ch15 v6

Chapter 15
Resource Planning
Operations
Operations Management
Management -- 66thth Edition
Edition
Roberta Russell & Bernard W. Taylor, III
Beni Asllani
Copyright 2009 John Wiley & Sons, Inc. University of Tennessee at Chattanooga
ERPEnterprise Resource
Planning
Starts with slide 56
We will not be covering the material on
pages 647-667 of Chapter 15 until after
the second exam
Copyright 2006 John Wiley & Sons, Inc. 14-2

Lecture Outline
Material Requirements Planning (MRP)

Capacity Requirements Planning (CRP)
Enterprise Resource Planning (ERP)
Customer Relationship Management (CRM)
Supply Chain Management (SCM)
Product Lifecycle Management (PLM)

Resource
Planning for
Manufacturing

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

Demand Characteristics
Independent demand Dependent demand
100 x 1 =
100 tabletops
100 tables 100 x 4 = 400 table legs
Continuous demand
400 Discrete demand
400
300
No. of tables
300
200 No. of tables
200
100
100
1 2 3 4 5
Week M T W Th F M T W Th F

Material Master
production
Requirements schedule
Planning
Product Material Item
structure requirements master
file planning file
Planned
order
releases
Work Purchase Rescheduling

orders orders notices

MRP Inputs and Outputs
Inputs Outputs
Master production Planned order
schedule releases
Product structure file Work orders
Purchase orders
Item master file
Rescheduling notices

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

(cont.)
PERIOD
MPS ITEM 1 2 3 4 5
Pencil Case 125 125 125 125 125
Clipboard 85 95 120 100 100
Lapboard 75 120 47 20 17
Lapdesk 0 50 0 50 0

Product Structure
Clipboard
Top clip (1) Bottom clip (1)
Pivot (1) Spring (1)
Rivets (2)
Finished clipboard Pressboard (1)

Product Structure Tree
Clipboard Level 0
Pressboard Clip Assy Rivets Level 1

(1) (1) (2)
Top Clip Bottom Clip Pivot Spring Level 2

(1) (1) (1)
(1)

Multilevel Indented BOM
LEVEL ITEM UNIT OF MEASURE QUANTITY

0---- Clipboard ea 1
-1--- Clip Assembly ea 1
--2-- Top Clip ea 1
--2-- Bottom Clip ea 1
--2-- Pivot ea 1
--2-- Spring ea 1
-1--- Rivet ea 2
-1--- Press Board ea 1

Specialized BOMs
Phantom bills
Transient subassemblies
Never stocked
Immediately consumed in next stage
K-bills
Group small, loose parts under pseudo-item
number
Reduces paperwork, processing time, and file
space

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
3 + 8 + 3 + 8 + 4 = 26 modular bills

Modular BOMs
X10
Automobile
Engines Exterior color Interior Interior color Body

(1 of 3) (1 of 8) (1 of 3) (1 of 8) (1 of 4)
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)

Time-phased Bills
an assembly chart shown against a time
scale
Forward scheduling: start at todays 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
Item Master File
DESCRIPTION INVENTORY POLICY
Item Pressboard Lead time 1

Item no. 7341 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 07142 EOQ 316
Phantom code N Minimum order qty 100
Unit price/cost 1.25 Maximum order qty 500
Pegging Y Multiple order qty 1
LLC 1 Policy code 3

Item Master File (cont.)
PHYSICAL INVENTORY USAGE/SALES
On hand 150 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
CODES
Cost acct. 00754
Routing 00326
Engr 07142

MRP Processes
Exploding the bill Netting
of material process of subtracting on-
Netting out inventory hand quantities and
scheduled receipts from
Lot sizing gross requirements to
Time-phasing produce net requirements
requirements Lot sizing
determining the quantities
in which items are usually
made or purchased

MRP Matrix

MRP: Example
1 2 3 4 5
Clipboard 85 95 120 100 100

Lapdesk 0 60 0 60 0
Item Master File

CLIPBOARD LAPDESK PRESSBOARD
On hand 25 20 150
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

MRP: Example (cont.)
Product Structure Record
Clipboard Level 0
Pressboard Clip Assy Rivets Level 1

(1) (1) (2)
Lapdesk Level 0
Pressboard Trim Beanbag Glue Level 1

(2) (3) (1) (4 oz)

ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5
Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25
Net Requirements
Planned Order Receipts
Planned Order Releases

Basic MRP formulas
Net Requirements = Gross Requirements

scheduled receipts On-hand Inventory(previous
period)
Planned Order Receipt = function (Net
Requirements, order policy)
Planned Order Release = Planned Order
Receipt backed up by the lead time
Planned Order Releasei-LT = Planned Order Receipti

