RESOURCE MANAGEMENT

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OM
CHAPTER 13
RESOURCE MANAGEMENT
DAVID A. COLLIER AND JAMES R. EVANS
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Chapter 13 Learning Outcomes

l e a r n i n g o u t c o m e s

LO1 Describe the overall frameworks for
resource planning framework in both
goods-producing and service-providing
organizations. LO2 Explain options for
aggregate planning. LO3 Describe how to
evaluate level production and chase demand
strategies for aggregate planning. LO4 Describe
ways to disaggregate aggregate plans using
master production scheduling and material
requirements planning. LO5 Explain the concept
and application of capacity requirements
planning.
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Chapter 13 Resource Management
he corporate office just doesnt get
it! They set a budget and staffing
level that doesnt fit this location. I cant do
the work and ensure accuracy of the
patients prescriptions when the corporate
office gives me an annual budget for only two
pharmacists and two pharmacy technicians,
exclaimed Bill Carr, the manager of a retail
pharmacy in a high-growth suburban location. The
store was part of a national pharmaceutical chain
with over 1,000 locations in the United States.
The pharmacy was open 16 hours a day on Monday
through Saturday and 10 hours on Sunday. Carr
established two shifts for these professionals
but they were now exhausted. The most senior
pharmacist had already threatened to quit if
something wasnt done to correct the problem
soon. Carr also had considered reducing the time
the store was open, but that would hurt store
revenue.

What do you think? Think about planning a party
or some student-related function. What resources
do you need to pull it off, and how might you
plan to ensure that you have everything at the
right time and in the right quantity?
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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. Typical objectives of resource
management are to

• Maximize profits and customer satisfaction,
• Minimize costs, or
• Maximize benefits to stakeholders.

Resources include materials, equipment,
facilities, information, technical knowledge and
skills, and of course, people.
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Chapter 13 Resource Management

• One framework for resource planning is divided
  into three levels
• Aggregate planning (Level 1),
• Disaggregation (Level 2), and
• Execution (Level 3).
• Resource management for service-producing
  organizations generally does not require as many
  intermediate levels of planning (Level 2) as it
  does for goods-producing firms.

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Exhibit 13.1
Framework for Resource Management Planning for
Goods and Services
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Chapter 13 Resource Management

• Aggregate planning is the development of a
  long-term output and resource plan 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 requirements.
• Aggregate planning later translates into monthly
  or quarterly production plans, taking into
  account capacity limitations such as supply
  availability, equipment, and labor.

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Chapter 13 Resource Management

• Level 2 planning, or disaggregation, is the
  process of translating aggregate plans into
  short-term operational plans that provide the
  basis for weekly and daily schedules and detailed
  resource requirements.
• Level 3 focuses on execution, moving work from
  one workstation to another, assigning people to
  tasks, setting priorities for jobs, scheduling
  equipment, and controlling processes.

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Exhibit 13.1
Framework for Resource Management Planning for
Goods and Services
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Chapter 13 Resource Management

• Disaggregating Service Plans
• Most service organizations do not require as many
  levels of intermediate planning (Level 2) as
  goods-producing firms.
• Level 1 and 2 planning are often combined in
  service businesses.

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Exhibit 13.2
Two Levels of Disaggregation for Many Service
Organizations
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Chapter 13 Resource Management

• Disaggregating Service Plans
• One way to think of disaggregation in services is
  to go from aggregate planning (Levels 1 and 2) to
  front line resource (staff) capacity and
  scheduling decisions (Level 3). Manufacturers use
  and need an intermediate level of planning (Level
  2), where work-in-process and subassemblies
  reside.

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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

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Exhibit 13.3
Example Aggregate Planning Variables and
Revenue/Cost Implications
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Chapter 13 Resource Management

• Aggregate Planning Decisions and Strategies
• Demand Management
• Cooperation between marketing and manufacturing
  to create more feasible aggregate demands.
• Production-Rate Changes
• Utilizing overtime/undertime, subcontracting
  during peak months.
• Workforce Changes
• Hiring and firing employeesoften not a feasible
  alternative.

