Chapter

16 Resource Planning

DISCUSSION QUESTIONS

1. The purpose of this exercise is to get the students to think about the usefulness of
ERP for each of their major areas of interest. Because groups consist of different
functional area representatives, the discussion is intended to emphasize the cross-
functional needs that are satisfied with an information system such as ERP. Some
responses to this exercise include:
q Marketing—information about the availability of finished products that can be
promised for delivery; finished goods inventory performance (service levels,
stockouts).
q Finance—short-term financing needs for production plans, developed from the
order releases and projected inventory levels.
q Accounting—billing invoices for products shipped to customers; payments to
suppliers of raw materials and purchased components, developed from the
schedule of orders actually received.
q Operations—the schedule of order releases to support the master schedule;
estimates of capacity requirements at critical work centers.

2. Some responses from each functional area could include:

q Marketing: The available-to-promise quantities because they determine when
orders can be promised to customers, the history of orders accepted for each
product by time period because this information can be useful in projecting future
demand patterns.
q Finance: The projected MPS quantities and inventory levels because they will
indicate cash needs.
q Operations: The MPS start quantities because they indicate when production of
products must begin to meet customer promises and because they provide the
basis for estimating capacity needs at critical workstations.

3. A master flight schedule specifies the arrival and departure times for all the flights an
airline must produce to meet customer demands. Here, the lead time is the time
between departure and arrival, which is similar to the lead time in producing a
quantity of a product. The passenger size of the aircraft is analogous to a production
quantity, and the available-to-promise quantity in manufacturing bears similarity to
the seats available on a given flight. In general, the flight schedule can be used to
estimate the needs for resources such as pilots, flight attendants, airport slots, and
aircraft.

16-1
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16-2 l PART 3 l Managing Supply Chains

4. The principles of MRP can be used for UPS by identifying bills of resources for
resources such as employees, trucks, planes, and equipment. Forecasts of delivery
requirements and the BORs can be used to estimate resource needs and project the
loads on critical sorting operations.

PROBLEMS

1. Bill of materials, Figure 16.27

a. Item I has only one parent (E). However, item E has two parents (B and C).
b. Item A has 10 unique components (B, C, D, E, F, G, H, I, J, and K).
c. Item A has five purchased items (I, F, G, H, and K). These are the items without
components.
d. Item A has five intermediate items (B, C, D, E, and J). These items have both
parents and components.
e. The longest path is I–E–C–A at 11 weeks.

2. Item A. The bill of materials for item A is shown following.

A

B(2) C(2) D(2)

C(2) E(1) F(2)

3. Lead time is determined by the longest path, C–B–A, at 13 weeks.

4. The bill of materials for item A with lead times is shown following.
a. Lead time is determined by the longest path
G-E-B-A = 12 weeks.
b. If purchased items D, F, G, and H are already in inventory, the lead time is
reduced to: A–B–E = 8 weeks.
c. Item G is the purchased item with the longest lead time in the longest path. This
purchased item could be kept in stock to reduce the overall lead time.
A
LT = 1

B(1) C(1)
LT = 2 LT = 2

D(1) E(1) F(1) H(1)

LT = 6 LT = 5 LT = 6 LT = 3

G(1) H(1)
LT = 4 LT = 3
5. Refer to Figure 16.22 and Solved Problem 1.

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 Resource Planning l CHAPTER 16 16-3

FIGURE 15.19

A
LT = 1

B(3) C(1)
LT = 2 LT = 3

D(1) E(2) F(1) D(1)

LT = 3 LT = 6 LT = 1 LT = 3

G(1)
LT = 3

Material requirement to produce 5 units of end-item A:

( 5 A �3B per A) = 15B - 2 B on hand = 13B
( 5 A �1C per A) = 5C
Material requirement to produce 13B:
( 13B �1D per B ) = 13D
( 13B �2 E per B ) = 26E
Material requirement to produce 5C:

( 5C �1D per C ) = 5D

( 5C �1F per C ) = 5F - 1Fon hand = 4F

Material requirement to produce 4F:
( 4 F �1G per F ) = 4G – 3G on hand = 1G
Purchased material requirements net of on-hand inventory: 13 + 5 = 18D , 26E, and
1G.

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16-4 l PART 3 l Managing Supply Chains

6. MPS record in Figure 16.29 The following table is from the Master Production
Scheduling Solver in OM Explorer. The ATP row is not required for this problem.
Solver Master Production Scheduling

Enter data in yellow shaded areas.

Lot Size 60
Lead Time 1

Quantity on Hand 35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Forecast 20 18 28 28 23 30 33 38

Customer Orders (Booked) 15 17 9 14 9 7

Projected On-Hand Inventory 15 57 29 1 38 8 35 57

MPS Quantity 60 60 60 60

MPS start 60 60 60 60

Available-to-Promise Inv (ATP) 20 20 51 53 60

Override Formulas Restore Formulas

7. MPS record in Figure 16.30

Lot Size: 100 January February
Quantity on Hand: 75 1 2 3 4 5 6 7 8
Forecast 65 65 65 45 50 50 50 50
Customer orders (booked) 40 10 85 0 35 70 0 0
Projected on-hand inventory 10 45 60 15 65 95 45 95
MPS quantity 100 100 100 100 100
MPS start 100 100 100 100 100

8. An end-item
Lot Size: 100 Week
Quantity on Hand: 80 1 2 3 4 5 6 7 8 9 10
Forecast 30 20 35 50 25 25 0 40 0 50
Customer orders (booked) 22 30 15 9 0 0 5 3 7 0
Projected on-hand inventory 50 20 85 35 10 85 80 40 33 83
MPS quantity 100 100 100
MPS start 100 100 100

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 Resource Planning l CHAPTER 16 16-5

9. Ball Bearings
Prospective MPS
a.
Solver Master Production Scheduling

Enter data in yellow shaded areas.

