UU-MAN-1120:

Operations Management

Title of the topic 4

Resource Planning and Scheduling

Topic’s learning objectives

1. Identify and critique the strategic frameworks of operations and

quality management within a global business environment.
2. Comprehensive knowledge of the main concept and methods related to
designing and managing operations and supply chains.
3. Systematic application of a range of fundamental operational
improvement concepts.
4. Critically evaluate the role of operations within different business models /
functions..

Introduction

Learning Material

Start by flicking through the presentations, this will provide you with a quick
overview of the topics. Pay particular attention to Resource Planning.
You will find these in the folder “presentations”.

There are various ways in defining an Enterprise Resource Planning System. This
is how it has been defined by American Inventory and Production Control System
(APICS) dictionary:

“Enterprise Resource Planning: An accounting oriented information system

for identifying and planning the enterprise-wide resources to make, ship and
account for customer orders.”

Again in Internet Encyclopedia, it has been defined as: “An enterprise planning
system is an integrated computer based application used to manage internal and
external resources, including tangible assets, financial resources, material and
human resources”.

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Basically, an ERP combines several traditional management functions into a

logical integrated system and facilitate flow of information across these functions. It
is designed to model and automate basic processes across the organization over a
centralized database and eliminates the need of disparate systems maintained by
various units of the organization.

Figure below shows how information is integrated in a typical organization using

a ERP system.

ERP system is thus a mirror image of the major business processes of

an organization.

Need for Enterprise Resource Planning - Why ERP ?

Separate systems were being maintained during 1960/70 for traditional business
functions like Sales & Marketing, Finance, Human Resources, Manufacturing, and
Supply Chain Management. These systems were often incongruent, hosted in
different databases and required batch updates. It was difficult to manage business
processes across business functions e.g. procurement to pay and sales to cash
functions. ERP system grew to replace the islands of information by integrating
these traditional business functions.

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The successful implementation of an ERP system will have many

advantages, as indicated below:

Business integration and Improved Data Accuracy: ERP system is

composed of various modules/ sub modules where a module represents a
particular business component. If data is entered in one module such as
receiving, it automatically updates other related modules such as accounts
payable and inventory. This updating occurs at real time i.e. at the time a
transaction occurs. Since, data needs to be entered only once at the origin
of transaction, the need of multiple entries of the same data is eliminated.
Likelihood of duplicate/ erroneous data is, therefore, minimized. The
centralized structure of the data base also enable better administration and
security provisions, which minimizes loss of sensitive data.

Planning and MIS: The various decision support tools like planning engines
and simulations functions, form integral part of an ERP system which helps in
proper utilization of resources like materials, human resources and tools.
Constrained based planning help in drawing appropriate production
schedules, thereby improving operation of plant and equipment. As a part of
MIS, an ERP system contains many inbuilt standard reports and also a report
writer which produce ad hoc reports, as and when needed.

▪ Improved Efficiency and Productivity: In addition to provision of improved

planning, ERP system provides a tremendous boost to the efficiency of day
to day and routine transactions such as order fulfillment, on time shipment,
vendor performance, quality management, invoice reconciliation, sales
realization, and cash management. Cycle time is reduced for sales to cash
and procurement to pay sequences.

▪ Establishment of Standardized Procedures: ERP system is based on

processes of international best practices, which are adopted by the
organizations during implementation. Department silos are purged and
maverick practices are done away with. Because of top down view available
to management, chances of theft, fraud and obsolescence are minimized.

▪ Flexibility and technology: Due to globalized environment, where

production units, distribution centers and corporate offices reside in different
countries, organizations need multi-currency, multi-language and multi
accounting modes, in an integrated manner. These provisions are available in
most of the ERP systems, particularly in products offered by tier 1 and tier 2
vendors. ERP vendors are also quick to adopt latest technologies, from
mainframe to client server to internet. Unlike a bespoke system, Upgrading to
latest technology for a running ERP system is uncomplicated, involving
mostly adoption of service packs and patches.

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Conclusion

Although ERP provides many advantages; its implementation is a strategic decision,

involving significant resources (both financial and human), proper evaluation and
business process re-engineering. There must be commitment from all levels. A
failed implementation may lead to bankruptcy of an organization.

http://www.managementstudyguide.com/enterprise-resource-planning.htm

Video 10

Click on this link (also found on the VLE)

http://www.youtube.com/watch?v=PVRgIXLWDHs

Discussion Question 4
1. Describe enterprise resource planning and its role in an organization.
2. Describe the basic modules of an ERP system.
3. Describe the evolution of ERP systems.

