Aggregate Planning and Resource Planning Chapters 13 and 14

Why is Aggregate Planning Important? Operations and supply chain management To ensure that Operations is prepared to meet customer needs Should make-buy decisions be changed? Contracts for raw materials and parts Labor requirements Inventory levels

Why is Aggregate Planning Important? (2) Marketing To ensure that the company's capacity will be used in the most profitable way, considering market constraints If there is not enough capacity, which products or customers will have priority? If there is more capacity than needed, how can the firm sell more?

Why is Aggregate Planning Important?(3) Accounting and Finance To have an accurate budget for operations To ensure adequate cash flow for operations Year-end inventory levels affect earnings forecasts Human resources management If more workers will be needed, plan for hiring and training If fewer workers are needed, plan for layoffs

Aggregate Operations Planning for Services Input: demand forecast by product line by month by facility Output: Labor requirements by month by facility

Aggregate Plan in Manufacturing Input: sales forecast by product line by month for 6-18 months Information in the plan, by product line by month Supply: production and outsourcing (buying from another firm) by product line by month Labor force by product line by month Ending inventory level by month

3 Levels of Planning for Manufacturing

Master Production Schedule (MPS) and Rough Cut Capacity Plan Master Production Schedule (MPS): shows planned production by item, by day or week, for 2 – 6 months Is revised as sales forecast changes Rough Cut Capacity Plan: a calculation to ensure that there is enough capacity to make the items in the Master Production Schedule

Aggregate Production Plan and Master Production Schedule (MPS)

Master Production Schedule

Objective of Material Requirement Planning To ensure that customer demand will be met in a cost-effective way

Ch © 1998 by Prentice-Hall Inc Russell/Taylor Oper Mgt 2/e Material Requirement Planning (MRP) Computerized inventory control & production planning system for dependent demand Schedules component items and subassemblies when they are needed - no earlier and no later Specifies planned orders for internal production and external purchase

Ch © 1998 by Prentice-Hall Inc Russell/Taylor Oper Mgt 2/e MRP Terminology Lot size: amount of an item to order. Lead time (LT): elapsed time from order placement to order receipt. LT is assumed to be fixed and known. Planning periods may be days, weeks or months. Must be consistent. Current period = period 1.

MRP Terminology (2) Planned order receipt: order quantity which must be received on a specific date. May be a work order or a purchase order. Planned order release: order quantity which will be released on a specific date. Available to promise: amount of inventory and planned production which is available to fill new customer orders.

MRP Process MRP requires data accuracy in all files. (Planned order report)

Databases Used in MRP Calculation Bill of material file: list of parts, raw materials, and subassemblies for each finished good Quantity required for each item Order of assembly (how product is put together) Inventory records file: amount of each finished good, part, raw material, and subassembly in inventory, plus amounts already ordered and expected dates of receipt