1. 15 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Resource Planning 15

2. 15 – 2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Resource Planning At the heart of any organization Starts with sales and operations plans and plans the input requirements A process relative to the firm’s competitive priorities and an important part of managing supply chains

3. 15 – 3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Enterprise Resource Planning What an ERP system does  Integrating the firm’s functional areas  Used by many different types of organizations How ERP systems are designed  Single comprehensive database  Managers to monitor all of the company’s products at all locations and at all times  Information is automatically updated in the all applications when transactions occur  Streamlines the data flows throughout the organization  Requires a careful analysis of major processes  Significant changes in ERP systems - interoperability

4. 15 – 4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Back-Office ProcessesFront-Office Processes Human Resources Benefits Payroll Data Analysis Product costing Job costs Sales and Marketing Sales orders Pricing system Customer Service Field service Quality Supply-Chain Management Forecasting Purchasing Distribution Accounting and Finance Accounts payable and receivable General ledgers Asset management Manufacturing Material requirements planning Scheduling ERP System Enterprise Resource Planning Figure 15.1 – ERP Application Modules

5. 15 – 5 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. MRP is a computerized information system to manage dependent demand inventory and schedule orders Translates the master production schedule (MPS) into requirements for all subassemblies, components, and raw materials through the MRP explosion Materials Requirements Planning Dependent demand  Quantity required varies with the production plans of other items  Component  Parent

6. 15 – 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Inventory transactions Inventory records Bills of materials Engineering and process designs Other sources of demand Authorized master production Schedule (MPS) Material requirements plan (MRP) MRP explosion MRP Inputs Figure 15.2 – Material Requirements Plan Inputs

7. 15 – 7 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Demand Patterns |||||||||| 1510 Day 2000 – 1500 – 1000 – 500 – 0 Bicycles (a) Parent inventory Reorder point Order 1000 on day 3 Order 1000 on day 8 (b) Component demand 2000 – 1500 – 1000 – 500 – 0 Rims |||||||||| 1510 Day Figure 15.3 – Lumpy Dependent Demand Resulting from Continuous Independent Demand

8. 15 – 8 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. A record of all components of an item Shows the parent-component relationship The usage quantities are derived from engineering and process design Bill of Materials Five common terms  End items  Intermediate items  Subassemblies  Purchased items Part commonality (sometimes called standardization of parts or modularity)

9. 15 – 9 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Seat cushion Seat-frame boards Front legs A Ladder-back chair Back legs Leg supports Back slats Bill of Materials Figure 15.4 –BOM for a Ladder-Back Chair

10. 15 – 10 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. J (4) Seat-frame boards Bill of Materials G (4) Back slats F (2) Back legs I (1) Seat cushion H (1) Seat frame C (1) Seat subassembly D (2) Front legs B (1) Ladder-back subassembly E (4) Leg supports A Ladder-back chair Figure 15.4 –BOM for a Ladder-Back Chair

11. 15 – 11 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Details how many end items will be produced within specified periods of time  It breaks the sales and operations plan into specific product schedules  Create a prospective MPS and test whether it meets the schedule with available resources Master Production Schedule (MPS) Sums of quantities must equal sales and operational plan Production must be allocated efficiently over time Capacity limitations and bottlenecks may be determined

12. 15 – 12 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Master Production Schedule (MPS) AprilMay 12345678 Ladder-back chair Kitchen chair Desk chair Aggregate production plans for chair family Figure 15.5 – MPS for a Family of Chairs 150 120 200 670

13. 15 – 13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. No Material requirements planning Yes Authorized master production schedule Master Production Schedule (MPS) Are resources available? Prospective master production schedule Authorized production plan Figure 15.6 – Master Production Scheduling Process

14. 15 – 14 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Developing a MPS Step 1:Calculate projected on-hand inventories =+– Projected on-hand inventory at end of this week On-hand inventory at end of last week MPS quantity due at start of this week Projected requirements this week where: Projected requirements = max(Forecast, Customer orders booked) = Inventory + 55 chairs currently in stock – MPS quantity (0 for week 1) 38 chairs already promised for delivery in week 1 = 17 chairs