More formulas
On-hand inventoryi = on-hand inventoryi-1

+ scheduled receiptsi + Planned Order
Receipti Gross Requirementsi
Gross Requirements for next level down
are determined from the Planned Order
Releases at the level above

On-hand inventory
Is always the amount of on-hand

inventory at the end of the period
All other items (gross req., net req.,
scheduled receipts, planned order
receipts) are amounts at the beginning of
the period

LOT SIZE: L4L LT: 1 1 2 3 4 5

Projected on Hand 25 115
Net Requirements 0
(25 + 175) = 200 units available

(200 - 85) = 115 on hand at the end of Period 1

LOT SIZE: L4L LT: 1 1 2 3 4 5

Projected on Hand 25 115 20
Net Requirements 0 0
115 units available

(115 - 95) = 20 on hand at the end of Period 2

LOT SIZE: L4L LT: 1 1 2 3 4 5

Projected on Hand 25 115 20 0
Net Requirements 0 0 100
Planned Order Receipts 100
Planned Order Releases 100
20 units available
(20 - 120) = -100 100 additional Clipboards are required
Order must be placed in Period 2 to be received in Period 3

LOT SIZE: L4L LT: 1 1 2 3 4 5

Projected on Hand 25 115 20 0 0 0
Net Requirements 0 0 100 100 100
Planned Order Receipts 100 100 100
Planned Order Releases 100 100 100
Following the same logic Gross Requirements in Periods 4

and 5 develop Net Requirements, Planned Order Receipts, and
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Scheduled Receipts
Net Requirements

LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Scheduled Receipts
Planned Order Receipts 50 50
Planned Order Releases 50 50
Following the same logic, the Lapdesk MRP matrix is

completed as shown

LOT SIZE: L4L LT: 1 1 2 3 4 5
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Gross Requirements
Scheduled Receipts
Net Requirements

LOT SIZE: L4L LT: 1 1 2 3 4 5
ITEM: LAPDESK LLC: 0 x1 PERIOD x1 x1
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
ITEM: PRESSBOARD LLC: 0 x2 x2 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Scheduled Receipts
Net Requirements

LOT SIZE: L4L LT: 1 1 2 3 4 5
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Scheduled Receipts
Planned Order Receipts 100 150 100

Planned Order Report

PERIOD
ITEM 1 2 3 4 5
Clipboard 100 100 100

Lapdesk 50 50
Pressboard 100 150 100

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

Using Excel for MRP Calculations

Advanced Lot Sizing Rules: L4L
Total cost of L4L = (4 X $60) + (0 X $1) = $240

Advanced Lot Sizing Rules: EOQ
2(30)(60
EOQ 60 minimum order quantity
1
Total cost of EOQ = (2 X $60) + [(10 + 50 + 40) X $1)] = $220

Advanced Lot Sizing Rules: POQ
POQ Q / d 60 / 30 2 periods worth of requirements
Total cost of POQ = (2 X $60) + [(20 + 40) X $1] = $180

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 4416 25 25
9-30 AL 4174 25 0
10-01 GR 6470 50 - 50
10-08 SR 7542 200 150 Expedite SR 10-01
10-10 CO 4471 75 75
10-15 GR 6471 50 25
10-23 GR 6471 25 0
10-27 GR 6473 50 - 50 Release PO 10-13
Key: AL = allocated WO = work order
CO = customer order SR = scheduled receipt
PO = purchase order GR = gross requirement

MRP Action Report
Current date 9-25-08
ITEM DATE ORDER NO. QTY. ACTION

#2740 10-08 7542 200 Expedite SR 10-01
#3616 10-09 Move forward PO 10-07
#2412 10-10 Move forward PO 10-05
#3427 10-15 Move backward PO 10-25
#2516 10-20 7648 100 De-expedite SR 10-30
#2740 10-27 200 Release PO 10-13
#3666 10-31 50 Release WO 10-24

Capacity Requirements
Planning (CRP)
Creates a load profile
Identifies under-loads and over-loads
Inputs
Planned order releases
Routing file
Open orders file

CRP
MRP planned
order
releases
Capacity Open
Routing
requirements orders
file
planning file
Load profile for

each process

Calculating Capacity
Maximum capability to produce

Rated Capacity
Theoretical output that could be attained if a process were
operating at full speed without interruption, exceptions, or
downtime
Effective Capacity
Takes into account the efficiency with which a particular
product or customer can be processed and the utilization of
the scheduled hours or work
Effective Daily Capacity = (no. of machines or workers) x

(hours per shift) x (no. of shifts) x (utilization) x ( efficiency)

