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From
 Principles of Supply chain management: A
Balanced Approach by Wisner (Ch-06)
Resource planning
• Resource planning is the process of determining the production capacity required to meet demand. In the
context of resource planning, capacity refers to the maximum workload that an organization can complete in
a fixed period. A discrepancy between an organization’s capacity and demand results in inefficiencies, either
in underutilized resources or unfulfilled orders. The goal of resource planning is to minimize this discrepancy
Organizations should take proper strategies to
A) efficiently balance the production plan with capacity
b) develop feasible operation schedule and capacity plan to meet delivery in due dates
c) manage bull-whip effect
d) company’s use 85% of its total capacity, the rest are to maintain unexpected increase in demand
.
Operations Planning
Long-range planning / Aggregate
production Plan
Medium-range planning / Master
production scheduling
long-range plans usually cover a year or more, Medium-range plans normally span six to
tend to be more general, and specify resources eighteen months
and outputs in terms of aggregate hours and
units.
medium-range plans involve minor
Long-range plans usually involve major, changes in capacity such as changes in
strategic decisions in capacity, such as the employment levels.
construction of new facilities and purchase of
The master production schedule (MPS) is a
capital equipment
medium-range plan and is more detailed
The aggregate production plan (APP) is a long- than the aggregate production plan. It
range materials plan. Since capacity expansion shows the quantity and timing of the end
involves the construction of a new facility and items that will be produced.
major equipment purchases, workforce size,
utilization of inventory, aggregate production
plan’s capacity.
Short-range planning/ Material
requirement planning
short-range plans usually cover a few days
to a few weeks depending on the type and
size of the firm.
Short-range plans are the most detailed
and specify the exact end items and
quantities to make on a weekly, daily, or
hourly basis.
The material requirements plan (MRP) is a
short-range materials plan. MRP is the
detailed planning process for the required
component parts to support the master
production schedule.
Long-range plans are established first and are then used to guide the medium-range plans,
which are subsequently used to guide the short-range plans.
Long-range planning / Aggregate production Plan
 The planning horizon covered by the APP is normally at least one year which allows the firm to see its
capacity requirements at least one year ahead on a continuous basis. The objective is to provide sufficient
finished goods in each period to meet the sales plan while meeting financial and production constraints.
 Costs relevant to the aggregate planning decision include inventory cost, setup cost, machine operating cost,
hiring cost, firing cost, training cost, overtime cost, and costs incurred for hiring part-time and temporary
workers to meet peak demand.
 There are three basic production strategies that firms use for completing the aggregate plan: (1) the chase
strategy, (2) the level strategy, and (3) the mixed strategy.
Three (3) Basic production strategies
1.
Chase production strategy
2.
Level production strategy
3.
Mixed production strategy
Chase Production strategy
The pure Chase production strategy adjusts capacity to match the demand pattern.
The firm will hire and lay off workers to match its production rate to demand. This
strategy works well for make-to-order manufacturing firms.
Level production strategy
A pure level production strategy relies on a constant output rate and capacity while
varying inventory and backlog inventory levels to handle the fluctuating demand.
Mixed production strategy
Instead of using either pure chase or pure level
strategy, many firms use a mixed production strategy
to maintain a stable core workforce while using
other short-term means such as overtime, additional
shift, subcontracting, hiring or part-time temporary
workers to manage short-time high demand.
Medium-range planning / Master production scheduling
• It is a time-phased, detailed disaggregation of
the aggregate production plan, listing the
exact end times to be produced.
• It’s a more detailed than the aggregate
production plan.
• The MPS planning horizon is shorter than the
aggregate production plan’s, but must be
longer than a firm’s production lead time to
ensure the end item can be completed within
the planning horizon
Bill of material
A bill of materials or product structure is a list of the
raw
materials,
assemblies,
sub-assemblies,
sub-components,
parts,
intermediate
and
the
quantities of each needed to manufacture an end
product.
A BOM may be used for communication between
manufacturing partners or confined to a single
manufacturing plant.
Short-range planning Material Requirement Planning
Material requirements planning (MRP) is a system for calculating the materials and components needed to
manufacture a product.
It consists of three primary steps:
taking inventory of the materials and components on hand,
identifying which additional ones are needed and then scheduling their production or purchase.
Capacity Planning
Capacity planning is the process of determining the production capacity needed
by an organization to meet changing demands for its products. In the context of
capacity planning, design capacity is the maximum amount of work that an
organization is capable of completing in a given period. It includes firm’s
human and non-human resources as labor, workforce, machinery, financial and
other capital resources.
Capacity Strategy
1.
Lead capacity strategy
Lead strategy is a proactive approach adding capacity in anticipation of an increase in demand. Lead strategy is
an aggressive strategy with the goal of luring customers away from the company's competitors by improving the
service level and reducing lead time. It is also a strategy aimed at reducing stock out costs.
2. Lag capacity strategy
The Lag Strategy is much more conservative than the Lead Strategy. Instead of increasing capacity in
anticipation of suspected increases in demand, the Lag Strategy responds to actual increases in demand by
boosting capacity after the operation is running at full steam.
3. Match or tracking capacity strategy
The Match Strategy is the middle road between the Lead and Lag Strategies. Rather than substantially boosting
capacity based on expected or actual increases in demand, the Match Strategy emphasizes small, incremental
modifications to capacity based on changing conditions in the marketplace. Even though this strategy takes more
effort and is harder to accomplish,
Enterprise resource planning (ERP)
• Enterprise resource planning (ERP) is the integrated management of main business
processes, often in real time and mediated by software and technology.
• ERP is usually referred to as a category of business management software of integrated
applications that an organization can use to collect, store, manage, and interpret data from
many business activities.
• ERP provides an integrated and continuously updated view of core business processes using
common databases maintained by a database management system. ERP systems track
business resources—cash, raw materials, production capacity—and the status of business
commitments: orders, purchase orders, and payroll.
Advantages of Enterprise resource planning (ERP)
 Better organizational control, especially in large companies, where the volume of information is more than in
a small company.
 Duplication of information is avoided.
 Improved communication, both internally and externally.
 Company profitability analysis can be carried out to analyze where costs are higher and where there are more
sales.
 Improved decision-making process within the company.
 The company is able to react better to any unforeseen problem or situation.
 Better use of time.
Disadvantages of Enterprise resource planning (ERP):
 The high cost of implementation and maintenance. (High initial investment)
 Adaptation to the hardware in the company.
 It is necessary to train all employees in the company so that the system is used efficiently. This is a cost for
the company as well as the time and effort needed for it.
 Integration with other applications in the enterprise needed.
 There are few experts in this system.
 If the system is not applied correctly, it can be very detrimental to the company.