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Chapter 13 Resource Management

• Aggregate Planning Decisions and Strategies
• Inventory Changes
• Building inventories or carrying back orders.
• Facilities, Equipment, and Transportation
• Typically a long-term investment, although
  companies can rent equipment for peak seasons.

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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 forecast, with seasonal peaks in the
summer and winter holiday season. Golden utilizes
a level production strategy, planning for the
same production rate in each time period. An
alterative to level production is a chase demand
strategy, setting the production rate equal to
the demand in each time period.

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Exhibit 13.4
Level Aggregate Production Plan for Golden
Beverages
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Exhibit 13.5
Chase Demand Strategy for Golden Beverages
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Chapter 13 Resource Management

• Disaggregation in Manufacturing
• Disaggregation (Level 2) provides the link
  between aggregate plans developed at Level 1 and
  detailed execution at Level 3 (see Exhibit 13.6).
  
• This provides the basis for detailed purchasing
  and production schedules for all of the
  components that comprise the finished good or
  support service delivery.
• There are three major components for
  disaggregating aggregate plans into Level 2
  plans.
• Master production scheduling (MPS)
• Materials requirements planning (MRP)
• Capacity requirements planning (CRP)

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Exhibit 13.6
Disaggregation Framework for Manufacturing Plans
and Schedules
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Chapter 13 Resource Management

• Disaggregation in Manufacturing
• Master Production Schedule (MPS)
• A master production schedule (MPS) is a statement
  of how many finished items are to be produced and
  when they are to be produced.
• Typically developed for weekly time periods over
  a 6- to 12-month horizon.

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Exhibit 13.7
Eight-Week Master Production Schedule Example
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Chapter 13 Resource Management

• Disaggregation in Manufacturing
• Materials Requirements Planning (MRP)
• Materials Requirements Planning (MRP) is a
  forward-looking, demand-based approach for
  planning the production of manufactured goods and
  ordering materials and components to minimize
  unnecessary inventories and reduce costs.
• The output of an MRP system is a schedule for
  obtaining raw materials and purchased parts, a
  detailed schedule for manufacturing and
  controlling inventories, and financial
  information that drives cash flow, budget, and
  financial needs.

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Chapter 13 Resource Management

• Three Major Concepts of MRP Systems
• Dependent demand is demand that is directly
  related to the demand of other SKUs and can be
  calculated without needing to be forecasted.
  Demand for materials needed to produce finished
  goods is dependent on the number of finished
  goods planned.
• 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 timing of ordering to
  reduce costs.

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Exhibit 13.8
Example of a Bill of Material and Dependent Demand
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Exhibit 13.9
Dependent Demand Calculations
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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
• Lot-for-lot (LFL)
• Fixed order quantity (FOQ)
• Periodic order quantity (POQ)
• Each of these is illustrated in the
  following examples.

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Exhibit 13.10
Bill of Material
Production of a single product (A), which
requires the components B, C, and D.
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Exhibits 13.11, 13.12
Item Inventory File Example MPS
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Exhibit 13.13
MRP Record for Item C Using the Lot-for-Lot (LFL)
Rule
An ordering schedule that covers the gross
requirements for each week is called lot-for-lot
(LFL).
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Exhibit 13.14
Item B Fixed Order Quantity (FOQ) Lot Sizing MRP
Record
The fixed order quantity rule (FOQ) uses a fixed
order size for every order or production run.
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Exhibit 13.15
Item D Fixed Period Quantity (POQ) Lot Sizing and
MRP Record
The periodic order quantity (POQ) orders a
quantity equal to the gross requirement quantity
in one or more predetermined time periods minus
the projected on-hand quantity of the previous
time period.
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Exhibit 13.16
Summary of MRP Explosion for Bill of Material in
Exhibit in 13.10
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Chapter 13 Resource Management

• Capacity Requirements Planning (CRP) is the
  process of determining the amount of labor and
  machine resources required to accomplish the
  tasks of production on a more detailed level,
  taking into account all component parts and end
  items in the materials plan.
• This information is provided in a work center
  load report.

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Chapter 13 Resource Management

• Capacity Requirements Planning (CRP)
• Basic MRP does not consider capacity limitations
  (assumes infinite capacity so no rescheduling,
  etc.), so CRP addresses this issue.

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Exhibit 13.17
Work Center D Example Load Report