Chapter 15 Resource Planning Russell and Taylor Operations

Chapter 15 Resource Planning Russell and Taylor Operations and Supply Chain Management, 8 th Edition

Lecture Outline • • Material Requirements Planning (MRP) – Slide 4 Capacity Requirements Planning (CRP) – Slide 45 Enterprise Resource Planning (ERP) – Slide 58 Customer Relationship Management (CRM) – Slide 63 • Supply Chain Management (SCM) – Slide 64 • Product Lifecycle Management (PLM) – Slide 65 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -2

Learning Objectives • Discuss the differences between independent and dependent demand systems • Describe the inputs and outputs to an MRP system, and execute the MRP process • Determine resource capacity and load percent, and perform load leveling on capacitated resources • Explain the hierarchical planning process for resources as a closed loop system, and discuss the assumptions on which this process is based • Describe basic ERP systems and the scope of their implementations, including the connection to SCM, CRM and PLM • Discuss the issues, advantages and drawbacks of the enterprise IT software systems that run today’s global businesses © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -3

Resource Planning for Manufacturing © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -5

Demand Characteristics Independent demand Dependent 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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 300 – 200 – 100 – 5 M T W Th F 15 -6

Material Requirements Planning © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -7

MRP Inputs and Outputs • Inputs – Master production schedule – Product structure file – Item master file © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e • Outputs – Planned order releases • Work orders • Purchase orders • Rescheduling notices 15 -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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -9

Master Production Schedule • Cumulative lead time • total length of time needed to manufacture a product • Time fence • Management-specified date within which no changes are allowed in the MPS © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -10

Product Structure • Product structure file • contains computerized bill of material for every item produced • Bill of Material • list of all materials, parts and assemblies needed to make an item • includes quantities, parent-component relationships & order quantities © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -11

Master Production Schedule MPS ITEM Pencil Case Clipboard Lapdesk 1 125 85 75 0 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e PERIOD 2 3 4 125 95 120 50 125 120 47 0 125 100 20 50 5 125 100 17 0 15 -12

Product Structures © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -13

Product Structure Tree © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -14

Product Structure © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -15

Multilevel Indented BOM LEVEL 0 ----1 ----2 ---2 --1 --- ITEM Clipboard Clip Assembly Top Clip Bottom Clip Pivot Spring Rivet Press Board © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e UNIT OF MEASURE QUANTITY ea ea 1 1 1 2 1 15 -16

Specialized BOMs • Phantom bills • Transient subassemblies • Never stocked • Immediately consumed in next stage • K-bills (kit numbers) • Group small, loose parts under pseudo-item number • Reduces paperwork, processing time, and file space © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -17

Specialized BOMs • Modular bills • Plan production of products with many optional features • Product assembled from major subassemblies and customer options • Modular bill kept for each major subassembly • Simplifies forecasting and planning • X 10 automobile example • 3 x 8 x 4 = 2, 304 configurations • 3 + 8 + 4 = 26 modular bills © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -18

Modular BOMs © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -19

Time-phased Bills – An assembly chart shown against a time scale © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -20

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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -21

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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 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 -22

Item Master File PHYSICAL INVENTORY On hand 150 Location W 142 On order 100 Allocated 75 Cycle 3 Last count 9/5 Difference -2 USAGE/SALES YTD usage/sales MTD usage/sales YTD receipts MTD receipts Last receipt Last issue CODES Cost acct. Routing Engr © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 1100 75 1200 0 8/25 10/5 00754 00326 07142 15 -23

MRP Processes • Exploding the bill of material • Netting out the inventory • Netting • the process of subtracting on-hand quantities and scheduled receipts from gross requirements to produce net requirements • Lot sizing • determining the quantities in which items are usually made or purchased • Time-phasing requirements © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -24

MRP Matrix © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -25

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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -26

MRP Example © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -27

MRP - 1 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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -28

