Chapter 15 Resource Planning

Lecture Outline Material Requirements Planning (MRP) Capacity Requirements Planning (CRP) Enterprise Resource Planning (ERP) Customer Relationship Management (CRM) Supply Chain Management (SCM) Product Lifecycle Management (PLM) Copyright 2011 John Wiley & Sons, Inc.15-2

Resource Planning for Manufacturing Copyright 2011 John Wiley & Sons, Inc.15-3

Material Requirements Planning (MRP) Computerized inventory control and production planning system When to use MRP? Dependent demand items Discrete demand items Complex products Job shop production Assemble-to-order environments Copyright 2011 John Wiley & Sons, Inc.15-4

Demand Characteristics Copyright 2011 John Wiley & Sons, Inc Week 400 – 300 – 200 – 100 – No. of tables Continuous demand M T W Th F 400 – 300 – 200 – 100 – No. of tables Discrete demand Independent demand 100 tables Dependent demand 100 x 1 = 100 tabletops 100 x 4 = 400 table legs

Material Requirements Planning Copyright 2011 John Wiley & Sons, Inc.15-6 Material requirements planning Planned order releases Work orders Purchase orders Rescheduling notices Item master file Product structure file Master production schedule

MRP Inputs and Outputs Inputs –Master production schedule –Product structure file –Item master file Outputs –Planned order releases Work orders Purchase orders Rescheduling notices Copyright 2011 John Wiley & Sons, Inc.15-7

Master Production Schedule Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders and demand forecasts Quantities represent what needs to be produced, not what can be produced Quantities represent end items that may or may not be finished products Copyright 2011 John Wiley & Sons, Inc.15-8

Copyright 2011 John Wiley & Sons, Inc.15-9 Master Production Schedule PERIOD MPS ITEM12345 Pencil Case Clipboard Lapboard Lapdesk

Product Structure File Copyright 2011 John Wiley & Sons, Inc.15-10

Product Structure Copyright 2011 John Wiley & Sons, Inc. Top clip (1)Bottom clip (1) Pivot (1)Spring (1) Rivets (2) Finished clipboardPressboard (1) Clipboard

Product Structure Tree Copyright 2011 John Wiley & Sons, Inc Clipboard Level 0 Level 1 Level 2 Spring (1) Bottom Clip (1) Top Clip (1) Pivot (1) Rivets (2) Clip Ass’y (1) Pressboard (1)

Multilevel Indented BOM Copyright 2011 John Wiley & Sons, Inc Clipboardea Clip Assemblyea Top Clipea Bottom Clipea Pivotea Springea Rivetea Press Boardea1 LEVELITEMUNIT OF MEASUREQUANTITY

Specialized BOMs Phantom bills Transient subassemblies Never stocked Immediately consumed in next stage K-bills Group small, loose parts under pseudo-item number Reduces paperwork, processing time, and file space Copyright 2011 John Wiley & Sons, Inc.15-14

Specialized BOMs Modular bills Product assembled from major subassemblies and customer options Modular bill kept for each major subassembly Simplifies forecasting and planning X10 automobile example 3 x 8 x 3 x 8 x 4 = 2,304 configurations = 26 modular bills Copyright 2011 John Wiley & Sons, Inc.15-15

Modular BOMs Copyright 2011 John Wiley & Sons, Inc Cylinder (.40)Bright red (.10)Leather (.20)Grey (.10)Sports coupe (.20) 6-Cylinder (.50)White linen (.10)Tweed (.40)Light blue (.10)Two-door (.20) 8-Cylinder (.10)Sulphur yellow (.10)Plush (.40)Rose (.10)Four-door (.30) Neon orange (.10)Off-white (.20)Station wagon (.30) Metallic blue (.10)Cool green (.10) Emerald green (.10)Black (.20) Jet black (.20)Brown (.10) Champagne (.20)B/W checked (.10) X10 Automobile EnginesExterior colorInteriorInterior colorBody (1 of 3)(1 of 8)(1 of 3)(1 of 8)(1 of 4)

Time-phased Bills An assembly chart shown against a time scale Copyright 2011 John Wiley & Sons, Inc.15-17

