Chapter 6: Resource Planning Systems (SCM 301)

Independent Demand (BOM)

Demand for final products affected by trends, seasonal patterns, and general market conditions.

Short-Range (MRP)

Plan covers a few days to a few weeks. Detailed planning process for components and parts to support the master production schedule (materials requirement planning: MRP).

Intermediate (MPS)

Plan spans six to eighteen months. Shows quantity and timing of end items (master production schedule: MPS).

Operations Planning

Usually Hierarchical and can be divided into three broad categories.

Low-level coding

Assigns the lowest level on BOM to all common components to avoid duplicate MRP computations.

Advantages of ERP Systems

- Added visibility reduce SC inventories. - Helps to standardize manufacturing processes. - Measure performance and communicate via a standardized method. - Allows organizations to communicate information about operational changes to other SC members.

Disadvantages of ERP System

- Substantial time and capital investment. - Complexity. - Firms adapt processes to meet ERP system.

MRP Requirements

- The independent demand information. - Parent-component relationships from the BOM (bill of materials). - Inventory status of final product and components. - Planned order releases (MOST IMPORTANT OUTPUT OF THE MRP SYSTEM).

MRP Inputs

1. MPS 2. Inventory records 3. BOM - list of components and quantities needed to make the products, provides product structure (tree of parents and children).

Long-range planning period for Aggregate Planning

> = 12 months

Scheduled receipt

A committed order awaiting delivery for a specific period.

Master Scheduling Process

A detailed dis-aggregation of the APP, listing the exact end items to be produced by a specific period.

Resource Requirement Planning (RRP)

A long-range capacity planning module, checks whether aggregate resources are capable of satisfying the aggregate production. Resources considered include gross labor hours and machine hours.

Problem

A missed due date or stock-out may cascade downstream, MAGNIFYING THE BULLWHIP EFFECT.

Match or tracking Capacity Strategy

A moderate strategy that adjusts capacity in small amounts in response to demand and changing market conditions.

Lead Capacity Strategy

A proactive approach that adds or subtracts capacity in anticipation of future market conditions and demand.

Lag Capacity Strategy

A reactive approach that adjusts its capacity in response to demand.

Capacity requirement planning (CRP)

A short-range capacity planning technique that is used to check the feasibility of the material requirement plan.

Distributions Requirements Planning (DRP)

A time-phased finished good inventory replenishment plan in a distribution network. A logical extension of the MRP system and ties physical distribution to manufacturing planning and control system. MRP operates in dependent demand situation, whereas the DRP operates in an independent setting.

Gross requirements

A time-phased requirement prior to netting out on-hand inventory and lead-time.

Super BOM

AKA planning BOM, pseudo BOM, phantom BOM, or family BOM. Enables the firm to forecast the total demand end products.

Major ERP applications include

Accounting and finance, customer relationship management, human resource management, manufacturing, supplier relationship management, and supply chain management.

Long-Range (APP)

Aggregate Planning Plan (APP) usually covers a year or more, involves the construction of facilities and major equipment purchase.

Operations managers are continuously involved in...

Balancing capacity and output.

Inputs of MPS

Beginning inventory, forecast, and custom orders.

Legacy MRP System

Broad label to describe an older information system that usually works at an operational level to schedule production.

Key strategies for meeting demand

Chase, level, and mixed.

Manufacturing resource planning (MRP II)

Combined MRP with MPS, rough-cut capacity planning, capacity requirement planning, and other operations planning software modules.

Production Planning System: Internal to Firm

Current physical capacity, current workforce, inventory levels, and activities required for production.

Distribution Requirement Planning (DRP)

Describes the time-phased net requirements from warehouses and distribution centers. Links production with distribution planning.

Bill of Materials (BOM)

Document that shows an inclusive listing of all component parts and assemblies making up the final product.

Secondary Reports

Exception reports, planning reports, and performance control reports.

Enterprise Requirements Planning (ERP)

Extension of MRP II.

Production Planning System: External to Firm

External capacity, competitor's behavior, raw material availability, market demand, and economic conditions.

Disadvantages of Legacy MRP

Global business environment needed to access real-time information on customer's requirements, production levels, and available capacities, company-wide inventory levels. Legacy systems were implemented to gather data for transactional purposes and lacked analytical capabilities required for today's complex global environment.

