Aggregate Planning and Resource Planning Chapters 13 and 14

Management 326 Operations and Operations Strategy Designing an Operations System Managing an Operations System Improving an Operations System (Just-in-Time) Inventory Management for 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 Planning for 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 Plan and Master Production Schedule (MPS)

Master Production Schedule

Aggregate Planning Options Work 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 Options Demand Management To increase demand, reduce prices and offer special promotions Service firms often use appointment systems to match supply and demand

Ch © 1998 by Prentice-Hall Inc Russell/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 © 1998 by Prentice-Hall Inc Russell/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