Resource Planning: © 2007 Pearson Education

Resource Planning
Chapter 15
2007 Pearson Education
How Resource Planning fits the Operations Management Philosophy
Operations As a Competitive Weapon Operations Strategy Project Management
Process Strategy Process Analysis Process Performance and Quality Constraint Management Process Layout Lean Systems
Supply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling
Resource Planning at Starwood

Starwood manages employees, equipment, and supplies at 750 hotels around the world to ensure that the needs and expectations of each and every customer are met. To help forecast these needs, Starwood now uses an enterprise resource planning (ERP) system. Included in the ERP system by Oracle is an electronic reservation system that profiles the preferences of guests, allowing the staff to provide a customized experience for each guest. The ERP system schedules the hotels staff members, projects the amount of food, beverages, and other resources needed for the hotels food-service department. Starwoods ERP system also features a centralized database with accounting data, payroll, accounts payable information, general ledger and balance sheet, as well as income statements for its various properties.
Resource Planning and ERP

Resource planning: A process that takes sales and operations plans; processes information in the way of time standards, routings, and other information on how the firm produces its services or products; and then plans the input requirements. Enterprise process: A companywide process that cuts across functional areas, business units, geographical regions, and product lines. Enterprise resource planning (ERP) systems: Large, integrated information systems that support many enterprise processes and data storage needs.
ERP Application Modules
ERP Design
ERP revolves around a single comprehensive database that can be made available across the entire organization (or enterprise). The database collects data and feeds them into the various modular applications (or suites).
As new information is entered as a transaction in one application, related information is automatically updated in the other applications. The ERP system streamlines the data flows throughout the organization and provides employees with direct access to a wealth of real-time operating information. ERP eliminates many of the cross-functional coordination problems older nonintegrated systems suffered from.
Dependent Demand
Dependent demand: The demand for an item that occurs because the quantity required varies with the production plans for other items held in the firms inventory. Parent: Any product that is manufactured from one or more components.
Component: An item that goes through one or more operations to be transformed into or become part of one or more parents.
Lumpy Dependent Demand Resulting from Continuous Independent Demand
Parent Inventory (Independent)
Component Demand (Dependent)
Possible Planning and Control Systems

The most prominent systems now in use are the material requirements planning (MRP) system, the Drum-Buffer-Rope (DBR) system, and lean systems.
Products with many levels

of components, and more customization Lumpy demand, often with larger batch sizes Make-to-order, assembleto-order, and make-to-stock strategies Lower and intermediate volumes, with flexible flows
Capacity is leveraged to
control bottlenecks and entire system flow Simpler product structures and more standardized products Assemble-to-order or maketo-stock strategy Relatively higher volumes, with flexible flows transitioning to line flows
Using system as catalyst for

continuous improvement Small lot sizes, consistent quality, reliable suppliers, and flexible workforce Assemble-to-order or maketo-stock strategy High volumes and wellbalanced line flows
Material Requirements Planning

Material requirements planning (MRP): A
computerized information system developed specifically to help manufacturers manage dependent demand inventory and schedule replenishment orders.
MRP explosion: A process that converts the requirements

of various final products into a material requirements plan that specifies the replenishment schedules of all the subassemblies, components, and raw materials needed to produce final products.
Bill of materials (BOM): A record of all the components

of an item, the parentcomponent relationships, and the usage quantities derived from engineering and process designs.
MRP Inputs
Authorized master production schedule
Other sources of demand
Inventory transactions
Inventory records
MRP explosion
Bills of materials
Engineering and process designs
Material requirements plan

Bill of Materials Terms

Usage quantity: The number of units of a component that are needed to make one unit of its immediate parent. Inventory items:
End item: The final product sold to a customer. Intermediate item: An item that has at least one parent and at least one component. Subassembly: An intermediate item that is assembled (as opposed to being transformed by other means) from more than one component. Purchased item: An item that has one or more parents but no components because it comes from a supplier.
Part commonality: The degree to which a component has more than one immediate parent.
Bill of Materials
Back slats
Seat cushion
Leg supports
Seat-frame boards
Back legs
Front legs
A Ladder-back chair
Bill of Materials
A Ladder-back chair
B (1) Ladder-back subassembly
C (1) Seat subassembly
D (2) Front legs
E (4) Leg supports
F (2) Back legs
G (4) Back slats
H (1) Seat frame
I (1) Seat cushion
J (4) Seat-frame boards

