Sanlorenzo, the Italian super-yacht manufacturer, says that its Infor ERP Visual implementation,

which went live in January, is bringing the complexity of its highly customized products under

control.

Ermanno Porro, Sanlorenzo general manager, explains that the specialist yacht builder's move

into making 28-35m plastic and fiberglass yachts, 40m aluminum super-yachts and 44m steel

mega-yachts meant it required sophisticated resource planning.

It also needed to improve monitoring of production steps on the shop floor, and all the way
from

order to delivery. And the system had to support a program to optimize and manage custom

options in an engineer-to-order environment.

He says Sanlorenzo chose ERP Visual for its ability to manage complex manufacturing
environments, as well as to streamline order management and workflow. The company also
needed ability to transfer two-way data with Microsoft Project, its preferred live management
system.

“Our business is centered on producing highly prestigious yachts that are tailored to the precise

requirements of our customers. ERP Visual will help us improve our order management
process,”

says Porro. “We liked Infor because it enables us to extend our ERP solution with other
modules

and strategic solutions to support future business growth.”

Resource planning is the process of determining the production capacity required to

meet demand. In the context of resource planning, capacity refers to the maximum

workload that an organization is capable of completing in a given period of time. A

discrepancy between an organization’s capacity and demand results in an inefficiency,

either in underutilized resources or unfulfilled orders. The goal of resource planning is

to minimize this discrepancy.

One of the most critical activities of an organization is to efficiently balance the

production plan with capacity; this directly affects how effectively the organization

deploys its resource in producing goods and services. Developing feasible operations

schedules and capacity plans to meet delivery due dates and minimize waste in

manufacturing or service organizations is a complex problem. The need for better

operations scheduling continues to challenge operations managers, especially in today’s

intensely competitive global marketplace. In an environment fostering collaborative

buyer-supplier relationships, the challenge of scheduling operations to meet delivery due

dates and eliminate waste is becoming more complex. The problem is compounded in an

integrated supply chain, where a missed due date or stockout cascades downstream,

magnifying the bullwhip effect and adversely affecting the entire supply chain.

Operations managers are continuously involved in resource and operations planning

to balance capacity and output. Capacity may be stated in terms of labor, materials or

equipment. With too much excess capacity, production cost per unit is high due to idle

workers and machinery. However, if workers and machinery are stressed, quality levels

are likely to deteriorate. Firms generally run their operations at about 85 percent capacity

to allow time for scheduled repairs and maintenance and to meet unexpected increases

in demand.

This chapter describes the hierarchical operations planning process in terms of

materials and capacity planning. A hypothetical industrial example is used to

demonstrate the hierarchical planning process. This chapter also discusses the evolution

of the manufacturing planning and control system from the material requirements

planning to the enterprise resource planning system.

Operations Planning
Operations planning is usually hierarchical and can be divided into three broad categories: (1)
long-range, (2) intermediate or medium-range and (3) short-range planning horizons. While the
distinctions among the three can be vague, long-range plans usually cover a year or more, tend
to be more general, and specify resources and outputs in terms of aggregate hours and units.
Medium-range plans normally span six to eighteen months, whereas short-range plans usually
cover a few days to a few weeks depending on the type and size of the firm. Long-range plans
are established first and are then used to guide the medium-range plans, which are
subsequently used to guide the short-range plans. Long-range plans usually involve major,
strategic decisions in capacity, such as the construction of new facilities and purchase of capital
equipment, whereas medium-range plans involve minor changes in capacity such as changes in
employment levels. Short-range plans are the most detailed and specify the exact end items
and quantities to make on a weekly, daily or hourly basis. Figure 6.1 shows the planning
horizons and how a business plan cascades into the various hierarchical materials and capacity
plans. The aggregate production plan (APP) is a long-range materials plan. Since capacity
expansion involves the construction of a new facility and major equipment purchases, the
aggregate production plan’s capacity is usually considered fixed during the planning horizon.
The aggregate production plan sets the aggregate output rate, workforce size, utilization and
inventory and/or backlog levels for an entire facility. The master production schedule (MPS) is a
medium-range plan and is more detailed than the aggregate production plan. It shows the
quantity and timing of the end items that will be produced. Material requirements planning
(MRP) is a short-range materials plan. MRP is the detailed planning process for component
parts to support the master production schedule. It is a system of converting the end items
from the master production schedule into a set of time-phased component part requirements.

