OM

CHAPTER 13

RESOURCE MANAGEMENT
DAVID A. COLLIER AND JAMES R. EVANS

OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

Chapter 13 Resource Management

Resource Management deals with the planning, execution, and control of all the resources that are used to produce goods or provide services in a value chain. chain
Typical objectives of resource management are to: 1. Maximize profits and customer satisfaction, 2. Minimize costs, or 3. Maximize benefits to stakeholders. Resources include materials, equipment, facilities, information, technical knowledge and skills, and of course, people.

OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

Exhibit 13.1
Framework for Resource Management Planning for Goods and Services

OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

Chapter 13 Resource Management

_________________is the development of a

long-term g output p and resource plan p in aggregate units of measure (see Exhibit 13.1).

These typically define output levels over a planning horizon of 1 to 2 years, focusing on product families or total capacity p p y requirements. q Aggregate planning later translates into monthly or quarterly production plans, plans taking into account capacity limitations such as supply availability, y, equipment, q p , and labor.
OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

A Concept of Product Family

Braun Companys Families (or, Product Lines)
Oral Care Shaving Beauty Care Health Food Steam Iron Coffee

Chapter 13 Resource Management

Aggregate planning is most challenging when demand fluctuates over time. Managers have a variety of options in developing aggregate plans in the face of fluctuating demand: Demand management Production-rate changes Workforce changes Inventory smoothing Facilities, equipment, and transportation
OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

Exhibit 13.3 Example Aggregate Planning Variables and Revenue/Cost Implications

OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

Production Plan
1500 Paint (t thousands s of gallo ons) 1250
Requirements

1000 750 500 250 0 | 1 | | 2 3 Quarter | 4

Production plan

Chapter 13 Resource Management

Aggregate Planning for Golden Beverages:

Golden Beverages makes two major productsOld Fashioned and Foamy Delite root beers. The company operates a continuous flow factory and has a fluctuating f forecast, with i h seasonal l peaks k in i the h summer and d winter i holiday season.

the same production rate in each time period.

G ld utilizes Golden tili a _____________strategy t t , planning l i for f An alterative to level production is a _____________

strategy, setting the production rate equal to the demand in each time period.
OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

Level Production
Demand P d ti Production Un nits

Time

Chase Demand
Demand P d ti Production Un nits

Time

Exhibit 13.4
Level Aggregate Production Plan for Golden Beverages

OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

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Exhibit 13.5
Chase Demand Strategy for Golden Beverages

OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

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An Example of Aggregate Planning

- With level l l strategy t t and d backlog b kl not t allowed ll d
Period Forecast Output Regular Part Time Overtime Subcontract Output - Forecast Inventory Beginning Ending Average Backlog Costs: Regular Part Time Overtime Subcontract Hire/Layoff Inventory Back orders Total 1 200 2 200 3 300 4 400 5 500 6 200 Total 1,800

@ @ @ @ @ @

2 3 6 1 5

An Example of Aggregate Planning

- With level l l strategy t t and d backlog b kl not t allowed ll d
Lets determine the constant production level.
Period Forecast 1 200 2 200 3 300 4 400 5 500 6 200 Total 1,800

Chapter 13 Resource Management

Disaggregation in Manufacturing
Master Production Schedule (MPS)
A master production schedule (MPS) is a

statement of fh how many f finished h d items are to be b produced and when they are to be produced.

Typically developed for weekly time periods over a 6- to 12-month horizon.

OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

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A Link of An Aggregate Plan to MPS

- Drill Manufacturing -

Aggregate Plan
Month January February March 1,200 , 1,500 1,400

M t Schedules Master S h d l
1/4 Reversible Drills
Week 1 200 2 300 3 250 4 100

Total=850 3/8 Nonreversible Drills 1 100 50 2

Week

3 50

150

Total=350

Another Example

April 1 Ladder-back chair Kitchen chair Desk chair Aggregate production plan for chair family 200 200 150 120 200 2 3 4 5 6 150