Master Production Schedule

Master production schedule (MPS): A part of the material requirements plan that details how many end items will be produced within specified periods of time. MPS for a Family of chairs
April 1 Ladder-back chair Kitchen chair Desk chair Aggregate production plan for chair family
May 3 4 5 6 7 8
150
120 200 200 200
150
120 200
670
670
Master Production Scheduling Process

Operations must first create a prospective MPS to test whether it meets the schedule with the resources.
Developing a Master Production Schedule

MPS for Weeks 1 & 2
Forecast is less than booked orders in week 1; projected on-hand inventory balance = 55 + 0 38 = 17.
Forecast exceeds booked orders in week 2; projected onhand inventory balance = 17 + 0 30 = 13. The shortage signals a need to schedule an MPS quantity for completion in week 2.
Available-To-Promise Inventory
Available-to-promise (ATP) inventory: The quantity of end items that marketing can promise to deliver on specified dates.
It is the difference between the customer orders already booked and the quantity that operations is planning to produce.
As new customer orders are accepted, the ATP inventory is reduced to reflect the commitment of the firm to ship those quantities
Actual inventory stays unchanged until the order is removed from inventory and shipped to the customer.
MPS Worksheet
MPS
Schedule with
Item: Ladder-back chair
Order Policy: 150 units Lead Time: 1 week April May 3 30 4 30 5 35 6 35 7 35 8 35
ATP
Quantity on Hand: Forecast
55
1 30
2 30
Customer orders booked Projected on-hand inventory MPS quantity
38
27
24
17
137
107
77
42
122
87
150
150
MPS start Available-topromise (ATP) inventory
150
150
17
91
150
The total of customer orders booked until the next MPS receipt is 38 is 27 The total of customer orders booked until the next MPS receipt + units. 8 = ATP = 55 The ATP = 150 (MPS quantity) 59 24 + The 2007 Pearson Education 59 units. (on-hand) + 0 (MPS quantity) 38 = 17. = 91 units.
MPS for Product A

Application 15.1
MPS for Product A

Application 15.1
Inventory Record
Inventory record: A record that shows an items lot-size policy, lead time, and various time-phased data.
Gross requirements: The total demand derived from all parent production plans.
Scheduled Receipts (open orders) are orders that have been placed but not yet completed.
Projected on-hand inventory: An estimate of the amount of inventory available each week after gross requirements have been satisfied. Planned receipts: Orders that are not yet released to the shop or supplier. Planned order release: An indication of when an order for a specified quantity of an item is to be issued.
Inventory Record 8-Period Worksheet
Inventory Record
Shows an items lot-size policy, lead time, and various time-phased data.
Lot Size: 230 units Item: C Description: Ladder-back Chair Seat subassembly Lead Time: 2 weeks
Week 1 Gross requirements Scheduled receipts Projected on-hand 37 inventory Planned receipts Planned order releases 230 150 230 117 2 0 0 3 0 0 4 120 0 5 0 0 227 6 150 0 7 120 0 187 8 0 0 187
117
117
227
230
77
230 230
2007 Pearson Education 2007 Pearson Education
Projected on-hand inventory: demandorders that of Scheduled Receipts The total An are when the amount a Gross requirements:(open orders)not yet released have been Planned order release: An that are estimate ofan from all parent Planned receipts: each week after gross requirementsfor shop Orders indication of derived order the to have inventory available placedsupplier. but plans. specified quantity of an item is to be issued. production not yet completed. or thesatisfied. been
Lot Size: 230 units Item: C Description: Ladder-back Chair Seat subassembly Lead Time: 2 weeks Week 1 Gross requirements Scheduled receipts Projected on-hand 37 inventory Planned receipts Planned order releases 230 2 3 4 5 6 7 8
150
230 117
0
0 117
0
0 117
120
0 227 230
0
0 227
150
0 77
120
0
0
0 187
187
230
230
The first a planned receipt in week 4, a shortage of 3 units will occur: 117 + 0 + 0 Without planned receipt lasts until week 7, when projected inventory would drop to 120+ 03 0 120 = 43the planned receipt bringsplanned receipt117 + 0the 77 = + units. Adding units. Adding the second the balance to brings + balance to = 227 units. Offsetting187 a 2-week lead time puts the corresponding 230 120 77 + 0 + 230 120 = for units. The corresponding planned order release is for week 5 (or week 7 minus 2 weeks). planned order release back to week 2.
Planning Factors
Planning lead time: An estimate of the time between placing an order for an item and receiving the item in inventory. Setup time Processing time Materials handling time between operations Waiting time Lot-sizing rules: A rule that determines the timing and size of order quantities. 2007 Pearson Education
Lot Sizing Rules

