1. Beni Asllani University of Tennessee at Chattanooga
Chapter 14
Resource Planning
Operations Management - 5th Edition
Roberta Russell & Bernard W. Taylor, III
Beni Asllani University of Tennessee at Chattanooga
Copyright 2006 John Wiley & Sons, Inc.

2. Lecture Outline Material Requirements Planning (MRP)
Capacity Requirements Planning (CRP)
Enterprise Resource Planning (ERP)
Customer Relationship Management (CRM)
Supply Chain Management (SCM)
Collaborative Product Commerce (CPC)
Copyright 2006 John Wiley & Sons, Inc.

3. Resource Planning for Manufacturing
Copyright 2006 John Wiley & Sons, Inc.

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
Copyright 2006 John Wiley & Sons, Inc.

5. Demand Characteristics
Week
400 –
300 –
200 –
100 –
No. of tables
Continuous demand
M T W Th F M T W Th F
Discrete demand
Independent demand
100 tables
Dependent demand
100 x 1 =
100 tabletops
100 x 4 = 400 table legs
Copyright 2006 John Wiley & Sons, Inc.

6. Material Requirements Planning
Planned order releases
Work orders
Purchase orders
Rescheduling notices
Item
master
file
Product
structure
Master production schedule
Copyright 2006 John Wiley & Sons, Inc.

7. MRP Inputs and Outputs Inputs Outputs Master production schedule
Product structure file
Item master file
Outputs
Planned order releases
Work orders
Purchase orders
Rescheduling notices
Copyright 2006 John Wiley & Sons, Inc.

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
Copyright 2006 John Wiley & Sons, Inc.

9. Master Production Schedule (cont.)
PERIOD
MPS ITEM
Clipboard
Lapdesk
Lapboard
Pencil Case
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10. Product Structure Clipboard Top clip (1) Bottom clip (1)
Pivot (1) Spring (1)
Rivets (2)
Finished clipboard Pressboard (1)
Clipboard
Copyright 2006 John Wiley & Sons, Inc.

11. Product Structure Tree
Clipboard
Level 0
Level 1
Level 2
Spring (1)
Bottom Clip (1)
Top Clip (1)
Pivot (1)
Rivets (2)
Clip Ass’y (1)
Pressboard (1)
Copyright 2006 John Wiley & Sons, Inc.

12. Intended BOM List 0 - - - - Clipboard ea 1
Clip Assembly ea 1
Top Clip ea 1
Bottom Clip ea 1
Pivot ea 1
Spring ea 1
Rivet ea 2
Press Board ea 1
LEVEL ITEM UNIT OF MEASURE QUANTITY
Copyright 2006 John Wiley & Sons, Inc.

13. Specialized BOMs Phantom bills K-bills Transient subassemblies
Never stocked
Immediately consumed in next stage
K-bills
Group small, loose parts under pseudo-item number
Reduces paperwork
Copyright 2006 John Wiley & Sons, Inc.

14. Specialized BOMs (cont.)
Modular bills
Product assembled from major subassemblies and customer options
Modular bill kept for each major subassembly
Simplifies forecasting and planning
X10 automobile example
3 x 8 x 3 x 8 x 4 = 2,304 configurations
= 26 modular bills
Time-phased bills
an assembly chart shown against a time scale
Copyright 2006 John Wiley & Sons, Inc.

15. Modular BOMs Copyright 2006 John Wiley & Sons, Inc. X10 Automobile
4-Cylinder (.40) Bright red (.10) Leather (.20) Grey (.10) Sports coupe (.20)
6-Cylinder (.50) White linen (.10) Tweed (.40) Light blue (.10) Two-door (.20)
8-Cylinder (.10) Sulphur yellow (.10) Plush (.40) Rose (.10) Four-door (.30)
Neon orange (.10) Off-white (.20) Station wagon (.30)
Metallic blue (.10) Cool green (.10)
Emerald green (.10) Black (.20)
Jet black (.20) Brown (.10)
Champagne (.20) B/W checked (.10)
X10
Automobile
Engines Exterior color Interior Interior color Body
(1 of 3) (1 of 8) (1 of 3) (1 of 8) (1 of 4)
Copyright 2006 John Wiley & Sons, Inc.

16. 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
Copyright 2006 John Wiley & Sons, Inc.

17. Item Master File DESCRIPTION INVENTORY POLICY
Item Pressboard Lead time 1
Item no. 734 Annual demand 5000
Item type Purch Holding cost 1
Product/sales class Comp Ordering/setup cost 50
Value class B Safety stock 0
Buyer/planner RSR Reorder point 39
Vendor/drawing EOQ 316
Phantom code N Minimum order qty 100
Unit price/cost 1.25 Maximum order qty 500
Pegging Y Multiple order qty
LLC 1 Policy code 3
Copyright 2006 John Wiley & Sons, Inc.

