frame the house more quickly so
the roofers can proceed as they were originally scheduled, or wait until they
have another opening to put a roof on the house.

Waiting until the roofers have another opening might seem like a choice that
could preserve the budget, but it would likely lead to more delays in
succeeding elements like electricity or flooring, which can’t be started without a
roof. Additional delays will inevitably impact other scheduled projects that can’t
start because manpower is tied up in this incomplete house. Because the
scope of the project cannot change in order to reach completion, crashing
activities will be necessary here as well.

Project Crashing Management Stages

Once you’ve made the decision to use project crashing, there are some steps
you’ll want to follow to get the results you want.

1. Critical Path

The first thing to do is analyze the critical path of your project. This will help
you determine which tasks can be shortened to bring the project to a close
sooner. Therefore, if you haven’t already, calculate your critical path, see
which tasks are essential and which are secondary to the project’s success.
2. Identify Tasks

Get a list of all the tasks you have, then meet with those who have been
assigned to complete them. Ask if they believe any of the tasks they’re
responsible for are in the critical path and can be cut down. Then, start looking
for ways to tighten up those tasks.

3. What’s the Trade Off?

Once you’ve narrowed down the tasks in the critical path that you believe can
be shortened, start calculating how much adding more resources will cost.
Find the tasks that can be allocated additional resources, and come in sooner
with the least amount of strain on your budget.

4. Make Your Choice

When you know what you will have to spend (compared to how much time
you’ll save) for each of the tasks in your critical path, you must now make a
decision and choose the least expensive way forward. Project crashing is not
just adding resources to get done faster, but it’s getting the most in return for
that extra expense.

5. Create a Budget

Like any project, once you’ve decided on your plan, you have to pay for it.
Making a project crashing budget is the next step in executing your project
crashing plan. You’ll have to update your baseline, schedule and resource
plan to align with your new initiative.
Introduction

The critical path method (CPM) aims at the determination of the time to complete a
project and the important activities on which a manager shall focus attention.

Assumption For Cpm

In CPM, it is assumed that precise time estimate is available for each activity.

Project Completion Time

From the start event to the end event, the time required to complete all the activities of
the project in the specified sequence is known as the project completion time.

Path In A Project

A continuous sequence, consisting of nodes and activities alternatively, beginning

with the start event and stopping at the end event of a network is called a path in the
network.

Critical Path And Crtical Activities

Consider all the paths in a project, beginning with the start event and stopping at the
end event. For each path, calculate the time of execution, by adding the time for the
individual activities in that path.

The path with the largest time is called the critical path and the activities along this
path are called the critical activities or bottleneck activities. The activities are called
critical because they cannot be delayed. However, a non-critical activity may be
delayed to a certain extent. Any delay in a critical activity will delay the completion
of the whole project. However, a certain permissible delay in a non –critical activity
will not delay the completion of the whole project. It shall be noted that delay in a
non-critical activity beyond a limit would certainly delay the completion the whole
project. Sometimes, there may be several critical paths for a project. A project
manager shall pay special attention to critical activities.
Key Concepts

Certain key concepts pertaining to a project network are described below:

1.Activity

An activity means a work. A project consists of several activities. An activity takes

time. It is represented by an arrow in a diagram of the network. For example, an
activity in house construction can be flooring. This is represented as follows:

Construction of a house involves various activities. Flooring is an activity in this

project. We can say that a project is completed only when all the activities in the
project are completed.

2.Event

It is the beginning or the end of an activity. Events are represented by circles in a

project network diagram. The events in a network are called the nodes.

Example

Starting a punching machine is an activity. Stopping the punching machine is another

activity.

3.Predecessor Event

The event just before another event is called the predecessor event.

4.Successor Event
The event just following another event is called the successor event.

Example:

Consider the following.

In this diagram, event 1 is predecessor for the event 2.

Event 2 is successor to event 1.

Event 2 is predecessor for the events 3, 4 and 5.

Event 4 is predecessor for the event 6.