Resource Planning Within OM: How it all fits Together

Enterprise resource planning provides a common database for use by an
organization, its suppliers, and its customers. Second-generation ERP systems are
designed to support supply chain management and e-commerce. These systems
automate routine transactions and provide real-time information to all members of
the enterprise. ERP systems typically have a production and materials module (MRP
– materials resource planning) to determine what is needed, how much is
needed, and when it is needed.

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MRP reports are used by the production and inventory planners to:

(1) generate purchasing requisitions and

(2) develop schedules of different activities to be done on the manufacturing floor.

Even though rough-cut capacity planning (RCCP) using MPS data was done to
check for feasibility, it is still important to do capacity requirements planning (CRP)
for any critical work centers (bottlenecks or potential bottlenecks). CRP operates at
a greater level of detail than does RCCP, using information generated by the MRP
system. Production planners do this to make sure the detailed schedule of
production is feasible.

Resource planning is designed to ensure that the right materials, in the right
quantities, are available at the right time. And to ensure that the right job is
being done on the right equipment.

Resource Planning Across the Organization

Since MRP determines the quantity and timing of materials needed, it affects several
functional areas in the company. Let's first look at how each functional area is
affected by MRP and then consider the effects of ERP.

Accounting calculates future material commitments based on MRP output.

Accounting then develops cash flow budgets and the inventory investment to
support the current MPS. With a common database, accounting should be able to
determine the exact status of outstanding orders, including cost, quantity, and
delivery date. Since there is a common database, discrepancies between supplier
and manufacturer should be reduced.

Marketing is primarily concerned with the MPS, which identifies when finished
goods will be completed. MRP reveals potential material shortages that directly
affect marketing since the shortages may delay product completion. Marketing can
also use MRP for allocating scarce materials to maximize customer service. One
major advantage of ERP is that marketing can track actual sales at the final product
level (using POS) to determine what actions, if any, need to be taken to maximize
customer service.

Information systems maintain MRP, which is a large database that includes the
BOM, the inventory records, and the MPS. Minimizing errors in the database is
essential to producing useful reports. ERP will help IS by using a single
integrated database for both internal and external members of the supply chain.

Purchasing uses the planned orders generated by MRP to evaluate the feasibility
of long-term or blanket contracts and to determine delivery need. The lead times
that are input into MRP often come directly from purchasing. ERP will facilitate
supplier-managed inventory approaches and reduce transaction costs for
purchasing.

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Manufacturing uses the output generated by MRP to develop daily manufacturing

schedules. MRP ensures that the right materials in the right quantity are available
to support the MPS. Manufacturing also uses MRP to allocate scarce materials.
ERP will provide manufacturing with improved insight into actual customer demand.
It should increase the probability that manufacturing is working on products actually
needed to satisfy customer demand.

In most manufacturing operations, production or inventory control planners are

responsible for working with MRP. Planners are typically responsible for certain
inventory items, including end items, subassemblies, and components. Planners
check the MRP output for action notices related to the items for which they are
responsible. Planners schedule, reschedule, and expedite materials to support the
MPS. A planning position is often an entry-level job in the materials field.

As companies continue to move toward ERP, all functional areas will work from a
central database. The database gives all areas in the company access to the
same information simultaneously and improves organizational effectiveness.

The Supply Chain Link

Enterprise resource planning provides the structure for common

databases across the organization, its suppliers, and its customers. Suppliers
can access the master production schedule (MPS) to see projected build
dates for products that use materials supplied by them. The current trend is to
integrate e-commerce and ERP systems. Tangible benefits of an ERP system
include reduced inventory levels, reduced staffing, improved order launching,
reduced IT and purchasing costs, improved cash flow, and increased profits.
Intangible benefits include improved visibility of system demand, improved
customer responsiveness, and improved flexibility. Enterprise resource
planning systems provide the structure needed for effective supply chain
management.

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Activity
ERP Providers – found on the VLE as last item
Assist in creating a glossary of ERP providers with a brief description of
the product(s) they offer. What unique selling point do they have?

Scheduling

A company's overall strategy provides the framework for making decisions in many
operational areas. Companies differentiate themselves based on product volume
and product variety. This differentiation affects how the company organizes its
operations. A company providing a high-volume, standardized, consistent-quality,
lower-margin product or service such as a commercial bakery or a fast-food
restaurant focuses on product and layout. This type of operation needs dedicated
equipment, less-skilled employees, and a continuous or repetitive process flow.
Companies providing low-volume, customized, higher-margin products or services,
such as a custom furniture maker or an upscale restaurant, focus on process. They
need general-purpose equipment, more highly skilled employees, and flexible
process flows. Each kind of operation needs a different scheduling technique. Let's
look at high-volume operations first.

