RESOURCE

PLANNING
SYSTEMS
 CHAPTER OUTLINE
 Introduction
 Operations Planning
 The Aggregate Production Plan
 The Master Production Schedule
 The Material Requirements Plan
 Capacity Planning
 The Distribution Requirements Plan
 Implementing Enterprise Resource Planning Systems
 INTRODUCTION
 Resource planning - process of determining the
production capacity required to meet demand
 Capacity - maximum workload that an organization is
capable of completing in a given period of time
 Goal of resource planning - minimize the discrepancy
between an organization’s capacity and demand
 Missed due date or stock-out may cascade downstream,
magnifying the bullwhip effect
 OPERATIONS PLANNING
Operations planning can be divided into three broad categories:
 Long-range – Aggregate Production Plan (APP) usually
covers a year or more, involves the construction of facilities &
major equipment purchase
 Intermediate – plan spans six to eighteen months. Shows the
quantity & timing of end items (i.e., master production schedule –
MPS)
 Short-range – plan covers few days to few weeks. Detailed
planning process for components & parts to support the master
production schedule (i.e., materials requirement planning – MRP)
 OPERATIONS PLANNING
PlanningHorizon CapacityPlan MaterialsPlan

LongRange Resource Aggregate

Demand
(Morethan 1 year) Requirements Production
Management
Product groups/fa milies Planning (RRP) Planning (APP)
Distribution
Requirements
Planning (DRP)
Rough-Cut Master
MediumRange Capacity Production
(6to 18months) Planning (RCCP) Scheduling (MPS)
End-Items/Level 0

Capacity Material Bill of Materials

Short Range
Requirements Requirements +
(Days/Weeks) Planning (CRP) Planning (MRP) Inventory Status
Components/subassemblies

Production Purchase
Activity Planning &
Control Control
 AGGREGATE PRODUCTION PLAN
Aggregate Production Plan (APP) - The Aggregate
Production Plan (APP) is a strategic management tool used by
businesses to plan and manage their production processes over
a specified period of time, typically ranging from a few months
to a year.

It's an essential component of the overall business planning

process and helps ensure that a company's production capacity
aligns with the expected demand for its products or services.
 THE MAIN OBJECTIVES OF DEVELOPING AN
AGGREGATE PRODUCTION PLAN INCLUDE:
 Balancing Supply and Demand

 Minimizing Costs

 Resource Utilization

 Managing Inventory Levels

 Managing Workforce

 Flexibility and Responsiveness

 AGGREGATE PRODUCTION PLAN

Chase Production Strategy

 The Chase Production Strategy is a manufacturing approach
where a company adjusts its production levels to match the
actual demand for its products or services. In other words,
the company "chases" the customer demand by varying its
production output in response to fluctuations in demand.
 This strategy aims to minimize inventory carrying costs and
the risk of overproduction while ensuring that the company
can meet customer orders on time.
 AGGREGATE PRODUCTION PLAN

Chase Production 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

 AGGREGATE PRODUCTION PLAN

Level Production Strategy

 The Level Production Strategy, also known as a Stable
Production Strategy or a Constant Workforce Strategy, is a
manufacturing approach where a company maintains a
steady and constant production rate over time, regardless of
fluctuations in customer demand.
 Instead of adjusting production levels to match changes in
demand, the company adjusts its inventory levels to absorb
variations in demand.
 AGGREGATE PRODUCTION PLAN

Level Production Strategy

 Relies on constant output rate varying inventory & backlog
according to fluctuating demand
 Firm relies on fluctuating finished goods & backlogs to meet
demand
 Works well for make-to-stock firms
 Inventory carrying and stock out costs are major cost concerns
 Works well with highly skilled workers
 AGGREGATE PRODUCTION PLAN

Mixed Production Strategy

 Maintains stable core workforce using overtime,
subcontracting & part time workers to manage short-term
demand