Lot Size 500

Lead Time 1

Quantity on Hand 400 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Forecast 550 300 400 450 300 350 200 300 450 400

Customer Orders (Booked) 300 350 250 250 200 150 100 100 100 100

Projected On-Hand Inventory 350 100 150 350 300 50 150

MPS Quantity 500 500 500 500 500 500 500

MPS start 500 500 500 500 500 500

Available-to-Promise Inv (ATP) 250 250 250 150 300 400 400
Override Formulas Restore Formulas

The first order for 500 (in week 4) should be accepted. Through week 4, on hand
(400) plus three MPS quantities of 500 each = 1900. Of those, (300 + 350 + 250 +
250) = 1150 have been sold, leaving 750 available (250 after this commitment).

b. The second order for 400 (in week 5) should be accepted. Through week 5, the
250 remaining after the first order plus one more MPS quantity of 500 = 750. Of
those, 200 have been sold in the 5th week and 150 in the 6th week. Therefore,
(250 + 500 – 200 – 150) = 400 are still available. There will be zero units
remaining for sale even after accepting this order.

The third order for 300 units (in week 1) should not be accepted. At that time, of the
400 on hand, plus 500 MPS quantity to arrive in the first week, a total of 300 plus 350
has been sold. Note that because no MPS is scheduled for the 2nd week, the 350
ordered for the 2nd week must come from those on hand or those arriving in the 1st
week. In total [(400 + 500) – (300 + 350)] = 250 remaining, which will not cover the
order for 300. Although a partial order of 250 could be fulfilled, these 250 units are
required to satisfy orders 1 and 2.

The fourth order for 300 units (in week 7) should be accepted. After accepting the
second order (part ii), zero units remain. In the 7th week 500 units arrive. Of those,
demands of 100 in each of weeks 7 and 8 have been promised, leaving (500 – 200) =
300. This order of 300 units would reduce the quantity available to promise to zero
units.

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 16-6 l PART 3 l Managing Supply Chains

10. Tabard Industries

a. The prospective MPS

Week
Quantity on Hand: 150 1 2 3 4 5 6 7 8
Forecast 120 120 120 100 100 100 80 80
Customer orders (booked) 100 80 60 40 10 10 0 0
Projected on-hand inventory 30 110 190 90 190 90 10 130
MPS quantity 200 200 200 200
MPS start 200 200 200 200

b. The revised MPS given changes in forecasted demand

Week
Quantity on Hand: 150 1 2 3 4 5 6 7 8
Forecast 120 120 120 150 150 150 100 100
Customer orders (booked) 100 80 60 40 10 10 0 0
Projected on-hand inventory 30 110 190 40 90 -60 -160 -60
MPS quantity 200 200 200 200
MPS start 200 200 200 200

The projected on-hand inventory row indicates a negative balance in week 6.

However, this will become problematic only if the new customer orders meet these
forecasts. If the new forecasts are accurate, the MPS quantities will need to be
revised.

c. The revised MPS given a newly accepted customer order

Week
Quantity on Hand: 150 1 2 3 4 5 6 7 8
Forecast 120 120 120 100 100 100 80 80
Customer orders (booked) 100 280 60 40 10 10 0 0
Projected on-hand inventory 30 -50 30 -70 30 -70 -150 -30
MPS quantity 200 200 200 200
MPS start 200 200 200 200

The projected on-hand inventory row indicates a negative balance in week 2.

Since this change represents actual demand, this situation requires that the MPS
quantity be revised or demand must be shifted to future weeks.

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 Resource Planning l CHAPTER 16 16-7

11. Completed MPS Record

ITEM: 2" Pneumatic Control Valve ORDER POLICY: 75 units

LEAD TIME: 1 week QUANTITY ON HAND: 10 units

Week
1 2 3 4 5 6 7 8
Forecast requirements 40 40 40 40 30 30 50 50
Customer orders (booked) 60 45 30 35 10 5 5 0
Projected on-hand inventory 25 55 15 50 20 65 15 40
MPS quantity 75 75 75 75 75
MPS start 75 75 75 75
Available-to-promise 25 30 65 75
(ATP) inventory

Decisions on the arriving orders:

q Order 1 for 15 units in week 2 should be accepted because there are 25 units ATP
from week 1. After this order is accepted 10 units remain in ATP from Week 1.
q Order 2 for 30 units in week 5 should be accepted because there are 30 units ATP
from week 4. After this order is accepted 10 units still remain in ATP from week 1
and zero units from week 4.
q Order 3 for 25 units in week 3 should NOT be accepted because there are only
10 units remaining in ATP from week 1 and this is not adequate to fill the order
completely. After this order is rejected 10 units continue to remain in ATP from
week 1.
q Order 4 for 75 units in week 7 should be accepted because there will be 65 units
in ATP from week 6, which, along with the 10 units that continue to remain in
ATP from week 1, will be adequate to fill the order completely.

