CHAPTER 6
RESOURCE PLANNING
SYSTEMS
Principles of Supply Chain Management:
A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD
Learning Objectives
You should be able to:
– Describe the hierarchical operations planning
process in terms of materials planning (APP,
MPS, MRP) and capacity planning (RRP,
RCCP, CRP).
– Describe MRP, closed-loop MRP, MRP-II,
DRP, ERP, and their relationships.
– Understand the terms used in MRP
computations.
– Know how to compute available-to-promise
quantities, MRP explosions, and DRP
implosions.
– Understand the limitations of legacy MRP
systems.
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Learning Objectives (Cont.)
– Describe an ERP system, and understand
its advantages and disadvantages.
– Understand why manufacturers and
service firms are migrating from legacy
MRP systems to integrated ERP systems.
– Describe the various modules of an
integrated ERP system, and have a
general knowledge of the ERP market.
– Understand best-of-breed versus single
integrator ERP implementations.
– Understand why many ERP
implementations fail.
– Understand how an integrated ERP
system works.
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Chapter Six Outline
• Operations Planning
– The Aggregate Production Plan
– The Chase Production Strategy
– The Level Production Strategy
• The Mixed Production Strategy
• Master Production Scheduling
– Master Production Schedule Time Fence
– Available-to-Promise Quantities
• The Bill of Materials
• Material Requirements Planning
– Terms used in Material Requirements Planning
• Capacity Planning
– Capacity Strategy
• Distribution Requirements Planning
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Chapter Six Outline (Cont.)
• The Legacy Material Requirements
Planning Systems
– Manufacturing Resource Planning
• The development of the Enterprise
Resource Planning Systems (ERP)
– The Rapid Growth of ERP Systems
• Implementing ERP Systems
• Single Integrator ERP Solution or Bestof-Breeds ERP Implementation?
• Advantages and Disadvantages of ERP
Systems
– ERP System Advantages
– ERP System Disadvantages
• ERP Software Applications
• ERP Software Providers
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Introduction
Scheduling & inventory management
influence how assets are deployed.
Problem: A missed due date or stock-out
may cascade downstream, magnifying
the bullwhip effect.
Operations managers are continuously
involved in balancing capacity & output.
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Operations Planning
Operations planning is usually
hierarchical & can be divided into three
broad categories:
– Long-range- Aggregate Production Plan (APP)
involves the construction of facilities & major
equipment purchase
– Intermediate - Shows the quantity & timing of
end items (i.e., master production scheduleMPS)
– Short-range - detailed planning process for
components & parts to support the master
production schedule (i.e., materials requirement
planning- MRP)
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Operations Planning (Cont.)
Computer based “push” resource systems:
• Closed-loop MRP - incorporates the aggregate
production plan, the master production schedule
material requirements plan, & capacity requirements
plan.
• Manufacturing resource planning (MRP-II)
incorporates the business & sales plans with the
closed-loop MRP system.
• Enterprise requirements planning (ERP) is an
extension of MRP-II
• Distribution requirement planning (DRP)
describes the time-phased net requirements from
warehouses & distribution centers customer demand
minus any on hand in-transit inventories.
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Aggregate Production Plan
Hierarchical planning - process that
translates annual business & marketing plans &
demand forecasts into a production plan for a
product family (products that share similar
characteristics) in a plant or facility leading to
the Aggregate Production Plan (APP).
– Planning horizon of APP- at least one
year & is usually rolled forward by three
months every quarter
– Includes costs relevant to the aggregate
planning decision include inventory,
setup, machine operation, hiring, firing,
training, & overtime costs
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Aggregate Production Plan
(Cont.)
Three basic production strategies :
1. Chase Strategy - Adjusts capacity to match
demand. Firm hires & lays off workers to match
demand. Finished goods inventory remains
constant. Works well for make-to-order firms.
2. Level Strategy - Relies on a constant output rate
while varying inventory & backlog according to
fluctuating demand. Firm relies on fluctuating
finished goods & backlogs to meet demand. Works
well for make-to-stock firms.