Fixed Order Quantity (FOQ)
Fixed order quantity (FOQ): A rule that maintains the same order quantity each time an order is issued. Dictated by
Equipment capacity limits Quantity discount Truckload capacity Minimum purchase quantity EOQ
H10-A Using FOQ

Application 15.2
H10-A Using FOQ

Application 15.2
Lot Sizing Rules

Periodic Order Quantity (POQ)
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.
The order quantity equals the amount of the item needed to covers P weeks worth of gross requirements.
POQ lot size to arrive in week t
Total Gross requirements for P weeks, including week t
Projected on-hand inventory balance at end of week t-1
The POQ (P = 3) Rule for the

Ladder-back Chair Seat Subassembly
Item: C Description: Ladder-back Chair Seat subassembly Week 1 Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 2007 Pearson Education 153 150 2 3 4 120 5 6 150 7 120 8 Lot Size: P = 3 Lead Time: 2 weeks
230
(120 + 0 + 150) - 117 = 153

117 117 150 150 0 0 0
37
117
153
120
120
H10-A Using POQ

Application 15.3
H10-A Using POQ

Application 15.3
Lot-for-Lot
Lot-for-lot (L4L) rule: A rule under which the lot size ordered covers the gross requirements of a single week. Thus P = 1, and the goal is to minimize inventory levels. The projected on-hand inventory combined with the new order will equal zero at the end of week t.
L4L lot size to arrive in week t
Gross requirements for week t
Projected on-hand inventory balance at end of week t-1
The Lot-for-Lot (L4L) Rule for the

Ladder-back Chair Seat Subassembly
Item: C Description: Ladder-back Chair Seat subassembly Lot Size: Lead Time: 2 weeks
L4L Rule
1 Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 2007 Pearson Education 3 150 2 3 4
Week 5 6 150 7 120 8
120
230
(120 + 0 + 0) - 117 = 3
117 117 0 0 0 0 0
37
117
150
120
150
120
H10-A Using L4L

Application 15.4
H10-A Using L4L

Application 15.4
Comparing Lot-Sizing Rules

FOQ, POQ, and L4L rules affect inventory costs and setup and ordering costs. In the example, each rule took effect in week 4, when the first order was placed.
A comparison of projected on-hand inventory averaged over weeks 4 through 8 of the planning horizon for the ladder-back chair seat subassembly: FOQ: (227+227+77+187+187)/5 = 181 units POQ: (150+150+0+0+0)/5 = 60 units L4L: (0+0+0+0+0)/5 = 0 units
FOQ generates high inventory because it creates remnants. POQ reduces on-hand inventory because it does a better job of matching order quantity to requirements. L4L minimizes inventory investment but maximizes the number of orders placed.
Safety Stock
The usual policy is to use safety stock for end items and purchased items to protect against fluctuating customer orders and unreliable suppliers of components but to avoid using it as much as possible for intermediate items. Schedule a planned receipt whenever the projected on-hand inventory balance drops below the desired safety stock level.
Ladder-back Chair Seat subassembly
MRP translates, or explodes, the MPS and other sources of demand into the requirements needed for all of the subassemblies, components, and raw materials the firm needs to produce parent items. This process generates the material requirements plan for each component item.
MRP explosion
Material requirements plan

Action notices Releasing new orders Adjusting due dates
Routings and time standards
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
Material Requirements Plan