 Complementary products (with different demand cycles) may

be produced
 Works well with firms producing multiple products
 MASTER PRODUCTION SCHEDULE

Master Production Schedule (MPS) - detailed

disaggregation of the aggregate production plan, listing the
exact end items to be produced by a specific period.
 It serves as a bridge between the aggregate production plan and
the actual production activities on the shop floor. The MPS is a
crucial component of the production planning process and helps
coordinate production, inventory management, and customer
demand.
 MASTER PRODUCTION SCHEDULE
The MPS - Overall, the Master Production Schedule plays a critical

role in ensuring that the right products are produced at the right

time to meet customer demand while optimizing resources and

minimizing costs.

It serves as a blueprint for the actual production activities

within a shorter time horizon.

System nervousness - Small changes in the upper-level-

production plan cause major changes in the lower-level

production plan.
 MASTER PRODUCTION SCHEDULE

Time fences are used to deal with nervousness by

separating the planning horizon into –

 Firmed Segment (demand time fence) – It refers to a

specific point in time within the planning horizon where changes
to customer orders or demand are typically limited due to
operational constraints.

 From current period to several weeks into future. Can only be

altered by senior management
 MASTER PRODUCTION SCHEDULE
 Tentative segment (planning time fence) – It is a specific
point in time within the Master Production Schedule (MPS) where
the production plan is fixed and changes are highly restricted. It's a
critical element in production planning that helps stabilize
production activities and maintain the integrity of the
manufacturing schedule.
 The Planning Time Fence is set before the Demand Time Fence and
represents the period where production planning decisions are
finalized and changes to the schedule are avoided to ensure
smooth production execution.
 THE BILL OF MATERIALS

 Bill of Materials (BOM) - document shows an inclusive listing of

all component parts & assemblies making up the final product –

shown in various levels

 Level 0 – Final Product – Called Independent Demand item is

affected by trends, seasonal patterns, & general market conditions

 Level 1 – Called Dependent Demand item - all components and

subassemblies required for the final assembly of one unit

 THE BILL OF MATERIALS

 Indented Bill of Materials – multilevel BOM shows the

parent-component relationships & specific units of

components known as the planning factor.

 Option over planning - when exact proportion of each

option is uncertain the percentage is increased slightly to

cover the uncertainty

 THE BILL OF MATERIALS
All-Terrain Level 0
Vehicle (ATV) (Finished Good)

Engine Suspension Exhaust & Body & Level 1

Chassis Transmission
Assembly & Brake Fuel System Accessories

Engine Cylinder Piston Seals & Level 2

Crankshaft Camshaft
Block head Assembly Gaskets

Piston Sub- Connecting 12” Steel Level 3

Assemblies (4) Rods (4) Bar (½)

Piston Rings 24” Solid Level 4

Piston
(3) Steel Bar

6” Steel Level 5
Bar (¼)

24” Solid Level 6

Steel Bar
denotes additional materials not shown
 MATERIAL REQUIREMENTS PLAN

MRP - computer-based materials management system

calculates exact quantities, need dates, & planned order releases
for subassemblies & materials required to manufacture a final
product

Requirements include –

 Independent demand information

 Parent-component relationships from BOM
 Inventory status of final product & components
 Planned order releases (most important output) - net
requirements of the final product and appropriate lead
times
 MATERIAL REQUIREMENTS PLAN
 Closed-loop MRP - includes aggregate production planning,
master production scheduling, and capacity requirements
planning

 MRP II – combined MRP with materials and resource planning.

