Activity Guide

Quiz 2

Question 1

(a) Give your own understanding of the illustration and,

(b) State the importance of this figure to Operations Management and,
(c) Include in your discussion an example of any product or company to support your answer in
letter a.

Sequence of Planning

The sequence of planning introduced by Stevenson follows three types of plan—the business
plan, the aggregate plan, and the master schedule. The business plan establishes operations and
capacity strategies which may include the corporate approaches and policies, aggregated demand
forecast for products and services, and external conditions of the organization such as the economic,
competitive, and political environment. The business plan includes long-term and intermediate-term
planning. Its main goal is to correlate all the intermediate projections of the marketing, operations,
finance, and other organizational functions present or applicable in the organization. Consequently, all
of these functional areas must collaborate to formulate the aggregate plan.

On the other hand, aggregate planning decisions are strategic decisions that define the
framework within which operating decisions will be made. They are the starting point for scheduling and
production control systems. They provide data for financial plans; they involve fore-casting input and
demand management, and they may require changes in employment levels. And if the organization is
involved in the time-based competition, it will be essential to incorporate flexibility in the aggregate
plan. Additionally, the aggregate plans must fit into the framework established by the organization's
long-term goals and strategies, and the limitations established by the long-term facility and capital
budget decisions.

Lastly, the aggregate plan is developed to guide the more detailed planning that will eventually
lead to the master schedule. The master schedule is the center of the production planning and control
which indicates the quantity and timing (i.e., delivery times) for a product or group of products. The
master schedule determines the quantities needed to meet demand from all sources; it then becomes
the guide for key decisions and activities throughout the organization. It interfaces with marketing,
capacity planning, production planning, and distribution planning; and drives the MRP system as well.

To further explain the planning sequence, we can examine the struggles experienced by
Samsung Electronics in the late 1990s. The sales of the first mobile phone launched by Samsung
Electronics in 1988 were initially poor compared to Motorola and other top branded phones during the
period. Hence Lee Kun-Hee and other leading departments in marketing, operations, and finance
decided to create a new strategy to solve the fluctuating sales of the brand. The company discontinued
production of many of its less-selling product lines, and instead pursued a process of designing and
manufacturing components and investing in new technologies for other companies. In addition,
Samsung outlined a 10-year plan to ignore its image as an "economic brand" and challenge Sony as the
world's largest maker of consumer electronics. The strategy of vertical integration of manufacturing
components that Samsung incorporated led to its success and was ranked as one of the leading digital
and electronics companies in the late 2000s.

Aggregate planning plays a vital role in achieving the long-term goals of the organization. Aggregate
planning helps with:

 Achieving financial goals by reducing the total variable cost and improving the bottom line
 Make the most of the available production facility
 Providing customer happiness by matching demand and reducing customer waiting time
 Reducing investment in stock storage
 Able to meet scheduling goals hence creating a happy and satisfied workforce

Moreover, aggregate planning helps in striking a balance between process goals, financial goals, and the
overall strategic objective of the organization. It serves as a platform for capacity management and
demand planning. For example, in a scenario where demand doesn't match capacity, an organization
may attempt to balance by pricing, promoting, managing orders, and creating a new order. Vice versa;
when capacity doesn't match demand; the organization may attempt to balance the two through
various alternatives. They can apply dispensing, employing surplus, insufficient surplus, insufficient labor
force until the demand decreases or increases. The organization can include labor over time as part of
scheduling hence creating additional capacity, or hiring a temporary workforce for a specified period, or
outsourcing a subcontractor.
Question 2

(a) If the company decided to automate and follow the Figure 2 process from manual procedure,
what do you think are the changes that a manager should focus on?
(b) Give one advantage of using MRP computer program and give an example to support your
discussion.
(c) Why learn and get involved in information technology? Isn’t this area of the business left to the
IT professionals and not managers?
(d) Why is it important to managers or decision makers to understand Figure 3?

Material Requirements Planning (MRP)

Material requirements planning (MRP) is a planning and control system for inventory,
production, and scheduling. MRP converts the main production schedule into a breakdown table so that
you can purchase raw materials and components. MRP focuses on two global occupants of the business
- customers and resources. MRP analyzes all the organization's activities in terms of customer
requirements and manages all the organization's resources through its logic and data processing.

What is the advantage of using the MRP computer program? Managers can use MRP computer
programs or concepts in a variety of different production environments. They can also use them for
service providers, such as job shops. Examples of production environments include cases where
products are complex, or products are only bundled to order, or order items are separate and approved.
In these cases, MRP can reduce stock in stock, component shortages, total manufacturing cost, and
hence the purchasing cost. This more accurate scheduling improves the productivity of the organization
by reducing lead time, giving customers higher quality production and service. Generally speaking, the
organization is more competitive in the market.

However, with these advantages come some disadvantages. Above all, MRP only works if the
accounting is accurate. Managers have to focus on changes to MRP entries such as bill of materials,
master schedule, and inventory. Managers must keep a regular record of MRP entries and their changes
are up to date. Managers must always remember that inaccurate inputs lead to the inaccurate output.

MRP I, MRP II, and Enterprise Resource Planning (ERP)

Managers should know the importance of each type of planning technique to understand how
their functions could help in the overall operations of the business. From MRP I, MRP II was conceived to
cater to the additional needs of the organization that MRP can’t provide. From the 3 aforementioned
MRP inputs, capacity requirements planning and enabled the involvement or collaboration of other
functional areas were included to provide organizations a more precise calculation of materials that
were needed to produce a product, and when and how much of those materials were needed.

ERP, on the other hand, is more on the advanced level than the other previous planning
techniques. ERP connects all parts of a business organization as well as key portions of its supply chain
to a single database for information sharing. ERP added several functions from the MRP II such as the
core financials, CRM, SCM, HR, enterprise assets tracking, marketing automation, and project
management. MRP and ERP do have significant strategic impacts on the organization. Though MRP and
ERP requires high initial investment outlay, maintenance costs, additional cost for upgrades, as well as
the training required, the benefits in the long run will outweigh the costs as the techniques would surely
lead businesses to grow and gain their competitive edge in whichever industry they are in.

Information Technology (IT)

Why learn and get involved in information technology? Isn’t this area of the business left to the
IT professionals and not managers? IT is not just for IT professionals. IT is used or accessed by mostly all
the functional areas in the organization. Hence, workers are always encouraged to train and attend
seminars to learn and adapt to the established information systems present in the organization.
Managers foremost are involved with the IT process because they are the ones who analyze the data,
frame possible opportunities and threats so that non-IT professionals inside the organization would have
absolute knowledge of the organization’s growth or progress. Managers would then evaluate and
prioritize the present and even future problems of the organization and provide solutions and
contingency plans to counterattack such predicaments. And lastly, managers are responsible to lead,
implement and pursue IT and organizational policies that would essentially cater to the needs of the
organization and its people.