Master Planning of Resources

Case Studies and Review Activity

Session 8

APICS Certified in Production and Inventory Management (CPIM)

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Master Planning of Resources
1. 2. 3. 4.

Demand
Master Planning Forecasting Management Distribution
of Resources Demand and Customer Planning
Service

Sales and S&OP and Managing the Case Studies

Operations Master Master and Review
Planning Scheduling Schedule Activity

5. 6. 7. 8.

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Learning Objectives

Case Study: Hybrid Production Planning Method

– Develop an alternative to a level or chase production planning
method.
– Compare the cost of the alternative method to the level and chase
methods.
Case Study: Managing a Special Customer Order
– Identify the customer-related factors that would justify scheduling a
special order.
– Describe the material, capacity, and workforce issues that need to
be considered.
– Explain the input and assistance that the master scheduler needs
from sales and marketing.
– Explain the input and assistance that the master scheduler needs
from finance and logistics.
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Learning Objectives (cont.)

Case Study: Make-to-Stock Company with a Multilevel

Distribution Network
– Explain the structure and characteristics of a multilevel
distribution network.
– Describe the use of selected forecasting techniques in
demand planning.
– Describe the advantages and disadvantages of using end-
item forecasts in master production scheduling.
– Differentiate between logistics resource requirements
planning and logistics capacity planning.

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 Case Studies and Review Activity
Session 8

Case Studies

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Objectives of Case Study 8.1

Develop alternative to level and chase production plans

Improve upon the plans developed in Session 5 to
– Meet sales plan objectives
– Minimize inventory costs and workforce change costs

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Level Production Planning Method
Level Plan Present
Units in 1,000s History PTF
Product Family A D J F M A M J J A S Q4 Q1 Q2
Sales plan 50 80 80 80 100 100 120 190 190 110 240 330 360
Actual sales 43 70 87
Difference -7 -10 7
Cumulative difference -7 -17 -10
Production plan 100 100 100 100 100 115 115 115 115 115 345 345 345
Actual production 105 100 100
Difference 5 0 0
Cumulative difference 5 5 5
Inventory plan 20 70 90 110 145 145 160 155 80 5 10 115 130 115
Actual inventory 20 82 112 125
Difference 12 22 15
PTF: planning time fence

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Chase Production Planning Method
Chase Plan Present
Units in 1,000s History PTF
Product Family A D J F M A M J J A S Q4 Q1 Q2
Sales plan 50 80 80 80 100 100 120 190 190 110 240 330 360
Actual sales 43 70 87
Difference -7 -10 7
Cumulative difference -7 -17 -10
Production plan 100 100 100 100 100 100 120 190 190 110 240 330 360
Actual production 105 100 100
Difference 5 0 0
Cumulative difference 5 0 0
Inventory plan 20 70 90 110 145 145 145 145 145 145 145 145 145 145
Actual inventory 20 82 112 125
Difference 12 22 15
PTF: planning time fence

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Cost Summary: Level and Chase Plans

Cost Summary
Product Family A: Level Method M A M J J A S Q4 Q1 Q2 Total
Worker change costs (in $1,000) 2.4 2.4
Inventory costs (in $1,000) 29 29 32 31 16 1 2 48 75 72 335.0
Worker + inventory costs (in $1,000) 29 29 34.4 31 16 1 2 48 75 72 337.4

Product Family A: Chase Method M A M J J A S Q4 Q1 Q2 Total

Worker change costs (in $1,000) 3 10.5 12 4.5 4.5 1.5 36.0
Inventory costs (in $1,000) 29 29 29 29 29 29 29 87 87 87 464.0
Worker + inventory costs (in $1,000) 29 29 29 32 39.5 29 41 91.5 91.5 91.5 500.0

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Case Study 8.1: Hybrid Method
Present
Hybrid Production Plan History PTF
Prod. Family A (units in 1000s) D J F M A M J J A S Q4 Q1 Q2
Sales plan 50 80 80 80 100 100 120 190 190 110 240 330 360

Production plan 100 100 100 100 100

Inventory plan 20 70 90 110 145 145

Cost Analysis
Workforce Change Costs M A M J J A S Q4 Q1 Q 2 Total
# of employees (production/ 2000
50 50
units per employee)
Workforce changes 0 0
Cost per change @ $300 (in $1,000) 0 0
Inventory Costs
Inventory plan @ $10 (in $1,000) 1,450 1,450
Inventory costs @ 2% (in $1,000) 29 29
Total Cost Hybrid Plan (in $1,000) 29 29
Total Cost Level Plan (in $1,000) 29 29 34.4 31 16 1 2 48 75 72 $337
Total Cost Chase Plan (in $1,000) 29 29 29 32 39.5 29 42 91.5 91.5 91.5 $503

