Resource Planning

Resource Planning Chapter 15

How Resource Planning fits the Operations Management Philosophy Operations As a Competitive Weapon Operations Strategy Project Management Process Strategy Process Analysis Process Performance and Quality Constraint Management Process Layout Lean Systems Supply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling

Resource Planning and ERP • Resource planning: A process that takes sales and operations plans; processes information in the way of time standards, routings, and other information on how the firm produces its services or products; and then plans the input requirements. • Enterprise process: A companywide process that cuts across functional areas, business units, geographical regions, and product lines. • Enterprise resource planning (ERP) systems: Large, integrated information systems that support many enterprise processes and data storage needs.

ERP Design • ERP revolves around a single comprehensive database that can be made available across the entire organization (or enterprise). • The database collects data and feeds them into the various modular applications (or suites). • As new information is entered as a transaction in one application, related information is automatically updated in the other applications. • The ERP system streamlines the data flows throughout the organization and provides employees with direct access to a wealth of real-time operating information. • ERP eliminates many of the cross-functional coordination problems older nonintegrated systems suffered from.

• Products with many levels of components, and more customization • Lumpy demand, often with larger batch sizes • Make-to-order, assemble-to-order, and make-to-stock strategies • Lower and intermediate volumes, with flexible flows • Capacity is leveraged to control bottlenecks and entire system flow • Simpler product structures and more standardized products • Assemble-to-order or make-to-stock strategy • Relatively higher volumes, with flexible flows transitioning to line flows • Using system as catalyst for continuous improvement • Small lot sizes, consistent quality, reliable suppliers, and flexible workforce • Assemble-to-order or make-to-stock strategy • High volumes and well-balanced line flows Possible Planningand Control Systems The most prominent systems now in use are the material requirements planning (MRP) system, the Drum-Buffer-Rope (DBR) system, and lean systems.

Dependent Demand • Dependent demand: The demand for an item that occurs because the quantity required varies with the production plans for other items held in the firm’s inventory. • Parent: Any product that is manufactured from one or more components. • Component: An item that goes through one or more operations to be transformed into or become part of one or more parents.

Authorized master production schedule Other sources of demand Engineering and process designs Inventory transactions Inventory records MRP explosion Bills of materials Material requirements plan MRP Inputs

C (1) Seat subassembly D (2) Front legs E (4) Leg supports B (1) Ladder-back subassembly F (2) Back legs G (4) Back slats H (1) Seat frame I (1) Seat cushion J (4) Seat-frame boards Bill of Materials A Ladder-back chair

April May 1 2 3 4 5 6 7 8 Ladder-back chair 150 150 Kitchen chair 120 120 Desk chair 200 200 200 200 Aggregate production plan 670 670 for chair family Master Production Schedule • Master production schedule (MPS): A part of the material requirements plan that details how many end items will be produced within specified periods of time. MPS for a Family of chairs

Master Production Scheduling Process Operations must first create a prospective MPS to test whether it meets the schedule with the resources.

Forecast is less than booked orders in week 1; projected on-hand inventory balance = 55 + 0 – 38 = 17. Forecast exceeds booked orders in week 2; projected on-hand inventory balance = 17 + 0 – 30 = –13. The shortage signals a need to schedule an MPS quantity for completion in week 2. Developing a Master Production Schedule MPS for Weeks 1 & 2

Available-To-Promise Inventory • Available-to-promise (ATP) inventory: The quantity of end items that marketing can promise to deliver on specified dates. • It is the difference between the customer orders already booked and the quantity that operations is planning to produce. • As new customer orders are accepted, the ATP inventory is reduced to reflect the commitment of the firm to ship those quantities • Actual inventory stays unchanged until the order is removed from inventory and shipped to the customer.

