Mba om 09_resource_planning

Operations Management
Author: Prof. Niranjana K.R.
B.E. (Mech), PGDM, SSBB, LA ISO9001 & AS9100, Member – PMI & QCFI
Email: niranjanakoodavalli@gmail.com

Agreements
24-08-2016 Author:Niranjana K R 2

References
1. Operations Management – An Integrated Approach, by R. Dan
Reid, Nada R. Sanders, 5th Edition, Wiley ,2012.
2. Operations Management For Competitive Advantage – 11th
edition – Richard B. Chase, F. Robert Jacobs, Nicholas J.
Aquilano
3. Operations Management, 10th edition Author(s): Jay Heizer,
Barry Render
4. Production/Operations Management – 5th Ed. – Willian J.
Stevenson

Operations Management
Resource Planning
Author: Prof. Niranjana K.R.
B.E. (Mech), PGDM, SSBB, LA ISO9001 & AS9100, Member – PMI & QCFI
Email: niranjanakoodavalli@gmail.com

Learning Objectives (1 of 2)
After studying this chapter you should be able to –
1. Describe enterprise resource management
2. Describe the evolution of ERP Systems
3. Describe the benefits and costs of ERP systems
4. Provide an overview of MRP
5. Explain the different types of demand
6. Describe the objectives of MRP
Continued…
Author:Niranjana K R 524-08-2016

Learning Objectives (2 of 2)
Continued…
7. Describe the inputs needed for MRP
8. Explain MRP operating logic
9. Describe action notices
10. Use different lot size rules with MRP
11. Describe the role of capacity requirements planning (CRP)
12. Calculate the work loads at critical work centers using CRP

Enterprise Resource Planning
• ERP is software designed for organizing and
managing business processes
– Modules share information across all business functions
– Can share customer sales data with the supply chain to
help with global replenishment
– All modules are fully integrated and use a common
database – some PC based

Integration of ERP

ERP Modules-4 Categories
• Finance and accounting
– Investment, cost, asset, capital, and debt management
– Budgets, profitability analysis, and performance reports
• Sales and marketing
– Handles pricing, availability, orders, shipments, & billing
• Production and materials management
– Process planning, BOM, product costing, ECN’s, MRP,
allocates resources, schedules, PO’s, & inventory
• Human resources
– Workforce planning, payroll & benefits, & org. charts

Evolution of ERP ( 1 of 2)
• First generation ERP
– Managed all routine internal business activities
• From order entry to after-sales customer service
– Lacked supply chain support modules (added in second
generation)

Evolution of ERP (2 of 2)
• Second Generation ERP
– Late 1990’s software integrated supply chains
– Systems focused on decision-making
– SCM (Supply Chain Management) modules include linear
programming (LP) and simulation support
– SCI (Supply Chain Intelligence) capability allows collection
of intelligence along the entire supply chain
– ASP(Application Service Provider) suppliers set-up and run
systems for others

Integrating ERP and E-Commerce
• Many companies with ERP use e-commerce
• E-commerce needs to interface with ERP
• Cybex International is a good example:
– Needed to integrate B2C and B2B transactions
– Cybex installed a Peoplesoft, Inc. ERP system
– Reduced BOM’s from 15,200 to 200, suppliers from 1000
to 550, paperwork by 2/3
– Reduced supplier material shortages and customer order-
to-ship time from 4 to 2 weeks

Benefits of ERP
• ERP presents a holistic view of the business functions from a
single information and IT architecture
• Increases organizational information flow
• Increases ability to incorporate better management control,
speedier decision making, and cost reductions
• Allows replacement of disparate systems
e.g. ExxonMobile used ERP to replace 300 different systems
• A study of ERP implementations reports that benefits typically
start 8 months after implementation with median annual
savings of $1.6 million

The Cost of ERP Systems
• Major suppliers are SAP AG, Peoplesoft, Oracle, and Baan. Also smaller PC
based suppliers.
• Costs for larger ERP systems range from hundreds of thousands to several
million dollars.
• Outside consultants are usually involved in selection, configuration, &
implementation.
• Consultant costs can run up to 3 times the cost of the system itself.
• Added costs also include additional people, new computer hardware, and
the cost to develop a new, integrated database.
• Successful implementation requires leadership and top management
commitment to a vision for the business.

Material Planning Systems
• MRP translated a master schedule of final products
into time-phased net requirements for
subassemblies, assemblies, and parts
• First MRP systems evolved from closed-loop MRP
• Closed-loop MRP included production planning,
master scheduling, and capacity requirements
• In mid 1970’s, MRP II systems added functionality to
plan and execute all internal functions

An Overview of MRP
• MRP uses the concept of backward scheduling to
determine how much and when to order and
replenish
• The CRP module checks to make sure that enough
work is scheduled for operations and the amount of
work is feasible
• The MPS module contains the authorized schedule
• The BOM module contains the product structure for
each unique product
• MRP output includes schedules for all internal
activities and parts as well as orders for all supply
chain items.

