Resource Planning OPIM 310-Lecture #7 Instructor: Jose Cruz

Enterprise Resource Planning (ERP) Organizes and manages a company’s business processes by sharing information across functional areas Organizes and manages a company’s business processes by sharing information across functional areas Connects with supply-chain and customer management applications Connects with supply-chain and customer management applications

ERP’s Central Database Finance & Accounting Sales & Marketing Human Resources Production & Materials Management ERP Data Repository

ERP and MRP MRP (material requirements planning) was the precursor to ERP MRP (material requirements planning) was the precursor to ERP Primarily a production planning and control system Primarily a production planning and control system MRP evolved to MRP II (manufacturing resource planning) MRP evolved to MRP II (manufacturing resource planning) ERP and ERP II continue to extend the links through all business processes ERP and ERP II continue to extend the links through all business processes

Bills of materials Engineering and process designs Material Requirements Plan Output Inventory transactions Inventory records Other sources of demand Authorized master production schedule Material requirements plan MRPexplosion

Bill of Materials Figure 16.3 Seat cushion Seat-frame boards Front legs A Ladder-back chair Back legs Leg supports Back slats

Bill of Materials J (4) Seat-frame boards I (1) Seat cushion H (1) Seat frame G (4) Back slats F (2) Back legs C (1) Seat subassembly D (2) Front legs B (1) Ladder-back subassembly E (4) Leg supports ALadder-backchair Figure 16.3

Material Requirements Planning Computerized inventory control & production planning system Computerized inventory control & production planning system Schedules component items when they are needed - no earlier and no later Schedules component items when they are needed - no earlier and no later

When to Use MRP Dependent and discrete items Dependent and discrete items Complex products Complex products Job shop production Job shop production Assemble-to-order environments Assemble-to-order environments

Demand Characteristics Week – – – – No. of tables Continuous demand M T W Th F M T W Th F – – – – No. of tables Discrete demand Independent demand 100 tables Dependent demand 100 x 1 = 100 tabletops 100 x 4 = 400 table legs

MRP Outputs Planned orders Planned orders Work orders Work orders Purchase orders Purchase orders Changes to previous plans or existing schedules Changes to previous plans or existing schedules Action notices Action notices Rescheduling notices Rescheduling notices

Master Production Schedule Ladder-back chair Kitchen chair Desk chair 12 AprilMay Aggregate production plan for chair family

Master Production Schedule Drives MRP process with a schedule of finished products Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities represent production not demand Quantities may consist of a combination of customer orders & demand forecasts Quantities may consist of a combination of customer orders & demand forecasts Quantities represent what needs to be produced, not what can be produced Quantities represent what needs to be produced, not what can be produced

Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases Week

Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 00 Explanation: Gross requirements are the total demand for the two chairs. Projected on-hand inventory in week 1 is – 150

Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 00 Explanation: Gross requirements are the total demand for the two chairs. Projected on-hand inventory in week 1 is – 150 = 117 units.

Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 00

Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 00 Projected on-hand inventory balance at end of week t Inventory on hand at end of week t - 1 Gross requirements in week t Scheduled or planned receipts in week t =+–

Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week – 3 –153–273–273 Projected on-hand inventory balance at end of week t Inventory on hand at end of week t - 1 Gross requirements in week t Scheduled or planned receipts in week t =+–

Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week –3 – 3 –153 – 273 Planned Orders Explanation: Without a new order in week 4, there will be a shortage of three units: – 120 = – 3 units.

Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders

Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: Adding the planned receipt brings the balance to – 120 = 227 units.

Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: Adding the planned receipt brings the balance to – 120 = 227 units.

Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: Offsetting for a two-week lead time puts the corresponding planned order release back to week 2.

Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: Offsetting for a two-week lead time puts the corresponding planned order release back to week 2.

Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week –43 Planned Orders Explanation: The first planned order lasts until week 7, when projected inventory would drop to – 43.

Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: 230 Adding the second planned receipt brings the balance to – 120 = 187.

Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: 230 Adding the second planned receipt brings the balance to – 120 =

Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: The corresponding planned order release is for week 5.

Planned Orders Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week

Lot-Sizing Rules Fixed order Quantity (FOQ)- A rule that maintains the same order quantity each time an order is issued.Fixed order Quantity (FOQ)- A rule that maintains the same order quantity each time an order is issued. Periodic Order Quantity (POQ)- A rule that allows a different order quantity for each order issued but tends to issue the order at predetermined time intervals.Periodic Order Quantity (POQ)- A rule that allows a different order quantity for each order issued but tends to issue the order at predetermined time intervals. Lot For Lot (L4L)- A rule under which the lot size ordered covers the gross requirements of a single weekLot For Lot (L4L)- A rule under which the lot size ordered covers the gross requirements of a single week

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases Week

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week POQ lot size Gross requirements for weeks 4, 5, and 6 Inventory at end of week 3 = –

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week ( )

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week ( ) – 117

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week ( ) – 117 = 153 units 153

