Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

5.2.2b Resource Requirements Planning (RRP) and Iterative Master Planning

Intended learning outcomes: Present the concepts resource requirements planning (RRP) and aggregate plan. Explain sales and operations planning as an iterative master planning process.

Continuation from previous subsection (5.2.2)

Once the production plan is established, the process of resource requirements planning (RRP) begins. Resource requirements are calculated for each product family in the production plan through simple explosion of product structures (bills of material) for components requirements (dependent demand) and routing sheets for capacity requirements. To do this, the process uses bills of resources or product load profiles (see Figure

If gross requirement for each purchased item calculated in this way is weighted by purchase price, the result is a good approximation that can serve as the procurement budget. Other resource requirements can be estimated analogously. For the planning horizon covered by the production plan, there now result:

  • Components requirements, procurement plan for components and materials, and the corresponding procurement or materials budget
  • Capacity requirements and the capacity budget (direct and overhead costs)
  • Budget for overhead costs (overhead budget)

In the case of rough-cut planning, sales and operations planning produces an aggregate plan based mainly on aggregated information (rough-cut business objects such as product families, rough-cut product structures, aggregate forecast and demand [that is, forecast and demand on product families]) rather than on detailed product information.

It is in the case of rough-cut planning in particular that long-term planning lends itself well to the simulation and the what-if analysis of several variants of the production plan.[note 512] For this, company management (or a team caring about supply chain coordination) comes together for a half-day meeting, for example, in order to simulate the various possible patterns of demand and to examine their repercussions with regard to the realization of production and procurement in the supply chain. As some components or operations have not been considered, the budgets can by multiplied by historical figures to obtain expected budgets. In a similar process, sensitivity analysis can take into consideration the effect of demand variation and thus control the whole process with regard to feasibility. Management will then choose and release one of the variants calculated in the above manner and initiate the necessary measures to fulfill the production plan in a timely fashion. For capacity, blanket orders can be given to external production, and orders can be made for the purchase of machinery and buildings or the acquisition of personnel. To procure goods or capacity, blanket orders can be placed with suppliers, or existing supply agreements can be modified.

Figure shows a typical iterative algorithm used within sales and operations planning to determine the production plan and the procurement plan for salable products. It accords with the con­cept of integrated resource management: All resources are planned simultaneously.

1Sales plan:Determine forecast or demand pattern.
2Production plan, procurement plan for salable products, and inventory plan:Set inventory policy with regard to change of production rhythm and inventory level. Determine the inventory levels and calculate the corresponding production plan (analogically, the procurement plan for salable products) or vice versa.
3Resource requirements planning and budgeting: Calculate the procurement budget for components and materials, the capacity budget, and overhead costs budget. Take into account macro costs due to change of production rhythm and inventory.
4next iterationCompare budget figures with actual possible realization and, if necessary, begin again with steps 1, 2, and 3 for each desired variation.

Fig.        Iterative master planning: integrated resource management.

As mentioned above, this technique usually handles rough-cut business objects of the type discussed in Section 1.2.5, so that various iterations can be calculated rapidly. Resource requirements planning of this kind (rolling planning) must be repeated regularly (for example, monthly), and must include the whole planning horizon.

Continuation in next subsection (5.2.2c).

Course section 5.2: Subsections and their intended learning outcomes