CHAPTER 4:

RESOURCE PLANNING SYSTEMS

Ye a r 2 0 2 4
Email: [email protected]
CHAPTER OBJECTIVES
After learning this chapter, you are able to:

Explain the strategies of chase, level, and

mixed aggregate production.

Give an explanation of the capacity planning and

materials planning (APP, MPS, MRP) phases of
the hierarchical operations planning process.

Compute the MRP explosion and available-

to-promise quantities.

Explain an ERP system and understand its

benefits and drawbacks.
 1. Operations Planning
CONTENT 2. The Aggregate Production Plan – APP
3. Master Production Scheduling – MPS
4. The Bill of Materials
5. Material Requirements Planning – MRP
6. Capacity Planning
 DEFINITIONS

Bullwhip effect

Capacity Resource planning

Refers to the maximum workload that The process of determining the
an organization is capable of production capacity required to
completing in a given period of time. meet demand.
 OPERATIONS PLANNING

Long-range ≥ 1 year

Operations Intermediate or
6 – 18 months
planning medium-range

Short-range days – weeks

 OPERATIONS PLANNING

Manufacturing Planning
and Control System
 THE AGGREGATE PRODUCTION PLAN (APP)

APP: 3 basic production strategies:

A hierarchical planning process that 1) the chase strategy
translates annual business plans and 2) the level strategy
demand forecasts into a production plan 3) the mixed strategy
for all products.

Level strategy Chase strategy

production rate production
is constant equals demand

Mixed strategy
 THE AGGREGATE PRODUCTION PLAN (APP)

Chase strategy
➔ Make-to-order manufacturing firms
production equals demand
 THE AGGREGATE PRODUCTION PLAN (APP)

Level strategy
➔ Make-to-stock manufacturing firms
production rate is constant
 THE AGGREGATE PRODUCTION PLAN (APP)

Chase strategy Level strategy

production equals demand production rate is constant

Demand Demand

Units
Units

Production Production

Time Time
 THE AGGREGATE PRODUCTION PLAN (APP)

PRACTISE
 THE AGGREGATE PRODUCTION PLAN (APP)

PRACTISE
 THE BILL OF MATERIALS

The bill of materials (BOM):

An engineering document that shows an
inclusive listing of all component parts
and subassemblies making up the end
item.
THE BILL OF MATERIALS

15
 MATERIAL REQUIREMENTS PLANNING (MRP)

MRP:
A software-based production planning and
inventory control system that has been used
widely by manufacturing firms for computing
dependent demand and timing requirements.

Material requirements planning is used to calculate the exact quantities, need dates and
planned order releases for components and subassemblies needed to manufacture the final
products listed on the MPS.
 CAPACITY PLANNING

Capacity:
Refers to a firm’s labor and machine resources.

A proactive approach that adds or subtracts

Lead capacity
capacity in anticipation of future market
strategy
conditions and demand

Capacity Lag capacity A reactive approach that adjusts its capacity

Strategy strategy in response to demand

A moderate strategy that adjusts capacity in

Match or tracking
small amounts in response to demand and
capacity strategy
changing market conditions
THE DEVELOPMENT OF ENTERPRISE RESOURCE PLANNING SYSTEMS

Accounting
&
Finance
Manufacturing Logistics
Resource And
Planning Warehouse

ERP System

Supply Enterprise-wide Customer

Chain System that uses a Central
Relationship
Management and Shared Database to
provide Real-Time Management
18 Data to all modules
of the ERP System

Human Sales
Resource And
Management Global Marketing
Business
Management
 MASTER PRODUCTION SCHEDULING (MPS)

Time fence system

System nervousness:
A situation wherein a small change in the
upper-level production plan causes a major
firmed segment tentative segment
change in the lower-level production plan.
= demand time fence = planning time fence

Many firms use a time fence system

to deal with this problem. it usually stretches it typically stretches
from the current from the end of the
period to a period firmed segment to
several weeks into several weeks farther
the future. into the future.
 MASTER PRODUCTION SCHEDULING (MPS)

MPS:
A time-phased, detailed
disaggregation of the aggregate
production plan, listing the exact
end items to be produced.
 MASTER PRODUCTION SCHEDULING (MPS)
Available-to-Promise Quantities (ATP)

3 basic methods of calculating ATP:

(1) discrete available-to-promise
(2) cumulative available-to-promise without
look ahead
(3) cumulative available-to-promise with
look ahead

BI - the beginning inventory heading in to the

first week of January
ATP: D - the remaining unbooked or
unpromised units
 MASTER PRODUCTION SCHEDULING (MPS)
Available-to-Promise Quantities (ATP)

1. The ATP for the first period is the sum of the beginning
inventory and the MPS, minus the sum of all the
committed customer orders (CCOs) from period 1 up to
but not including the period of the next scheduled MPS.
2. For all subsequent periods, there are two possibilities:
a. If no MPS has been scheduled for the period, the
ATP is zero.
b. If an MPS has been scheduled for the period, the
ATP is the MPS quantity minus the sum of all CCOs
from that period up to but not including 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
quantities must be revised to reflect these changes.
 MASTER PRODUCTION SCHEDULING (MPS)

PRACTISE
 MASTER PRODUCTION SCHEDULING (MPS)

PRACTISE
 PRACTICE 4.4

QUARTER SALES FORECAST (LB)

1. Using Level strategy to
calculate the production rate
Spring 80,000
and the total inventory cost
Summer 50,000
2. Using Chase strategy to
Fall 120,000
calculate the production rate
Winter 150,000
and the total labour cost
• Hiring cost = $100 per worker

• Firing cost = $500 per worker

• Inventory carrying cost = $0.50 pound per quarter

• Production per employee = 1,000 pounds per quarter

• Beginning work force = 100 workers

PRACTICE 4.4

Level production
(50,000 + 120,000 + 150,000 + 80,000)
4
= 100,000 pounds

SALES PRODUCTION
QUARTER FORECAST PLAN INVENTORY
Spring 80,000 100,000 20,000
Summer 50,000 100,000 70,000
Fall 120,000 100,000 50,000
Winter 150,000 100,000 0
Total 400,000 140,000
Cost = 140,000 pounds x 0.50 per pound = $70,000
PRACTICE 4.4
 PRACTICE 4.5

MONTH DEMAND (CASES) MONTH DEMAND (CASES)

January 1000 July 500

February 400 August 500
March 400 September 1000
April 400 October 1500 1. Using Level strategy to calculate
May 400 November 2500 the production rate and the total
June 400 December 3000 inventory cost
2. Using Chase strategy to
• Production per employee = 100 cases/month
calculate the production rate and
• Hiring cost = $1000 per worker
the total labour cost
• Firing cost = $500 per worker
• Inventory carrying cost = $1.00 case/month
• Beginning work force = 10 workers
• Beginning inventory = 500 cases
• Ending inventory in December = 800 cases
Practice 4.12
Practice 4.13
THANK YOU