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Homework answers / question archive / UNIT VII STUDY GUIDE Aggregate Planning and Material Requirements Planning Course Learning Outcomes for Unit VII Upon completion of this unit, students should be able to: 1

UNIT VII STUDY GUIDE Aggregate Planning and Material Requirements Planning Course Learning Outcomes for Unit VII Upon completion of this unit, students should be able to: 1


UNIT VII STUDY GUIDE Aggregate Planning and Material Requirements Planning Course Learning Outcomes for Unit VII Upon completion of this unit, students should be able to: 1. 2. 3. 4. 5. 6. 7. 8. Explain how sales and operations planning are used to balance resources and forecast demand. Describe what an aggregate plan is and how it is used. Identify optional strategies for developing an aggregate plan. Create a graphical aggregate plan. Develop a product structure. Build a gross requirements plan and a net requirements plan. Determine lot sizes for lot-for-lot, EOQ, and POQ. Describe MRP II, closed-loop MRP and ERP. Reading Assignment Chapter 13: Aggregate Planning and S&OP Chapter 14: Material Requirements Planning (MRP) and ERP Unit Lesson There are three major functional areas of a firm: operations, marketing, and finance. Some firms base their competitive advantage on strength in operations. Others are known for their strong marketing. A strong financial underpinning also supports an organization’s success. Modern organizations recognize the importance of coordinating the functional areas of a firm and coordinating with their supply-chain partners. A principal way to accomplish this is called sales and operations planning (S&OP). It is an important responsibility of an operations manager to go through this planning process and produce an aggregate plan. Both manufacturing and service firms benefit from creating an aggregate plan. This gives them the flexibility to respond to changing customer demands in our fast-paced market environment today. This process focuses on a time range from 3 to 18 months. It is used to set levels of employment, production, inventory, and any needed use of subcontracting so that a detailed master production schedule can be developed. This is particularly important for personnel decisions that often take time to implement and may impact the lives of employees both positively and negatively. There are two parts to aggregate planning: capacity options and demand options. Demand options are strategies to affect demand for a product or service to smooth out the demand flow, which can make production planning much simpler and less costly. After using demand options, a firm can then addresses its options for achieving the right capacity to meet demand. The planning process is used to find the best profitproducing mix. The significant increase in consumer demand during the holiday shopping season provides an illustration of capacity options in the e-commerce industry. Multichannel retailer Crate & Barrel doubles the number of its employees to handle a four-fold increase in holiday sales. Online retailer Amazon quadruples its holiday staff to handle its increased sales. The difference is that Crate & Barrel uses 35 robots during the holidays to carry racks of company products to people who pick and pack orders. There is no walking around the building. BUS 4851, Production and Operations Management 1 Amazon employees walk 18-20 miles a day down aisles filling shopping carts UNIT from the rows ofGUIDE shelves, and x STUDY carrying the shopping carts to packing stations. Amazon believes that people give Titleit the flexibility to select from its wider variety of products. It also uses hand held computers to identify the shortest distance for each order. Yield or revenue management is an example of the demand option for aggregate planning. It has been used for decades in the airline, hotel, and car rental industry. There is a new interest in using yield management to price sports tickets. Baseball tickets used to be based on the location of the seat. The San Francisco Giants have found they can increase revenue by pricing tickets based on the opposing teams, pitching match-ups, day of the week, and even the weather forecast. As the season progresses and demand increases for seats for particular games, the Giants increase the price of tickets. This is similar to the way airlines increase ticket prices on flights with high demand and limited supply, and as the date of the flight approaches. Material resource planning (MRP) comes into play when firms implement their aggregate plan. The goal is to make sure that everything is in place to produce the final product on time. MRP techniques can contribute to a reduction in inventory. They allow operations managers to stock and replenish their inventory on a “need-toorder” basis. By receiving inventory just in time, firms can reduce the cost of having inventory on hand. This has led to integrated enterprise resource planning (ERP) systems where all relevant information is easily obtainable as needed. While ERP systems are expensive and difficult to implement, they can give a firm a competitive advantage when they are installed and used successfully. Data accuracy is a prerequisite to effective inventory management and operation of MRP systems. Today MRP systems are used with lean manufacturing and quality improvement techniques. Some innovative firms are applying a continuous improvement approach to reduce errors in their data. MEDRAD, a medical device manufacturer and a 2003 Malcolm Baldrige National Quality Award recipient, had error rates as high as 20% in the paperwork that was used to track products through manufacturing. This resulted in compliance issues for the medical devices, unnecessary rework, and delays. The company addressed the high error rate with a quality improvement project that used technology, process, and people-based solutions. This resulted in a reduction in data error rates from 20% to 2.2% that saved the company money and produced significant non-financial benefits. An important concept in marketing is customer relationship management (CRM). This is described as an approach where the seller fine-tunes the marketing effort with information from a detailed customer database. This usually includes data on a customer’s past purchases, as well as other customer data. This same concept applies to production management. In this case, the operations manager fine-tunes the production effort using detailed information from customers. This is a complex process that involves integrating the different functions of a firm and is supported by MRP and ERP information flows, customer relationship management, supply-chain management and finance/accounting. Supplemental Reading Click here to access the PowerPoint Presentation of the Chapter 13 Presentation. Click here to access the PDF of the Chapter 13 Presentation. Click here to access the PowerPoint Presentation of the Chapter 14 Presentation. Click here to access the PDF of the Chapter 14 Presentation. BUS 4851, Production and Operations Management 2 Learning Activities (Non-Graded) UNIT x STUDY GUIDE Title Take the Self Tests on pages 550 and 586 in your textbook. Non-graded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. Key Terms 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Aggregate plan Bill of material (BOM) Chase strategy Disaggregation Distribution resource planning (DRP) Enterprise resource planning (ERP) Graphical techniques Level scheduling Load report Lot-sizing decision Master production schedule Material requirements planning (MRP) Net requirements plan Periodic order quantity Revenue (or yield) management BUS 4851, Production and Operations Management 3

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