1. Copyright 2006 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga Resource Planning Operations Management - 5 th Edition Chapter 14 Roberta Russell & Bernard W. Taylor, III

2. Copyright 2006 John Wiley & Sons, Inc.14-2 Lecture Outline   Material Requirements Planning (MRP)   Capacity Requirements Planning (CRP)   Enterprise Resource Planning (ERP)   Customer Relationship Management (CRM)   Supply Chain Management (SCM)   Collaborative Product Commerce (CPC)

3. Copyright 2006 John Wiley & Sons, Inc.14-3 Resource Planning for Manufacturing

4. Copyright 2006 John Wiley & Sons, Inc.14-4 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

5. Copyright 2006 John Wiley & Sons, Inc.14-5 Demand Characteristics 12345 Week 400 400 – 300 300 – 200 200 – 100 100 – No. of tables Continuous demand M T W Th F M T W Th F 400 400 – 300 300 – 200 200 – 100 100 – No. of tables Discrete demand Independent demand 100 tables Dependent demand 100 x 1 = 100 tabletops 100 x 4 = 400 table legs

6. Copyright 2006 John Wiley & Sons, Inc.14-6 Material Requirements Planning Material requirements planning Planned order releases Work orders Purchase orders Rescheduling notices Item master file Product structure file Master production schedule

7. Copyright 2006 John Wiley & Sons, Inc.14-7 MRP Inputs and Outputs  Inputs Master production schedule Master production schedule Product structure file Product structure file Item master file Item master file  Outputs Planned order releases Planned order releases Work orders Work orders Purchase orders Purchase orders Rescheduling notices Rescheduling notices

8. Copyright 2006 John Wiley & Sons, Inc.14-8 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

9. Copyright 2006 John Wiley & Sons, Inc.14-9 Master Production Schedule (cont.) PERIOD MPS ITEM12345 Clipboard8595120100100 Lapdesk0500500 Lapboard75120472017 Pencil Case125125125125125

10. Copyright 2006 John Wiley & Sons, Inc.14-10 Product Structure Top clip (1)Bottom clip (1) Pivot (1)Spring (1) Rivets (2) Finished clipboardPressboard (1) Clipboard

11. Copyright 2006 John Wiley & Sons, Inc.14-11 Product Structure Tree 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)

12. Copyright 2006 John Wiley & Sons, Inc.14-12 Intended BOM List 0 - - - -Clipboardea1 - 1 - - -Clip Assemblyea1 - - 2 - -Top Clipea1 - - 2 - -Bottom Clipea1 - - 2 - -Pivotea1 - - 2 - -Springea1 - 1 - - -Rivetea2 - 1 - - -Press Boardea1 LEVELITEMUNIT OF MEASUREQUANTITY

13. Copyright 2006 John Wiley & Sons, Inc.14-13 Specialized BOMs  Phantom bills Transient subassemblies Transient subassemblies Never stocked Never stocked Immediately consumed in next stage Immediately consumed in next stage  K-bills Group small, loose parts under pseudo-item number Group small, loose parts under pseudo-item number Reduces paperwork Reduces paperwork

14. Copyright 2006 John Wiley & Sons, Inc.14-14 Specialized BOMs (cont.)  Modular bills Product assembled from major subassemblies and customer options Product assembled from major subassemblies and customer options Modular bill kept for each major subassembly Modular bill kept for each major subassembly Simplifies forecasting and planning Simplifies forecasting and planning X10 automobile example X10 automobile example 3 x 8 x 3 x 8 x 4 = 2,304 configurations 3 x 8 x 3 x 8 x 4 = 2,304 configurations 3 + 8 + 3 + 8 + 4 = 26 modular bills 3 + 8 + 3 + 8 + 4 = 26 modular bills   Time-phased bills an assembly chart shown against a time scale

15. Copyright 2006 John Wiley & Sons, Inc.14-15 4-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) Modular BOMs

16. Copyright 2006 John Wiley & Sons, Inc.14-16 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

17. Copyright 2006 John Wiley & Sons, Inc.14-17 Item Master File DESCRIPTIONINVENTORY POLICY ItemPressboardLead time1 Item no.734Annual 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 qty LLC1Policy code3