Closed-loop

Incorporates the aggregate production plan, the master production schedule, material requirements plan, and capacity requirements plan.

Enterprise Resource Planning System (ERP)

Integrates the internal operations of an enterprise with a common software platform and centralized database system. With a shared, centralized database system, ERP is capable of automating business processes rapidly and accurately. Provides means for SCM to share information so that scarce resources can be fully utilized to meet demand, while minimizing SC inventories.

Parent

Item generating demand by a parent.

Disadvantage of MRP

LOSS OF VISIBILITY, especially acute for products with a deep BOM and ignores capacity and ship floor conditions.

3 Categories of Operations Planning

Long-range Intermediate Short-range

MPS vs APP

MPS is more detailed than APP and easier to plan under stable demand. Planning horizon is shorter than APP, but longer than the lead time to produce the item.

MPS for Service Industries

MPS may just be the appointment book, where capacity is balanced with demand.

Chase

Match production to customer order rate by hiring and laying off employees. MAKE TO ORDER

Capacity

Maximum workload that an organization is capable of completing in a given period of time.

Aggregate Scheduling Goals

Meet demand, use capacity efficiently, meet inventory policy, and minimize cost (labor, inventory, plant & equipment, and subcontract).

Indented BOM

Multilevel BOM which sows the parent-component relationships and the specific units of components known as the planning factor.

Planning factor

Number of components needed to produce a unit of the parent item.

Two prominent ERP providers

Oracle and SAP.

Lot size

Order size for MRP logic.

Components

Parts demanded by a parent.

Primary Reports

Planned order schedules for inventory and production control.

Firmed planned order

Planned order that MRP computer logic system does not automatically change when conditions change to prevent system nervousness.

Explosion

Process of converting a parent item's planned order releases into component gross requirements.

Resource Planning

Process of determining the capacity required to meet demand.

Hierarchical Planning

Process that translates annual business plans and demand forecasts into a production plan for a product family (products that share similar characteristics) in a plant or facility leading to APP.

Family (aggregate)

Product group or broad category

MRP: Projected on-hand inventory

Projected closing inventory at end of period. Beginning inventory minus gross requirement, plus scheduled receipt and planned receipt and planned receipt from planned order releases.

Outputs of MSP

Projected inventory, master production schedule, and uncommitted inventory.

Safety stock

Protects against uncertainties in demand supply, quality, and lead time.

Advantage of MRP

Provides production and planning information for entire planning horizon.

Rapid Growth of Enterprise Resource Planning Systems

Rapid development of computer and information technology over the last two decades has contributed positively to the growth of ERP.

Pegging

Related gross requirements for a part to the planned order releases.

Cloud Computing

Software vendors offer cloud-based services where end-users log on to remote servers without installing any software or storing data on local hard drives.

Mixed

Some combination of the two - stable workforce, variable hours - vary output through overtime of flexible schedules. MULTIPLE PRODUCTS

Planned order release

Specific order to be released to the shop or to the supplier.

Goal of Aggregate Planning

Specify the optimal combination of product rate, workforce level, and inventory on hand.

Level

Stable workforce with constant output, inventory and backlogs absorb fluctuations in demand. MAKE TO STOCK

Material Requirements Plan (MRP)

System of converting the end items from the master production schedule into a set of time-phased component part requirements.

Planning Horizon of APP

Takes at least one year and is usually rolled forward by three months every quarter.

Available-To-Promise (ATP) Quantity

The difference between confirmed customer orders and quantity the firm planned to produce.

Dependent Demand (BOM)

The internal demand for parts based on the demand of the final product in which the parts are used (subassemblies).

Material Requirements Plan (MRP)

The logic for determining the number of parts, components, and materials needed to produce a product. Provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced. DEPENDENT DEMAND DRIVES MRP.

Net requirements

The unsatisfied item requirement for a specific time period. Gross requirement for period minus current on-hand inventory.

Time bucket

Time period used on the MRP. Days or weeks.

Medium-range capacity plan, or rough-cut capacity plan (RCCP)

USED TO CHECK FEASIBILITY OF MPS. Converts MPS from production needed to capacity required, then compares it to capacity available.

Costs relevant to the aggregate planning decision include...

inventory, setup, machine operations, hiring, firing, training, and overtime costs.