Material requirements planning was first developed in the 1960s. As it gained popularity
among manufacturers in the 1980s and as computing technologies emerged, MRP

grew in scope into manufacturing resource planning (MRP-II). MRP-I] combined MRP

with master production scheduling, rough-cut capacity planning, capacity requirement

planning and other operations planning software modules. Eventually, the MRP-II system
evolved into enterprise resource planning (ERP) in the 1990s.

Distribution requirements planning (DRP) describes the time-phased net requirements from
central supply warehouses and distribution centers. It links production with

distribution planning by providing aggregate time-phased net requirements information

to the master production schedule

The Aggregate Production Plan
Aggregate production planning is a hierarchical planning process that translates

annual business plans and demand forecasts into a production plan for all products.

As shown in Figure 6.1, demand management includes determining the aggregate demand

based on forecasts of future demand, customer orders, special promotions and safety

stock requirements. This forecast of demand then sets the aggregate utilization, production
rate, workforce levels and inventory balances or backlogs. Aggregate production

plans are typically stated in terms of product families or groups. A product family consists

of different products that share similar characteristics, components or manufacturing

processes. For example, an all-terrain vehicle (ATV) manufacturer who produces both

automatic and manual drive options may group the two different types of ATVs

together, since the only difference between them is the drive option.
Production processes and material requirements for the two ATVs can be expected to be very
similar

and, thus, can be grouped into a family.

The planning horizon covered by the APP is normally at least one year and is usually

extended or rolled forward by three months every quarter. This allows the firm to see its

capacity requirements at least one year ahead on a continuous basis. The APP disaggregates
the demand forecast information it receives and links the long-range business plan to the
medium-range master production schedule. The objective is to provide

sufficient finished goods in each period to meet the sales plan while meeting financial

and production constraints.

Costs relevant to the aggregate planning decision include inventory cost, setup cost,

machine operating cost, hiring cost, firing cost, training cost, overtime cost and costs

incurred for hiring part-time and temporary workers to meet peak demand. There are

three basic production strategies that firms use for completing the aggregate plan: (1)

the chase strategy, (2) the level strategy and (3) the mixed strategy. Example 6.1 provides

an illustration of an APP.

The Chase Production Strategy

The pure chase production strategy adjusts capacity to match the demand pattern. Using this
strategy, the firm will hire and lay off workers to match its production rate to demand . The
workforce fluctuates from month to month, but finished goods inventory remains constant.
Using Example 6.1, the ATV Corporation will use six workers to make 120 units in January, and
then lay off a worker in February to produce 100 units, as shown in Table 6.2. In March, the
firm must hire ten additional workers so that it has enough labor to produce 300 units. An
additional eight workers must be hired in April. The firm continues its hiring and lay-off policy
to ensure its workforce and production capacity matches demand. In December, 180 units will
be produced (although the demand is 140) because of the firm’s desire to increase its ending
inventory by 40 units in December. The pure chase strategy obviously has a negative
motivational impact on the workers, and it assumes that workers can be hired and trained
easily to perform the job. In this strategy, the finished goods inventories always remain
constant but the workforce fluctuates in response to the demand pattern. Figure 6.2 shows
that the chase production curve perfectly overlaps on the demand curve. The inventory level
remains constant at 100 units until December, when it increases by 40 units. Hiring, training
and termination costs are significant cost components in the chase production strategy.