12. a. Completed MPS Record

ITEM: Electric Hand Drill ORDER POLICY: 60 units

LEAD TIME: 1 week QUANTITY ON HAND: 30 units

Week
1 2 3 4 5 6
Forecast requirements 15 40 10 20 50 30
Customer orders (booked) 20 25 10 20
Projected on-hand inventory 10 30 20 10 40
MPS quantity 60 60 60
MPS start 60 60 60
Available-to-promise 10 5 60 60
(ATP) inventory

b. The shipping date would be week 2 because we will have 10 units from week 1
and 5 units from week 2 available-to-promise inventory to fill this order.

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16-8 l PART 3 l Managing Supply Chains

13. Completed MPS record

ITEM: Product C ORDER POLICY: 40 units

LEAD TIME: 2 weeks QUANTITY ON HAND: 10 units

Week
1 2 3 4 5 6 7 8 9 10 11 12
Forecast requirements 15 15 15 15 20 20 20 20 15 15 15 15
Customer orders 25 12 8 10 2 3 0 0 0 0 0 0
(booked)
Projected on-hand 25 10 35 20 0 20 0 20 5 30 15 0
inventory
MPS quantity 40 40 40 40 40
MPS start 40 40 40 40
Available-to-promise 13 20 37 40 40
(ATP) inventory

14. Inventory record.

The tables following were generated with the Single-Item MRP solver from OM
Explorer.

a. Fixed order quantity = 110

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 Resource Planning l CHAPTER 16 16-9

b. L4L

c. POQ, P = 2

15. Completed inventory records

a. FOQ of 150 units
Item: Rotor assembly Lot Size: 150 units
Lead Time: 2 weeks
Week 1 2 3 4 5 6 7 8
Gross requirements 65 15 45 40 80 80 80 80
Scheduled receipts 150
Projected on hand 20 105 90 45 5 75 145 65 135
Planned receipts 150 150 150
Planned order releases 150 150 150

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16-10 l PART 3 l Managing Supply Chains

b. L4L
Item: Rotor assembly Lot Size: L4L
Lead Time: 2 weeks
Week 1 2 3 4 5 6 7 8
Gross requirements 65 15 45 40 80 80 80 80
Scheduled receipts 150
Projected on hand 20 105 90 45 5 0 0 0
Planned receipts 75 80 80 80
Planned order releases 75 80 80 80

c. POQ with P = 2
Item: Rotor assembly Lot Size: POQ, P = 2
Lead Time: 2 weeks
Week 1 2 3 4 5 6 7 8
Gross requirements 65 15 45 40 80 80 80 80
Scheduled receipts 150
Projected on hand 20 105 90 45 5 80 0 80 0
Planned receipts 155 160
Planned order releases 155 160

16. Completed inventory records

a. FOQ of 50 units
Item: Drive shaft Lot Size: 50 units
Lead Time: 3 weeks
Week 1 2 3 4 5 6 7 8
Gross requirements 35 25 15 20 40 40 50 50
Scheduled receipts 80
Projected on hand 10 55 30 15 45 5 15 15 15
Planned receipts 50 50 50 50
Planned order releases 50 50 50 50

b. L4L
Item: Drive shaft Lot Size: L4L
Lead Time: 3 weeks
Week 1 2 3 4 5 6 7 8
Gross requirements 35 25 15 20 40 40 50 50
Scheduled receipts 80
Projected on hand 10 55 30 15 0 0 0 0 0
Planned receipts 5 40 40 50 50
Planned order releases 5 40 40 50 50

c. POQ with P = 4
Item: Drive shaft Lot Size: POQ, P = 4
Lead Time: 3 weeks
Week 1 2 3 4 5 6 7 8
Gross requirements 35 25 15 20 40 40 50 50
Scheduled receipts 80
Projected on hand 10 55 30 15 130 90 50 0 0
Planned receipts 135 50
Planned order releases 135 50

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 Resource Planning l CHAPTER 16 16-11

17. Rear wheel assembly

a. Completed inventory record with an FOQ of 200 units

Item: MQ-09 Lot Size: FOQ of 200 units

Description: Rear wheel subassembly Lead Time: 1 week
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements 25 105 110 90 45 110 60
Scheduled receipts
Projected on-hand inventory 50 25 120 10 120 120 75 165 105 105 105
Planned receipts 200 200 200
Planned order releases 200 200 200

b. Completed inventory record with an FOQ of 100 units

Item: MQ-09 Lot Size: FOQ of 100 units

Description: Rear wheel subassembly Lead Time: 1 week
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements 25 105 110 90 45 110 60
Scheduled receipts
Projected on-hand inventory 50 25 20 10 20 20 75 65 5 5 5
Planned receipts 100 100 100 100 100
Planned order releases 100 100 100 100 100

c. Completed inventory record with L4L

Item: MQ-09 Lot Size: L4L

Description: Rear wheel subassembly Lead Time: 1 week
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements 25 105 110 90 45 110 60
Scheduled receipts
Projected on-hand inventory 50 25 0 0 0 0 0 0 0 0 0
Planned receipts 80 110 90 45 110 60
Planned order releases 80 110 90 45 110 60

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 16-12 l PART 3 l Managing Supply Chains

