Chapter 06.ppt

CHAPTER 6RESOURCE PLANNING SYSTEMS

Principles of Supply Chain Management: A Balanced Approach

Prepared by Daniel A. Glaser-Segura, PhD

© 2009 South-Western, a division of Cengage Learning 2

Learning Objectives You should be able to:

– Describe the hierarchical operations planning process in terms of materials planning (APP, MPS, MRP) and capacity planning (RRP, RCCP, CRP).

– Describe MRP, closed-loop MRP, MRP-II, DRP, ERP, and their relationships.

– Understand the terms used in MRP computations.– Know how to compute available-to-promise

quantities, MRP explosions, and DRP implosions.– Understand the limitations of legacy MRP

systems.


Learning Objectives (Cont.)– Describe an ERP system, and understand

its advantages and disadvantages.– Understand why manufacturers and

service firms are migrating from legacy MRP systems to integrated ERP systems.

– Describe the various modules of an integrated ERP system, and have a general knowledge of the ERP market.

– Understand best-of-breed versus single integrator ERP implementations.

– Understand why many ERP implementations fail.

– Understand how an integrated ERP system works.


Chapter Six Outline• Operations Planning

– The Aggregate Production Plan– The Chase Production Strategy– The Level Production Strategy

• The Mixed Production Strategy• Master Production Scheduling

– Master Production Schedule Time Fence– Available-to-Promise Quantities

• The Bill of Materials• Material Requirements Planning

– Terms used in Material Requirements Planning

• Capacity Planning– Capacity Strategy

• Distribution Requirements Planning


Chapter Six Outline (Cont.)• The Legacy Material Requirements

Planning Systems– Manufacturing Resource Planning

• The development of the Enterprise Resource Planning Systems (ERP)– The Rapid Growth of ERP Systems

• Implementing ERP Systems• Single Integrator ERP Solution or Best-

of-Breeds ERP Implementation?• Advantages and Disadvantages of ERP

Systems– ERP System Advantages– ERP System Disadvantages

• ERP Software Applications• ERP Software Providers


Introduction

Scheduling & inventory management influence how assets are deployed.

Problem: A missed due date or stock-out may cascade downstream, magnifying the bullwhip effect.

Operations managers are continuously involved in balancing capacity & output.


Operations Planning Operations planning is usually hierarchical & can be divided into three broad categories:

– Long-range- Aggregate Production Plan (APP) involves the construction of facilities & major equipment purchase

– Intermediate - Shows the quantity & timing of end items (i.e., master production schedule- MPS)

– Short-range - detailed planning process for components & parts to support the master production schedule (i.e., materials requirement planning- MRP)


Operations Planning (Cont.)Computer based “push” resource systems:• Closed-loop MRP - incorporates the aggregate

production plan, the master production schedule material requirements plan, & capacity requirements plan.

• Manufacturing resource planning (MRP-II) incorporates the business & sales plans with the closed-loop MRP system.

• Enterprise requirements planning (ERP) is an extension of MRP-II

• Distribution requirement planning (DRP) describes the time-phased net requirements from warehouses & distribution centers customer demand minus any on hand in-transit inventories.


Aggregate Production Plan

Hierarchical planning - process that translates annual business & marketing plans & demand forecasts into a production plan for a product family (products that share similar characteristics) in a plant or facility leading to the Aggregate Production Plan (APP).

– Planning horizon of APP- at least one year & is usually rolled forward by three months every quarter

– Includes costs relevant to the aggregate planning decision include inventory, setup, machine operation, hiring, firing, training, & overtime costs


Aggregate Production Plan (Cont.)Three basic production strategies :

1. Chase Strategy - Adjusts capacity to match demand. Firm hires & lays off workers to match demand. Finished goods inventory remains constant. Works well for make-to-order firms.

2. Level Strategy - Relies on a constant output rate while varying inventory & backlog according to fluctuating demand. Firm relies on fluctuating finished goods & backlogs to meet demand. Works well for make-to-stock firms.

3. Mixed Production Strategy - Maintains stable core workforce while using other short-term means, such as overtime, subcontracting & part time helpers to manage short-term demand.


Master Production Scheduling

Master Production Schedule (MPS) - A detailed disaggregation of the aggregate production plan, listing the exact end items to be produced by a specific period.

– More detailed than APP & easier to plan under stable demand.

– Planning horizon is shorter than APP, but longer than the lead time to produce the item.

– Note: For the service industry, the master production schedule may just be the appointment log or book, where capacity (e.g., skilled labor or professional service) is balanced with demand.


Master Production Scheduling (Cont.)

The MPS - the production quantity to meet demand from all sources & is used for computing the requirements of all time-phased end items.

