Mitigating forecast errors by lot-sizing rules in ERP-controlled manufacturing systems

Abstract

As enterprise resource planning (ERP) becomes the dominant management software in manufacturing and distribution systems in various industries, some problems associated with its origin, material requirements planning (MRP), still need to be resolved. We examine the effect of forecasting errors, one of the common operational problems in any business operation, in the context of an ERP-controlled manufacturing system. We consider a mitigating remedy, the use of a lot-sizing rule, to cope with the consequences of forecasting inaccuracy without resorting to costly inventory-oriented buffers. An ERP-controlled manufacturing system is simulated to see how these lot-sizing rules mitigate the forecast errors and subsequently generate acceptable system performance. The simulation results should help ease ERP users’ fear of committing another fatal error in demand forecasts, instead encouraging them to consider proper lot-sizing rules to cope with forecast errors.