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Case Study 8.1 Solution
Present
Hybrid Production Plan History PTF
Prod. Family A (units in 1000s) D J F M A M J J A S Q4 Q1 Q2
Sales plan 50 80 80 80 100 100 120 190 190 110 240 330 360

Production plan 100 100 100 100 100 100 120 120 120 120 240 360 360

Inventory plan 20 70 90 110 145 145 145 145 75 5 15 15 45 45

Cost Analysis
Workforce Change Costs M A M J J A S Q4 Q1 Q 2 Total
# of employees (production/ 2000
50 50 50 60 60 60 60 120 180 180
units per employee)
Workforce changes 0 0 10 20 20
Cost per change @ $300 (in $1,000) 0 0 3 6 6 $15
Inventory Costs
Inventory plan @ $10 (in $1,000) 1,450 1,450 1,450 1,450 750 50 150 450 1,050 1,350
Inventory costs @ 2% (in $1,000) 29 29 29 29 15 1 3 9 21 27 $192
Total Cost Hybrid Plan (in $1,000) 29 29 29 32 15 1 3 15 27 27 $207
Total Cost Level Plan (in $1,000) 29 29 34.4 31 16 1 2 48 75 72 $337
Total Cost Chase Plan (in $1,000) 29 29 29 32 39.5 29 42 91.5 91.5 91.5 $503

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Case Study 8.2: Managing a Special
Customer Order
1. What are some of the customer issues that sales and marketing
must address to ensure that the disruption caused by the
special customer order is justified?
2. What issues does the master scheduler need to consider with
respect to materials and capacity constraints?
3. What kinds of input and assistance will the master scheduler
need from sales and marketing in scheduling the special order?
4. What inputs will the master scheduler need from logistics and
finance?

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Case Study 8.2 Solution

1. What are some of the customer issues that sales and marketing must
address to ensure that the disruption caused by the special customer
order is justified?
– Likelihood of a profitable long-term relationship with SCIPA
– SCIPA’s market share and relative growth rate in its industry segment
– Product profitability of the M-10 system
– Potential profit of a one-time-only transaction

2. What issues does the master scheduler need to consider with respect
to materials, capacity, and workforce constraints?
– Availability of materials needed to start production shortly
– Borrowing parts from other orders or orders in process in order to fulfill the
special order
– Consequences of diverting, delaying, disrupting, and replanning orders
– Disruptive effects on worker morale and overall system efficiency

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Case Study 8.2 Solution

3. What kinds of input and assistance will the master scheduler need
from sales and marketing in scheduling the special order?
– In-process customer orders that can be diverted or delayed
– Whether the customer request date is a delivery or ship date
– Incentives needed for affected customers for delayed deliveries (such as
extended warranties)
4. What inputs will the master scheduler need from logistics and
finance?
– Additional transportation costs for expediting in- and outbound air freight if
necessary to shorten lead time (logistics)
– Cost of incentives given to affected customers (finance)
– Impact on overall profit margins of the expedited order (finance)
– Strategic benefit of the sale to the new customer (marketing also)

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Case Study 8.3: Make-to-Stock Company
with a Multilevel Distribution Network
Issues
1a. Structure of a multilevel distribution network
1b. Access to point-of-sale information
1c. Scope of the distribution requirements planning (DRP) system
2a. Value of various forecasting techniques
2b. Time series decomposition technique
3. Use of end-item forecasts in master scheduling instead of
disaggregated product family forecasts per the sales and
operations plan
4. Use of logistics resource requirements planning and detailed
logistics capacity planning

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Case Study 8.3: Part 1

1a. Draw a diagram of APC’s multilevel distribution network.

1b. In which sales channel, retail or wholesale, is APC more likely to have
access to point-of-sale information?
1c. Which of the inventory stocking locations in the multilevel distribution
network can be included in APC’s distribution requirements planning
(DRP) system?

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Case Study 8.3 Part 1 Solution
1a. Draw a diagram of APC’s multilevel distribution network.

Manufacturer
Retailer Wholesaler
Central
Central DC Warehouse Central DC

Regional DCs
Regional DCs Regional DCs

Local DCs
Local DCs Local DCs

Retail Stores

DC: distribution center

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Case Study 8.3 Part 1 Solution (cont.)

1b. In which sales channel, retail or wholesale, is APC more likely to have access to
point-of-sale information?
APC is more likely to have access to point of sale information at retail locations
owned by retail channels, though it would be possible to set up point-of-sale
replenishment arrangements with large retail locations supplied through
wholesale (including distributor) channels.