Complete MRP II system includes modules that
 Book orders
 Schedule production
 Control inventory
 Manage distribution
 Perform accounting & financial analyses
 MATERIAL REQUIREMENTS PLAN

Terms used in Material Requirements Planning

 Parent: item generating the demand for lower level components

 Components: parts demanded by a parent
 Scheduled receipt: committed order awaiting delivery for a
specific period
 Planned order receipt: projected receipt based on generation
of a planned order release
 Planned order release: specific order to be released to the
shop or supplier
 Time bucket: time period used on the MRP
 CAPACITY PLANNING
Capacity – refers to a firm’s labor and machine resources
 Capacity plans are used with materials plan to ensure capacity is
not over or underutilized

Resource Requirement Planning (RRP) - long-range capacity plan

checks whether aggregate resources are capable of satisfying the
aggregate production
 Resources considered include gross labor hours & machine hours

Rough-cut capacity plan (RCCP) - medium-range capacity plan

that checks feasibility of MPS
 Converts MPS from production needed to capacity required, then
compares to capacity available
 CAPACITY PLANNING
Capacity requirement planning (CRP) - a short-range capacity
planning technique that checks feasibility of the material
requirements plan
 used to compute the detailed capacity requirements for each
workstation

Lead capacity strategy – proactive approach - adds or subtracts

capacity in anticipation of future market conditions and demand

Lag capacity strategy – reactive approach - adjusts its capacity in

response to demand

Match or tracking capacity strategy - moderate strategy -

adjusts capacity in small amounts in response to demand and
 DISTRIBUTION REQUIREMENTS
PLAN
Distribution requirement planning (DRP) – It is a process
used by businesses to effectively manage the distribution and
movement of products or materials from manufacturers or production
to customers or retail locations.

The primary goal of DRP is to ensure that the right quantity of

products is available at the right place and time to meet customer
demand while minimizing inventory costs and optimizing the
distribution network.

 Links production with distribution planning

LEGACY MATERIAL REQUIREMENTS PLANNING SYSTEMS

Legacy MRP system – describes an older information system that

usually works at an operational level to schedule production

Drawbacks –
 Continuous modifications of the systems made them complex
and cumbersome to work with
 Visibility across functional areas was severely restricted
 Lacked access to real-time information
 Lacked analytical capabilities required for today’s complex global
environment
 MANUFACTURING RESOURCE
PLANNING
Manufacturing resource planning is an outgrowth of the
closed-loop MRP system
 Business and sales plans were incorporated
 Financial function was added
 Provide management with current data, including
sales, purchasing, production, inventory & cash flow
 Can perform “what-if” analyses as internal and
external conditions change
 Lacks the capability to directly interface with external
supply chain members
 DEVELOPMENT OF ERP SYSTEMS
Enterprise Resource Planning Systems (ERP) – ERP are
integrated software solutions that businesses use to manage
various aspects of their operations, including finance, human
resources, manufacturing, supply chain, customer relationship
management, and more.

It integrates internal operations with a common software

platform & centralized database system

 Automates business processes rapidly & accurately

 Provides means for supply chain members to share

information so scarce resources can be fully utilized
DEVELOPMENT OF ERP SYSTEMS
Figure - Generic ERP System

Logistics
Operations and
Warehouse

Sales
Engineering and
Marketing
Supplier Central Database Customer
Relationship and Relationship
Management Servers Management
Data
Human
Support
Resources
System

Finance
Headquarters
and
and
Accounting
Branches
 IMPLEMENTING ERP SYSTEMS
Two types of ERP implementation
1. Best-Of-Breed - picks best application for each
function
 Some businesses require best-of-breed for advanced or
big data analytical decision making
 Disadvantage - software may not integrate well with
other systems
2. Single Integrator Solution - picks all desired
applications from single vendor
 Advantages - all the applications should work well
together
 Getting system up and running should be easier
 IMPLEMENTING ERP SYSTEMS

Implementation Problems:
 Lack of top management commitment
 Lack of adequate resources
 Lack of proper training
 Lack of communication
 Incompatible system environment
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 and difficult to implement
 Firms must change their business model and processes to fit the
ERP system
ERP SOFTWARE APPLICATIONS
Common modules of ERP systems
 Accounting and finance
 Customer relationship management
 Human resource management
 Manufacturing resource planning
 Supply chain management
THANK YOU