Available online at www.ijiems.com International Journal of Industrial Engineering and Management Science An Integrated Planning Mechanism for Supply Chain Management with Routing Subproblem Ryo SATO, Yoshiki MATSUI, Maki FURUKADO Faculty of Business Administration Yokohama National University, Tokiwadai, Hodogaya-ku, 240-8501, JAPAN Abstract By applying the concept of distribution BOM (D-BOM, for short) , we show that whole supply chain planning with MRP can be implemented in a commercially available enterprise resource planning package, SAP R/3. We will investigate the applicability of D-BOM to R/3 by actually implementing D-BOM and related routings with work centers to model supply chain process. It will be turned out that D-BOM with routings is a suitable basis for integrated planning mechanism of supply chain as a whole, and that what function is necessary to enhance MRP to supply chain planning. Keywords Supply chain planning, MRP, ERP 1. Introduction A supply chain has a whole logistics process that consists of many firms. Firms in supply chain of our time have respective information systems. Thus, the implementation of coordination mechanism for SCM needs to consider such information systems. In the history of production logistics, so-called traditional methods of inventory control have been developed. They are reorder point, base stock, economic order quantity (EOQ) and other methods[1, 2, 3]. They are effective in the economic environment that demand is stationary and random around its mean value. As computers came out into business, material requirements planning (MRP) had been invented. The reason to use MRP is that required numbers of parts of a finished product are dependent on the finished product. In other words, they are not independent, while they are considered as independent in traditional inventory methods. Adoption of MRP has something to do with the industrialization of the society in the sense that finished product such as washing machines have complex structure and then they and their part are relatively expensive, so that redundant inventories cannot be acceptable. As is well-known (e.g., [1, 2, 4]), in order to use MRP of a typical manufacturing planning software, we need BOMs (bills of material) of products, routings of operations with work centers, inventory, and planned receipt. The MRP had been developed into ERP (enterprise resource planning software), or MRP II. The development of SCM research had not been synchronous to that of inventory management and MRP in production logistics. Under the condition of relatively stable demand with randomness, control policies of inventory management for the whole supply chain were investigated by many researchers. For instance, Simchi-Levi et al.[5] presented the bullwhip effect in a supply chain and Hopp and Spearman[3] showed optimal order quantities of multiple products in two-stage supply chain. The planning information systems for SCM are not well investigated yet, though the practical importance has been identified by academic and business people. This gap, in part, comes from the fact that the firms in a supply chain are economically independent. They usually make independent decisions on their purchase order. So, the whole supply chain cannot be forced to use a single supply plan. But this situation can bring much unnecessary inventories of items in a supply chain. Therefore, we need to investigate what and how we can achieve the balance between satisfactory service level and less inventory in a supply chain, by introducing information systems. A planning information system is especially promising, because the experience of MRP and ERP in inventory control of production logistics has been cultivated. Optimization of inventory level and order quantity in supply chain usually contains combinatorial complexity, because both values are not continuous but discrete. An advanced planning and optimization (APO, for short) can be used for that complexity by using genetic algorithm. Wood[6] considers optimization of the distribution process of a firm, not of a supply chain, with APO of SAP. Kawai and Sato [7] investigated more complicated phenomena of supply chain planning. They showed that if the whole supply process of an simple chain (consisting of a supplier and a manufacturer) is not fine-tuned in capacity and inventory level, then using MRP-based planning systems in both firms does not allow us to see stable behavior in purchase and production orders and inventories of both firms.