18. Item Master File (cont.)
PHYSICAL INVENTORY USAGE/SALES
CODES
On hand 100 YTD usage/sales 1100
Location W142 MTD usage/sales 75
On order 100 YTD receipts 1200
Allocated 75 MTD receipts 0
Cycle 3 Last receipt 8/25
Last count 9/5 Last issue 10/5
Difference -2
Cost acct
Routing 00326
Engr 07142
Copyright 2006 John Wiley & Sons, Inc.

19. MRP Processes Exploding the bill of material Netting out inventory
Lot sizing
Time-phasing requirements
Copyright 2006 John Wiley & Sons, Inc.

20. MRP Matrix
Copyright 2006 John Wiley & Sons, Inc.

21. MRP: Example Master Production Schedule 1 2 3 4 5
Clipboard
Lapdesk
Item Master File
CLIPBOARD LAPDESK PRESSBOARD
On hand
On order 175 (Period 1) 0 0
(sch receipt)
LLC 0 0 1
Lot size L4L Mult 50 Min 100
Lead time 1 1 1
Copyright 2006 John Wiley & Sons, Inc.

22. MRP: Example (cont.) Product Structure Record Clipboard Lapdesk
Pressboard
(2)
Trim
(3’)
Beanbag
(1)
Glue
(4 oz)
Level 0
Clip Ass’y
Rivets
Level 1
Copyright 2006 John Wiley & Sons, Inc.

23. MRP: Example (cont.) ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Gross Requirements
Scheduled Receipts 175
Projected on Hand 25
Net Requirements
Planned Order Receipts
Planned Order Releases
Copyright 2006 John Wiley & Sons, Inc.

24. MRP: Example (cont.) (25 + 175) = 200 units available
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Gross Requirements
Scheduled Receipts 175
Projected on Hand
Net Requirements 0
Planned Order Receipts
Planned Order Releases
( ) = 200 units available
( ) = 115 on hand at the end of Period 1
Copyright 2006 John Wiley & Sons, Inc.

25. MRP: Example (cont.) 115 units available
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Gross Requirements
Scheduled Receipts 175
Projected on Hand
Net Requirements 0 0
Planned Order Receipts
Planned Order Releases
115 units available
( ) = 20 on hand at the end of Period 2
Copyright 2006 John Wiley & Sons, Inc.

26. MRP: Example (cont.) 20 units available
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Gross Requirements
Scheduled Receipts 175
Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases 100
20 units available
( ) = -100 — 100 additional Clipboards are required
Order must be placed in Period 2 to be received in Period 3
Copyright 2006 John Wiley & Sons, Inc.

27. MRP: Example (cont.)
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Gross Requirements
Scheduled Receipts 175
Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases
Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases
Copyright 2006 John Wiley & Sons, Inc.

28. MRP: Example (cont.) ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT:
Gross Requirements
Scheduled Receipts
Projected on Hand 20
Net Requirements
Planned Order Receipts
Planned Order Releases
Copyright 2006 John Wiley & Sons, Inc.

29. MRP: Example (cont.)
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT:
Gross Requirements
Scheduled Receipts
Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases
Following the same logic, the Lapdesk MRP matrix is completed as shown
Copyright 2006 John Wiley & Sons, Inc.

30. MRP: Example (cont.) ITEM: CLIPBOARD LLC: 0 PERIOD
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT:
Gross Requirements
Scheduled Receipts
Projected on Hand 150
Net Requirements
Planned Order Receipts
Planned Order Releases
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Planned Order Releases
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT:
Planned Order Releases
Copyright 2006 John Wiley & Sons, Inc.

31. MRP: Example (cont.) x1 x2 ITEM: CLIPBOARD LLC: 0 PERIOD
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT:
Gross Requirements
Scheduled Receipts
Projected on Hand 150
Net Requirements
Planned Order Receipts
Planned Order Releases
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Planned Order Releases
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT:
Planned Order Releases x2 x1
Copyright 2006 John Wiley & Sons, Inc.

32. MRP: Example (cont.) ITEM: CLIPBOARD LLC: 0 PERIOD
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT:
Gross Requirements
Scheduled Receipts
Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT:
Planned Order Releases
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT:
Planned Order Releases
Copyright 2006 John Wiley & Sons, Inc.

33. MRP: Example (cont.) Planned Order Report PERIOD ITEM 1 2 3 4 5
Clipboard
Lapdesk
Pressboard
Copyright 2006 John Wiley & Sons, Inc.

34. 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
Copyright 2006 John Wiley & Sons, Inc.