SEAT SUBASSEMBLY Weeks Gross Requirements Reqirements Scheduled Receipts Projected on-hand: 37 Planned Receipts Planned order Releases 1 150 230 2 3 4 120 5
LOT SIZE = 230 Units LEAD TIME = 2 Weeks 6 7 8 150 120
117
117
117
On hand Inventory + Scheduled receipts Gross Requirements

Seat Frames Weeks Reqirements Gross Requirements Scheduled Receipts Projected on-hand Inv. = 40 Planned Receipts Planned order Releases 1 2 3 4 5
LOT SIZE = 300 LEAD TIME = 1 Week 6 7 8
300
Seat Cushions Weeks Gross Reqirements Requirements Scheduled Receipts Projected on-hand Inv. = 0 Planned Receipts Planned order Releases 2007 Pearson Education 2007 Pearson Education 1 2 3 4 5
LOT SIZE = L4L LEAD TIME = 1 week 6 7 8
SEAT SUBASSEMBLY Reqirements Requirements Gross Requirements Scheduled Receipts Projected on-hand: 37 Planned Receipts Planned order Releases

Weeks 1 150 230 2 3 4 120 5
117
117 230
117
227 230
227
117 units is insufficient to meet gross requirements of 120 for week 4, Frames Seat so a planned order release of 230 must be scheduled.
Weeks Gross Requirements Reqirements Scheduled Receipts Projected on-hand Inv. = 40 Planned Receipts Planned order Releases 1 2 3 4 5
300
SEAT SUBASSEMBLY Reqirements Gross Requirements Scheduled Receipts Projected on-hand: 37 Planned Receipts Planned order Releases

Weeks 1 150 230 2 3 4 120 5
117
117 230
117
227 230
227 230
77
187 230
187
77 units is insufficient to meet gross requirements of 150 for week 6, Frames Seat so a planned order release of 230 must be scheduled.
Weeks Gross Requirements Reqirements Scheduled Receipts Projected on-hand Inv. = 40 Planned Receipts Planned order Releases 1 2 3 4 5
300
SEAT SUBASSEMBLY Reqirements Gross Requirements Scheduled Receipts Projected on-hand: 37 Planned Receipts Planned order Releases

Weeks 1 150 230 2 3 4 120 5
117
117 230
117
227 230
227 230
77
187 230
187
Seat Frames Weeks 1 2 3 4 5
Gross Reqirements Requirements Scheduled Receipts Projected on-hand Inv. = 40 Planned Receipts Planned order Releases
230 300
230
Seat Cushions Weeks Gross Requirements Reqirements Scheduled Receipts Projected on-hand Inv. = 0 Planned Receipts Planned order Releases 2007 Pearson Education 1 2 3 4 5
230
230
SEAT SUBASSEMBLY Gross Reqirements Requirements Scheduled Receipts Projected on-hand: 37 Planned Receipts Planned order Releases

Weeks 1 150 230 2 3 4 120 5
117
117 230
117
227 230
227 230
77
187 230
187
Seat Frames Weeks Gross Reqirements Requirements Scheduled Receipts Projected on-hand Inv. = 40 Planned Receipts Planned order Releases 1 2 3 4 5
40
230 300 110 110
230
110 300
300 110on on-handin inventory untilpreviousproduction in week 4 and is 300 must carried from week 5 plan more is needed. 40 40 hand plus be scheduled tominus whento week one.110 Lot of carried is 300 in receipts start demand of 230 = LOT SIZE = L4L arrives as planned receipt in week 5.
LEAD TIME = 1 week 6 7 8
230
230

SEAT SUBASSEMBLY Weeks Reqirements Gross Requirements Scheduled Receipts Projected on-hand: 37 Planned Receipts Planned order Releases 1 150 230 2 3 4 120 5
117
117 230
117
227 230
227 230
77
187 230
187
Seat Frames Weeks 1 2 3 4 5
Gross Reqirements Requirements Scheduled Receipts Projected on-hand Inv. = 40 Planned Receipts Planned order Releases
40
230 300 110
230 110 110 300