3. Mixed Production Strategy - Maintains stable core
workforce while using other short-term means, such
as overtime, subcontracting & part time helpers to
manage short-term demand.
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Master Production Scheduling
Master Production Schedule (MPS) - A
detailed disaggregation of the aggregate
production plan, listing the exact end items to
be produced by a specific period.
– More detailed than APP & easier to plan under
stable demand.
– Planning horizon is shorter than APP, but longer
than the lead time to produce the item.
– Note: For the service industry, the master
production schedule may just be the appointment
log or book, where capacity (e.g., skilled labor or
professional service) is balanced with demand.
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Master Production Scheduling
(Cont.)
The MPS - the production quantity to meet demand
from all sources & is used for computing the
requirements of all time-phased end items.
System nervousness - small changes in the
upper-level-production plan cause major
changes in the lower-level production plan.
Firms use a time fence to deal with nervousness by
separating the planning horizon into:
1. Firmed Segment (AKA demand time fence), from
current period to several weeks into future. Can only
be altered by senior management.
2. Tentative segment (AKA planning time fence),
from end of firmed segment to several weeks into the
future.
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Master Production Scheduling
(Cont.)
Available-to-Promise (ATP) Quantity The difference between confirmed
customer orders & the quantity the firm
planned to produce.
Three basic methods of calculating the
available-to-promise quantities:
1. Discrete available-to-promise
2. Cumulative available-to-promise without look
ahead, &
3. Cumulative available-to-promise with look
ahead.
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Master Production Scheduling
(Cont.)
Discrete Available-to-Promise
1.
Add the Beginning Inventory to the MPS for Period 1,
subtracting the Committed Customer Orders from Period
1 up to but not including the period of the next scheduled
MPS.
2. For all subsequent periods, there are two possibilities:
– If no MPS has been scheduled for the period, the ATP
is zero.
– If an MPS has been scheduled for the period, the ATP
is the MPS minus the sum of all the CCOs from that
period up to the period of the next scheduled MPS.
3. If an ATP for any period is negative, the deficit must be
subtracted from the most recent positive ATP, and the
ATP quantities must then be revised to reflect these
changes.
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The Bill of Materials
• Bill of Materials (BOM) - document that
shows an inclusive listing of all component parts
& assemblies making up the final product.
– Dependent Demand - the internal demand for parts
based on the demand of the final product in which the
parts are used (e.g., subassemblies).
– Independent Demand - demand for final products
affected by trends, seasonal patterns, & general market
conditions.
– Multilevel Bill of Materials - shows the parentcomponent relationships & the specific units of
components known as the planning factor. Often
presented as an indented bill of materials.
– Super Bill of Materials (AKA planning BOM, pseudo
BOM, phantom BOM, or family BOM) enables the
firm to forecast the total demand end products.
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The Bill of Materials (Cont.) (Fig. 6.4)
All Terrain
Vehicle (ATV)
Engine
Assembly
Engine
Block
Suspension
& Brake
Chassis
Cylinder
head
Piston
Assembly
Piston SubAssemblies (4)
Piston Rings
(3)
Crankshaft
Connecting
Rods (4)
Piston
Exhaust &
Fuel System
Camshaft
Level 0
(Finished Good)
Transmission
Seals &
Gaskets
Body &
Accessories
Level 1
Level 2
12” Steel
Bar (½)
Level 3
24” Solid
Steel Bar
Level 4
6” Steel
Bar (¼)
Level 5
24” Solid
Steel Bar
Level 6
denotes additional materials not shown
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Indented Bill of Materials (Table 6.6)
Part Description
Engine Assembly
Engine Block (components not shown)
Cylinder Head (components not shown)
Piston Assembly
Piston Subassembly
Piston Rings
Pistons
6” Steel Bar
24” Solid Steel Bar
Connecting Rods
Crankshaft (components not shown)
Camshaft
12” Steel Bar
24” Solid Steel Bar
Seals & Gaskets (components not shown)
Chassis (components not shown)
Suspension & Brake (components not shown)
Exhaust & Fuel System (components not shown)
Transmission (components not shown)
Body & Accessories (components not shown)
© 2009 South-Western, a division of Cengage Learning
Level
1
2
2
2
3
4
4
5
6
3
2
2
3
4
2
1
1
1
1
1
Planning
Factor
1
1
1
1
4
3
1
¼
1
4
1
1
½
1
1
1
1
1
1
1
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Material Requirements Planning
MRP - A computer-based materials management
system that calculates the exact quantities, need
dates, & planned order releases for subassemblies
& materials required to manufacture a final product.