MPS Worksheet

Item: Ladder-back chair Order Policy: 150 units Lead Time: 1 week May April Quantityon Hand: 55 1 2 3 4 5 6 7 8 Forecast 30 30 30 30 35 35 35 35 Customerorders booked 38 27 24 8 0 0 0 0 Projected on-hand inventory 17 137 107 77 42 7 122 87 0 150 0 0 0 0 150 0 MPS quantity 150 0 0 150 0 0 0 0 MPS start Available-to-promise (ATP)inventory 91 17 150 The total of customer orders booked until the next MPS receipt is 27 + 24 + 8 = 59 units. The ATP = 150 (MPS quantity) – 59 = 91 units. The total of customer orders booked until the next MPS receipt is 38 units. The ATP = 55 (on-hand) + 0 (MPS quantity) – 38 = 17. © 2007 Pearson Education MPS SchedulewithATP

MPS for Product AApplication 15.1

Inventory Record • Inventory record: A record that shows an item’s lot-size policy, lead time, and various time-phased data. • Gross requirements: The total demand derived from all parent production plans. • Scheduled Receipts (open orders) are orders that have been placed but not yet completed. • Projected on-hand inventory: An estimate of the amount of inventory available each week after gross requirements have been satisfied. • Planned receipts: Orders that are not yet released to the shop or supplier. • Planned order release: An indication of when an order for a specified quantity of an item is to be issued.

Inventory Record Shows an item’s lot-size policy, lead time, and various time-phased data. Lot Size: 230 units Lead Time: 2 weeks Item: C Description: Ladder-back Chair Seat subassembly Week 1 2 3 4 5 6 7 8 Gross requirements 150 0 0 120 0 150 120 0 Scheduled receipts 230 0 0 0 0 0 0 0 Projected on-hand inventory 37 187 187 117 117 117 77 227 227 Planned receipts 230 230 Planned order releases 230 230 Projected on-hand inventory: An estimate of the amount of inventory available each week after gross requirements have been satisfied. Gross requirements: The total demand derived from all parent production plans. Scheduled Receipts (open orders) are orders that have been placed but not yet completed. Planned order release: An indication of when an order for a specified quantity of an item is to be issued. Planned receipts: Orders that are not yet released to the shop or the supplier. © 2007 Pearson Education

Lot Size: 230 units Lead Time: 2 weeks Item: C Description: Ladder-back Chair Seat subassembly Week 1 2 3 4 5 6 7 8 Gross requirements 150 0 0 120 0 150 120 0 Scheduled receipts 230 0 0 0 0 0 0 0 Projected on-hand inventory 37 187 187 117 117 117 77 227 227 Planned receipts 230 230 Planned order releases 230 230 The first planned receipt lasts until week 7, when projected inventory would drop to 77 + 0 + 0 – 120 = –43 units. Adding the second planned receipt brings the balance to 77 + 0 + 230 – 120 = 187 units. The corresponding planned order release is for week 5 (or week 7 minus 2 weeks). Without a planned receipt in week 4, a shortage of 3 units will occur: 117 + 0 + 0 – 120 = –3 units. Adding the planned receipt brings the balance to 117 + 0 + 230 – 120 = 227 units. Offsetting for a 2-week lead time puts the corresponding planned order release back to week 2. © 2007 Pearson Education

Planning Factors • Planning lead time: An estimate of the time between placing an order for an item and receiving the item in inventory. • Setup time • Processing time • Materials handling time between operations • Waiting time • Lot-sizing rules: A rule that determines the timing and size of order quantities.

Comparing Lot-Sizing Rules • FOQ, POQ, andL4L rules affect inventory costs and setup and ordering costs. In the example, each rule took effect in week 4, when the first order was placed. • A comparison of projected on-hand inventory averaged over weeks 4 through 8 of the planning horizon for the ladder-back chair seat subassembly: FOQ: (227+227+77+187+187)/5 = 181 units POQ: (150+150+0+0+0)/5 = 60 units L4L: (0+0+0+0+0)/5 = 0 units • FOQgenerates high inventory because it creates remnants. • POQ reduces on-hand inventory because it does a better job of matching order quantity to requirements. • L4L minimizes inventory investment but maximizes the number of orders placed.

