Chapter 15 Resource Planning Operations Management 6 th

Chapter 15 Resource Planning Operations Management - 6 th Edition Roberta Russell & Bernard W. Taylor, III Copyright 2009 John Wiley & Sons, Inc. Beni Asllani University of Tennessee at Chattanooga

Lecture Outline w Material Requirements Planning (MRP) w Capacity Requirements Planning (CRP) w Enterprise Resource Planning (ERP) Copyright 2009 John Wiley & Sons, Inc. 15 -2

Resource Planning for Manufacturing Copyright 2009 John Wiley & Sons, Inc. 15 -3

Material Requirements Planning (MRP) w Computerized inventory control and production planning system w When to use MRP? n n n Dependent demand items Discrete demand items Complex products Job shop production Assemble-to-order environments Copyright 2009 John Wiley & Sons, Inc. 15 -4

Demand Characteristics Dependent demand Independent demand 100 x 1 = 100 tabletops 100 x 4 = 400 table legs 100 tables Continuous demand Discrete demand 400 – 300 – No. of tables 400 – 200 – 1 2 3 Week 4 300 – 200 – 100 – 5 Copyright 2009 John Wiley & Sons, Inc. M T W Th F 15 -5

Material Requirements Planning Product structure file Master production schedule Material requirements planning Item master file Planned order releases Work orders Copyright 2009 John Wiley & Sons, Inc. Purchase orders Rescheduling notices 15 -6

MRP Inputs and Outputs w Inputs n n n Master production schedule Product structure file Item master file w Outputs n Planned order releases l l l Copyright 2009 John Wiley & Sons, Inc. Work orders Purchase orders Rescheduling notices 15 -7

Master Production Schedule w Drives MRP process with a schedule of finished products w Quantities represent production not demand w Quantities may consist of a combination of customer orders and demand forecasts w Quantities represent what needs to be produced, not what can be produced w Quantities represent end items that may or may not be finished products Copyright 2009 John Wiley & Sons, Inc. 15 -8

Master Production Schedule (cont. ) MPS ITEM Pencil Case Clipboard Lapdesk 1 125 85 75 0 Copyright 2009 John Wiley & Sons, Inc. PERIOD 2 3 4 125 95 120 50 125 120 47 0 125 100 20 50 5 125 100 17 0 15 -9

Product Structure Clipboard Top clip (1) Bottom clip (1) Pivot (1) Spring (1) Rivets (2) Finished clipboard Pressboard (1) Copyright 2009 John Wiley & Sons, Inc. 15 -10

Product Structure Tree Clipboard Pressboard (1) Top Clip (1) Level 0 Clip Ass’y (1) Bottom Clip (1) Copyright 2009 John Wiley & Sons, Inc. Rivets (2) Pivot (1) Level 1 Spring (1) Level 2 15 -11

Multilevel Indented BOM LEVEL 0 ----1 ----2 ---2 --1 --- ITEM Clipboard Clip Assembly Top Clip Bottom Clip Pivot Spring Rivet Press Board Copyright 2009 John Wiley & Sons, Inc. UNIT OF MEASURE QUANTITY ea ea 1 1 1 2 1 15 -12

Item Master File DESCRIPTION Item Pressboard Item no. 7341 Item type Purch Product/sales class Comp Value class B Buyer/planner RSR Vendor/drawing 07142 Phantom code N Unit price/cost 1. 25 Pegging Y LLC 1 Copyright 2009 John Wiley & Sons, Inc. INVENTORY POLICY Lead time Annual demand Holding cost Ordering/setup cost Safety stock Reorder point EOQ Minimum order qty Maximum order qty Multiple order qty Policy code 1 5000 1 50 0 39 316 100 500 1 3 15 -13

Item Master File (cont. ) PHYSICAL INVENTORY On hand Location On order Allocated Cycle Last count Difference 150 W 142 100 75 3 9/5 -2 Copyright 2009 John Wiley & Sons, Inc. USAGE/SALES YTD usage/sales MTD usage/sales YTD receipts MTD receipts Last receipt Last issue 1100 75 1200 0 8/25 10/5 CODES Cost acct. Routing Engr 00754 00326 07142 15 -14

MRP Processes w w Exploding the bill of material Netting out inventory Lot sizing Time-phasing requirements w Netting n w Lot sizing n Copyright 2009 John Wiley & Sons, Inc. process of subtracting onhand quantities and scheduled receipts from gross requirements to produce net requirements determining the quantities in which items are usually made or purchased 15 -15