System nervousness - small changes in the upper-level-production plan cause major changes in the lower-level production plan.

Firms use a time fence to deal with nervousness by separating the planning horizon into:

1. Firmed Segment (AKA demand time fence), from current period to several weeks into future. Can only be altered by senior management.

2. Tentative segment (AKA planning time fence), from end of firmed segment to several weeks into the future.



Available-to-Promise (ATP) Quantity - The difference between confirmed customer orders & the quantity the firm planned to produce.

Three basic methods of calculating the available-to-promise quantities:1. Discrete available-to-promise

2. Cumulative available-to-promise without look ahead, &

3. Cumulative available-to-promise with look ahead.



Discrete Available-to-Promise1. Add the Beginning Inventory to the MPS for Period 1,

subtracting the Committed Customer Orders from Period 1 up to but not including the period of the next scheduled MPS.

2. For all subsequent periods, there are two possibilities:– If no MPS has been scheduled for the period, the ATP

is zero.– If an MPS has been scheduled for the period, the ATP

is the MPS minus the sum of all the CCOs from that period up to the period of the next scheduled MPS.

3. If an ATP for any period is negative, the deficit must be subtracted from the most recent positive ATP, and the ATP quantities must then be revised to reflect these changes.


The Bill of Materials • Bill of Materials (BOM) - document that

shows an inclusive listing of all component parts & assemblies making up the final product.– Dependent Demand - the internal demand for parts

based on the demand of the final product in which the parts are used (e.g., subassemblies).

– Independent Demand - demand for final products affected by trends, seasonal patterns, & general market conditions.

– Multilevel Bill of Materials - shows the parent-component relationships & the specific units of components known as the planning factor. Often presented as an indented bill of materials.

– Super Bill of Materials (AKA planning BOM, pseudo BOM, phantom BOM, or family BOM) enables the firm to forecast the total demand end products.


The Bill of Materials (Cont.) (Fig. 6.4)

Level 0(Finished Good)

Level 1

Level 2

Level 3

Level 4

Level 5

Level 6

TransmissionSuspension

& BrakeChassis

EngineAssembly

Body &Accessories

Exhaust &Fuel System

PistonAssembly

Cylinderhead

Crankshaft Camshaft

Piston Sub-Assemblies (4)

ConnectingRods (4)

All TerrainVehicle (ATV)

Piston

6” SteelBar (¼)

24” SolidSteel Bar

EngineBlock

Seals &Gaskets

Piston Rings(3)

12” SteelBar (½)


denotes additional materials not shown


Level 1

Level 2

Level 3

Level 4

Level 5

Level 6


& BrakeChassis

EngineAssembly

Body &Accessories


PistonAssembly

Cylinderhead

Crankshaft Camshaft


ConnectingRods (4)


Piston

6” SteelBar (¼)


EngineBlock

Seals &Gaskets

Piston Rings(3)

12” SteelBar (½)



Level 1

Level 2

Level 3

Level 4

Level 5

Level 6


& BrakeChassis

EngineAssembly

Body &Accessories


PistonAssembly

Cylinderhead

Crankshaft Camshaft


ConnectingRods (4)


Piston

6” SteelBar (¼)


EngineBlock

Seals &Gaskets

Piston Rings(3)

12” SteelBar (½)



Level 1

Level 2

Level 3

Level 4

Level 5

Level 6


& BrakeChassis

EngineAssembly

Body &Accessories


PistonAssembly

Cylinderhead

Crankshaft Camshaft


ConnectingRods (4)


Piston

6” SteelBar (¼)


EngineBlock

Seals &Gaskets

Piston Rings(3)

12” SteelBar (½)



Level 1

Level 2

Level 3

Level 4

Level 5

Level 6


Level 1

Level 2

Level 3

Level 4

Level 5

Level 6


& BrakeChassis

EngineAssembly

Body &Accessories


PistonAssembly

Cylinderhead

Crankshaft Camshaft


ConnectingRods (4)


Piston

6” SteelBar (¼)


EngineBlock

Seals &Gaskets

Piston Rings(3)

12” SteelBar (½)


TransmissionTransmissionSuspension

& BrakeSuspension

& BrakeChassisChassis

EngineAssemblyEngine

AssemblyBody &

AccessoriesBody &

AccessoriesExhaust &

Fuel SystemExhaust &

Fuel System

PistonAssembly

PistonAssembly

Cylinderhead

Cylinderhead

CrankshaftCrankshaft CamshaftCamshaft



ConnectingRods (4)

ConnectingRods (4)



PistonPiston

6” SteelBar (¼)6” SteelBar (¼)

24” SolidSteel Bar24” SolidSteel Bar

EngineBlockEngineBlock

Seals &GasketsSeals &Gaskets

Piston Rings(3)