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week ( ) – 117 = 153 units 153

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week ( ) – 117 = 153 units

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week ( ) – 117 = 153 units

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week ( ) – 0 = 120 units

Lot-Sizing Rules – POQ Item: C Description: Seat subassembly Lot Size: P = 3 Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week

Lot-Sizing Rules – POQ

Lot-Sizing Rules – L4L Item: C Description: Seat subassembly Lot Size: L4L Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases Week

Lot-Sizing Rules – L4L Item: C Description: Seat subassembly Lot Size: L4L Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week L4L lot size Gross requirements in week 4 Inventory balance at end of week 3 = –

Lot-Sizing Rules – L4L Item: C Description: Seat subassembly Lot Size: L4L Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week = 120 – 117 = 3 L4L lot size

Lot-Sizing Rules – L4L Item: C Description: Seat subassembly Lot Size: L4L Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week = 120 – 117 = 3 L4L lot size

Lot-Sizing Rules – L4L Item: C Description: Seat subassembly Lot Size: L4L Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week = 120 – 117 = 3 L4L lot size

Lot-Sizing Rules – L4L Item: C Description: Seat subassembly Lot Size: L4L Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week

Lot-Sizing Rules – L4L Item: C Description: Seat subassembly Lot Size: L4L Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week

Lot-Sizing Rules – L4L Item: C Description: Seat subassembly Lot Size: L4L Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week

Lot-Sizing Rules – L4L Item: C Description: Seat subassembly Lot Size: L4L Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week

Lot-Sizing Rules – L4L

Lot-Sizing Rule Comparison  The FOQ rule generates high average inventory because it creates remnants.  The POQ rule reduces average on-hand inventory because it does a better job of matching order quantity to requirements.  The L4L rule minimizes inventory investment but maximizes the number of orders placed.

Safety Stock

MRP Outputs Material requirements plan Action notices   Releasing new orders   Adjusting due dates Priority reports   Dispatch lists   Supplier schedules Capacity reports   Capacity requirements planning   Finite capacity scheduling   Input-output control Manufacturing resources plan Performance reports Cost and price data Routings and time standards MRP explosion

Bill of Materials J (4) Seat-frame boards H (1) Seat frame I (1) Seat cushion C (1) Seat subassembly

MRP Explosion Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week

Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week MRP Explosion

Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week MRP Explosion Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week

Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week Usage quantity: 1 MRP Explosion

Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week Usage quantity: 1 MRP Explosion

Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week MRP Explosion

Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Planned receipts Planned order releases Week MRP Explosion

Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Planned receipts Planned order releases Week Gross requirements Scheduled receipts Planned receipts Planned order releases 200 Week Projected on-hand inventory Item: Seat-frame boards Lot size: 1500 units Lead time: 1 week MRP Explosion

Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Planned receipts Planned order releases Week Gross requirements Scheduled receipts Planned receipts Planned order releases 200 Week Projected on-hand inventory Item: Seat-frame boards Lot size: 1500 units Lead time: 1 week Usage quantity: 4 MRP Explosion

Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Planned receipts Planned order releases Week Gross requirements Scheduled receipts Planned receipts Planned order releases 200 Week Projected on-hand inventory Item: Seat-frame boards Lot size: 1500 units Lead time: 1 week Figure MRP Explosion

Capacity Requirements Planning (CRP) Computerized system that projects load from material plan Computerized system that projects load from material plan Creates load profile Creates load profile Identifies underloads and overloads Identifies underloads and overloads

Capacity Usually expressed as standard machine hours or labor hours Capacity= (no. machines or workers) x (no. shifts) x (utilization) x (efficiency)

Capacity Terms Load profile Load profile Compares released and planned orders with work center capacity Compares released and planned orders with work center capacity Capacity Capacity Productive capability; includes utilization and efficiency Productive capability; includes utilization and efficiency Utilization Utilization % of available working time spent working % of available working time spent working

More Capacity Terms Efficiency Efficiency Load Load The standard hours of work assigned to a facility The standard hours of work assigned to a facility Load percent Load percent The ratio of load to capacity Load % = (load/capacity)x100% The ratio of load to capacity Load % = (load/capacity)x100%

Capacity Requirements Planning MRP planned order releases Routing file Capacity requirements planning Open orders file Load profile for each machine center

Initial Load Profile Figure 12.9 Hours of capacity Time (weeks) Normalcapacity – – – – – – – – – – – – 0 0 –

Remedies for Underloads 1.Acquire more work 2.Pull work ahead that is scheduled for later time periods 3.Reduce normal capacity

Remedies for Overloads 1.Eliminate unnecessary requirements 2.Reroute jobs to alternative machines or work centers 3.Split lots between two or more machines 4.Increase normal capacity 5.Subcontract 6.Increase the efficiency of the operation 7.Push work back to later time periods 8.Revise master schedule

Adjusted Load Profile Hours of capacity Time (weeks) Normalcapacity – – – – – – – – – – – – 0 0 – Pull ahead Push back Overtime Work an extra shift