Aggregate Planningand Resource Planning

Chapters 13 and 14

Management 326

Operationsand

OperationsStrategy

Designing

anOperation

sSystem

Managingan

OperationsSystem

Improvingan

OperationsSystem

(Just-in-Time)

Inventory Managementfor Independent Demand

Supply Chain Management

Aggregate Planning

Resource Planning

Presentation Outline

Planning for Operations What is Aggregate Planning, and why is it

important 3 Levels of planning for manufacturing

Master Production Schedule and Rough Cut Capacity Plan

Aggregate Planning options Work force and capacity management Demand management

Presentation Outline (2)

Resource Planning: Material Requirement Planning (MRP) Objective and definition Terminology MRP process and databases

Enterprise resource planning (ERP) ERP systems ERP II systems

Aggregate Operations Planningfor Services

Input: demand forecast by product line by month by facility

Output: Labor requirements by month by facility

Aggregate Plan in Manufacturing

Objective: Match supply and demand so that the sales plan can be met.

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

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?

The Aggregate Operations Plan and the Sales Plan must be consistent.

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

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 Planand Master Production Schedule (MPS)

Master Production Schedule

Aggregate Planning OptionsWork Force and Capacity

Management

Hiring Layoffs Increase or decrease working hours

(overtime or undertime) Increase or decrease use of part-time

or temporary workers Contract production to another firm Use contract service workers (service

or administrative departments)

Aggregate Planning OptionsDemand Management

To increase demand, reduce prices and offer special promotions

Service firms often use appointment systems to match supply and demand

Ch 13 - 2© 1998 by Prentice-Hall IncRussell/Taylor Oper Mgt 2/e

Material Requirement Planning (MRP)

Objective: To ensure that customer demand will be met in a cost-effective way

MRP is a computerized inventory control and 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 13 - 17© 1998 by Prentice-Hall IncRussell/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.

Step Stool Assembly

Step Stool Assembly (2)

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

First Generation ERP System

A management information system that uses a common database (data warehouse) and integrates information from all functional areas of business In manufacturing, MRP is one part of the

ERP system

Enterprise Resource Planning

Why Enterprise Resource Planning (ERP)

was Needed

Marketing, Operations, Accounting and Finance, and Human Resources Management need to share a common database

Companies need to communicate rapidly with suppliers and

customers share selected data with suppliers and

customers

ERP II Systems

Include first-generation ERP system functions, plus links with suppliers and customers

Used to implement supply chain management

Anatomy of an ERP II System

ERP II System Advantages

Lower operating costs Shorter cycle times for manufacturing and

delivery faster customer service Better product availability

Faster replenishment of popular items Fewer unwanted items

PC-based systems are affordable for mid-size firms