Event 6 is successor to events 3, 4 and

5.Network

A network is a series of related activities and events which result in an end product or
service. The activities shall follow a prescribed sequence. For example, while
constructing a house, laying the foundation should take place before the construction
of walls. Fitting water tapes will be done towards the completion of the construction.
Such a sequence cannot be altered.

6.Dummy Activity

A dummy activity is an activity which does not consume any time. Sometimes, it may
be necessary to introduce a dummy activity in order to provide connectivity to a
network or for the preservation of the logical sequence of the nodes and edges.
7.Construction of a Project Network

A project network consists of a finite number of events and activities, by adhering to a

certain specified sequence. There shall be a start event and an end event (or stop
event). All the other events shall be between the start and the end events. The
activities shall be marked by directed arrows. An activity takes the project from one
event to another event.

An event takes place at a point of time whereas an activity takes place from one point
of time to another point of time.

Construction Of Project Network Diagrams

Problem 1

Construct the network diagram for a project with the following activities:

Solution

The start event is node 1.

The activities A, B, C start from node 1 and none of them has a predecessor activity.
A joins nodes1 and 2; B joins nodes 1 and 3; C joins nodes 1 and 4. So we get the
following:

This is a part of the network diagram that is being constructed. Next, activity D has A
as the predecessor activity. D joins nodes 2 and 5. So we get

Next, activity E has B as the predecessor activity. E joins nodes 3 and 6. So we get
Develop a network diagram for the project specified below:

The critical path method (CPM) aims at the determination of the time to complete a
project and the important activities on which a manager shall focus attention.
Solution For The Example Problem - Shortest Path Problem

Looking at the diagram, we see that node 1 is the origin and the nodes 2 and 3 are
neighbours to the origin. Among the two nodes, we see that node 2 is at a distance of
40 units from node 1 whereas node 3 is at a distance of 100 units from node 1. The
minimum of {40, 100} is 40.
Solution For The Example Problem

Looking at the diagram, we see that node 1 is the origin and the nodes 2 and 3 are
neighbours to the origin. Among the two nodes, we see that node 2 is at a distance of
40 units from node 1 whereas node 3 is at a distance of 100 units from node 1. The
minimum of {40, 100} is 40. Thus, the node nearest to the origin is node 2, with a
distance of 40 units. So, out of the two nodes 2 and 3, we select node 2. We form a set
of nodes {1, 2} and construct a path connecting the node 2 with node 1 by a thick line
and mark the distance of 40 in a box by the side of node 2. This first iteration is
shown in the following diagram.

Iteration No. 1

Now we search for the next node nearest to the set of nodes {1, 2}. For this purpose,
consider those nodes which are neighbours of either node 1 or node 2. The nodes 3, 4
and 5 fulfill this condition. We calculate the following distances.

The distance between nodes 1 and 3 = 100.

The distance between nodes 2 and 3 = 35.

The distance between nodes 2 and 4 = 95.

The distance between nodes 2 and 5 = 65.

Minimum of {100, 35, 95, 65} = 35.

Therefore, node 3 is the nearest one to the set {1, 2}. In view of this observation, the
set of nodes is enlarged from {1, 2} to {1, 2, 3}. For the set {1, 2, 3}, there are two
possible paths, viz. Path 1 → 2 → 3 and Path 1 → 3 →2. The Path 1 → 2 → 3 has a
distance of 40 + 35 = 75 units while the Path 1 → 3 → 2 has a distance of 100 + 35 =
135 units.

Minimum of {75, 135} = 75. Hence we select the path 1 → 2 → 3 and display this
path by thick edges. The distance 75 is marked in a box by the side of node 3. We
obtain the following diagram at the end of Iteration No. 2.

Iteration No. 2

Repeating The Process

We repeat the process. The next node nearest to the set {1, 2, 3} is either node 4 or
node 5.

Node 4 is at a distance of 95 units from node 2 while node 2 is at a distance of 40

units from node 1. Thus, node 4 is at a distance of 95 + 40 = 135 units from the origin.