Calculating Capacity (cont.)
Utilization
Percent of available time spent working
Efficiency
How well a machine or worker performs compared to a
standard output level
Load
Standard hours of work assigned to a facility
Load Percent
Ratio of load to capacity
load
Load Percent = x 100%
capacity

Load Profiles
graphical comparison of load versus

capacity
Leveling underloaded conditions:
Acquire more work
Pull work ahead that is scheduled for later
time periods
Reduce normal capacity

Reducing Over-load Conditions
1. Eliminating unnecessary requirements

2. Rerouting jobs to alternative machines,
workers, or work centers
3. Splitting lots between two or more machines
4. Increasing normal capacity
5. Subcontracting
6. Increasing efficiency of the operation
7. Pushing work back to later time periods
8. Revising master schedule

Initial Load Profile
120
110
100
Hours of capacity
90
80
70
60
50
40 Normal
30 capacity
20
10
0
1 2 3 4 5 6
Time (weeks)

Adjusted Load Profile
120
110
100
Hours of capacity
90
80
70 Work
60 an
extra Push back
50 Pull ahead
shift
40 Overtime Push back Normal
30 capacity
20
10
0
1 2 3 4 5 6
Time (weeks)
Load leveling
process of balancing underloads and overloads
Determining Loads
and Capacities
2 copiers, 2 operators
5 days/wk, 8 hr/day
1/2 hr meals, 1/2 hr maintenance per day
Efficiency = 100%
Utilization = 7/8 = 87.5%
Daily capacity = 2 machines x 2 shifts
x 8 hours/shift x 100% efficiency
x 87.5% utilization
= 28 hours or 1,680 minutes
Example 12.2
Determining Loads
and Capacities
JOB NO. OF SETUP RUN TIME
NO. COPIES TIME (MIN) (MIN/UNIT) TOTAL TIME
10 500 5.2 0.08 5.2 + (500 x 0.08) = 45.2
20 1,000 10.6 0.10 10.6 + (1,000 x 0.10) = 110.6
30 5,000 3.4 0.12 3.4 + (5,000 x 0.12) = 603.4
40 10,000 11.2 0.14 11.2 + (10,000 x 0.14) = 1,411.2
50 2,000 15.3 0.10 15.3 + (2,000 x 0.10) = 215.3
2385.7 min
Load percent = 2,385.7 / 1,680 = 1.42 x 100% = 142%
Add another shift:
Daily capacity = 2 machines x 3 shifts x 8 hours/shift
x 100% efficiency x 87.5% utilization
= 42 hours or 2,520 minutes
Revised load percent = 2,385.7 / 2,520 = 0.9467 x 100% = 94.67%
Example 12.2
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.

Enterprise Resource Planning
(ERP)
Software that organizes and manages
a companys business processes by
sharing information across functional
areas
integrating business processes
facilitating customer interaction
providing benefit to global companies

ERP and MRP
First came MRP around 1970

Thanks to George Plossl, Oliver Wight, Joseph
Orlicki
MRP is Material Requirements Planning
Then came MRP II around 1980
MRP II is Manufacturing Resource Planning
Then came ERP around 1990
Today, its ERP II

Evolution of ERP II

A lesson in Information
Architecture
First, we need a problem-solving
methodology

Goldratt Methodology
(Thinking Process)
What to change??
What to change to??
How to cause the change??

WHAT TO CHANGE CIRCA
1993: Problems with the
Mainframe Architecture
Poor data visibility
Long lead times on maintenance,
modifications to legacy software (36
months)
No GUI interfaces

More problems
New software apps were expensive and

time consuming to develop
Mainframes were computational
bottlenecks
Desktop PCs sat idle 99% of the time

Components of any Software
Application

Components in brief

Mainframe Architecture

Goldratt: We will build a tree
Called a current reality tree

Begin by identifying the UNDESIRABLE
EFFECTS the stakeholders are
experiencing
The basic tree relationship:
IF {box a}, then {box b}.

Mainframes were
computational Centralized MIS shop backlogs
bottlenecks were extending out to 36 months
Only the centralized

MIS shop could do
maintenance and new
development work Budgets for MIS
shops were
stretched to their
limits
Many new Change requests for
applications were existing apps were
being built frequent and
increasing
Each application
had to reside
entirely on the
mainframe
Competitive and customer
environments are changing
rapidly

Sales cannot track customer
Sales cannot see what is orders through the
happening in accounts manufacturing/distribution
receivable process
Information visibility across

the enterprise is impossible
Independent data
pools are created that
cannot be integrated
Islands of automation are

created
End users develop their own

independent applications that
run on departmental PCs
Centralized mainframes are Centralized MIS shops

computing bottlenecks have lead times of 36
Copyright 2006 John Wiley & Sons, Inc. months or longer 14-68
WHAT TO CHANGE TO:
An architecture in which the data are

totally integrated
An architecture in which most of the
processing is not done on mainframes
Decentralization of MIS
What architecture was this???