Time-phased Bills Forward scheduling start at today‘s date and schedule forward to determine the earliest date the job can be finished. If each item takes one period to complete, the clipboards can be finished in three periods Backward scheduling start at the due date and schedule backwards to determine when to begin work. If an order for clipboards is due by period three, we should start production now Copyright 2011 John Wiley & Sons, Inc.15-18

Item Master File Copyright 2011 John Wiley & Sons, Inc DESCRIPTIONINVENTORY POLICY ItemPressboardLead time1 Item no.7341Annual demand5000 Item typePurchHolding cost1 Product/sales classCompOrdering/setup cost50 Value classBSafety stock 0 Buyer/plannerRSRReorder point39 Vendor/drawing07142EOQ316 Phantom codeNMinimum order qty100 Unit price/cost1.25Maximum order qty500 PeggingYMultiple order qty1 LLC1Policy code3

Copyright 2011 John Wiley & Sons, Inc Item Master File On hand150YTD usage/sales1100 LocationW142MTD usage/sales75 On order100YTD receipts1200 Allocated75MTD receipts0 Cycle3Last receipt8/25 Last count9/5Last issue10/5 Difference-2 Cost acct Routing00326 Engr07142 PHYSICAL INVENTORYUSAGE/SALES CODES

MRP Processes Exploding the bill of material Netting out the inventory Netting the process of subtracting on-hand quantities and scheduled receipts from gross requirements to produce net requirements Lot sizing determining the quantities in which items are usually made or purchased Time-phasing requirements Copyright 2011 John Wiley & Sons, Inc.15-21

Copyright 2011 John Wiley & Sons, Inc MRP Matrix

MRP Copyright 2011 John Wiley & Sons, Inc Master Production Schedule Clipboard Lapdesk Item Master File CLIPBOARDLAPDESKPRESSBOARD On hand On order175 (Period 1)00 (sch receipt) LLC001 Lot sizeL4LMult 50Min 100 Lead time111

MRP Copyright 2011 John Wiley & Sons, Inc Product Structure Record Clipboard Lapdesk Pressboard (2) Trim (3’) Beanbag (1) Glue (4 oz) Level 0 Pressboard (1) Clip Ass’y (1) Rivets (2) Level 1

Copyright 2011 John Wiley & Sons, Inc ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand25 Net Requirements Planned Order Receipts Planned Order Releases MRP - 1

Copyright 2011 John Wiley & Sons, Inc MRP - 2 ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand25115 Net Requirements0 Planned Order Receipts Planned Order Releases ( ) = 200 units available ( ) = 115 on hand at the end of Period 1

Copyright 2011 John Wiley & Sons, Inc ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand Net Requirements00 Planned Order Receipts Planned Order Releases 115 units available ( ) = 20 on hand at the end of Period 2 MRP - 3

Copyright 2011 John Wiley & Sons, Inc ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand Net Requirements00100 Planned Order Receipts100 Planned Order Releases units available ( ) = -100 — 100 additional Clipboards are required Order must be placed in Period 2 to be received in Period 3 MRP - 4

Copyright 2011 John Wiley & Sons, Inc ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases MRP - 5

Copyright 2011 John Wiley & Sons, Inc ITEM: LAPDESKLLC: 0PERIOD LOT SIZE: MULT 50LT: Gross Requirements Scheduled Receipts Projected on Hand20 Net Requirements Planned Order Receipts Planned Order Releases MRP - 6

Copyright 2011 John Wiley & Sons, Inc ITEM: LAPDESKLLC: 0PERIOD LOT SIZE: MULT 50LT: Gross Requirements Scheduled Receipts Projected on Hand Net Requirements04050 Planned Order Receipts5050 Planned Order Releases5050 Following the same logic, the Lapdesk MRP matrix is completed as shown MRP - 7

Copyright 2011 John Wiley & Sons, Inc ITEM: PRESSBOARDLLC: 0PERIOD LOT SIZE: MIN 100LT: Gross Requirements Scheduled Receipts Projected on Hand150 Net Requirements Planned Order Receipts Planned Order Releases ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: Planned Order Releases ITEM: LAPDESKLLC: 0PERIOD LOT SIZE: MULT 50LT: Planned Order Releases5050 MRP - 8