180 180
300
180 180
The 180 in inventory is 300 + 110 - 230 next gross On-Hand for week 5 carried until the = 180 requirements. Seat Cushions
Weeks Reqirements Gross Requirements Scheduled Receipts Projected on-hand Inv. = 0 Planned Receipts Planned order Releases 2007 Pearson Education 2007 Pearson Education 1 2 3 4 5
230
230

SEAT SUBASSEMBLY Weeks Reqirements Gross Requirements Scheduled Receipts Projected on-hand: 37 Planned Receipts Planned order Releases 1 150 230 2 3 4 120 5
117
117 230
117
227 230
227 230
77
187 230
187
Seat Frames Weeks Reqirements Gross Requirements Scheduled Receipts Projected on-hand Inv. = 40 Planned Receipts Planned order Releases 1 2 3 4 5
40
230 300 110
230 110 110 300

180
300
180
180 180
Planned order releases are of 230 gross requirements. Two planned order releases sized tounits zero. Projected on-hand inventory remains at are scheduled.
Seat Cushions Weeks Reqirements Gross Requirements Scheduled Receipts Projected on-hand Inv. = 0 Planned Receipts Planned order Releases 2007 Pearson Education 2007 Pearson Education 1 2 3 4 5
230
230
0
230
0
230
0
230
0
230

SEAT SUBASSEMBLY Weeks Gross Reqirements Requirements Scheduled Receipts Projected on-hand: 37 Planned Receipts Planned order Releases 1 150 230 117 2 3 4 120 227 230 5
LOT SIZE = 230 Units LEAD TIME = 2 Weeks 6 7 8 150 120 0 77 187 230 187
117 230
117
227 230
Seat Frames Weeks Reqirements Gross Requirements Scheduled Receipts Projected on-hand Inv. = 40 Planned Receipts Planned order Releases 1 2 230 300 110 3 4 5 230 180 300
40
110
110 300
180
180
180
Gross requirements for seat-frame boards will be 1200 units (or 4 x 300) in LOT SIZE = L4L week 3. Seat Cushions LEAD TIME = 1 week
Weeks Reqirements Gross Requirements Scheduled Receipts Projected on-hand Inv. = 0 Planned Receipts Planned order Releases 2007 Pearson Education 2007 Pearson Education 1 2 230 0 230 3 4 5 230 0 230 6 7 8
0 230
0 230
Other Important Reports

Action notice: A computer-generated memo alerting planners about releasing new orders and adjusting the due dates of scheduled receipts. Capacity requirements planning (CRP): A technique used for projecting time-phased capacity requirements for workstations; its purpose is to match the material requirements plan with the capacity of key processes. Manufacturing resource planning (MRP II): A system that ties the basic MRP system to the companys financial system and to other core and supporting processes.
Item As MPS and BOM

Application 15.5
Inventory Data
Application 15.5
Item D
Application 15.5
Item B
Application 15.5
Item C
Application 15.5
Drum-Buffer-Rope System
Drum-Buffer-Rope (DBR): A planning and control system that regulates the flow of work-in-process materials at the bottleneck or the capacity constrained resource (CCR) in a productive system.
Drum-Buffer-Rope System with a Capacity Constrained Resource (CCR)
Market Demand 650 units/week

Drum-Buffer-Rope System in Practice

The U.S. Marine Corps Maintenance Center in Albany, Georgia, overhauls and repairs vehicles used by the Corps. Repairs to equipment can vary tremendously at the U.S. Marine Corps Maintenance Center in Albany, Georgia. The center struggled to keep up with its repairs until managers implemented the simplified form of a drum-buffer-rope system. The result? Repair times fell from 167 days to just 58 days, on average.
Resource Planning for Service Providers

Dependent demand for services Restaurant Airlines Hospitals Hotels Bill of Resources: A record of a firms parent-component relationships and all of the materials, equipment time, staff, and other resources.
Level 1 Discharge
Bill of Resources (BOR)

A record of a service firms parent component relationships and all of the materials, equipment time, staff, and other resources associated with them, including usage quantities. BOR for Treating an Aneurysm
Level 6 Preoperative care (Angiogram)
Level 2 Intermediate care
Level 3 Postoperative care (Step down)