MRP requires:
–
–
–
–
The independent demand information
Parent-component relationships from the BOM
Inventory status of final product & components.
Planned order releases (the output of the MRP system)
Advantage of MRP - provides planning information
Disadvantage of MRP - loss of visibility, especially
acute for products with a deep BOM, & ignores
capacity & shop floor conditions.
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MRP (Cont.)
Terms used in MRP:
1. Parent: Item generating demand for lower-level
components.
2. Components: parts demanded by a parent.
3. Gross requirement: A time-phased requirement
prior to netting out on-hand inventory & lead-time
4. Net requirement: The unsatisfied item requirement
for a specific time period. Gross requirement for
period minus current on-hand inventory.
5. Scheduled receipt: A committed order awaiting
delivery for a specific period.
6. Projected on-hand inventory: Projected closing
inventory at end of period. Beginning inventory
minus gross requirement, plus scheduled receipt
& planned receipt & planned receipt from planned
order releases.
7. Planned order release: Specific order to be
released to the shop or to the supplier.
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MRP (Cont.)
8. Time bucket: Time period used on the MRP.
Days or weeks.
9. Explosion: Process of converting a parent item’s
planned order releases into component gross
requirements.
10. Planning factor: Number of components
needed to produce a unit of the parent item.
11. Firmed planned order: Planned order that the
MRP computer logic system does not
automatically change when conditions change
to prevent system nervousness.
12. Pegging: Relates gross requirements for a part
to the planned order releases
13. Low-level coding: assigns the lowest level on
BOM to all common components to avoid
duplicate MRP computations.
14. Lot size: The order size for MRP logic
15. Safety Stock: Protects against uncertainties in
demand supply, quality, & lead time.
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Ex. 6.2 MRP
Model A ATV––Level 0
Gross requirements
Scheduled receipts
Projected on-hand inventory
Planned order releases
Q = 10; LT = 2; SS = 15
1
10
30
20
20
2
10
10
20
1
Engine assembly––Level 1
Gross requirements
Scheduled receipts
Projected on-hand inventory
Planned order releases
Q = LFL; LT = 2; SS = 0
2
1
20
20
2
18
3
20
4
0
5
20
6
0
7
0
8
20
20
20
20
20
20
20
20
20
1
2
3
20
4
5
6
20
7
8
2
0
0
20
0
0
0
0
1
Piston assembly––Level 2
Gross requirements
Scheduled receipts
Projected on-hand inventory
Planned order releases
Q = 30; LT = 1; SS = 10
10
1
18
20
12
1
1
2
3
4
20
5
6
7
8
12
12
30
22
22
22
22
22
5
6
7
8
52
52
52
52
4
Connecting rods––Level 3
1
2
3
4
Gross requirements
120
Scheduled receipts
Projected on-hand inventory
22
22
22
52
52
Planned order releases
150
Q = 50; LT = 1; SS = 20
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Capacity Planning
Excess (or insufficient) capacity prevents firm
from taking advantage of the efficiency of
manufacturing planning & control system.
Resource Requirement Planning (RRP) - a
long-range capacity planning module, checks
whether aggregate resources are capable of
satisfying the aggregate production.
Resources considered include gross labor
hours & machine hours.