Safety Stock • The usual policy is to use safety stock for end items and purchased items to protect against fluctuating customer orders and unreliable suppliers of components but to avoid using it as much as possible for intermediate items. • Schedule a planned receipt whenever the projected on-hand inventory balance drops below the desired safety stock level. Ladder-back Chair Seat subassembly

MRP explosion Material requirements plan • Action notices • Releasing new orders • Adjusting due dates • Priority reports • Dispatch lists • Supplier schedules • Capacity reports • Capacity requirements planning • Finite capacity scheduling • Input-output control Routings and time standards Manufacturing resources plan Cost and price data Performance reports © 2007 Pearson Education MRP translates, or explodes, the MPS and other sources of demand into the requirements needed for all of the subassemblies, components, and raw materials the firm needs to produce parent items. This process generates the material requirements plan for each component item.

Material Requirements Plan Gross Requirements Requirements 117 units is insufficient to meet gross requirements of 120 for week 4, so a planned order release of 230 must be scheduled. Gross Requirements Gross Requirements © 2007 Pearson Education 117 117 117 227 227 230 230 300

Material Requirements Plan Gross Requirements 227 77 227 230 230 77 units is insufficient to meet gross requirements of 150 for week 6, so a planned order release of 230 must be scheduled. Gross Requirements Gross Requirements © 2007 Pearson Education 117 187 187 117 117 230 230 300

Material Requirements Plan Gross Requirements Gross Requirements Gross Requirements 117 117 117 227 227 77 187 187 230 230 230 230 230 230 300 © 2007 Pearson Education 40 110 110 110 300 300 110 is carried in inventory until week 5 when more is needed. 40 on hand plus 300 in receipts minus demand of 230 = 110 Lot of 300 must be scheduled to start production in week 4 and arrives as planned receipt in week 5. 40 on-hand is carried from previous plan to week one. 230 230

Material Requirements Plan Gross Requirements Gross Requirements Gross Requirements 117 117 117 227 227 77 187 187 230 230 230 230 230 230 300 40 110 110 110 230 230 © 2007 Pearson Education 180 180 180 180 300 300 The 180 in inventory is carried until the next gross requirements. On-Hand for week 5 is 300 + 110 - 230 = 180

Material Requirements Plan Gross Requirements Gross Requirements Gross Requirements 117 117 117 227 227 77 187 187 230 230 230 230 230 230 300 180 180 180 180 40 110 110 110 300 300 230 230 0 0 0 0 0 0 0 © 2007 Pearson Education Planned order releases are sized to gross requirements. Two planned order releases of 230 units are scheduled. Projected on-hand inventory remains at zero. 0 230 230 230 230

Other Important Reports • Action notice: A computer-generated memo alerting planners about releasing new orders and adjusting the due dates of scheduled receipts. • Capacity requirements planning (CRP): A technique used for projecting time-phased capacity requirements for workstations; its purpose is to match the material requirements plan with the capacity of key processes. • Manufacturing resource planning (MRP II): A system that ties the basic MRP system to the company’s financial system and to other core and supporting processes.

Drum-Buffer-Rope System • Drum-Buffer-Rope (DBR): A planning and control system that regulates the flow of work-in-process materials at the bottleneck or the capacity constrained resource (CCR) in a productive system. Drum-Buffer-Rope System with a Capacity Constrained Resource (CCR) Market Demand 650 units/week

Resource Planning for Service Providers • Dependent demand for services • Restaurant • Airlines • Hospitals • Hotels • Bill of Resources: A record of a firm’s parent-component relationships and all of the materials, equipment time, staff, and other resources.

Level 1 Discharge Level 2 Intermediate care Level 3 Postoperative care (Step down) Level 4 Postoperative care (Intensive) Level 5 Surgery Level 6 Preoperative care (Angiogram) Level 6 Preoperative care (Angiogram) Level 7 Preoperative care (Testing) Pharmacy (10 medicines) Nurse (6 hr) MD (1 hr) Therapy (1 hr) Bed (24 hr) Lab (3 tests) Kitchen (1 meal) © 2007 Pearson Education Bill of Resources (BOR) A record of a service firm’s parent– component relationships and all of the materials, equipment time, staff, and other resources associated with them, including usage quantities. BOR for Treating an Aneurysm

Resource Planning