May 7 8

120 200

670

670

Chapter 13 Resource Management

Disaggregation in Manufacturing
Materials Requirements Planning (MRP)
Materials i Requirements i Planning i (MRP) is i a forwardf d looking, demand-based approach for planning the production of manufactured g goods and ordering g materials and components p to minimize unnecessary inventories and reduce costs. Three Major Concepts of MRP Systems
1. 2. 3. Dependent demand is demand d d that h is d directly l related l d to the h demand d d of f other SKUs and can be calculated without needing to be forecasted. Time phasing: all dependent demand requirements do not need to be ordered at the same time, but rather are time-phased as necessary. Lot sizing is the process of determining the appropriate amount and g of f ordering g to reduce costs. timing

OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

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MRP Structure
Data Files
BOM

Output Reports
Master production schedule
MRP by period report

MRP by date report

Lead times
(Item master file) Planned Pl d order d report

Inventory data Material requirement planning programs (computer and software)

Purchase advice

Exception reports Order early or late or not needed Order quantity too small or too large

Purchasing data

Independent vs. Dependent Demand

Independent I d d t Demand D d (Demand (D d not t related l t dt to other th items or the final end-product)
Desk

Top Assembly

Leg Assembly

E(1 )

Dependent Demand (Derived demand items for component parts, subassemblies subassemblies, raw materials, etc.)

Planning g Horizon

Assembly
S b Subassembly bl

Fabrication
Procurement

week k 1

10

An Example of Time-Phased Product Structure

A
1 week 2 weeks 1 week

B
1 week 2 weeks 2 weeks

C
3 weeks

E
2 weeks

F
1 week

Bill of Materials (BOM)

Indicates the structure of a product
9

Items above given level are called parents Items below given level are called children

Shows
(a) All the components (b) Their relationships (c) Their quantities needed.

Indented BOM

Bill of Materials: An Example

Back slats

Seat cushion

Leg supports

Seat-frame boards

Back legs

Front legs

A Ladder-back chair

Bill of Materials: An Example

A Ladder-back chair

B (1) Ladder-back subassembly

C (1) Seat subassembly

D (2) Front legs

E (4) Leg supports

F (2) Back legs

G (4) Back slats

H (1) Seat frame

I (1) Seat cushion

J (4) Seat-frame boards

A Practice Problem for BOM

A

B(2)

C(4)

D(3) D(1) E(1)

F(2) ( )

Given the bill of material for end item A, if A has a gross requirement i t to t build b ild 250 units it and an on-hand inventory for A of 40, 40 determine the net requirement for D if the current on-hand inventory y balances for B and C are 20 and 30, respectively (all other components have h no current inventory).

Chapter 13 Resource Management

MRP explosion is the process of using the logic of dependent demand to calculate the quantity and timing of orders for all subassemblies and components that go into and support the production of finished goods. Lot sizing is the process of determining the appropriate amount and timing of ordering to reduce costs.
There are three common lot sizing methods for MRP:

1. Lot-for-lot (LFL) 2 Fixed 2. Fi d order d quantity tit (FOQ) 3. Periodic order quantity (POQ)
E h of Each f these h is i illustrated ill d in i the h following f ll i examples. l
OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

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MRP Calculation with FOQ

Item: C Description: Seat subassembly Week 1 Gross requirements Scheduled receipts Projected j on-hand inventory Planned receipts Planned order releases 150 2 0 3 0 4 120 5 0 6 150 7 120 8 0 Lot Size: 230 units Lead Time: 2 weeks

230

37

Lot-Sizing Rules - L4L

Item: C Description: Seat subassembly Week 1 Gross requirements Scheduled receipts Projected j on-hand inventory Planned receipts Planned order releases 150 2 3 4 120 5 6 150 7 120 8 Lot Size: L4L Lead Time: 2 weeks

230

37

Lot-Sizing Lot Sizing Rules - POQ

Item: C Description: Seat subassembly Week 1 Gross requirements Scheduled receipts Projected j on-hand inventory Planned receipts Planned order releases 150 2 3 4 120 5 6 150 7 120 8 Lot Size: P = 3 Lead Time: 2 weeks

230

37

Exhibit 13.16
Summary of MRP Explosion for Bill of Material in Exhibit i 13 in 13.10 10

OM, Ch. 13 Resource Management 2009 South-Western, a part of Cengage Learning

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