Medium-range capacity plan, or rough-cut
capacity plan (RCCP) - used to check
feasibility of MPS. Converts MPS from
production needed to capacity required, then
compares it to capacity available.
Capacity requirement planning (CRP) - a shortrange capacity planning technique that is used
to check the feasibility of the material
requirements plan.
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Distribution Requirements
Planning (DRP)
Distribution requirements planning
(DRP) - a time-phased finished good
inventory replenishment plan in a distribution
network
-- DRP is a logical extension of the MRP
system & ties physical distribution to
manufacturing planning and control
system
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Ex. 6.3 - DRP
Las Vegas Distribution Center (Q = 2; LT = 2; SS = 0)
East Lansing Distribution Center (Q = 2; LT = 1; SS = 0)
Model A ATV
1
2
3
4
5
6
7
8
Model A ATV
1
3
4
5
6
7
Gross Requirements
0
1
1
0
1
0
6
0
Gross Requirements
3 11 0
1
0
2
0 15
0 1
12 0
0
0
0
2
0 0 1
0 16 0
Schedule Receipts
2
8
Schedule Receipts
Projected On-hand
1
Planned Order Releases
1
2
0
0
1
0
1
0
0
6
0
0
0
0
0
0
Projected On-hand
Planned Order Releases
3
1
0
6+2=8
2 + 12 = 14
Central Supply Warehouse
Gross Requirements
Schedule Receipts
Projected On-hand Inventory
Planned Order Releases
Q = 5; LT = 2; SS = 2
16
1
14
2
0
3
0
4
0
5
8
6
16
7
0
8
0
2
0
2
0
2
10
2
0
4
15
4
0
3
0
3
0
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Legacy MRP Systems
Legacy - a customary, inherited way of
doing business
– MRP was used in many forms for nearly 40 years
in U.S. firms. Many versions have lasted beyond
their originally intended life span
– EDI was widely used before advent of the Internet
– Globalization and multi-plant manufacturing have
created new demands on information system
processing
– Manufacturing Resource Planning (MRP II) is a
natural outgrowth of closed-loop MRP
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Development of ERP Systems
Enterprise Resource Planning
Systems (ERP) - information system
connecting all functional areas & operations of
an organization &, in some cases, suppliers
and customers via common software
infrastructure and database
-- ERP provides means for supply chain members
to share information so that scarce resources can
be fully utilized to meet demand, while minimizing
supply chain inventories
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Development of ERP Systems
(Cont.) (Fig. 6.6)
Operations
Logistics
and
Warehouse
Engineering
Central Database
and
Servers
Supplier
Relationship
Management
Human
Resources
Headquarters
and
Branches
Sales
and
Marketing
Customer
Relationship
Management
Data
Support
System
Finance
and
Accounting
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Implementing ERP Systems
Two types of ERP implementation:
1. Best-of-breed - pick the best application for
each individual function. Disadvantagesoftware may not integrate well but this may not
be a major issue in future
2. Single integrator solution - pick all the
desired applications from a single vendor
Implementation Problems:
–
–
–
–
–
Lack of top management commitment
Lack of adequate resources
Lack of proper training
Lack of communication
Incompatible system environment
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Advantages & Disadvantages Of
ERP Systems
Advantages
– Added visibility reduce supply chain inventories
– Helps to standardize manufacturing processes
– Measure performance & communicate via a
standardized method
Disadvantages
– Substantial time & capital investment
– Complexity
– Firms adapt processes to meet ERP system
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ERP Software Applications
Major ERP applications consist of:
–
–
–
–
–
–
Accounting and finance:
Customer relationship management
Human resource management
Manufacturing
Supplier relationship management
Supply chain management:
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ERP Software Providers
After mergers & acquisitions, the 3
major ERP providers are:
– Oracle
– SAP
– Microsoft
Other small software firms provide
applications as well as full ERP
solutions but lack applistructure:,
--The merger of enterprise application and
infrastructure technology (used by the top 3
ERP providers)
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