As regards node 5, there are two paths viz. 2 → 5 and 3 → 5, providing a link to the
origin. We already know the shortest routes from nodes 2 and 3 to the origin. The
minimum distances have been indicated in boxes near these nodes. The path 3 → 5
involves the shortest distance. Thus, the distance between nodes 1 and 5 is 95 units
(20 units between nodes 5 and 3 + 75 units between node 3 and the origin).
Therefore, we select node 5 and enlarge the set from {1, 2, 3} to {1, 2, 3, 5}. The
distance 95 is marked in a box by the side of node 5. The following diagram is
obtained at the end of Iteration No. 3.
Iteration No. 3

Now 2 nodes remain, viz., nodes 4 and 6. Among them, node 4 is at a distance of 135
units from the origin (95 units from node 4 to node 2 + 40 units from node 2 to the
origin). Node 6 is at a distance of 135 units from the origin (40 + 95 units). Therefore,
nodes 4 and 6 are at equal distances from the origin. If we choose node 4, then
travelling from node 4 to node 6 will involve an additional distance of 40 units.
However, node 6 is the ending node. Therefore, we select node 6 instead of node 4.
Thus the set is enlarged from {1, 2, 3, 5} to {1, 2, 3, 5, 6}. The distance 135 is marked
in a box by the side of node 6. Since we have got a path beginning from the start node
and terminating with the stop node, we see that the solution to the given problem has
been obtained. We have the following diagram at the end of Iteration No. 4.

Iteration No. 4

Minimum Distance
Referring to the above diagram, we see that the shortest route is provided by the path
1 → 2 → 3 → 5 → 6 with a minimum distance of 135 units.

The critical path method (CPM) aims at the determination of the time to complete a
project and the important activities on which a manager shall focus attention.

Note that in CPM, the assumption is that precise time estimate is available for each
activity in a project. However, one finds most of the times that this is not practically
possible.

In PERT, we assume that it is not possible to have precise time estimate for each
activity and instead, probabilistic estimates of time alone are possible. A multiple time
estimate approach is followed here. In probabilistic time estimate, the following 3
types of estimate are possible:

Pessimistic time estimate ( tp )

Optimistic time estimate ( to )

Most likely time estimate ( tm )

The optimistic estimate of time is based on the assumption that an activity will not
involve any difficulty during execution and it can be completed within a short period.
On the other hand, a pessimistic estimate is made on the assumption that there would
be unexpected problems during the execution of an activity and hence it would
consume more time. The most likely time estimate is made in between the optimistic
and the pessimistic estimates of time. Thus the three estimates of time have the
relationship

t o ≤ t m ≤ tp

Practically speaking, neither the pessimistic nor the optimistic estimate may hold in
reality and it is the most likely time estimate that is expected to prevail in almost all
cases. Therefore, it is preferable to give more weight to the most likely time estimate.

We give a weight of 4 to most likely time estimate and a weight of 1 each to the
pessimistic and optimistic time estimates. We arrive at a time estimate ( te ) as the
weighted average of these estimates as follows:
 let’s analyze the activities and their immediate predecessors.

Activities A, B, and C don’t have any immediate predecessors. This means that each
of them will have individual arcs connecting to them. First, we’ll draw nodes 1 (which
is the starting point) and 2. We’ll add the activity on the arc, along with the duration.

We’ll have to also keep in mind that A acts as the immediate predecessor for both
nodes E and F. Similarly, let’s draw the arcs for nodes B and C.
Before we can draw the nodes for activity D, a quick look at the table will tell us that
it is preceded by activity B and that a combination of activities C and D act as
immediate predecessors for activities H and J. This means that both activities C and D
have to connect at some point. That’s why we’ll be drawing an arc from events 3 and
4.

So now, we’ve completed activities A, B, C, and D of the critical path method. Next,
let’s take a look at activity E.