MRP Matrix Copyright 2009 John Wiley & Sons, Inc. 15 -16

MRP: Example Master Production Schedule Clipboard Lapdesk 1 2 3 4 5 85 0 95 60 120 0 100 60 100 0 Item Master File On hand On order (sch receipt) LLC Lot size Lead time CLIPBOARD 25 175 (Period 1) LAPDESK 20 0 PRESSBOARD 150 0 0 L 4 L 1 0 Mult 50 1 1 Min 100 1 Copyright 2009 John Wiley & Sons, Inc. 15 -17

MRP: Example (cont. ) Product Structure Record Clipboard Pressboard (1) Level 0 Clip Ass’y (1) Rivets (2) Level 1 Lapdesk Pressboard (2) Trim (3’) Copyright 2009 John Wiley & Sons, Inc. Level 0 Beanbag (1) Glue (4 oz) Level 1 15 -18

MRP: Example (cont. ) ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 PERIOD 1 2 Gross Requirements 85 95 Scheduled Receipts 175 Projected on Hand 3 4 5 120 100 25 Net Requirements Planned Order Receipts Planned Order Releases Copyright 2009 John Wiley & Sons, Inc. 15 -19

MRP: Example (cont. ) ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 PERIOD 1 2 Gross Requirements 85 95 Scheduled Receipts 175 Projected on Hand 25 Net Requirements 3 4 5 120 100 115 0 Planned Order Receipts Planned Order Releases (25 + 175) = 200 units available (200 - 85) = 115 on hand at the end of Period 1 Copyright 2009 John Wiley & Sons, Inc. 15 -20

MRP: Example (cont. ) ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 PERIOD 1 2 Gross Requirements 85 95 Scheduled Receipts 175 Projected on Hand 25 Net Requirements 115 20 0 0 3 4 5 120 100 Planned Order Receipts Planned Order Releases 115 units available (115 - 85) = 20 on hand at the end of Period 2 Copyright 2009 John Wiley & Sons, Inc. 15 -21

MRP: Example (cont. ) ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 PERIOD 1 2 Gross Requirements 85 Scheduled Receipts 175 Projected on Hand 25 Net Requirements 3 4 5 95 120 100 115 20 0 100 Planned Order Receipts Planned Order Releases 100 20 units available (20 - 120) = -100 — 100 additional Clipboards are required Order must be placed in Period 2 to be received in Period 3 Copyright 2009 John Wiley & Sons, Inc. 15 -22

MRP: Example (cont. ) ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 PERIOD 1 2 Gross Requirements 85 Scheduled Receipts 175 Projected on Hand 25 Net Requirements 3 4 5 95 120 100 115 20 0 0 100 100 Planned Order Receipts Planned Order Releases 100 Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases Copyright 2009 John Wiley & Sons, Inc. 15 -23

MRP: Example (cont. ) ITEM: LAPDESK LLC: 0 LOT SIZE: MULT 50 LT: 1 Gross Requirements PERIOD 1 0 2 60 3 0 4 60 5 0 Scheduled Receipts Projected on Hand 20 Net Requirements Planned Order Receipts Planned Order Releases Copyright 2009 John Wiley & Sons, Inc. 15 -24

MRP: Example (cont. ) ITEM: LAPDESK LLC: 0 LOT SIZE: MULT 50 LT: 1 Gross Requirements PERIOD 1 2 3 4 5 0 60 0 20 10 10 0 40 50 50 50 Scheduled Receipts Projected on Hand 20 Net Requirements Planned Order Receipts Planned Order Releases 50 50 Following the same logic, the Lapdesk MRP matrix is completed as shown Copyright 2009 John Wiley & Sons, Inc. 15 -25

MRP: Example (cont. ) ITEM: CLIPBOARD LOT SIZE: L 4 L LLC: 0 LT: 1 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 Planned Order Releases ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases Copyright 2009 John Wiley & Sons, Inc. 1 2 PERIOD 3 4 100 100 2 PERIOD 3 4 5 50 50 1 PERIOD 3 2 5 15 -26

MRP: Example (cont. ) ITEM: CLIPBOARD LOT SIZE: L 4 L LLC: 0 LT: 1 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 Planned Order Releases ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases Copyright 2009 John Wiley & Sons, Inc. 2 PERIOD 3 4 100 100 x 1 2 PERIOD 3 4 5 x 1 1 50 x 2 1 100 5 50 x 2 PERIOD 2 3 4 100 200 100 5 0 15 -27