18. Motor subassembly

a. Completed inventory record with L4L

Item: MQ-09 Lot Size: L4L

Description: Motor subassembly Lead Time: 2 week
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements 80 50 35 20 55 15 30 25 10
Scheduled receipts 60
Projected on-hand inventory 20 80 0 0 0 0 0 0 0 0 0
Planned receipts 50 35 20 55 15 30 25 10
Planned order releases 50 35 20 55 15 30 25 10

b. Completed inventory record with POQ (P=2 weeks)

Item: MQ-09 Lot Size: POQ P=2 weeks

Description: Motor subassembly Lead Time: 2 week
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements 80 50 35 20 55 15 30 25 10
Scheduled receipts 60
Projected on-hand inventory 20 80 0 35 0 55 0 30 0 10 0
Planned receipts 85 75 45 35
Planned order releases 85 75 45 35

c. Completed inventory record with POQ (P=4 weeks)

Item: MQ-09 Lot Size: POQ P=4 weeks

Description: Motor subassembly Lead Time: 2 week
Week
1 2 3 4 5 6 7 8 9 10
Gross requirements 80 50 35 20 55 15 30 25 10
Scheduled receipts 60
Projected on-hand inventory 20 80 0 110 75 55 0 65 35 10 0
Planned receipts 160 80
Planned order releases 160 80

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 Resource Planning l CHAPTER 16 16-13

d. The total cost of each lot sizing rule is calculated as follows:

Holding cost = total number of units held for 1 week over the time horizon *
weekly holding cost
Ordering cost = the number of orders placed over the time horizon * order release
cost
These calculations are provided in the following table for the three lot sizing rules used:

Lot size Total Inventory Number of Holding Ordering Total

rule units held Orders placed cost cost cost
L4L 80 8 $80 $400 $480
POQ (P=2) 210 4 $210 $200 $410
POQ (P=4) 430 2 $430 $100 $530

POQ (P=2) provides the lowest holding+ordering cost

19. MRP for Figure 16.38

a. This solution was developed using the Material Requirements Planning module in
OM Solver.

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16-14 l PART 3 l Managing Supply Chains

b. In week 1, an order for 50 units of item C should be released.

20. MRP for Figure 16.39

a. This solution was developed using the Material Requirements Planning module in
OM Solver.

For item C, an inventory shortage will occur in week 2. This item has no
Projected On-Hand Inventory and the next Scheduled Receipt will not arrive until
week 3. Items D and E can cover all Gross Requirements from current On-Hand
Inventory, Scheduled Receipts and Planned Order Releases.

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 Resource Planning l CHAPTER 16 16-15

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16-16 l PART 3 l Managing Supply Chains

b. This solution was developed using the Material Requirements Planning module in
OM Solver.
The inventory shortage for item C may not be alleviated by placing a larger order
in week 1. The best solution may be to expedite the Scheduled Receipt currently
scheduled to arrive in week 3 to week 2.

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 Resource Planning l CHAPTER 16 16-17

21. MRP for Figure 16.40

Item: B Lot Size: L4L

Description: Lead Time: 2 weeks
Week 1 2 3 4 5 6 7 8
Gross requirements 100 130 160
Scheduled receipts 50
Projected on hand 50 50 0 0 0 0 0 0 0
Planned receipts 130 160
Planned order releases 130 160

Item: C Lot Size: POQ = 3

Description: Lead Time: 1 week
Week 1 2 3 4 5 6 7 8
Gross requirements 20 70 20 20 85 20 20 100
Scheduled receipts
Projected on hand 50 30 40 20 0 40 20 0 0
Planned receipts 80 125 100
Planned order releases 80 125 100

Item: D Lot Size: FOQ = 250

Description: Lead Time: 2 weeks
Week 1 2 3 4 5 6 7 8
Gross requirements 100 130 160
Scheduled receipts
Projected on hand 120 120 20 20 20 140 140 140 230
Planned receipts 250 250
Planned order releases 250 250
Item: E Lot Size: FOQ = 600
Description: Lead Time: 2 weeks
Week 1 2 3 4 5 6 7 8
Gross requirements 510 570
Scheduled receipts
Projected on hand 70 70 70 160 160 160 190 190 190
Planned receipts 600 600
Planned order releases 600 600

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16-18 l PART 3 l Managing Supply Chains

Item: F Lot Size: L4L

Description: Lead Time: 1 week

Week 1 2 3 4 5 6 7 8
Gross requirements 160 130 250 160 200
Scheduled receipts
Projected on hand 250 90 90 0 0 0 0 0 0
Planned receipts 40 250 160 200
Planned order releases 40 250 160 200

Action notices signal the need to place orders for 80 Cs and 600 Es. Please note that
action notices were not asked for in the problem.