18. Copyright 2006 John Wiley & Sons, Inc.14-18 Item Master File (cont.) PHYSICAL INVENTORYUSAGE/SALES CODES On hand100YTD usage/sales1100 LocationW142MTD usage/sales75 On order100YTD receipts1200 Allocated75MTD receipts0 Cycle3Last receipt8/25 Last count9/5Last issue10/5 Difference-2 Cost acct.00754 Routing00326 Engr07142

19. Copyright 2006 John Wiley & Sons, Inc.14-19 MRP Processes 1.Exploding the bill of material 2.Netting out inventory 3.Lot sizing 4.Time-phasing requirements

20. Copyright 2006 John Wiley & Sons, Inc.14-20 MRP Matrix

21. Copyright 2006 John Wiley & Sons, Inc.14-21 MRP: Example Master Production Schedule 12345 Clipboard8595120100100 Lapdesk0600600 Item Master File CLIPBOARDLAPDESKPRESSBOARD On hand2520150 On order175 (Period 1)00 (sch receipt) (sch receipt) LLC001 Lot sizeL4LMult 50Min 100 Lead time111

22. Copyright 2006 John Wiley & Sons, Inc.14-22 MRP: Example (cont.) 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

23. Copyright 2006 John Wiley & Sons, Inc.14-23 ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: 112345 Gross Requirements8595120100100 Scheduled Receipts175 Projected on Hand25 Net Requirements Planned Order Receipts Planned Order Releases MRP: Example (cont.)

24. Copyright 2006 John Wiley & Sons, Inc.14-24 MRP: Example (cont.) ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: 112345 Gross Requirements8595120100100 Scheduled Receipts175 Projected on Hand25115 Net Requirements0 Planned Order Receipts Planned Order Releases (25 + 175) = 200 units available (200 - 85) = 115 on hand at the end of Period 1

25. Copyright 2006 John Wiley & Sons, Inc.14-25 ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: 112345 Gross Requirements8595120100100 Scheduled Receipts175 Projected on Hand2511520 Net Requirements00 Planned Order Receipts Planned Order Releases 115 units available (115 - 85) = 20 on hand at the end of Period 2 MRP: Example (cont.)

26. Copyright 2006 John Wiley & Sons, Inc.14-26 ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: 112345 Gross Requirements8595120100100 Scheduled Receipts175 Projected on Hand25115200 Net Requirements00100 Planned Order Receipts100 Planned Order Releases100 20 units available (20 - 120) = -100 — 100 additional Clipboards are required Order must be placed in Period 2 to be received in Period 3 MRP: Example (cont.)

27. Copyright 2006 John Wiley & Sons, Inc.14-27 ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: 112345 Gross Requirements8595120100100 Scheduled Receipts175 Projected on Hand2511520000 Net Requirements00100100100 Planned Order Receipts100100100 Planned Order Releases100100100 Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases MRP: Example (cont.)

28. Copyright 2006 John Wiley & Sons, Inc.14-28 ITEM: LAPDESKLLC: 0PERIOD LOT SIZE: MULT 50LT: 112345 Gross Requirements0600600 Scheduled Receipts Projected on Hand20 Net Requirements Planned Order Receipts Planned Order Releases MRP: Example (cont.)

29. Copyright 2006 John Wiley & Sons, Inc.14-29 ITEM: LAPDESKLLC: 0PERIOD LOT SIZE: MULT 50LT: 112345 Gross Requirements0600600 Scheduled Receipts Projected on Hand2020101000 Net Requirements04050 Planned Order Receipts5050 Planned Order Releases5050 Following the same logic, the Lapdesk MRP matrix is completed as shown MRP: Example (cont.)