Input/Output - MRP Process

Types of Demand
There are two types of demand.
• Independent Demand
– Is the demand for finished products
– Does not depend on the demand of other products
– Needs to be forecasted
• Dependent Demand
– Is the demand derived from finished products
– Is the demand for component parts based on the number
of end items being produced and is managed by the MRP
system

Objectives of MRP
• Determines the quantity and timing of material
requirements
– Determines what to order (checks BOM), how much to order (lot size
rules), when to place the order (need date minus lead time), and when
to schedule delivery (on date needed)
• Maintain priorities
– In a changing environment, MRP reorganizes priorities to keep plans
current and viable

Building a CD Cabinet With MRP

MRP Inputs - Authorized MPS
Table 14-1 Initial MPS Record for CD Cabinet
Item: CD Cabinet
Lot size rule: FOQ=100
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Gross Requirements: 25 25 25 25 30 30 30 30 35 35 35 35
Projected Available: 80 55 30 5 -20
MPS
Table 14-2 Updated MPS Record for CD Cabinet
Item: CD Cabinet
Lot size rule: FOQ=100
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Projected Available: 80 55 30 5 80 50 20 90 60 25 90 55 20
MPS 100 100 100
Author:Niranjana K R 21
• From the authorized MPS, we calculate when we need to
have replenishment orders of CD cabinets; when we need a
new MPS order.
24-08-2016

MRP Inputs-Inventory Records
Table 14-3 First Inventory Record for CD Cabinet
Item: CD Cabinet
Lot size rule: L4L
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Scheduled Receipts:
Projected Available: 0 0 0 0 -100
Planned Orders
Table 14-4 Updated Inventory Record for CD Cabinet
Item: CD Cabinet
Lot size rule: L4L
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Scheduled Receipts:
Planned Orders 100 100 100
• System checks the inventory record for each BOM item to see if
inventory is available or if a replenishment order is needed to
build the cabinets.
24-08-2016

MRP Inputs-Bills of Material
• A BOM lists all of the
items needed to produce
one CD cabinet
• The BOM is exactly like a
recipe for baking a cake
• The BOM’s must be
complete and accurate
and can only be changed
by an ECN
• MRP BOM’s are indented
bills of materials Indented BOM
24-08-2016

A Product Structure Tree

The MRP Explosion Process
Table 14-6 Updated Inventory Record for CD Cabinet
Item: CD Cabinet Parent: none
Lot size rule: L4L Children: Top, bottom, door, left side, right side, shelves, shelf supports
Lead time: 1 week
1 2 3 4 5 6 7 8 9 10 11 12
Scheduled Receipts:
Planned Orders: 100 100 100
Using this table and the product structure tree, we will work
through an example of how the MRP explosion process calculates
the requirements for building a CD cabinet. Next we start with the
cabinet top to show how MRP calculates the gross requirements
for this component.
24-08-2016

Inventory Records – Components (1 of
• It was noted on the previous slide that the parent item (CD Cabinet) has
planned orders in periods 3, 6, and 9.
• Its children (top, bottom, door, left & right side, shelves, and supports)
have gross requirements in periods 3, 6, and 9.

Inventory Records – Components (2 of 4)

Inventory Records – Remaining Components (1 of 3 )

Inv. Records – Remaining Components (2 of 3)

Inv. Records – Remaining Components (3 of 3)

MRP Action Notices
• Action Notices:
– Indicate items that need a production planner’s attention
– Are created when a planned order needs to be released, due dates
need to be adjusted, or when there is insufficient lead time for normal
replenishment
– Often require planners to rush or expedite orders

MRP Action Notices
• Action Bucket:
– Is the current period where we take actions such as releasing,
rescheduling, or canceling orders
– A positive quantity in current period’s planned order row means that
an order must be released

Example Comparing Lot Size Rules: Three lot sizing rules used within MRP
Systems are: fixed order quantity (FOQ), lot for lot (L4L), and period order quantity
(POQ). Cost comparison is based on Inventory holding costs ($0.10/period) and
ordering cost ($25/order). In this example POQ is best at $133.50.

Rough Cut Capacity Example: The CRP module uses data from MRP. Calculate
workloads for critical work centers based on open shop orders and planned shop
orders. These shop orders are translated into hours of work by work center and by
time period.
Table 14-11 show items scheduled for work Center 101.
• Available = 4 machines x 2 shifts x 10 hours x 5 days x 0.85 utiliza- x 0.95 effi-
Capacity per shift per wk. tion ciency
• Available = 323.0 standard hours
Capacity

Workload Graph for Work Center 101: CRP enables a company to
evaluate both the feasibility of the MRP system and how well the company is
using its critical work centers.

Resource Planning within OM: How it all fits
together
• Enterprise resource planning provides a common database for use by an
organization, its suppliers, and its customers.
• MRP reports are used by the production and inventory planners to (1)
generate purchasing requisitions and (2) develop schedules of different
activities to be done on the manufacturing floor.
• Techniques for sequencing activities are discussed in Chapter 15.
• The authorized MPS, the bill of material (BOM) file, and the inventory
records are inputs to the MRP system. It is critical that the MPS be feasible
and that the BOM file and the inventory records be accurate. This implies
that the time standards (Chapter 11) are valid and that cycle counting
(Chapter 12) be used to maintain inventory record accuracy. If not,
material is not ordered at the appropriate time in the right quantity.

Resource Planning Across the Organization
• Since MRP determine the quantity and timing of materials
needed, it affects several functional areas
– Accounting future material commitments based on MRP output
– Marketing is primarily concerned with MPS as the MRP reveals
potential material shortages
– Information systems maintains the MRP and the MPS

Mba om 09_resource_planning

More Related Content

Mba om 09_resource_planning