MRP: Example (cont. ) ITEM: CLIPBOARD LOT SIZE: L 4 L LLC: 0 LT: 1 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 Planned Order Releases ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases Copyright 2009 John Wiley & Sons, Inc. 1 2 PERIOD 3 4 100 100 2 PERIOD 3 4 50 50 1 100 PERIOD 2 3 4 100 200 100 50 50 100 150 150 100 100 5 5 5 0 0 15 -28

MRP: Example (cont. ) Planned Order Report PERIOD ITEM Clipboard Lapdesk Pressboard Copyright 2009 John Wiley & Sons, Inc. 1 50 100 2 3 4 100 50 100 150 5 15 -29

CRP MRP planned order releases Routing file Capacity requirements planning Open orders file Load profile for each process Copyright 2009 John Wiley & Sons, Inc. 15 -30

Calculating Capacity w Maximum capability to produce w Rated Capacity n Theoretical output that could be attained if a process were operating at full speed without interruption, exceptions, or downtime w Effective Capacity n Takes into account the efficiency with which a particular product or customer can be processed and the utilization of the scheduled hours or work Effective Daily Capacity = (no. of machines or workers) x (hours per shift) x (no. of shifts) x (utilization) x ( efficiency) Copyright 2009 John Wiley & Sons, Inc. 15 -31

Calculating Capacity (cont. ) w Utilization n Percent of available time spent working w Efficiency n How well a machine or worker performs compared to a standard output level w Load n Standard hours of work assigned to a facility w Load Percent n Ratio of load to capacity Load Percent = load x 100% capacity Copyright 2009 John Wiley & Sons, Inc. 15 -32

Load Profiles w graphical comparison of load versus capacity w Leveling underloaded conditions: n n n Acquire more work Pull work ahead that is scheduled for later time periods Reduce normal capacity Copyright 2009 John Wiley & Sons, Inc. 15 -33

Reducing Over-load Conditions 1. Eliminating unnecessary requirements 2. Rerouting jobs to alternative machines, workers, or work centers 3. Splitting lots between two or more machines 4. Increasing normal capacity 5. Subcontracting 6. Increasing efficiency of the operation 7. Pushing work back to later time periods 8. Revising master schedule Copyright 2009 John Wiley & Sons, Inc. 15 -34

Hours of capacity Initial Load Profile 120 – 110 – 100 – 90 – 80 – 70 – 60 – 50 – 40 – 30 – 20 – 10 – 0– Normal capacity 1 2 3 4 5 6 Time (weeks) Copyright 2009 John Wiley & Sons, Inc. 15 -35

Hours of capacity Adjusted Load Profile 120 – 110 – 100 – 90 – 80 – 70 – 60 – 50 – 40 – 30 – 20 – 10 – 0– Pull ahead Overtime 1 2 Work an extra shift Push back 3 4 Push back Normal capacity 5 6 Time (weeks) w Load leveling n process of balancing underloads and overloads Copyright 2009 John Wiley & Sons, Inc. 15 -36

Relaxing MRP Assumptions w Material is not always the most constraining resource w Lead times can vary w Not every transaction needs to be recorded w Shop floor may require a more sophisticated scheduling system w Scheduling in advance may not be appropriate for on-demand production. Copyright 2009 John Wiley & Sons, Inc. 15 -37

Enterprise Resource Planning (ERP) w Software that organizes and manages a company’s business processes by n n sharing information across functional areas integrating business processes facilitating customer interaction providing benefit to global companies Copyright 2009 John Wiley & Sons, Inc. 15 -38

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 Copyright 2009 John Wiley & Sons, Inc. 15 -39

ERP’s Central Database Copyright 2009 John Wiley & Sons, Inc. 15 -40

Selected Enterprise Software Vendors Copyright 2009 John Wiley & Sons, Inc. 15 -41

ERP Implementation w Analyze business processes w Choose modules to implement n n n Which processes have the biggest impact on customer relations? Which process would benefit the most from integration? Which processes should be standardized? w Align level of sophistication w Finalize delivery and access w Link with external partners Copyright 2009 John Wiley & Sons, Inc. 15 -42

ERP and Software Systems Copyright 2009 John Wiley & Sons, Inc. 15 -43