Piston Rings(3)

12” SteelBar (½)

12” SteelBar (½)

24” SolidSteel Bar24” SolidSteel Bar

denotes additional materials not showndenotes additional materials not shown


Indented Bill of Materials (Table 6.6)

Part Description Level Planning Factor

Engine Assembly 1 1 Engine Block (components not shown) 2 1 Cylinder Head (components not shown) 2 1 Piston Assembly 2 1 Piston Subassembly 3 4 Piston Rings 4 3 Pistons 4 1 6” Steel Bar 5 ¼ 24” Solid Steel Bar 6 1 Connecting Rods 3 4 Crankshaft (components not shown) 2 1 Camshaft 2 1 12” Steel Bar 3 ½ 24” Solid Steel Bar 4 1Seals & Gaskets (components not shown) 2 1Chassis (components not shown) 1 1Suspension & Brake (components not shown) 1 1Exhaust & Fuel System (components not shown) 1 1Transmission (components not shown) 1 1Body & Accessories (components not shown) 1 1


Material Requirements Planning MRP - A computer-based materials management system that calculates the exact quantities, need dates, & planned order releases for subassemblies & materials required to manufacture a final product. MRP requires:

– The independent demand information– Parent-component relationships from the BOM– Inventory status of final product & components. – Planned order releases (the output of the MRP system)

Advantage of MRP - provides planning information

Disadvantage of MRP - loss of visibility, especially acute for products with a deep BOM, & ignores capacity & shop floor conditions.


MRP (Cont.)Terms used in MRP:

1. Parent: Item generating demand for lower-level components.

2. Components: parts demanded by a parent.3. Gross requirement: A time-phased requirement

prior to netting out on-hand inventory & lead-time4. Net requirement: The unsatisfied item

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

5. Scheduled receipt: A committed order awaiting delivery for a specific period.

6. Projected on-hand inventory: Projected closing inventory at end of period. Beginning inventory minus gross requirement, plus scheduled receipt & planned receipt & planned receipt from planned order releases.

7. Planned order release: Specific order to be released to the shop or to the supplier.


MRP (Cont.)8. Time bucket: Time period used on the MRP.

Days or weeks.9. Explosion: Process of converting a parent

item’s planned order releases into component gross requirements.

10.Planning factor: Number of components needed to produce a unit of the parent item.

11.Firmed planned order: Planned order that the MRP computer logic system does not automatically change when conditions change to prevent system nervousness.

12.Pegging: Relates gross requirements for a part to the planned order releases

13.Low-level coding: assigns the lowest level on BOM to all common components to avoid duplicate MRP computations.

14.Lot size: The order size for MRP logic15.Safety Stock: Protects against uncertainties in

demand supply, quality, & lead time.


Model A ATV––Level 0 1 2 3 4 5 6 7 8 Gross requirements 10 10 20 0 20 0 0 20 Scheduled receipts 10 Projected on-hand inventory 30 20 20 20 20 20 20 20 20 Planned order releases 20 20 20 Q = 10; LT = 2; SS = 15 1 1 1 Engine assembly––Level 1 1 2 3 4 5 6 7 8 Gross requirements 20 20 20 Scheduled receipts 20 Projected on-hand inventory 2 2 2 0 0 0 0 0 0 Planned order releases 18 20 Q = LFL; LT = 2; SS = 0 1 1 Piston assembly––Level 2 1 2 3 4 5 6 7 8 Gross requirements 18 20 Scheduled receipts 20 Projected on-hand inventory 10 12 12 12 22 22 22 22 22 Planned order releases 30 Q = 30; LT = 1; SS = 10 4 Connecting rods––Level 3 1 2 3 4 5 6 7 8 Gross requirements 120 Scheduled receipts Projected on-hand inventory 22 22 22 52 52 52 52 52 52 Planned order releases 150 Q = 50; LT = 1; SS = 20

Ex. 6.2 MRP


Capacity PlanningExcess (or insufficient) capacity prevents firm

from taking advantage of the efficiency of manufacturing planning & control system.

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 & machine hours.

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.

Capacity requirement planning (CRP) - a short-range capacity planning technique that is used to check the feasibility of the material requirements plan.