22. MRP for products A, B, and C in Figure 16.41

Item: D Lot Size: FOQ = 150

Description: Lead Time: 3 weeks
Week 1 2 3 4 5 6 7 8
Gross requirements 160 120 125 110
Scheduled receipts 150
Projected on hand 150 150 150 140 20 45 85 85 85
Planned receipts 150 150
Planned order releases 150 150

Item: E Lot Size: L4L

Description: Lead Time: 1 week
Week 1 2 3 4 5 6 7 8
Gross requirements 80 120 250 55
Scheduled receipts 120
Projected on hand 0 0 120 40 0 0 0 0 0
Planned receipts 80 250 55
Planned order releases 80 250 55

Item: F Lot Size: POQ, P = 2

Description: Lead Time: 2 weeks
Safety Stock: 30 units
Week 1 2 3 4 5 6 7 8
Gross requirements 160 500 110
Scheduled receipts
Projected on hand 100 100 100 530 30 30 30 30 30
Planned receipts 590 110
Planned order releases 590 110

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 Resource Planning l CHAPTER 16 16-19

Action notices: Delay the scheduled receipt of 120 units of E and order 590 units of F.
Please note that action notices were not asked for in the problem.
23. MRP for Figure 16.42

a. This solution was developed using the Material Requirements Planning module in
OM Solver.

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16-20 l PART 3 l Managing Supply Chains

b. In week 1, an order for 155 units of item C should be released and an order for
610 units of item D should be released

c. This solution was developed using the Material Requirements Planning module in
OM Solver. This software shows the cascading changes required by adding a new
MPS of 200 units of product A in week 5.

For item C, a new Gross Requirement of 400 units in week 5 is accommodated by

a Planned Receipt of 400 units and a new Planned Order Release of 400 units in
week 2. Item C has a short enough lead time to respond to this proposed
alteration in the MRP.

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 Resource Planning l CHAPTER 16 16-21

As items D and E have multiple parents, the required changes are substantially
more complex. These changes are reflected in the records below. It should be
noted that planner intervention will be required for both of these items.

For item D, the Projected On-Hand Inventory becomes negative (-180) in week 2.
There is not enough inventory to accommodate the new Planed Order Release of
400 units in week 2 for part A. Further, without expediting, item D’s two-week
leadtime is too long for a new order to satisfy the resulting Gross Requirements.

For item E the situation is even more severe. The Gross Requirements in week
one increases from 610 to 1410 units. This new demand for 800 additional units
in week 1 produces an inventory shortage of 260 units.

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16-22 l PART 3 l Managing Supply Chains

24. MRP for Figure 16.43

a. This solution was developed using the Material Requirements Planning module in
OM Solver.

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 Resource Planning l CHAPTER 16 16-23

b. In week 1, an order for 205 units of item C, an order for 700 units of item D, and an
order for 700 units of item E should be released.

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16-24 l PART 3 l Managing Supply Chains

25. MRP for Figure 16.22

A
LT = 1

B(3) C(1)
LT = 2 LT = 3

D(1) E(2) F(1) D(1)

LT = 3 LT = 6 LT = 1 LT = 3

G(1)
LT = 3

Item
Data Category B C D E F G
Lot-size rule L4L L4L POQ (P = 2) L4L L4L FOQ = 100
Lead time 2 weeks 3 weeks 3 weeks 6 weeks 1 week 3 weeks
Safety stock 30 10 0 0 0 0
Scheduled receipts 150 50 None 400 40 None
(wk 2) (wk 2) (wk 6) (wk 3)
On-hand inventory 30 20 60 400 0 0

Item: A
Lot Size: 50 Week
Final Asm. Lead Time: 1 wk 1 2 3 4 5 6 7 8 9 10
Quantity On Hand: 5
MPS Start 50 50 50 50

Item: B Lot Size: L4L

Description: Lead Time: 2 weeks
Safety Stock: 30 units
Week 1 2 3 4 5 6 7 8 9 10
Gross requirements 150 150 150 150
Scheduled receipts 150
Projected on hand 30 30 30 30 30 30 30 30 30 30 30
Planned receipts 150 150 150
Planned order releases 150 150 150

Item: C Lot Size: L4L

Description: Lead Time: 3 weeks
Safety Stock: 10 units
Week 1 2 3 4 5 6 7 8 9 10
Gross requirements 50 50 50 50
Scheduled receipts 50
Projected on hand 20 20 20 20 20 20 10 10 10 10 10
Planned receipts 40 50 50
Planned order releases 40 50 50

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 Resource Planning l CHAPTER 16 16-25

Item: D Lot Size: POQ = 2

Description: Lead Time: 3 weeks
Safety Stock: 0 units
Week 1 2 3 4 5 6 7 8 9 10
Gross requirements 40 150 50 200 150
Scheduled receipts
Projected on hand 60 60 60 20 50 0 150 0 0 0 0
Planned receipts 180 350
Planned order releases 180 350

Item: E Lot Size: L4L

Description: Lead Time: 6 weeks
Safety Stock: 0 units
Week 1 2 3 4 5 6 7 8 9 10
Gross requirements 300 300 300
Scheduled receipts 400
Projected on hand 400 400 400 400 100 100 200 0 0 0 0
Planned receipts 100
Planned order releases 100

Item: F Lot Size: L4L

Description: Lead Time: 1 week
Safety Stock: 0 units
Week 1 2 3 4 5 6 7 8 9 10
Gross requirements 40 50 50
Scheduled receipts 40
Projected on hand 0 0 0 0 0 0 0 0 0 0 0
Planned receipts 50 50
Planned order releases 50 50

Item: G Lot Size: FOQ = 100

Description: Lead Time: 3 weeks
Safety Stock: 0 units
Week 1 2 3 4 5 6 7 8 9 10
Gross requirements 50 50
Scheduled receipts
Projected on hand 0 0 0 0 50 0 0 0 0 0 0
Planned receipts 100
Planned order releases 100

Action notices are to issue orders for 180 Ds, 100 Es, and 100 Gs. Please note that
action notices were not asked for in the problem.

