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Chapter 9
 Resource Planning

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Chapter Overview 

Chapter 9 is a foundation for the remaining resource-specific chapters in Unit 3.  It introduces the topics of planning and planning horizon, as well as demand forecasting. Concentrating on time series techniques, Chapter 9 covers appropriate demand forecasting techniques for different time series components.  In addition to forecasting techniques, accuracy measurement techniques are introduced.  the chapter concludes with an overview of Enterprise Resource Planning (ERP) systems.

 

Chapter Resources

Esources 
Esource   9.1  ACR Machine offers very flexible capabilities to manufacture practically anything a company might need, from a single unit to a large order.  Visit the ACR Machine website. Read their company description and information about their reverse engineering capabilities to find out how a company like ACR Machine can compress the lead times of its customers. 
Esource 9.2  Forecasting software has become a major industry for software producers. Forecast Pro is such a company.  Explore the ForecastPro website to find out some of the important characteristics of a forecasting software solution.
Esource 9.3  SAP is one of the leading providers of ERP software.  Despite the fact that users must purchase off-the-shelf software, SAP provides a number of products that are designed specifically for different industries. Explore the industry solutions available from SAP. Select two or three different industries and compare the capabilities.  SAP offers a special industry solution for higher education.  Examine the factors listed to see if they are consistent with your perspective of a college's resource planning needs.

Interactive Models 
Interactive Model 9.1
 The Time Series Components Interactive Model
The Time Series Components Interactive Model provides a time series with trend, seasonality, and random fluctuation. The interaction of the components can be examined by increasing and decreasing each, and viewing the results graphically. 
Interactive Model 9.2 The Forecasting Techniques Interactive Model 
The Forecasting Techniques Interactive Model enables the user to experiment with four techniques (exponential smoothing, trend adjusted exponential smoothing, linear trend equation, and simple linear regression).  The model allows the user to select a technique, adjust parameters, and even drag data points to see how each model responds to changes in recent demands.

Excel Tutors 
Excel Tutor 9.1 Excel Tutor 9.1 Using Excel Spreadsheets for Forecasting with Simple Linear Regression
Excel Tutor 9.2 Excel Tutor 9.2 Using Excel Spreadsheets for Moving Weighted Averages
Excel Tutor 9.3 Excel Tutor 9.3 Using Excel Spreadsheets for Simple Exponential Smoothing
Excel Tutor 9.4 Excel Tutor 9.4 Using Excel Spreadsheets for Trend Adjusted Exponential Smoothing (FIT)
Excel Tutor 9.5 Excel Tutor 9.5 Using Excel Spreadsheets for Forecasting with Seasonal Indices
Excel Tutor 9.6 Excel Tutor 9.6 Using Excel Spreadsheets for Forecasting Seasonality and Trend
Excel Tutor 9.7 Excel Tutor 9.7 Using Excel Spreadsheets to Compute Mean Absolute Deviation 
Excel Tutor 9.8 Excel Tutor 9.8 Using Excel Spreadsheets to Compute Mean Squared Error
Excel Tutor 9.9 Excel Tutor 9.9 Using Excel Spreadsheets to Compute Mean Forecast Error
Excel Tutor 9.10 Excel Tutor 9.10 Using Excel Spreadsheets to Compute Running Sum of Forecast Error

Supplementary Reading
Supplementary Reading 9.1

When businesses face high degrees of uncertainty in the future, forecasts of what might happen are so inaccurate that they don't provide useful direction.  Businesses must incorporate strategies that give them a high degree of flexibility and establish alternative action plans. Exploiting Uncertainty, Business Week, 6/7/99 discussed this phenomenon and a practice known as real-options analysis which has been used to give energy companies options in an uncertain environment.
Supplementary Reading 9.2 The Implementation of any large computer system is a massive undertaking. Nestle's ERP Odyssey, CIO, May 15, 2002, provides a summary of how Nestle dealt with their long-term SAP implementation project.

 

OM Exploration

Check it out: Internet Reference Sites 
The following resources provide information related to resource planning.
OR/MS Forecasting Software Survey Institute of Business Forecasting
International Institute of Forecasters Oracle
SAP Baan
J.D. Edwards Peoplesoft
   

OM in Action for Chapter 9
OM in Action 9 .1 ForecastPro offers a variety of forecasting capabilities.  Read the ForecastPro product description.  Use a search engine such as google.com or altavista.com and search for "business forecasting" or "sales forecasting" to identify another forecasting software package.
a.  How do the two software packages compare? Do they offer similar capabilities?
b. Create a list of "strengths" and "weaknesses" for each. Which package do you think is the better value?
OM in Action 9.2 SAP and Peoplesoft are two of the leading players in the ERP industry.  Examine the capabilities of each.
a.  Compare the strengths and weaknesses of the two programs.
b.  How do the two companies attempt to differentiate themselves?

Online Business Tours for Chapter 9
Online Business Tour 9.1 Sensenich is a small manufacturer of aircraft propellers. Take the Sensenich tour.  
a. Based on the tour, the processes, and the photos, do you think Sensenich is a high, medium, or low volume manufacturer?
b. If volume were to increase substantially, what would be the implications for resource change?
c. Of the operations resources of inventory, workforce, capacity, facilities, and customer relationships, which is probably the most difficult to expand for Sensinech?

Letters from the Top for Chapter 9
Letter from the Top 9.1 Sobeys, the second largest food distribution company in Canada, attempted an implementation of the SAP enterprise resource planning system. Read the 2000 letter to the shareholders on page 7 of the annual report. (be patient it's a slow .pdf file )
a. Why was Sobeys enthusiastic about  implementing ERP?  What benefits were anticipated?

Read the 2001 CEO's letter to shareholders (page 6 of the annual report). What happened to the ERP initiative?  In an article article summarizing the ERP problems, more background about the decision is presented. 

b. Should an event like the one Sobey's described be sufficient to result in abandoning such a large project? Or do you think Sobey's decision was premature?

Putting It All Together:  Virtual Case Study 
Putting It all Together 9.1:  As environmental forces become more uncertain, planning for resources becomes more difficult and financial return on those investments becomes less certain.  In DaimlerChryslers 2001 CEO's Letter to Shareholders, the topic of uncertainty is addressed.  
a. How does the strategy described in the letter address the impact market uncertainty has on resource planning?  What specific capabilities make resource planning easier for Daimler Chrysler?
b. Mercedes, a division of DaimlerChrysler has received attention for the effectiveness of its web site.  Visit the Mercedes website.  How does the success of this resource affect the planning for other resources? 
c. Currently, few potential buyers request price quotes from manufacturers' websites. They use other services instead.  From a resource planning perspective, how would manufacturers benefit from customers going directly through their website for price quotes? Could information gained by used to enhance resource planning activities? How?

Additional Reading
Additional 
Reading 9.1		 ERP in Institutional Manufacturing, (By B. Douglas Clinton, CPA, Ph.D., and Ronda R. Lummus, Ph.D., The Management Accounting Quarterly, Summer 2000) describes how enterprise resource planning enhances manufacturing within a prison industry.