HOW TO CAUSE THE
CHANGE:
ERP implementation
Solves the problems identified above

Organizational Data Flows
Source: Adapted from Joseph Brady, Ellen Monk, and Bret Wagner, Concepts in
Enterprise Resource Planning (Boston: Course Technology, 2001), pp. 712

ERPs Central Database

Selected Enterprise Software
Vendors

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

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

Supply Chain Management
Software that plans and executes business

processes related to supply chains
Includes
Supply chain planning
Supply chain execution
Supplier relationship management
Distinctions between ERP and SCM are
becoming increasingly blurred

Product Lifecycle Management
(PLM)
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

ERP and Software Systems

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, business language
of Internet
Service-oriented architecture (SOA)
collection of services that communicate with each
other within software or between software

Copyright 2009 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
Copyright caused
2009 John byInc.
Wiley & Sons, the use of these programs 15-80

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Chapter 15

Roberta Russell & Bernard W. Taylor, III

Copyright 2006 John Wiley & Sons, Inc. 14-2

Material Requirements Planning (MRP)

Copyright 2009 John Wiley & Sons, Inc. 15-3

Copyright 2009 John Wiley & Sons, Inc. 15-4

Copyright 2009 John Wiley & Sons, Inc. 15-5

100 tables 100 x 4 = 400 table legs

Copyright 2009 John Wiley & Sons, Inc. 15-6

Work Purchase Rescheduling

Copyright 2009 John Wiley & Sons, Inc. 15-7

Copyright 2009 John Wiley & Sons, Inc. 15-8

Drives MRP process with a schedule of

Copyright 2009 John Wiley & Sons, Inc. 15-9

Copyright 2009 John Wiley & Sons, Inc. 15-10

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Copyright 2009 John Wiley & Sons, Inc. 15-11

Pressboard Clip Assy Rivets Level 1

Top Clip Bottom Clip Pivot Spring Level 2

Copyright 2009 John Wiley & Sons, Inc. 15-12

LEVEL ITEM UNIT OF MEASURE QUANTITY

Copyright 2009 John Wiley & Sons, Inc. 15-13

Copyright 2009 John Wiley & Sons, Inc. 15-14

Copyright 2009 John Wiley & Sons, Inc. 15-15

Engines Exterior color Interior Interior color Body

Copyright 2009 John Wiley & Sons, Inc. 15-16

Forward scheduling: start at todays date and schedule forward to determine

Item Pressboard Lead time 1

Copyright 2009 John Wiley & Sons, Inc. 15-18

Copyright 2009 John Wiley & Sons, Inc. 15-19

Copyright 2009 John Wiley & Sons, Inc. 15-20

Copyright 2009 John Wiley & Sons, Inc. 15-21

Clipboard 85 95 120 100 100

Item Master File

Copyright 2009 John Wiley & Sons, Inc. 15-22

Pressboard Clip Assy Rivets Level 1

Pressboard Trim Beanbag Glue Level 1

Copyright 2009 John Wiley & Sons, Inc. 15-23

Gross Requirements 85 95 120 100 100

Copyright 2009 John Wiley & Sons, Inc. 15-24

Net Requirements = Gross Requirements

Copyright 2006 John Wiley & Sons, Inc. 14-25

On-hand inventoryi = on-hand inventoryi-1

Copyright 2006 John Wiley & Sons, Inc. 14-26

Is always the amount of on-hand

Copyright 2006 John Wiley & Sons, Inc. 14-27

Gross Requirements 85 95 120 100 100

(25 + 175) = 200 units available

Copyright 2009 John Wiley & Sons, Inc. 15-28

Gross Requirements 85 95 120 100 100

115 units available

Copyright 2009 John Wiley & Sons, Inc. 15-29

Gross Requirements 85 95 120 100 100

Copyright 2009 John Wiley & Sons, Inc. 15-30

Gross Requirements 85 95 120 100 100

Following the same logic Gross Requirements in Periods 4

Copyright 2009 John Wiley & Sons, Inc. 15-32

Following the same logic, the Lapdesk MRP matrix is

Copyright 2009 John Wiley & Sons, Inc. 15-33

Copyright 2009 John Wiley & Sons, Inc. 15-34

Copyright 2009 John Wiley & Sons, Inc. 15-35

Copyright 2009 John Wiley & Sons, Inc. 15-36