Activity E is preceded by activity A and acts as the immediate predecessor for activity
J. Since this is an independent activity, we’ll be able to draw an arc like this.
If we have a look at activity F, it’s preceded by activity A, and a combination of F, G,
and H act as immediate predecessors for the activities K and L. So let’s wait before
we take it up. Instead, let’s shift our attention to activity G. It’s preceded by B. So,
we’ll draw it like so.

Now, let’s take a look at activity H. It is preceded by both C and D and will act as the
immediate predecessor for K and L, along with F and G. So, we can connect node 4 to
6.
Now that we’ve done that, let’s go back to activity F. Now that we know where
activities G and H connect to, we can combine nodes 2 and 6, fulfilling the conditions
required for activities K and L.

Following this, we have an activity I. The activity I is preceded by activities C and D.

It also acts as an immediate predecessor to activity M. Since it’s an independent
activity, we can draw it like so.

Next, let’s take a look at activity J. Activity J is preceded by activity E. We can also
see that a combination of J and K will act as an immediate predecessor for activity N.
We can then draw an arc like this.
Let’s go on to activity K. Here we can see that K is preceded by F, G, and H. It also
acts as an immediate predecessor to activity N. So, we’ll connect nodes 6 to 8.

Next, let’s continue with activity L. The table now shows that L, M, and N don’t act
as immediate predecessors for any other activity. Hence it can be assumed that it’ll
connect to the final node.

L is preceded by activities by F, G, and H. The arc can be drawn like so.

We’ll now go to activity M. This activity is preceded by activity I. Similarly, we can
connect an arc from node 8 to 9 for activity N.

Now, the network is complete!

Now, to find the critical path. For this, we’ll need to find two values, Earliest Start
Time (Es) and Latest Completion Time (Lc).

The process of determining the Es for all events is called a forward pass.

The process of determining the Lc for all events is called a backward pass.

Let’s get into the forward pass. For this, first, we’ll need to create boxes at all nodes.
These are then divided into two. The lower half of the box represents the earliest start
time of the node, while the upper half represents the latest completion time.
Your network diagram should look something like this.

For this, we’ll be using the formula, Esj = max (Esi + Dij)

Which when simplified, the earliest start time for the second node (head node), is the
maximum of the combination of the earliest start time of the tail node and the duration
between the two nodes.

So, for node 1, the earliest start time is always zero.

For node 2,
it would be, Es2 = 0 (earliest start time for node 1) + 3 (duration between 1 and 2) = 3
For node 3,

it would be, Es3 = 0(Es1) + 4(D1 to 3) = 4

For node 4, we can see that two arcs connect to it. This means that we’ll need to
choose among the largest of the two options available to us.

Es4 = 0(Es0) + 6 = 6 or

Es4 = 4(Es3) + 3 = 7
We’ll choose 7 since it’s larger.

Similarly, we have three options to choose from when it comes to node 6. Since three
arcs connect to it.

Es6 = 3(Es2) + 1(D2-3) = 4

Es6 = 4(Es3) + 4(D3-6) = 8

Es6 = 7(Es4) + 5(D4-6) = 12

Hence we’ll select the last option since it’s the largest among the three.
Now, for node 5. Since it’s directly connected to node 2, we can directly apply the
formula.

Es5 = 3(Es2) + 9(D2-5) = 12

Let’s take node 8.

Es8 = 12(Es5) + 3(D5-8) = 15 or

Es8 = 12 (Es6) + 6(D6-8) = 18

We’ll choose Es8 as 18 since it’s the larger of the two.

Now for node 7. We can directly apply the formula to these nodes.

Es7 = 7(Es4) + 4(D4-7) = 11

Finally, we’ve got node 9.

It has 3 nodes connecting towards it. We’ll have to choose the maximum of the three.
Es9 = 18(Es8) + 9(D8-9) = 27

Es9 = 12(Es6) + 3(D6-9) = 15

Es9 = 11(Es7) + 6(D7-9) = 17

We’ll choose the arc from node 8 since it’s got the highest value.