15. 15 – 15 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Item: Ladder-back chair Quantity on Hand: Forecast Customer orders (booked) Projected on-hand inventory MPS quantity MPS start April 12 Developing a MPS 55 30 3827 17–13 00 Explanation: Forecast is less than booked orders in week 1; projected on-hand inventory balance = 55 + 0 – 38 = 17. Explanation: 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. Figure 15.7 –Master Production Schedule for Weeks 1 and 2

16. 15 – 16 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Developing a MPS The goal is to maintain a nonnegative projected on-hand inventory balance As shortages are detected, MPS quantities should be scheduled to cover them Step 2:Determine the timing and size of MPS quantities = Inventory 17 chairs in inventory at the end of week 1 + MPS quantity of 150 chairs – Forecast of 30 chairs = 137 chairs

17. 15 – 17 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 15.1 Determine the MPS for Product A that has a 50-unit policy and 5 units on hand. The demand forecast and booked orders are shown in the partially completed plan given in the Student Notes. The lead time is one week. Here is the completed plan. You might want to ask a question or two on how they would respond to a customer request for a specific week and order quantity.

18. 15 – 18 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 15.1 Item: Product AOrder Policy: 50 units Lead Time: 1 week Quantity on Hand 512345678910 Forecast201040100030204020 Customer orders (booked) 302058020000 Projected on-hand inventory MPS quantity MPS start Available-to- promise (ATP) inventory SOLUTION

19. 15 – 19 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Application 15.1 Item: Product AOrder Policy: 50 units Lead Time: 1 week Quantity on Hand 512345678910 Forecast201040100030204020 Customer orders (booked) 302058020000 Projected on-hand inventory MPS quantity MPS start Available-to- promise (ATP) inventory SOLUTION 255 50 5 5532331343 50 3550 15 50

20. 15 – 20 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Master Production Schedule (MPS) Available-to-promise (ATP) inventory  The quantity of an end item that marketing can promise to deliver on specific dates  It is the difference between customer orders already booked and the quantity that operations is planning to produce Freezing the MPS Reconciling the MPS with sales and operations plans

21. 15 – 21 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Figure 15.8 –Master Production Schedule for Weeks 1–8 Item: Ladder-back chair Order Policy: 150 units Lead Time: 1 week 12345678 April Forecast Customer orders booked Projected on-hand inventory MPS quantity MPS start Quantity on Hand: 30 38 30 27 30 24 30 80 35 0 00 55 May 171371077742712287 01500000 0 0000 00 Master Production Schedule (MPS) Explanation: On-hand inventory balance = 17 + 150 – 30 = 137. The MPS quantity is needed to avoid a shortage of 30 – 17 = 13 chairs in week 2. Explanation: The time needed to assemble 150 chairs is 1 week. The assembly department must start assembling chairs in week 1 to have them ready by week 2.

22. 15 – 22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Figure 15.9 – MPS Record with an ATP Row Item: Ladder-back chair Order Policy: 150 units Lead Time: 1 week 12345678 April Forecast Customer orders booked Projected on-hand inventory MPS quantity MPS start Quantity on Hand: 30 38 30 27 30 24 30 80 35 0 00 55 May 171371077742712287 01500000 0 0000 00 Available-to- promise (ATP) inventory 1791150 Master Production Schedule (MPS) Explanation: The total of customer orders booked until the next MPS receipt is 38 units. The ATP = 55 (on-hand) + 0 (MPS quantity) – 38 = 17. Explanation: 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..