Copyright 2011 John Wiley & Sons, Inc ITEM: PRESSBOARDLLC: 0PERIOD LOT SIZE: MIN 100LT: Gross Requirements Scheduled Receipts Projected on Hand150 Net Requirements Planned Order Receipts Planned Order Releases ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: Planned Order Releases ITEM: LAPDESKLLC: 0PERIOD LOT SIZE: MULT 50LT: Planned Order Releases5050 MRP – 9 x1 x2

Copyright 2011 John Wiley & Sons, Inc ITEM: PRESSBOARDLLC: 0PERIOD LOT SIZE: MIN 100LT: Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: Planned Order Releases ITEM: LAPDESKLLC: 0PERIOD LOT SIZE: MULT 50LT: Planned Order Releases5050 MRP – 10 x1 x2

Copyright 2011 John Wiley & Sons, Inc MRP - 11 PERIOD ITEM12345 Clipboard Lapdesk5050 Pressboard Planned Order Report

Lot Sizing in MRP Systems Lot-for-lot ordering policy Fixed-size lot ordering policy Minimum order quantities Maximum order quantities Multiple order quantities Economic order quantity Periodic order quantity Copyright 2011 John Wiley & Sons, Inc.15-36

Advanced Lot Sizing Rules: L4L Copyright 2011 John Wiley & Sons, Inc Total cost of L4L = (4 X $60) + (0 X $1) = $240

Advanced Lot Sizing Rules: EOQ Copyright 2011 John Wiley & Sons, Inc minimum order quantity Total cost of EOQ = (2 X $60) + [( ) X $1)] = $220

Advanced Lot Sizing Rules: POQ Copyright 2011 John Wiley & Sons, Inc periods worth of requirements Total cost of POQ = (2 X $60) + [( ) X $1] = $180

Planned Order Report Copyright 2011 John Wiley & Sons, Inc Item#2740Date On hand100Lead time2 weeks On order200Lot size200 Allocated50Safety stock50 SCHEDULEDPROJECTED DATEORDER NO.GROSS REQS.RECEIPTSON HANDACTION AL AL GR SR Expedite SR CO GR GR GR Release PO Key:AL= allocatedWO= work order CO= customer orderSR= scheduled receipt PO= purchase orderGR= gross requirement

MRP Action Report Copyright 2011 John Wiley & Sons, Inc ITEMDATEORDER NO.QTY.ACTION # ExpediteSR10-01 # Move forwardPO10-07 # Move forwardPO10-05 # Move backwardPO10-25 # De-expediteSR10-30 # ReleasePO10-13 # ReleaseWO10-24 Current date

Capacity Requirements Planning (CRP) Creates a load profile Identifies under-loads and over-loads Inputs Planned order releases Routing file Open orders file Copyright 2011 John Wiley & Sons, Inc.15-42

CRP Copyright 2011 John Wiley & Sons, Inc MRP planned order releases Routing file Capacity requirements planning Open orders file Load profile for each process

Calculating Capacity Maximum capability to produce Rated Capacity Theoretical output that could be attained if a process were operating at full speed without interruption, exceptions, or downtime Effective Capacity Takes into account the efficiency with which a particular product or customer can be processed and the utilization of the scheduled hours or work Copyright 2011 John Wiley & Sons, Inc Effective Daily Capacity = (no. of machines or workers) x (hours per shift) x (no. of shifts) x (utilization) x ( efficiency)

Calculating Capacity Utilization Percent of available time spent working Efficiency How well a machine or worker performs compared to a standard output level Load Standard hours of work assigned to a facility Load Percent Ratio of load to capacity Copyright 2011 John Wiley & Sons, Inc Load Percent = x 100% load capacity

Graphical comparison of load versus capacity Leveling underloaded conditions: Acquire more work Pull work ahead that is scheduled for later time periods Reduce normal capacity Load leveling Process of balancing underloads and overloads Copyright 2011 John Wiley & Sons, Inc Load Profiles

Reducing Over-load Conditions Eliminate unnecessary requirements Reroute jobs to alternative machines, workers, or work centers Split lots between two or more machines Increase normal capacity Subcontract Increase efficiency of the operation Push work back to later time periods Revise master schedule Copyright 2011 John Wiley & Sons, Inc.15-47