30. Copyright 2006 John Wiley & Sons, Inc.14-30 ITEM: PRESSBOARDLLC: 0PERIOD LOT SIZE: MIN 100LT: 112345 Gross Requirements Scheduled Receipts Projected on Hand150 Net Requirements Planned Order Receipts Planned Order Releases ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: 112345 Planned Order Releases100100100 ITEM: LAPDESKLLC: 0PERIOD LOT SIZE: MULT 50LT: 112345 Planned Order Releases5050 MRP: Example (cont.)

31. Copyright 2006 John Wiley & Sons, Inc.14-31 ITEM: PRESSBOARDLLC: 0PERIOD LOT SIZE: MIN 100LT: 112345 Gross Requirements1001002001000 Scheduled Receipts Projected on Hand150 Net Requirements Planned Order Receipts Planned Order Releases ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: 112345 Planned Order Releases100100100 ITEM: LAPDESKLLC: 0PERIOD LOT SIZE: MULT 50LT: 112345 Planned Order Releases5050 x2 x2 x1 x1 x1 MRP: Example (cont.)

32. Copyright 2006 John Wiley & Sons, Inc.14-32 ITEM: PRESSBOARDLLC: 0PERIOD LOT SIZE: MIN 100LT: 112345 Gross Requirements1001002001000 Scheduled Receipts Projected on Hand1505050000 Net Requirements50150100 Planned Order Receipts100150100 Planned Order Releases100150100 ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: 112345 Planned Order Releases100100100 ITEM: LAPDESKLLC: 0PERIOD LOT SIZE: MULT 50LT: 112345 Planned Order Releases5050 MRP: Example (cont.)

33. Copyright 2006 John Wiley & Sons, Inc.14-33 Planned Order Report PERIOD ITEM12345 Clipboard100100100 Lapdesk5050 Pressboard100150100 MRP: Example (cont.)

34. Copyright 2006 John Wiley & Sons, Inc.14-34 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

35. Copyright 2006 John Wiley & Sons, Inc.14-35 Advanced Lot Sizing Rules: L4L Total cost of L4L = (4 X $60) + (0 X $1) = $240

36. Copyright 2006 John Wiley & Sons, Inc.14-36 Advanced Lot Sizing Rules: EOQ minimum order quantity Total cost of EOQ = (2 X $60) + [(10 + 50 + 40) X $1)] = $220

37. Copyright 2006 John Wiley & Sons, Inc.14-37 Advanced Lot Sizing Rules: POQ periods worth of requirements Total cost of POQ = (2 X $60) + (20 X $1) = $180

38. Copyright 2006 John Wiley & Sons, Inc.14-38 Planned Order Report Item#2740Date9 - 25 - 05 On hand100Lead time2 weeks On order200Lot size200 Allocated50Safety stock50 SCHEDULEDPROJECTED DATEORDER NO.GROSS REQS.RECEIPTSON HANDACTION 50 9-26AL 44162525 9-30AL 4147250 10-01GR 647050- 50 10-08SR 7542200150Expedite SR 10-01 10-10CO 44717575 10-15GR 64715025 10-23GR 6471250 10-27GR 647350- 50Release PO 10-13 Key:AL= allocatedWO= work order CO= customer orderSR= scheduled receipt PO= purchase orderGR= gross requirement

39. Copyright 2006 John Wiley & Sons, Inc.14-39 MRP Action Report Current date 9-25-05 ITEMDATEORDER NO.QTY.ACTION #274010-087542200ExpediteSR10-01 #361610-09Move forwardPO10-07 #241210-10Move forwardPO10-05 #342710-15Move backwardPO10-25 #251610-207648100De-expediteSR10-30 #274010-27200ReleasePO10-13 #366610-3150ReleaseWO10-24

40. Copyright 2006 John Wiley & Sons, Inc.14-40 Capacity Requirements Planning (CRP)   Creates a load profile   Identifies under-loads and over-loads   Inputs Planned order releases Routing file Open orders file

41. Copyright 2006 John Wiley & Sons, Inc.14-41 CRP MRP planned order releases Routing file Capacity requirements planning Open orders file Load profile for each machine center

