- Explain how the concept of dependent demand in material requirements planning is fundamental to resource planning.
- Describe a master production schedule (MPS) and compute available-to-promise quantities.
- Apply the logic of an MRP explosion to identify production and purchase orders needed for dependent demand items.
- Explain how enterprise resource planning (ERP) systems can foster better resource planning.
- Apply resource planning principles to the provision of services and distribution inventories
11 RESOURCE PLANNING
Material Requirements Planning
Understanding material and enterprise resource planning begins with the concept of dependent demand.
Demand for a final product, such as a car, is called independent demand because
it is influenced only by market conditions. In contrast, the demand for steering mechanism going into the car “depends” on the production planned for cars. Similarly, there are many other
items that go into a car. Each of these items has a dependent demand because the quantity required varies with the production plans for number of cars to be produced in various periods.
Master Production Scheduling
Developing a Master Production Schedule
Freezing the MPS
Reconciling the MPS with Sales and Operations Plans
The first input into a material requirements plan is the master production schedule (MPS), which details how many end items will be produced within specified periods of time. It breaks the sales and operations plan into specific end product assembly or manufacturing quantity in each planning period (planning bucket – a week or a day – JIT systems will be using a day).
MPS complies with the following rules
1. The sums of the quantities in the MPS must equal those in the sales and operations plan. This consistency between the plans is desirable to get the profit plan done in finalizing the sales and operations plan.
2. The production quantities must be allocated efficiently over time. Productivity and efficiency considerations have to be factored in. The planner must select lot sizes for each product SKU, taking
into consideration economic factors such as production setup costs and inventory carrying costs.
3. Capacity limitations and bottlenecks, such as machine or labor capacity, storage space, or working
capital, may determine the timing and size of MPS quantities. The planner must recognize the constraints and set the timing and size of the production quantities to get optimal output from constrained resources which are in a way bottlenecks.
The process of developing an MPS includes (1) calculating the projected on-hand inventory and
(2) determining the timing and size of the production quantities of specific products to meet the sales plan.
Bill of Materials
Outputs from MRP
MRP and the Environment
MRP, Core Processes, and Supply Chain Linkages
Conversion MPS into resources requirements and requirement of components and raw materials needs to be done. It is termed MRP explosion. The inputs required include the bills of materials and the information contained in inventory records, which in conjunction with the planning factors come together within the MRP logic to create the MRP explosion. The outputs of this explosion process become component and material requirements plans.
A bill of materials (BOM) is a record of all the components of an item (final assembly), the parent–component relationships (Assembly – subassembly component), and the usage quantities derived from engineering and process designs.
Inventory records are an important input to MRP, and up-to-date records of inventory at each stage are required for accurate MRP based plans.
The gross requirements are the total demand derived from all parent production plans. They also include demand for replacement parts i.e. spare parts.
Scheduled Receipts: Scheduled receipts (pending or open orders) are orders that have
been placed but not yet completed. For a purchased item, the scheduled receipt could be in one of several stages: being processed by a supplier, being transported to the purchaser, or being inspected by the purchaser’s receiving department.
Projected On-Hand Inventory The projected on-hand inventory is an estimate of the amount of
inventory available each week after gross requirements have been satisfied.
Planned Receipts Plans for new orders will create the item of planned receipts.
Planned Order Releases A planned order release indicates when an order for a specified
quantity of an item is to be issued.
The planning factors in a MRP inventory record provide useful information in firming up the components and material requirement plan. These factors can be changed and operations can be fine-tuned. Important of these factors are planning lead time, lot-sizing rules, and safety stock.
Planning Lead Time Planning lead time is an estimate of the time between placing an order for an
item and receiving the item in inventory.
Lot-Sizing Rules: Lot sizing rules are specified to create orders for a batch.
Outputs from MRP: MRP systems provide many plans, schedules, reports and notices to help
planners control dependent demand inventories,
Resource Requirements Reports
Companies can modify their MRP systems to help them track the wastes and plan for their disposal from environment management perspective.
MRP, Core Processes, and Supply Chain Linkages
Enterprise Resource Planning
How ERP Systems Are Designed
Managerial Practice 11.1 ERP Implementation at Valle del Lili Foundation
An enterprise process is a company-wide process that cuts across functional areas, business units,
geographic regions, product lines, suppliers, and customers. Enterprise resource planning (ERP)
systems are large, integrated information systems that support many enterprise processes and data
storage needs. By integrating the firm’s functional areas, ERP systems allow an organization to view its operations as a whole rather than having to try to put together the different information pieces produced by its various functions and divisions.
ERP revolves around a single comprehensive database that can be made available across the
entire organization (or enterprise). Having a single database for all of the firm’s information makes it
much easier for managers to know the requirements and plans all company’s products at all locations and at all times and take managerial actions as appropriate.
Resource Planning for Service Providers
Dependent Demand for Services
Bill of Resources
Learning Goals in Review
Case Flashy Flashers, Inc.