Distribution Requirements Planning (DRP)

Distribution requirements planning (DRP) - a time-phased finished good inventory replenishment plan in a distribution network

-- DRP is a logical extension of the MRP system & ties physical distribution to manufacturing planning and control system


Ex. 6.3 - DRPLas Vegas Distribution Center (Q = 2; LT = 2; SS = 0) East Lansing Distribution Center (Q = 2; LT = 1; SS = 0)

Model A ATV 1 2 3 4 5 6 7 8 Model A ATV 1 2 3 4 5 6 7 8

Gross Requirements 0 1 1 0 1 0 6 0 Gross Requirements 3 11 0 1 0 2 0 15

Schedule Receipts Schedule Receipts

Projected On-hand 1 1 0 1 1 0 0 0 0 Projected On-hand 3 0 1 1 0 0 0 0 1 Planned Order Releases 2 0 0 0 6 0 0 0 Planned Order Releases 12 0 0 0 2 0 16 0

Central Supply Warehouse 1 2 3 4 5 6 7 8 Gross Requirements 14 0 0 0 8 16 0 0 Schedule Receipts Projected On-hand Inventory 16 2 2 2 2 4 4 3 3 Planned Order Releases 0 0 10 0 15 0 0 0

Q = 5; LT = 2; SS = 2

2 + 12 = 146 + 2 = 8

Las Vegas Distribution Center (Q = 2; LT = 2; SS = 0) East Lansing Distribution Center (Q = 2; LT = 1; SS = 0)

Model A ATV 1 2 3 4 5 6 7 8 Model A ATV 1 2 3 4 5 6 7 8

Gross Requirements 0 1 1 0 1 0 6 0 Gross Requirements 3 11 0 1 0 2 0 15

Schedule Receipts Schedule Receipts

Projected On-hand 1 1 0 1 1 0 0 0 0 Projected On-hand 3 0 1 1 0 0 0 0 1 Planned Order Releases 2 0 0 0 6 0 0 0 Planned Order Releases 12 0 0 0 2 0 16 0

Central Supply Warehouse 1 2 3 4 5 6 7 8 Gross Requirements 14 0 0 0 8 16 0 0 Schedule Receipts Projected On-hand Inventory 16 2 2 2 2 4 4 3 3 Planned Order Releases 0 0 10 0 15 0 0 0

Q = 5; LT = 2; SS = 2

2 + 12 = 146 + 2 = 8


Legacy MRP Systems

Legacy - a customary, inherited way of doing business

– MRP was used in many forms for nearly 40 years in U.S. firms. Many versions have lasted beyond their originally intended life span

– EDI was widely used before advent of the Internet– Globalization and multi-plant manufacturing have

created new demands on information system processing

– Manufacturing Resource Planning (MRP II) is a natural outgrowth of closed-loop MRP


Development of ERP Systems

Enterprise Resource Planning Systems (ERP) - information system connecting all functional areas & operations of an organization &, in some cases, suppliers and customers via common software infrastructure and database

-- ERP provides means for supply chain members to share information so that scarce resources can be fully utilized to meet demand, while minimizing

supply chain inventories


Development of ERP Systems (Cont.) (Fig. 6.6)

Central Databaseand

Servers

EngineeringSalesand

Marketing

HumanResources

DataSupportSystem

Operations

Headquartersand

Branches

CustomerRelationshipManagement

SupplierRelationshipManagement

Logisticsand

Warehouse

Financeand

Accounting

Central Databaseand

Servers

EngineeringSalesand

Marketing

HumanResources

DataSupportSystem

Operations

Headquartersand

Branches



Logisticsand

Warehouse

Financeand

Accounting

Central Databaseand

Servers

Central Databaseand

Servers

Central Databaseand

Servers

EngineeringEngineeringSalesand

Marketing

Salesand

Marketing

HumanResources

HumanResources

DataSupportSystem

DataSupportSystem

OperationsOperations

Headquartersand

Branches

Headquartersand

Branches





Logisticsand

Warehouse

Logisticsand

Warehouse

Financeand

Accounting

Financeand

Accounting


Implementing ERP SystemsTwo types of ERP implementation:

1. Best-of-breed - pick the best application for each individual function. Disadvantage- software may not integrate well but this may not be a major issue in future

2. Single integrator solution - pick all the desired applications from a single vendor

Implementation Problems:– Lack of top management commitment– Lack of adequate resources– Lack of proper training– Lack of communication– Incompatible system environment


Advantages & Disadvantages Of ERP Systems

Advantages– Added visibility reduce supply chain inventories– Helps to standardize manufacturing processes – Measure performance & communicate via a

standardized method

Disadvantages – Substantial time & capital investment– Complexity– Firms adapt processes to meet ERP system


ERP Software Applications

Major ERP applications consist of:– Accounting and finance: – Customer relationship management– Human resource management– Manufacturing– Supplier relationship management– Supply chain management:


ERP Software Providers

After mergers & acquisitions, the 3 major ERP providers are:– Oracle– SAP– Microsoft

Other small software firms provide applications as well as full ERP solutions but lack applistructure:,

--The merger of enterprise application and infrastructure technology (used by the top 3 ERP providers)

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