Copy Courier Two high-speed copiers that can be operated by one operator. 2 shifts per day 8 hours/shift, 5 days/week. No breaks during the day 30 minutes for lunch or dinner Machine service time = 30 minutes at the beginning of each shift Machine efficiency = 90%. Capacity 2 copiers * 2 shifts * 8 hrs/day * 7/8 utilization *.90 efficiency = 1512 minutes/day Copyright 2011 John Wiley & Sons, Inc.15-48

Copy Courier Job No. of Setup Time Run Time Copies(min)(min/unit) Copyright 2011 John Wiley & Sons, Inc.15-49

Load Calculations Job Setup + Run x No. CopiesJob Time (500 X 0.08) = (1000 X 0.10) = (5000 X 0.12) = (4500 X 0.14) = (2000 X 0.10) = , min Copyright 2011 John Wiley & Sons, Inc.15-50

Loading Capacity 2 copiers * 2 shifts * 8 hrs/day * 7/8 utilization *.90 efficiency = 1512 minutes/day Load percent = /1512 = X 100% = 106.8% Overloaded by 6.8%. Extends working day by approximately 36 minutes Load percent = 99%. Increase efficiency to 97%. Copyright 2011 John Wiley & Sons, Inc.15-51

Copyright 2011 John Wiley & Sons, Inc Initial Load Profile Hours of capacity Time (weeks) Normal capacity 120 – 110 – 100 – 90 – 80 – 70 – 60 – 50 – 40 – 30 – 20 – 10 – 0 –

Copyright 2011 John Wiley & Sons, Inc Adjusted Load Profile Hours of capacity Time (weeks) Normal capacity 120 – 110 – 100 – 90 – 80 – 70 – 60 – 50 – 40 – 30 – 20 – 10 – 0 – Pull ahead Push back Overtime Work an extra shift

Relaxing MRP Assumptions Material is not always the most constraining resource Lead times can vary Not every transaction needs to be recorded Shop floor may require a more sophisticated scheduling system Scheduling in advance may not be appropriate for on-demand production. Copyright 2011 John Wiley & Sons, Inc.15-54

Enterprise Resource Planning (ERP) Software that organizes and manages a company’s business processes by sharing information across functional areas integrating business processes facilitating customer interaction providing benefit to global companies Copyright 2011 John Wiley & Sons, Inc.15-55

Organizational Data Flows Copyright 2011 John Wiley & Sons, Inc.15-56

Copyright 2011 John Wiley & Sons, Inc. ERP’s Central Database 15-57Copyright 2011 John Wiley & Sons, Inc.

Selected Enterprise Software Vendors Copyright 2011 John Wiley & Sons, Inc.15-58

ERP Implementation Analyze business processes Choose modules to implement Which processes have the biggest impact on customer relations? Which process would benefit the most from integration? Which processes should be standardized? Align level of sophistication Finalize delivery and access Link with external partners Copyright 2011 John Wiley & Sons, Inc.15-59

Customer Relationship Management (CRM) Software that Plans and executes business processes Involves customer interaction Changes focus from managing products to managing customers Analyzes point-of-sale data for patterns used to predict future behavior Copyright 2011 John Wiley & Sons, Inc.15-60

Supply Chain Management Software that plans and executes business processes related to supply chains Includes Supply chain planning Supply chain execution Supplier relationship management Distinctions between ERP and SCM are becoming increasingly blurred Copyright 2011 John Wiley & Sons, Inc.15-61

Product Lifecycle Management (PLM) Software that Incorporates new product design and development and product life cycle management Integrates customers and suppliers in the design process though the entire product life cycle Copyright 2011 John Wiley & Sons, Inc.15-62

ERP and Software Systems Copyright 2011 John Wiley & Sons, Inc.15-63

Connectivity Application programming interfaces (APIs) give other programs well-defined ways of speaking to them Enterprise Application Integration (EAI) solutions EDI is being replaced by XML, business language of Internet Service-oriented architecture (SOA) collection of “services” that communicate with each other within software or between software Copyright 2011 John Wiley & Sons, Inc.15-64

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