And like that, the forward pass is complete. Now, for the second part of the critical
path method. Let’s take up the backward pass. For that’ we will be using the
following formula.

Lci = min(Lcj - Dij)

This, when put simply, means the latest completion time of the tail node is equal to
the latest completion time of the head node minus the distance between the two.

Let’s start from the final node, number 9.

The Lc for this node will always be equal to its Es.

So, Lc9 = 27.
Next, let’s have a look at the latest completion time for the 8th node. Since it’s
directly connected only to the 9th node, we can directly apply the formula mentioned
earlier.

Lc8 = 27(Lc9) - 9(D9-8) = 18

Now, let’s have a look at the latest completion time for node 7. Since there’s a direct
connection between nodes 9 and 7.
Lc7 = 27(Lc9) - 6(D9-7) = 21

Let’s move on to node 6. As we can see in the diagram, there are two points extending
to nodes 8 and 9 from node 6. So we have two options to choose from.

Lc6 = 18(Ls8) - 6(D6-8) = 12 or

Lc6 = 27(Ls9) - 3(D6-9) = 24

We’ll choose the Lc of node 6 as 12.

We’ll now go to node 5. Since it’s directly connected to the 8th node, we can directly
apply the equation.

Lc5 = 18(Lc8) - 3(D5-8) = 15

Next up, let’s find the latest completion time for node 4.

Since there are two connections extending from the node, to nodes 6 and 7
respectively, we’ll need to select the minimum between the two.
Lc4 = 21(Lc7) - 4(D4-7) = 17

Lc4 = 12(Lc6) - 5(D4-6) = 7

We’ll choose 7 as the latest completion time for node 4.

Now for node 3.

Since there are two nodes connecting from node 3 to nodes 4 and 6. So, we’ll need to
choose between the 2.

Lc3 = 12(Lc6) - 4(D3-6) = 8 or

Lc3 = 7(Lc4) - 3(D3-4) = 4

We’ll choose 4 as the latest completion time for node 3.

Let’s now go to node 2. Again, since there are two connections made from 2 to node 5
and 6, we’ll need to choose the minimum among the two.

Lc2 = 15(Lc5) - 9(D2-5) = 6

Lc2 = 12(Lc6) - 1(D2-6) = 11

We’ll choose the latest completion time of 2, as 6.

And finally, we have node 1.

Since there are connections to 2, 3, and 4 from 1, we’ll need to choose from the three.

Lc1 = 6(Lc2) - 3(D1-2) = 3

Lc1 = 4(Lc3) - 4(D1-3) = 0

Lc1 = 7(Lc4) - 6(D1-4) = 1

We’ll choose 0 as the latest completion time for the node.

And there we go! The backward pass is complete.

Now, for the final step of the critical path method. To determine the critical path,
there are three major criteria that need to be satisfied.

Esi = Lci

Esj = Lcj

Esj - Esi = Lcj - Lci = Dij

From the diagram, we can see that nodes that satisfy the requirements are: 1, 3, 4, 6, 8,
and 9.

Hence the activities on the critical path are B - D - H - K - N.

Hence the critical path is B + D + H + K + N = 4 + 3 + 5 + 6 + 9 = 27.

And there we go! We’ve found the critical path!

Since we have taken 6 units ( 1 for tp , 4 for tm and 1 for to ), we divide the sum by 6.
With this time estimate, we can determine the project completion time as applicable
for CPM.

Since PERT involves the average of three estimates of time for each activity, this
method is very practical and the results from PERT will be have a reasonable amount
of reliability.

The 3 estimates of time are such that

t o ≤ t m ≤ tp

Therefore the range for the time estimate is t p − to .

The time taken by an activity in a project network follows a distribution with a

standard deviation of one sixth of the range, approximately.
The certainty of the time estimate of an activity can be analysed with the help of the
variance. The greater the variance, the more uncertainty in the time estimate of an
activity.

Find out the time required to complete the following project and the critical activities:
Using the single time estimates of the activities, we get the following network
diagram for the project.