Chapter 14: Resource Planning
This chapter introduces Enterprise Resource Planning (ERP) and its antecedent, material requirements planning (MRP). First, it discusses the evolution of ERP, its goals, modules, and costs. Examples of use and important vendors are then discussed. The chapter then describes MRP. The difference between independent and dependent demand is presented. It presents an overview of its objectives, the necessary inputs to MRP and its operating logic. Various lot sizing rules are presented and compared. Capacity requirements planning is described and demonstrated.
Answers to Discussion Questions in Textbook
Describe enterprise resource planning and its role in an organization.
Enterprise resource planning organizes and manages core and administrative business processes. As a software application, it share information across functional areas.
Describe the basic modules of an ERP system.
The basic areas of ERP include the core processes of Production Planning and Control, Inventory Management, Purchasing, and Distribution, as well as the administrative processes of Accounting (cost control, accounts payable and receivable, etc.) and Human Resources. The basic modules to perform these functions are: Finance and Accounting, Sales and Marketing, Production and Materials Management, and Human Resources.
Describe the evolution of ERP systems.
ERP started by providing a single interface for routine manufacturing activities. It was then extended to include suppliers and customers. ERP was then expanded to not only manage activities but also to provide planning and decision-making support.
Describe the role of SCM-software and give examples of how it differs from generation 1 ERP.
SCM software aims to coordinate the activities of suppliers, manufacturers, and customers. As it can work with information from up and downstream, it can answer questions dealing with coordinating production and distribution plans, determining distribution strategies, and minimizing transportation costs. Generation 1 ERP could only deal with internal production decisions.
Explain what independent demand is and give examples of products with independent demand.
Independent demand is the demand for finished goods, where the demand for these items does not depend on the demand for other items. The goods are sold directly to a customer. The demand for desks is independent demand.
Explain what dependent demand is and give examples of how you can use dependent demand in your personal life.
Dependent demand is determined based on the demand for the finished goods. For example, when preparing Thanksgiving dinner, the finished goods are the cooked turkey, stuffing, and other food items. The cooked turkey creates a demand for other items such as the uncooked turkey and the basting ingredients. You can use dependent demand when you are planning cooking to make sure you have all the ingredients that you need when you need them.
Explain the concept of backward scheduling and give examples of how you use backward scheduling in your personal life.
Backward scheduling means that we begin by scheduling the finished goods and work backward in time down through the bill of materials. I use backward scheduling when I prepare a meal so that I can finish cooking all of the items when needed. In other words, the chicken, french fries and vegetables all finish just in time for dinner. Since the chicken takes the longest to cook, I have to start cooking it first.
What are the objectives of MRP?
The objectives of MRP are to determine the production and purchase quantities and timing of material requirements, and to keep priorities updated and valid to make sure that we respond to changes in the environment, such as order changes or late supply deliveries.
Describe how MRP works.
MRP takes the orders for the finished goods and works backwards in time down the bill of materials to plan the production and purchasing of all the components in order to complete the finished goods on time.
Describe the inputs needed for MRP.
The inputs for MRP are the bill of materials, MPS and the inventory records. The bill of materials shows the lot sizing rules, number of components needed for each parent item, and the lead times for each component.
For each input needed, describe problems that might arise when you run MRP.
An incorrect bill of materials or incorrect inventory records would cause us to not have the right components at the right time needed to complete the finished goods.
Explain what happens when you use different lot size rules in MRP.
When you use different lot sizing rules, the production quantities of the components may change as you move backward in the scheduling process.
Explain why companies do capacity requirements planning.
Companies do capacity requirements planning because the MRP may create a production schedule that exceeds our available capacity.
Describe the inputs needed for capacity requirements planning.
The inputs for capacity requirements planning are the MRP schedule, the capacity needed to produce each component at each work center, and the capacity available in each work center.
Describe how MRPII differs from MRP.
MRP II combines MRP with the financial system so that the impact of schedule changes on the bottom line can be evaluated. MRP II synchronizes internal functions with a common database.
Describe enterprise resource planning.
Enterprise resource planning (ERP) is a system that manages the entire supply chain. This system allows the sharing of data between different companies in the supply chain. ERP is an extension to MRP II, which an expansion to MRP.
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