23. 15 – 23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. MRP: Inventory Record Inventory transactions are the basic building blocks of up-to-date records Transactions include releasing new orders, receiving scheduled receipts, adjusting due dates for scheduled receipts, withdrawing inventory, canceling orders, correcting inventory errors, rejecting shipments, and verifying losses and stock returns Inventory records divide the future into time periods called time buckets Keep track of inventory levels and component replenishment needs

24. 15 – 24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Inventory Record The time-phase information contained in the inventory record consists of:  Gross requirements  Scheduled receipts  Projected on-hand inventory  Planned receipts  Planned order releases =+– Projected on-hand inventory balance at end of week t Inventory on hand at end of week t –1 Scheduled or planned receipts in week t Gross requirements in week t

25. 15 – 25 123456 Gross requirements (given) 302232 Scheduled receipts (given) 25 Projected balance (20) Planned order releases Example 1: L4L Planned receipt not in the projected balance: Lead time = 1, initial inventory I 0 = 20

26. 15 – 26 123456 Gross requirements (given) 302232 Scheduled receipts (given) 25 Projected balance (20) Planned order releases Example 2. L4L Planned receipt in the projected balance: Lead time = 1, initial inventory I 0 = 20

27. 15 – 27 123456 Gross requirements (given) 302232 Scheduled receipts (given) 25 Projected balance (20) Planned order releases Example 3. FOQ Fixed order quantity = 25 and planned receipt in projected balance: Lead time = 1, initial inventory I 0 = 20

28. 15 – 28 012345 Gross requirements (given) 801209010090 Scheduled receipts Projected balance (given)1901101203060100 Planned order releases Example 4. FOQ Fixed order quantity and planned receipt in projected balance: Lead time =2, initial inventory I 0 = 190

29. 15 – 29 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Planning lead time For purchased items planning lead time is the time allowed for receiving a shipment from the supplier Planning Factors For manufactured the planning lead time consists of estimates for  Setup time  Processing time  Materials handling time between operations  Waiting time

30. 15 – 30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Fixed order quantity (FQO) rule maintains the same order quantity each time an order is issued. Could be determined by quantity discounts, truckload capacity, minimum purchases, or EOQ Periodic order quantity (POQ) rule allows a different order quantity for each order issue but tends to issue the order at predetermined time intervals Lot-for-lot (L4L) rule where the lot size covers the gross requirements of a single week Lot-sizing rules = – POQ lot size to arrive in week t Total gross requirements for P week, including week t Projected on-hand inventory balance at end of week t –1 = – L4L lot size to arrive in week t Gross requirements for week t Projected on-hand inventory balance at end of week t –1

31. 15 – 31 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Lot sizes affect inventory costs and setup and ordering costs  The FOQ rule generates a high level of average inventory because it creates inventory remnants  The POQ rule reduces the amount of average on-hand inventory because it does a better job of matching order quantity to requirements  The L4L rule minimizes inventory investment, but it also maximizes the number of orders placed Planning Factors

32. 15 – 32 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Planning Factors Safety stock for dependent demand items with lumpy demand (gross requirements) is helpful only when future gross requirements, the timing or size of scheduled receipts, and the amount of scrap that will be produced are certain Safety stock is used for end items and purchased items to protect against fluctuating customer orders and unreliable suppliers

33. 15 – 33 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Manufacturing resources plan Performance reports Outputs from MRP 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 Cost and price data MRP explosion Routings and time standards Figure 15.15 –MRP Outputs

34. 15 – 34 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. MRP Explosion Translates 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 An item’s gross requirements are derived from three sources  The MPS for immediate parents that are end items  The planned order releases for parents below the MPS level  Any other requirements not originating in the MPS, such as the demand for replacement parts

35. 15 – 35 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. MRP Explosion J(4) Seat-frame boards C(1) Seat subassembly H(1) Seat frame I(1) Seat cushion Figure 15.16 –BOM for the Seat Subassembly

36. 15 – 36 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements 150 1 230 117 23 120 45 150 6 120 78 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 117 0000 000 0000 227 77187 230 MRP Explosion Figure 15.17 –MRP Explosion of Seat Assembly Components

37. 15 – 37 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements 150 123 120 45 150 6 120 78 Planned receipts Planned order releases Week 0000 230 MRP Explosion Figure 15.17 –MRP Explosion of Seat Assembly Components