35. Advanced Lot Sizing Rules: L4L
Total cost of L4L = (4 X $60) + (0 X $1) = $240
Copyright 2006 John Wiley & Sons, Inc.

36. Advanced Lot Sizing Rules: EOQ
minimum order quantity
Total cost of EOQ = (2 X $60) + [( ) X $1)] = $220
Copyright 2006 John Wiley & Sons, Inc.

37. Advanced Lot Sizing Rules: POQ
periods worth of requirements
Total cost of POQ = (2 X $60) + (20 X $1) = $180
Copyright 2006 John Wiley & Sons, Inc.

38. Planned Order Report Item #2740 Date 9 - 25 - 05
On hand 100 Lead time 2 weeks
On order 200 Lot size 200
Allocated 50 Safety stock 50
SCHEDULED PROJECTED
DATE ORDER NO. GROSS REQS. RECEIPTS ON HAND ACTION 50
9-26 AL
9-30 AL
10-01 GR
10-08 SR Expedite SR 10-01
10-10 CO
10-15 GR
10-23 GR
10-27 GR Release PO 10-13
Key: AL = allocated WO = work order
CO = customer order SR = scheduled receipt
PO = purchase order GR = gross requirement
Copyright 2006 John Wiley & Sons, Inc.

39. MRP Action Report Current date 9-25-05 ITEM DATE ORDER NO. QTY. ACTION
# Expedite SR 10-01
# Move forward PO 10-07
# Move forward PO 10-05
# Move backward PO 10-25
# De-expedite SR 10-30
# Release PO 10-13
# Release WO 10-24
Copyright 2006 John Wiley & Sons, Inc.

40. Capacity Requirements Planning (CRP)
Creates a load profile
Identifies under-loads and over-loads
Inputs
Planned order releases
Routing file
Open orders file
Copyright 2006 John Wiley & Sons, Inc.

41. CRP MRP planned order releases Routing file Capacity requirements
planning
Open
orders
Load profile for
each machine center
Copyright 2006 John Wiley & Sons, Inc.

42. Leveling Under-load Conditions
Acquire more work
Pull work ahead that is scheduled for later time periods
Reduce normal capacity
Copyright 2006 John Wiley & Sons, Inc.

43. Reducing Over-load Conditions
Eliminating unnecessary requirements
Rerouting jobs to alternative machines, workers, or work centers
Splitting lots between two or more machines
Increasing normal capacity
Subcontracting
Increasing efficiency of the operation
Pushing work back to later time periods
Revising master schedule
Copyright 2006 John Wiley & Sons, Inc.

44. Initial Load Profile Hours of capacity Normal capacity Time (weeks)
Time (weeks)
Normal
capacity
120 –
110 –
100 –
90 –
80 –
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0 –
Copyright 2006 John Wiley & Sons, Inc.

45. Adjusted Load Profile Hours of capacity Normal capacity Time (weeks)
Time (weeks)
Normal
capacity
120 –
110 –
100 –
90 –
80 –
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0 –
Pull ahead
Push back
Overtime
Work an extra shift
Copyright 2006 John Wiley & Sons, Inc.

46. 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.
Copyright 2006 John Wiley & Sons, Inc.

47. 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
Copyright 2006 John Wiley & Sons, Inc.

48. ERP Modules
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49. 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 2006 John Wiley & Sons, Inc.

50. Selected Enterprise Software Vendors
Copyright 2006 John Wiley & Sons, Inc.

51. 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
Copyright 2006 John Wiley & Sons, Inc.

52. 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
Copyright 2006 John Wiley & Sons, Inc.

53. Supply Chain Management
Software that plans and executes business processes related to supply chains
Includes
Supply chain planning
Supply chain execution
Supplier relationships
Distinctions between ERP and SCM are becoming increasingly blurred
Copyright 2006 John Wiley & Sons, Inc.

54. Collaborative Product Commerce (CPC)
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
Copyright 2006 John Wiley & Sons, Inc.

55. ERP and Software Systems
Customer Relationship Management (CRM)
Enterprise Resource Planning (ERP)
Collaborative Product Commerce (CPC)
Supply Chain Management (SCM)
Time to Market
Time to Customer
Customers
Product Design
Suppliers
Collaborative Design
Manufacture &
Delivery
Collaborative Manufacture
DFMA
Source: Adapted from George Shaw, “Building the Lean Enterprise: Reducing Time to Market.” Industry Week (Webcast, June 14, 2001), pent0614.html
Copyright 2006 John Wiley & Sons, Inc.

56. 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
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57. Copyright 2006 John Wiley & Sons, Inc. All rights reserved
Copyright 2006 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.
Copyright 2006 John Wiley & Sons, Inc.