Ms.

Isbah Khalid
SCM- Week 9

Resource
Planning
 Resource planning is the process of
determining the production capacity
required to meet demand.

Resource In the context of resource planning,

capacity refers to the maximum
Planning- workload that an organization is capable
of completing in a given period of time.
Defined
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.

Developing feasible operations schedules

and capacity plans to meet delivery due
dates and minimize waste in
manufacturing or service organizations is a
complex problem.
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.
Lack of Coordination and the
Bullwhip Effect
Supply chain coordination improves if all stages of the chain take
actions that are aligned and increase total supply chain surplus.
Supply chain coordination requires each stage of the supply chain to
share information and take into account the impact its actions have on
other stages.
A lack of coordination occurs either because different stages of the
supply chain have local objectives that conflict or because information
moving between stages is delayed and distorted.
01 02
Different stages of a Today, supply chains
supply chain may have consist of stages with
conflicting objectives if different owners. For
each stage tries to example, Ford Motor
maximize its own profits, Company has thousands
resulting in actions that of suppliers, from
often diminish total Goodyear to Motorola,
supply chain profits. and each of these
suppliers has many
suppliers in turn.
Not only does each stage focus on its own objectives, but
information is also often distorted as it moves across the supply
chain because complete information is not shared between
stages.

This distortion is exaggerated by the fact that supply chains today

produce a large variety of products. Ford produces different
models, with several options for each model.

The increased variety makes it difficult for Ford to coordinate

information exchange with thousands of suppliers and dealers.

The fundamental challenge today is for supply chains to achieve

coordination in spite of multiple ownership and increased product
variety.
The Bullwhip Effect

One outcome of the lack of supply

chain coordination is the bullwhip
effect, in which fluctuations in
orders increase as they move up the
supply chain from retailers to
wholesalers to manufacturers to
suppliers.
The bullwhip effect distorts demand
information within the supply chain,
with each stage having a different
estimate of what demand looks like.
 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
Operations 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.
Operations Planning
1- Long Range- 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.

2- Medium Range- 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.

3- Short Range- Short-range plans are the most detailed and specify
the exact end items and quantities to make on a weekly, daily or
hourly basis.
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.
 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.
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
 A product family consists of different
products that share similar
characteristics, components or
manufacturing processes.

For example, an all-terrain vehicle (ATV)

Product manufacturer who produces both
automatic and manual drive options
may group the two different types of
Family 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
 Contd.
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.
Contd.

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.