42. Copyright 2006 John Wiley & Sons, Inc.14-42 Leveling Under-load Conditions 1.Acquire more work 2.Pull work ahead that is scheduled for later time periods 3.Reduce normal capacity

43. Copyright 2006 John Wiley & Sons, Inc.14-43 Reducing Over-load Conditions   Eliminating unnecessary requirements   Rerouting jobs to alternative machines, workers, or work centers   Splitting lots between two or more machines   Increasing normal capacity   Subcontracting   Increasing efficiency of the operation   Pushing work back to later time periods   Revising master schedule

44. Copyright 2006 John Wiley & Sons, Inc.14-44 Initial Load Profile Hours of capacity 123456123456123456123456 Time (weeks) Normalcapacity 120 120 – 110 110 – 100 100 – 90 90 – 80 80 – 70 70 – 60 60 – 50 50 – 40 40 – 30 30 – 20 20 – 10 10 – 0 0 –

45. Copyright 2006 John Wiley & Sons, Inc.14-45 Adjusted Load Profile Hours of capacity 123456123456123456123456 Time (weeks) Normalcapacity 120 120 – 110 110 – 100 100 – 90 90 – 80 80 – 70 70 – 60 60 – 50 50 – 40 40 – 30 30 – 20 20 – 10 10 – 0 0 – Pull ahead Push back Overtime Work an extra shift

46. Copyright 2006 John Wiley & Sons, Inc.14-46 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.

47. Copyright 2006 John Wiley & Sons, Inc.14-47 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

48. Copyright 2006 John Wiley & Sons, Inc.14-48 ERP Modules

49. Copyright 2006 John Wiley & Sons, Inc.14-49 Organizational Data Flows Source: Adapted from Joseph Brady, Ellen Monk, and Bret Wagner, Concepts in Enterprise Resource Planning (Boston: Course Technology, 2001), pp. 7–12

50. Copyright 2006 John Wiley & Sons, Inc.14-50 Selected Enterprise Software Vendors

51. Copyright 2006 John Wiley & Sons, Inc.14-51 ERP Implementation   Analyze business processes   Choose modules to implement Which processes have the biggest impact on customer relations? Which processes have the biggest impact on customer relations? Which process would benefit the most from integration? Which process would benefit the most from integration? Which processes should be standardized? Which processes should be standardized?   Align level of sophistication   Finalize delivery and access   Link with external partners

52. Copyright 2006 John Wiley & Sons, Inc.14-52 Customer Relationship Management (CRM)   Software that Plans and executes business processes Involves customer interaction Involves customer interaction Changes focus from managing products to managing customers Changes focus from managing products to managing customers Analyzes point-of-sale data for patterns used to predict future behavior Analyzes point-of-sale data for patterns used to predict future behavior

53. Copyright 2006 John Wiley & Sons, Inc.14-53 Supply Chain Management   Software that plans and executes business processes related to supply chains   Includes Supply chain planning Supply chain planning Supply chain execution Supply chain execution Supplier relationships Supplier relationships  Distinctions between ERP and SCM are becoming increasingly blurred

54. Copyright 2006 John Wiley & Sons, Inc.14-54 Collaborative Product Commerce (CPC)   Software that Incorporates new product design and development and product life cycle management 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 Integrates customers and suppliers in the design process though the entire product life cycle

55. Copyright 2006 John Wiley & Sons, Inc.14-55 ERP and Software Systems Customer Relationship Management (CRM) Enterprise Resource Planning (ERP) Collaborative Product Commerce (CPC) Supply Chain Management (SCM) Time to Market Time to Customer Customers Product Design Suppliers Collaborative Design Manufacture & Delivery Collaborative Manufacture DFMA Source: Adapted from George Shaw, “Building the Lean Enterprise: Reducing Time to Market.” Industry Week (Webcast, June 14, 2001), http://www.industryweek.com/Events/TimeToMarket/ pent0614.html

56. Copyright 2006 John Wiley & Sons, Inc.14-56 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

57. Copyright 2006 John Wiley & Sons, Inc.14-57 Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.