1c. Which of the inventory stocking locations in the multilevel distribution network
can be included in APC’s distribution requirements planning (DRP) system?
Theoretically it would be possible, through supply chain collaboration, to
include both wholesale and retail channel locations in APC’s DRP system.

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Case Study 8.3: Part 2

2a. Explain the value to APC of pyramid forecasting, expert opinion, historical time
series, historical analogy, and regression analysis techniques.

2b. Why would time series decomposition forecasting be helpful?

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Case Study 8.3 Part 2 Solution
2a. Explain the value to APC of pyramid forecasting, expert opinion, historical time
series, historical analogy, and regression analysis techniques.
– Pyramid forecasting: reconciles the executive forecast with the sales force rollup
forecast (from multiple end-item stocking locations to aggregate product family
level) with the management force-down forecast to the end item level; assures
consistency between various sources of forecasts and their consistency with
company constraints and goals
– Historical time series: forecasts trends based on past history (useful for mature
products)
– Expert opinion: provides insight on external influences on long-term demand
– Historical analogy: supports forecasts for new product introductions and changes
in demand during the product life cycle
– Regression (causal techniques): supports analysis of the effect of promotions
and price on sales, and, in conjunction with historical analogy, sales growth rates
for new and mature products
2b. Why would time series decomposition forecasting be helpful?
– Time series decomposition is especially suited to projecting and combining
trend and seasonal demand components into a single forecast
.
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Case Study 8.3: Parts 3 & 4

3. The sales VP prevails and end item forecasts based on time series
decomposition techniques are generated and used in master scheduling some
products. What does the master scheduler need to do with the end-item
forecasts relative to the disaggregated S&OP?

4. Logistics planning at the S&OP and master scheduling level ensures that
finished goods are shipped out to distribution centers and customers per the
distribution requirements plan. Explain the differences in logistics planning at
these two levels.

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Case Study 8.3 Parts 3 & 4 Solution

3. The sales VP prevails and end item forecasts based on time series
decomposition techniques are generated and used in master scheduling some
products. What does the master scheduler need to do with the end-item
forecasts relative to the disaggregated S&OP?
It is the responsibility of the master scheduler (with the assistance of the
demand planner or forecast analyst) to reconcile a directly forecasted end-item
or product mix forecast with the product mix forecast based on the
disaggregated product family forecast used in S&OP. The two should be
brought into line, usually by modifying one or more of the end-item forecasts.
(Wallace, Sales Forecasting, 2002, Ch. 4)

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Case Study 8.3 Parts 3 & 4 Solution (cont.)

4. Logistics planning at the S&OP and master scheduling level ensures that
finished goods are shipped out to distribution centers and customers per the
distribution requirements plan. Explain the differences in logistics planning at
these two levels.
– At the S&OP level, logistics resource requirements planning (LRRP) is
analogous to resource planning (of production resources). LRRP calculates
aggregate demand for each product family. This information is used to
determine aggregate-level financial, warehousing, transportation, labor, and
equipment resources needed to move end-items to distribution centers and
customers.

– At the master scheduling level, detailed logistics capacity planning is used

in conjunction with distribution requirements planning (DRP) to ensure
that the same resources mentioned above are available to move end-item
inventories efficiently to storage facilities and customers.

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 Case Studies and Review Activity
Session 8

“Wiki” Review
Activity

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“Wiki” Review Activity

Objectives
– Build and reinforce knowledge of Master Planning of Resources
(MPR) topics.
– Understand, write, and practice exam questions.

Complete this instructor-led group activity in class.

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 Case Studies and Review Activity
Session 8

Wrap-Up

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Learning Objectives

Case Study: Hybrid Production Planning Method

– Develop an alternative to a level or chase production planning
method.
– Compare the cost of the alternative method to the level and chase
methods.
Case Study: Managing a Special Customer Order
– Identify the customer-related factors that would justify scheduling a
special order.
– Describe the material, capacity, and workforce issues that need to
be considered.
– Explain the input and assistance that the master scheduler needs
from sales and marketing.
– Explain the input and assistance that the master scheduler needs
from finance and logistics.
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Learning Objectives (cont.)

Case Study: Make-to-Stock Company with a Multilevel

Distribution Network
– Explain the structure and characteristics of a multilevel
distribution network.
– Describe the use of selected forecasting techniques in
demand planning.
– Describe the advantages and disadvantages of using end-
item forecasts in master production scheduling.
– Differentiate between logistics resource requirements
planning and logistics capacity planning.

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