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16-26 l PART 3 l Managing Supply Chains

26. Master Production Schedule for end item

a. MPS

Lot Size: 100 LT = 2 weeks Week

Quantity on Hand: 60 1 2 3 4 5 6 7 8 9 10
Forecast 30 30 30 30 30 30 25 25 25 25
Customer orders (booked) 22 30 15 11 0 0 9 0 0 0
Projected on-hand inventory 30 0 70 40 10 80 55 30 5 80
MPS quantity 100 100 100
MPS start 100 100 100
ATP 8 74 91 100

b. Order Acceptance

Accept order 1 for 40 units in period 3, which leaves 34 units in ATP for period 3.
Reject order 2 for 60 units in period 4, since we only have 8 available in period 1 and
34 available in period 3.
Accept order 3 for 70 units in period 6, which leaves 21 units in ATP for period 6.
Accept order 4 for 40 units in period 3, which leaves 2 units in ATP for period 1 and 0
units in ATP for period 3
Reject order 5 for 20 units in period 5, since we only have 2 units available in ATP for
period 1. (Could offer delivery in week 6, but assume here that declined.)
Reject order 6 for 115 units in period 9, since we only have2 units available in period
1 and 21 units available in period 6.

27. Master Production Schedule for end item

a. MPS

Lot Size: 75 LT = 2 weeks Week

Quantity on Hand: 100 1 2 3 4 5 6 7 8 9 10
Forecast 30 30 30 30 20 20 30 30 30 30
Customer orders (booked) 15 38 7 5 0 3 10 0 0 0
Projected on-hand inventory 70 32 2 47 27 7 52 22 67 37
MPS quantity 75 75 75
MPS Start 75 75 75
ATP 40 67 65 75

b. Order Acceptance

Accept order 1, which leaves 20 units in ATP for period 1.

Accept order 2, which leaves 12 units in ATP for period 1 and 0 units for period 4.
Reject order 3, because we only have 12 units available in ATP. (Could offer delivery
in week 9, or perhaps a split order, Here we assume that declined.)
Accept order 4, which leaves 2 units in ATP for period 1 and 0 units in ATP for period
7.
Reject order 5, which leaves 2 units in ATP for period 1, and 75 units in ATP for
period 9.

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 Resource Planning l CHAPTER 16 16-27

28. Material Requirements Plan for Product A

This solution was developed using the Material Requirements Planning module in
OM Solver.

In week 1, an order for 25 units of item D and an order for 300 units of item E should be
released.

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16-28 l PART 3 l Managing Supply Chains

Additionally, the negative Projected On-Hand Inventory level of item E must be

addressed. Given this item’s lead time, the manager will need to expedite the Scheduled
Receipt currently expected in week 2.

29. Material Requirements Plan for Product A

This solution was developed using the Material Requirements Planning module in
OM Solver.

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall.

 Resource Planning l CHAPTER 16 16-29

In week 1, an order for 300 units of item E and an order for 400 units of item F should be
released.

Additionally, the negative Projected On-Hand Inventory level of item D must be

addressed. Given this item’s lead time, the manager will need to expedite the Scheduled
Receipt currently expected in week 2.

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16-30 l PART 3 l Managing Supply Chains

CASE: FLASHY FLASHERS, INC. *

A. Synopsis
Flashy Flashers, Inc. is a company that produces a line of automotive electrical
components and serves about 95 auto parts suppliers and car dealers regionally.
Recently the company installed an MRP system. After one year’s use, Kathryn
Marley, the Vice President of Operations and Supply Chain Management, is looking
for ways to improve the resource planning process.

B. Purpose
This case provides the data to develop the MRP records for two products of Flashy
Flashers, Inc. In addition to reinforcing the skills of developing dependent demand
production plans, the case affords the opportunity to discuss possible implementation
problems when using MRP. The case also brings out the value of action notices,
capacity requirements planning, and the link between MRP and the MPS.

C. Analysis
A summary of the planned order release schedule is contained in Exhibit TN.1. The
MRP records for each of the component items are contained in Exhibit TN.2. Exhibit
TN.3 lists situations that the planner needs to act on this week in releasing new orders
or adjusting scheduled receipt due dates.

D. Recommendations
Recommendations to management include the following:
1. Manage the MPS process more effectively:
 The feast-or-famine capacity situation on the shop floor might be created in
part at the MPS level by not checking that resources are available before the
MPS is authorized.
 The ATP feature of MPS may not be used effectively, given the comment
about last-minute changes in the MPS that respond to requests by favorite
customers. Customers appreciate reliability in meeting promises, even more
than responding to expedited deliveries (unless on an exception basis). Giving
them a promise date and then delivering on it is valued. Wanting to
accommodate special requests is one thing, but being able to do so is another.
 Freezing the short-term portion of the MPS should build in more stability in
the material requirements plan.
2. Create a more formal system for generating action notices, so that planners can
concentrate on the things that need their attention. It can be a simple list, such as
given in TN.3. These actions should not be automatically done by the MRP
system, because the planner needs to check if they are feasible, such as
components and capacity are available.
* The original version of this case was prepared by Dr. Soumen Ghosh, Georgia Institute of Technology, as
a basis for classroom discussion.