38. 15 – 38 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements 1 0 2345678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week 000 300000 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements 1 0 2345678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week 000 0000 MRP Explosion Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements 150 123 120 45 150 6 120 78 Planned receipts Planned order releases Week 0000 230 Figure 15.17 –MRP Explosion of Seat Assembly Components

39. 15 – 39 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements 1 0 2345678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week 000 300000 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements 1 0 2345678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week 000 0000 MRP Explosion Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements 150 123 120 45 150 6 120 78 Planned receipts Planned order releases Week 0000 230 Usage quantity: 1 0 230 0 Figure 15.17 –MRP Explosion of Seat Assembly Components

40. 15 – 40 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements 1 0 2345678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week 000 300000 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements 1 0 2345678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week 000 0000 MRP Explosion Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements 150 123 120 45 150 6 120 78 Planned receipts Planned order releases Week 0000 230 Usage quantity: 1 0 230 0 0 0 0 0 Figure 15.17 –MRP Explosion of Seat Assembly Components

41. 15 – 41 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. MRP Explosion Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements 150 123 120 45 150 6 120 78 Planned receipts Planned order releases Week 0000 230 Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements 1 0 2345678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week 000 300000 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements 1 0 2345678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week 000 0000 0 230 0 0 0 0 0 00 0 40110110 110180 300 00 0 000 00000 230 Figure 15.17 –MRP Explosion of Seat Assembly Components

42. 15 – 42 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. MRP Explosion Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements 12345678 Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements 12345678 Planned receipts Planned order releases Week 230 0000 00 0000 00 Gross requirements 1 0 2345678 Scheduled receipts Planned receipts Planned order releases 200 Week 000 0000 Projected on-hand inventory Item: Seat-frame boards Lot size: 1500 units Lead time: 1 week Figure 15.17 –MRP Explosion of Seat Assembly Components

43. 15 – 43 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Gross requirements 1 0 2345678 Scheduled receipts Planned receipts Planned order releases 200 Week 000 0000 Projected on-hand inventory Item: Seat-frame boards Lot size: 1500 units Lead time: 1 week 0120000 0000 MRP Explosion Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements 12345678 Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements 12345678 Planned receipts Planned order releases Week 230 0000 00 0000 00 Usage quantity: 4 Figure 15.17 –MRP Explosion of Seat Assembly Components

44. 15 – 44 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. MRP Explosion Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements 12345678 Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements 12345678 Planned receipts Planned order releases Week 230 0000 00 0000 00 Gross requirements 1 0 2345678 Scheduled receipts Planned receipts Planned order releases 200 Week 000 0000 Projected on-hand inventory Item: Seat-frame boards Lot size: 1500 units Lead time: 1 week 0120000 0000 200 500 1500 Figure 15.17 –MRP Explosion of Seat Assembly Components

45. 15 – 45 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Other Important Reports Action notice Capacity requirements planning (CRP) Theory of constraints principles can be applied to keep bottleneck operations fed by adjusting some lot sizing rules or occasionally overriding planned order releases Priority reports Manufacturing resource planning (MRP II)

46. 15 – 46 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. MRP and the Environment Consumer and government concern about the deterioration of the natural environment has driven manufacturers to reengineer their processes to become more environmentally friendly Companies can modify their MRP systems to help track these waste and plans for their disposal

47. 15 – 47 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Resource Planning for Service Providers Dependent demand for services  Restaurants  Airlines  Hospitals  Hotels Bill of resources (BOR)

48. 15 – 48 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. (a) Level 1 Discharge Level 2 Intermediate care Level 3 Postoperative care (Step down) Level 4 Postoperative care (Intensive) Level 7 Preoperative care (Testing) Level 5 Surgery Level 6 Preoperative care (Angiogram) (b) Bill of Resources Figure 15.18 –BOR for Treating an Aneurysm Nurse (6 hr) MD (1 hr) Therapy (1 hr) Bed (24 hr) Lab (3 tests) Kitchen (1 meal) Pharmacy (10 medicines) Level 6 Preoperative care (Angiogram)