MRP - 2 ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 PERIOD 1 2 Gross Requirements 85 95 Scheduled Receipts 175 Projected on Hand Net Requirements 25 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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -29

MRP - 3 ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 PERIOD 1 2 Gross Requirements 85 95 Scheduled Receipts 175 Projected on Hand Net Requirements 25 115 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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -30

MRP - 4 ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 PERIOD 1 2 Gross Requirements 85 Scheduled Receipts 175 Projected on Hand Net Requirements 25 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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -31

MRP - 5 ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 PERIOD 1 2 Gross Requirements 85 Scheduled Receipts 175 Projected on Hand Net Requirements 25 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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -32

MRP - 6 ITEM: LAPDESK LLC: 0 LOT SIZE: MULT 50 LT: 1 Gross Requirements PERIOD 1 2 0 60 3 4 0 60 Scheduled Receipts Projected on Hand 20 Net Requirements Planned Order Receipts Planned Order Releases © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -33 5 0

MRP - 7 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 Net Requirements 20 Planned Order Receipts Planned Order Releases 50 50 Following the same logic, the Lapdesk MRP matrix is completed as shown © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -34

MRP - 8 ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 Planned Order Releases 1 1 PERIOD 2 3 4 100 100 2 50 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 4 5 50 ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 PERIOD 3 5 PERIOD 1 2 3 150 15 -35

MRP – 9 ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 1 x 1 1 Planned Order Releases 2 50 ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 PERIOD 2 3 4 100 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e PERIOD 3 x 1 4 5 5 50 x 2 PERIOD 1 2 3 4 100 200 100 x 2 5 150 15 -36 0

MRP – 10 ITEM: CLIPBOARD LLC: 0 LOT SIZE: L 4 L LT: 1 Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1 1 x 1 1 Planned Order Releases 2 50 ITEM: PRESSBOARD LLC: 0 LOT SIZE: MIN 100 PERIOD 2 3 4 100 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 150 PERIOD 3 x 1 4 5 5 50 x 2 PERIOD 1 2 3 4 100 200 100 50 50 50 100 150 150 100 100 x 2 100 5 15 -37 0

MRP - 11 Planned Order Report ITEM Clipboard Lapdesk Pressboard © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e PERIOD 1 50 100 2 3 4 100 50 100 150 5 15 -38

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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -39

Advanced Lot Sizing Rules: L 4 L Total cost of L 4 L = (4 X $60) + (0 X $1) = $240 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -40

Advanced Lot Sizing Rules: EOQ minimum order quantity Total cost of EOQ = (2 X $60) + [(10 + 50 + 40) X $1)] = $220 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -41

Advanced Lot Sizing Rules: POQ periods worth of requirements Total cost of POQ = (2 X $60) + [(20 + 40) X $1] = $180 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -42

Planned Order Report Item On hand On order Allocated DATE 9 -26 9 -30 10 -01 10 -08 10 -10 10 -15 10 -23 10 -27 Key: #2740 100 200 50 ORDER NO. Date Lead time Lot size Safety stock SCHEDULED GROSS REQS. RECEIPTS AL 4416 AL 4174 GR 6470 SR 7542 CO 4471 GR 6471 GR 6473 AL = allocated CO = customer order PO = purchase order 25 25 50 200 75 50 25 50 PROJECTED ON HAND 50 25 0 - 50 150 75 25 0 - 50 9 - 25 - 05 2 weeks 200 50 ACTION Expedite SR 10 -01 Release PO 10 -13 WO = work order SR = scheduled receipt GR = gross requirement © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -43

MRP Action Report Current date 9 -25 -08 ITEM DATE #2740 #3616 #2412 #3427 #2516 #2740 #3666 10 -08 10 -09 10 -10 10 -15 10 -20 10 -27 10 -31 ORDER NO. QTY. 7542 200 7648 100 200 50 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e ACTION Expedite Move forward Move backward De-expedite Release SR PO PO PO SR PO WO 15 -44 10 -01 10 -07 10 -05 10 -25 10 -30 10 -13 10 -24