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 Resource Planning l CHAPTER 16 16-31

3. Consider a priority planning system that updates priorities, based on valid due
dates of scheduled receipts. This step will require updating scheduled receipt dues
dates as needs change.
4. Consider a capacity requirement planning system to project workloads into the
future, particularly for bottleneck operations. Consider ways to incorporate the
principles of TOC (see Chapter 7, “Constraint Management”) into the MRP
process, including lot sizing rules and how to respond to action notices.
5. While taking steps to level capacity requirements, the “overrides” by the shop
supervisor should be minimized and coordinated with the planners. His informal
system can undermine the effectiveness of the MRP system. MRP logic
“believes” that the due dates and quantities of scheduled receipts are going to
happen. At the same time, MRP flexibly takes into account the unexpected by
generating a new material requirements plan each week. The unanticipated
consequences of such overrides are demonstrated by the MRP records of items
SL123A and SL134P.
6. Train all employees who provide information to the MRP system in addition to
those who must update the system. Only selected employees received training in
the past. Everyone should be aware of the need for accurate and timely data. Also
train those who will be primary users of the MRP information.

E. Teaching Suggestions
Initially the instructor should get agreement on the planned order release form
(Exhibit TN.1). Be sure to rationalize any differences in the student forms because
they will spur the discussion of the mechanics of producing MRP reports. The results
lay the foundation for the conclusion that something definitely is wrong. Also
compare notes on Exhibit TM.3. Although the mechanics of identifying action notices
are not emphasized in the textbook, discussing them can enhance student insights on
MRP capabilites.
After the mechanics are understood, the instructor should raise the question,
“What can be done to improve this resource planning process?” The six points
described in Section D are a starting point. Students may also point to other
possibilities, including:
q Accepting orders on short notice, even if on-time delivery is unlikely
q Poor estimates for lead times
q Bad priority planning system
q Lack of capacity
q Bad input data
q Ineffective follow-up with suppliers
q Blaming everyone else

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16-32 l PART 3 l Managing Supply Chains

EXHIBIT TN.1 Completed Planned Order Release Form

Week
Item Description
and Part Number 1 2 3 4 5 6
Side Lens
(SL111P) 350
Side Lens Rubber Gasket
(SL113P) 100 100 100
Side Frame Subassembly
(SL112A) 80 110
Side Frame
(SL121F) 110
Side Bulb Subassembly
(SL122A) 110
Flasher Bulb Subassembly
(SL123A) 200
Side Cable Grommet and Receptacle
(SL131F)
Flasher Cable Grommet and Receptacle
(SL133F)
Side Bulb
(SL132P)
Flasher Bulb
(SL134P) 100
Head Frame
Subassembly (HL211A) 120 90 75
Head Lens
(HL212P) 350
Head Lamp Module
(HL222P)
Head Frame
(HL223F) 165
Back Rubber Gasket
(C310P) 180 180
Screws
(C206P) 2500

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 Resource Planning l CHAPTER 16 16-33

EXHIBIT TN.2 Completed MRP Records

Item: SL111P Lot Size: 350 units

Description: Side Lens Lead Time: 2 weeks
Safety Stock: 0 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 140 80 145
Scheduled receipts
Projected on hand: 15 15 15 225 225 145 0 0 0 0 0 0 0
Planned receipts 350
Planned order releases 350

Item: SL112A Lot Size: L4L

Description: Side Frame Subassembly Lead Time: 3 weeks
Safety Stock: 0 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 100 80 110
Scheduled receipts 80
Projected on hand: 20 20 100 0 0 0 0 0 0 0 0 0 0
Planned receipts 80 110
Planned order releases 80 110

Item: SL113P Lot Size: 100 units

Description: Side Lens Rubber Gasket Lead Time: 1 week
Safety Stock: 20 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 100 80 110
Scheduled receipts
Projected on hand: 20 20 20 20 20 40 30 30 30 30 30 30 30
Planned receipts 100 100 100
Planned order releases 100 100 100

Item: SL121F Lot Size: L4L

Description: Side Frame Lead Time: 2 weeks
Safety Stock: 0 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 80 110
Scheduled receipts 80
Projected on hand: 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned receipts 110
Planned order releases 110

Item: SL122A Lot Size: L4L

Description: Side Bulb Subassembly Lead Time: 2 weeks
Safety Stock: 0 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 80 110
Scheduled receipts 80
Projected on hand: 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned receipts 110
Planned order releases 110

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16-34 l PART 3 l Managing Supply Chains

EXHIBIT TN.2 Cont) Completed MRP Records

Item: SL123A Lot Size: 200 units

Description: Flasher Bulb Subassembly Lead Time: 2 weeks
Safety Stock: 0 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 80 110
Scheduled receipts
Projected on hand: 0 0 -80 10 10 10 10 10 10 10 10 10 10
Planned receipts 200
Planned order releases 200

Item: SL131F Lot Size: POQ (P = 2)

Description: Side Cable Grommet & Receptacle Lead Time: 2 weeks
Safety Stock: 0 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 110
Scheduled receipts 110
Projected on hand: 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned receipts
Planned order releases

