To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Chapter 12 Resource Planning

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Learning Objectives Be Able To Apply Concepts Listed In Learning Goals Be Able To Use Formulas Listed In The Equation Summary of Chapter

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Planning (MRP)

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP Computer Based System Explodes Master Production Schedule (MPS) Into Required Amounts of Raw Materials & Subassemblies to Support MPS Nets Against Current Orders & Inventories to Develop Production & Purchased Material Ordering Schedules

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Objectives of MRP Improve Customer Service Reduce Inventory Investment Improve Plant Operating Efficiency

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Order Changes Order PlanningReport Elements of MRP MRPSystem Planned Order Schedule Inventory Transaction Data Bill of Materials File Materials File MasterProductionSchedule Inventory Status File Service-Parts Orders and Forecasts Performance Performance Action Notices InputsOutputs

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP Computer Program Begins With Number of End Items Needed Add Service Parts Not Included in MPS Explode MPS Into Gross Requirements by Consulting Bill of Materials File Modify Gross Requirements to Get Net Requirements: Net Requirements = Gross Requirements + Allocated Inventory + Safety Stock - Inventory On Hand Offset Orders to Allow for Lead Time

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Plan Inputs Bills of materials Engineering and process designs

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Plan Inputs Bills of materials Engineering and process designs Other sources of demand Authorized master production schedule

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Plan Inputs Inventory transactions Inventory records Bills of materials Engineering and process designs Other sources of demand Authorized master production schedule

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Plan Explosion Inventory transactions Inventory records Bills of materials Engineering and process designs MRPexplosion Other sources of demand Authorized master production schedule

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Plan Output Inventory transactions Inventory records Bills of materials Engineering and process designs Material requirements plan MRPexplosion Other sources of demand Authorized master production schedule

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Bill of Materials Seat cushion Seat-frame boards Front legs A Ladder-back chair Back legs Leg supports Back slats

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Bill of Materials Back slatsSeat cushion Seat-frame boards Leg supports Front legs Back legs A Ladder-back chair J (4) Seat-frame boards C (1) Seat subassembly D (2) Front legs B (1) Ladder-back subassembly E (4) Leg supports ALadder-backchair I (1) Seat cushion H (1) Seat frame G (4) Back slats F (2) Back legs Level Code

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Master Production Schedule 200 Ladder-back chair Kitchen chair Desk chair 12 AprilMay Aggregate production plan for chair family 670

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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 =+–

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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 =+–

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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 =

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Safety Stock

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP Outputs MRP explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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 MRP explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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 MRP explosion Routings and time standards

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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 MRP explosion Manufacturing resources plan Performance reports Routings and time standards

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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 MRP explosion Manufacturing resources plan Performance reports Cost and price data Routings and time standards

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week MRP Explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. 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

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. CRP

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. CRP Tests MPS for Feasibility Utilizes Routings to Determine Labor/Machine Loads If Schedule Feasible, Recommends Freezing If Schedule Overloads Resources, Points Out Processes That Are Overscheduled

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Load Schedules Compares Actual Labor and Machine Hours Against Available Hours Offsets Schedules Between Successive Stages of Production by Lead Times Provides Feasible MPS and Economically Loaded Work Centers Promotes System Operating Efficiency... Lowers Costs!

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Capacity Requirements Date:Week: 32 Plant 01 Dept. 03: Lathe Station Capacity: 320 hours per week Week Planned hours Actual hours Total hours

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Capacity Requirements Date:Week: 32 Plant 01 Dept. 03: Lathe Station Capacity: 320 hours per week Week Planned hours Actual hours Total hours

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Capacity Requirements Date:Week: 32 Plant 01 Dept. 03: Lathe Station Capacity: 320 hours per week Week Planned hours Actual hours Total hours

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Capacity Requirements Explanation: Projected capacity requirements exceed weekly hours of capacity. Date:Week: 32 Plant 01 Dept. 03: Lathe Station Capacity: 320 hours per week Week Planned hours Actual hours Total hours

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP II Inventory records Inventory transactions Bills of materials Routings Time standards MRPexplosion Master production schedule Customer ordersForecasts Figure 12.11

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP II Figure Material requirements plan Inventory records Inventory transactions Bills of materials Routings Time standards MRPexplosion Master production schedule Customer ordersForecasts

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP II Figure Material requirements plan Inventory records Inventory transactions Bills of materials Routings Time standards MRPexplosion Master production schedule Manufacturing resource plan Cost and financial data Customer ordersForecasts

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP II Figure Material requirements plan Inventory records Inventory transactions Bills of materials Routings Time standards MRPexplosion Master production schedule Manufacturing resource plan Cost and financial data Purchasing reports Financial/ accounting reports Sales and marketing reports Human resource reports Manufacturing reports Customer ordersForecasts

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Distribution Requirements Planning Retail stores

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Distribution Requirements Planning Retail stores Distribution centers

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Distribution Requirements Planning Retail stores Distribution centers Plants

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Bill of Resources (a) Level 1 Discharge Level 2 Intermediate care Level 3 Postoperative care (Step down) Level 4 Postoperative care (Intensive) Level 7 Postoperative care (Testing) Level 5 Surgery Level 6 Postoperative care (Angiogram)

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Bill of Resources Level 6 Postoperative care (Angiogram) (b) (a) Level 1 Discharge Level 2 Intermediate care Level 3 Postoperative care (Step down) Level 4 Postoperative care (Intensive) Level 7 Postoperative care (Testing) Level 5 Surgery Level 6 Postoperative care (Angiogram)

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Bill of Resources Level 6 Postoperative care (Angiogram) (b) (a) Level 1 Discharge Level 2 Intermediate care Level 3 Postoperative care (Step down) Level 4 Postoperative care (Intensive) Level 7 Postoperative care (Testing) Level 5 Surgery Level 6 Postoperative care (Angiogram)

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Bill of Resources (a) Level 1 Discharge Level 2 Intermediate care Level 3 Postoperative care (Step down) Level 4 Postoperative care (Intensive) Level 7 Postoperative care (Testing) Level 5 Surgery Level 6 Postoperative care (Angiogram) Nurse (6 hr) MD (1 hr) Therapy (1 hr) Bed (24 hr) Lab (3 tests) Kitchen (1 meal) Pharmacy (10 medicines) (b) Level 6 Postoperative care (Angiogram)