Level 4 Postoperative care (Intensive)
Level 5 Surgery Level 6 Preoperative care (Angiogram) Level 7 Preoperative care (Testing)
Nurse (6 hr)
MD (1 hr)
Therapy (1 hr)
Bed (24 hr)
Lab (3 tests)
Kitchen (1 meal)
Pharmacy (10 medicines)
Solved Problem 1
A LT = 1 B (3) LT = 2 D (1) LT = 3
LT = Lead time
C (1) LT = 3 F (1) LT = 1 G (1) LT = 3
If there is no existing inventory, how many units of items G, E, and D must be purchased to produce five units of end item A?
E (2) LT = 6
D (1) LT = 3 5 units of item G 30 units of item E 20 units of item D
Solved Problem 3
The MPS for product A calls for the assembly department to begin final assembly according to the following schedule: 100 units in week 2; 200 units in week 4; 120 units in week 6; 180 units in week 7; and 60 units in week 8. Develop a material requirements plan for the next eight weeks for items B, C, and D.
ITEM C
L4L 2 weeks 200 (week 1) 0
A LT = 2 B (1) LT = 1
D
C (2) LT = 2 D (1) LT = 3
DATA CATEGORY Lot-sizing rule Lead time Scheduled receipts Beginning (on-hand) inventory
B POQ (P=3) 1 week None 20
FOQ = 500 units 3 weeks None 425
Solved Problem 3
Item: B Description: Week 1 Gross requirements Scheduled receipts Projected on-hand 20 inventory Planned receipts Planned order releases 280 20 200 280 360 200 0 0 240 360 60 0 0 0 2 100 3 4 200 5 6 120 7 180 8 60 9 10 Lot size: POQ (P = 3) Lead time: 1 week
Solved Problem 3
Item: C Description: Week 1 Gross requirements Scheduled receipts Projected on-hand 0 inventory Planned receipts 200 0 400 400 240 360 0 0 240 120 0 360 0 120 0 0 2 200 3 4 400 5 6 240 7 360 8 120 9 10 Lot size: L4L Lead time: 2 weeks
200
Planned order releases

Solved Problem 3
Item: D Description: Week 1 Gross requirements Scheduled receipts Projected on-hand 425 inventory Planned receipts Planned order releases 500 500 425 25 25 285 500 425 500 305 305 305 360 305 2 400 3 4 240 5 360 6 120 7 8 9 10 Lot size: FOQ = 500 units Lead time: 3 weeks

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Resource Planning

2007 Pearson Education

How Resource Planning fits the Operations Management Philosophy

Operations As a Competitive Weapon Operations Strategy Project Management

2007 Pearson Education

Resource Planning at Starwood

Resource Planning and ERP

ERP Application Modules

2007 Pearson Education

2007 Pearson Education

Lumpy Dependent Demand Resulting from Continuous Independent Demand

2007 Pearson Education

Parent Inventory (Independent)

Component Demand (Dependent)

Possible Planning and Control Systems

Products with many levels

Using system as catalyst for

Material Requirements Planning

MRP explosion: A process that converts the requirements

Bill of materials (BOM): A record of all the components

Authorized master production schedule

Other sources of demand

Engineering and process designs

Material requirements plan

Bill of Materials Terms

2007 Pearson Education

B (1) Ladder-back subassembly

C (1) Seat subassembly

D (2) Front legs

E (4) Leg supports

F (2) Back legs

G (4) Back slats

H (1) Seat frame

I (1) Seat cushion

J (4) Seat-frame boards

Master Production Schedule

Master Production Scheduling Process

2007 Pearson Education

Developing a Master Production Schedule

2007 Pearson Education

2007 Pearson Education

Item: Ladder-back chair

Order Policy: 150 units Lead Time: 1 week April May 3 30 4 30 5 35 6 35 7 35 8 35

Quantity on Hand: Forecast

Customer orders booked Projected on-hand inventory MPS quantity

MPS start Available-topromise (ATP) inventory

MPS for Product A

2007 Pearson Education

MPS for Product A

2007 Pearson Education

Inventory Record 8-Period Worksheet

2007 Pearson Education

2007 Pearson Education 2007 Pearson Education

Lot Sizing Rules

H10-A Using FOQ

2007 Pearson Education

H10-A Using FOQ

2007 Pearson Education

Lot Sizing Rules