Capacity Requirements Planning (CRP) • Creates a load profile • Identifies under-loads and over-loads • Inputs • Planned order releases • Routing file • Open orders file © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -45

CRP © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -46

Calculating Capacity • Maximum capability to produce • Rated Capacity • Theoretical output that could be attained if a process were operating at full speed without interruption, exceptions, or downtime • Effective Capacity • 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) © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -47

Calculating Capacity • Utilization • Percent of available time spent working • Efficiency • How well a machine or worker performs compared to a standard output level • Load • Standard hours of work assigned to a facility • Load Percent • Ratio of load to capacity © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e Load Percent = load x 100% capacity 15 -48

Load Profiles • Graphical comparison of load versus capacity • Leveling underloaded conditions: • Acquire more work • Pull work ahead that is scheduled for later time periods • Reduce normal capacity • Load leveling • Process of balancing underloads and overloads © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -49

Reducing Over-load Conditions • • Eliminate unnecessary requirements Reroute jobs to alternative machines, workers, or work centers Split lots between two or more machines Increase normal capacity Subcontract Increase efficiency of the operation Push work back to later time periods Revise master schedule © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -50

Copy Courier • Two high-speed copiers that can be operated by one operator. • 2 shifts per day • 8 hours/shift , 5 days/week. • No breaks during the day • 30 minutes for lunch or dinner • Machine service time = 30 minutes at the beginning of each shift • Machine efficiency = 90%. • Capacity • 2 copiers * 2 shifts * 8 hrs/day * 7/8 utilization *. 90 efficiency = 1512 minutes/day © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -51

Copy Courier Job 10 20 30 40 50 No. of Copies 500 1000 5000 4500 2000 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e Setup Time (min) 5. 2 10. 6 3. 4 11. 2 15. 3 Run Time (min/unit) 0. 08 0. 10 0. 12 0. 14 0. 10 15 -52

Load Calculations Job 10 20 30 40 50 Setup + Run x No. Copies 5. 2 + (500 X 0. 08) 10. 6 + (1000 X 0. 10) 3. 4 + (5000 X 0. 12) 11. 2 + (4500 X 0. 14) 15. 3 + (2000 X 0. 10) © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e Job Time = 45. 20 = 110. 60 = 603. 40 = 641. 20 = 215. 30 1, 615. 70 min 15 -53

Loading Capacity 2 copiers * 2 shifts * 8 hrs/day * 7/8 utilization *. 90 efficiency = 1512 minutes/day Load percent = 1615. 70/1512 = 1. 068 X 100% = 106. 8% Overloaded by 6. 8%. Extends working day by approximately 36 minutes Load percent = 99%. Increase efficiency to 97%. © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -54

Initial Load Profile © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -55

Adjusted Load Profile © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -56

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. © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -57

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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -58

Organizational Data Flows © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -59

ERP’s Central Database © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -60

Selected Enterprise Software Vendors © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -61

ERP Implementation • Analyze business processes • Choose modules to implement • Which processes have the biggest impact on customer relations? • Which process would benefit the most from integration? • Which processes should be standardized? • Align level of sophistication • Finalize delivery and access • Link with external partners © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -62

Customer Relationship Management (CRM) • Software that • Plans and executes business processes • Involves customer interaction • Changes focus from managing products to managing customers • Analyzes point-of-sale data for patterns used to predict future behavior © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -63

Supply Chain Management • Software that plans and executes business processes related to supply chains • Includes • Supply chain planning • Supply chain execution • Supplier relationship management • Distinctions between ERP and SCM are becoming increasingly blurred © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -64

Product Lifecycle Management (PLM) • Software that • 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 © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -65

ERP and Software Systems © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -66

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, business language of Internet • Service-oriented architecture (SOA) • collection of “services” that communicate with each other within software or between software © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -67

Copyright 2014 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. © 2014 John Wiley & Sons, Inc. - Russell and Taylor 8 e 15 -68