Discussion Questions

1. Compare and contrast high-volume and low-volume scheduling operations.

2. Describe a high-volume service operation and how scheduling should
be done.
3. Describe a low-volume service operation and how scheduling should be
done.

Further Reading

1. What are the inputs of operations scheduling

http://www.mbaofficial.com/mba-courses/operations-management/what-are-
the-inputs-of-the-operations-scheduling/
th
2. Reid R., Operations Management, 4 Edition, 2011, Wiley Publishers.
(E Book through WileyPlus)

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Topic’s summary

Enterprise resource planning (ERP) is software designed for organizing and

managing business processes by sharing information across functional areas
using a common database and a single computer system. ERP systems typically
have modules for finance and accounting, sales and marketing, production and
materials management, and human resources.

First-generation ERP systems provide a single interface for managing routine

activities performed in manufacturing. Second-generation ERP systems or SCM
software is designed to improve decision making in the supply chain. The current
trend is integrating e-commerce and ERP systems.

Tangible benefits from ERP systems include reductions in inventory and staffing,
increased productivity, improved order management, quicker closing of financial
cycles, reduced IT and purchasing costs, improved cash flow management, and
increased revenue and profits. Intangible benefits include improved visibility of
corporate data, improved customer responsiveness, and improved flexibility. The
cost of ERP systems ranges from hundreds of thousands of dollars to several
million dollars.
Material requirements planning (MRP) systems are designed to calculate
material requirements for items with dependent demand. MRP systems use
backward scheduling to determine when each activity starts so that the finished
product or service is completed on time.

Independent demand is the demand for finished products, whereas

dependent demand is demand that is derived from finished products. MRP
systems use dependent demand.

The objectives of MRP are to determine the quantity and timing of material
requirements and to keep schedule priorities updated and valid. MRP determines
what to order, how much to order, when to place the order, and when to
schedule the order's arrival. It maintains priorities by recognizing changes in the
operations environment and making the necessary adjustments.

MRP needs three inputs: the authorized MPS, the BOM file, and the inventory
records file. The MPS is the planned build schedule, the BOM file shows the
materials needed to build an item, and the inventory records file shows the
inventory on hand.

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Once the MPS has been input, MRP checks the inventory records to determine if
enough end-item inventory is available. If sufficient end item inventory is not on
hand, MRP checks the end item's BOM file to determine what materials are needed
and in what quantities. The MRP system then generates planned replenishment
orders.

Action notices show when to release planned orders, reschedule orders, or

adjust due dates. They allow the planner to use the MRP output information
effectively.

Different lot size rules are used with MRP systems to generate different order
quantities and order frequencies. The lot-for-lot (L4L) rule always minimizes
inventory investment but maximizes ordering costs. A cost comparison shows
the effect of using different lot sizing rules.

Planned orders generated by MRP, plus any open shop orders, are inputs to
capacity requirements planning (CRP). CRP checks to see if available capacity is
sufficient to complete the orders scheduled in a particular work center during a
specific time period.

Different kinds of environments need different scheduling techniques. Scheduling in

the high-volume environment is typically done through line design and balancing.
Scheduling in a low-volume environment typically involves the use of priority rules. In
this environment, Gantt charts are often used to view the workload and jobs in
process.

Shop loading techniques include infinite and finite loading. Infinite loading
schedules include jobs without capacity constraints. Finite loading loads jobs up to
a predetermined capacity level. Loading can be done using forward or backward
scheduling. Forward scheduling starts the job as soon as possible, whereas
backward scheduling works back from the due date.

Priority rules are used to make scheduling decisions. SPT always minimizes mean
job flow time, mean job lateness, and average number of jobs in the system. FCFS
is considered one of the fairest priority rules. Rules related to due dates tend to
minimize the maximum tardiness of the jobs. Priority rules need to support
organizational objectives.

Performance measurements reflect the priorities of the organization. Mean job flow
time, mean job lateness, mean job tardiness, makespan, and the average number
of jobs in the system measure the effectiveness of schedules.

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Johnson's rule is an effective technique for minimizing makespan when

two successive workstations are needed to complete the process.

When scheduling bottleneck systems, the basic principles of OPT apply. The theory
of constraints expands OPT into a managerial philosophy of continuous
improvement.

Service organizations use different scheduling techniques such as

appointments, reservations, and posted schedules for effective use of service
capacity.

A method developed by Tibrewala, Phillippe, and Brown constructs workforce

schedules when a company uses full-time employees, operates seven days
each week, and gives its employees two consecutive days off.

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