Item: SL132P Lot Size: 100 units

Description: Side Bulb Lead Time: 1 week
Safety Stock: 25 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 110
Scheduled receipts 100
Projected on hand: 35 25 25 25 25 25 25 25 25 25 25 25 25
Planned receipts
Planned order releases

Item: SL133F Lot Size: 250 units

Description: Flasher Cable Grommet & Receptacle Lead Time: 2 weeks
Safety Stock: 0 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 200
Scheduled receipts
Projected on hand: 240 40 40 40 40 40 40 40 40 40 40 40 40
Planned receipts
Planned order releases

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 Resource Planning l CHAPTER 16 16-35

EXHIBIT TN.2 Cont) Completed MRP Records

Item: SL134P Lot Size: 100 units

Description: Flasher Bulb Lead Time: 1 week
Safety Stock: 25 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 200
Scheduled receipts
Projected on hand: 100 -100 0 0 0 0 0 0 0 0 0 0 0
Planned receipts 100
Planned order releases 100

Item: HL211A Lot Size: L4L

Description: Head Frame Subassembly Lead Time: 3 weeks
Safety Stock: 0 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 120 90 75
Scheduled receipts
Projected on hand: 0 0 0 0 0 0 0 0 0 0 0 0 0
Planned receipts 120 90 75
Planned order releases 120 90 75

Item: HL212P Lot Size: 350 units

Description: Head Lens Lead Time: 2 weeks
Safety Stock: 15 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 120 90 75
Scheduled receipts
Projected on hand: 15 15 15 15 245 155 80 80 80 80 80 80 80
Planned receipts 350
Planned order releases 350

Item: HL222P Lot Size: POQ (P = 4)

Description: Head Lamp Module Lead Time: 3 weeks
Safety Stock: 10 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 120 90 75
Scheduled receipts 285
Projected on hand: 10 175 85 10 10 10 10 10 10 10 10 10 10
Planned receipts
Planned order releases

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16-36 l PART 3 l Managing Supply Chains

EXHIBIT TN.2 (Cont.) Completed MRP Records

Item: HL223F Lot Size: POQ (P = 4)

Description: Head Frame Lead Time: 1 week
Safety Stock: 0 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 120 90 75
Scheduled receipts 120
Projected on hand: 0 0 75 0 0 0 0 0 0 0 0 0 0
Planned receipts 165
Planned order releases 165

Item: C310P Lot Size: 180 units

Description: Back Rubber Gasket Lead Time: 1 week
Safety Stock: 20 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 120 170 185
Scheduled receipts 180
Projected on hand: 40 100 110 105 105 105 105 105 105 105 105 105 105
Planned receipts 180 180
Planned order releases 180 180

Item: C206P Lot Size: 2500 units

Description: Screws Lead Time: 1 week
Safety Stock: 30 units
Date 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirements 240 180 350 480 520 520
Scheduled receipts
Projected on hand: 270 30 2350 2000 1520 1000 480 480 480 480 480 480 480
Planned receipts 2500
Planned order releases 2500

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 Resource Planning l CHAPTER 16 16-37

EXHIBIT TN.3 Actions for Planners to Consider This Week

Release New Orders

The following planned order releases are “mature for release,” because they are in the action bucket
(period 1). We assume that there is a new explosion each week, so planned order releases in period
2 and later need no action. The planner needs to review for component and capacity availability for
each mature POR before inputting an inventory transaction. That transaction issues a scheduled
receipt to the shop or supplier with the desired quantity and due date..

Side Lens (SL111P) 350 units (due date = week 3 )

Side Frame (SL121F) 110 units (due date = week 3)
Side Bulb Subassembly (SL122A) 110 units (due date = week 3)

Flasher Bulb Subassembly (SL123A)1 200 units (due date = week 2)

Flasher Bulb (SL134P)2 100 units (due date = week 1)

Head Frame Subassembly (HL211A) 120 units (due date = week 4)

Head Frame (HL223F) 165 units (due date = week 2)
Back Rubber Gasket (C3 I 0P) 180 units (due date = week 2)
Screws (C206P) 2,500 units (due date = week 2)
Realign Due Dates of Scheduled Receipts
The following scheduled receipt is no longer valid. The planner needs to asses the feasibility of
expediting or delaying schedule receipts that have become misaligned. If changes are not possible,
the plans for their parents must be adjusted as needed. If changes are not possible all the way up the
BOM to the MPS, then a call to the customer is needed. Knowing a shipment will be late is better
than reacting to it later on.

Side Bulb Subassembly (SL112A) Postpone schedule receipt’s due date from
week 2 to week 3. Otherwise this job may be
occupying a bottleneck workstation at the
expense of an order that really does need to be
done in week 2.

1
Upon further investigation, Marley found that the quantity called for in a SL123A scheduled
receipt already finished was arbitrarily reduced in the shop, to help ease an overload. The
unfortunate consequence is that now there is no current on-hand inventory for item SL123A,
and a new rush order must be released with less than the 2-week offset for the lead time. Such
situations often can be accommodated, as long as they are the exception rather than the rule.
2
SL134P must be ordered as a rush job from the supplier, because of the unanticipated
problems created by the shop’s override on a prior order for SL123A. Item SL133F is also a
component of SL123A, but fortunately its current on-hand inventory is sufficient because of
the remnants created by its FOQ rule. Remnants in this case absorbed the negative effects of a
short shipment of SL123A.

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