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MRP and ERP

Chapter 14

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Transparency on aggregate to master plan

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Independent Demand

A

B(4) C(2)

D(1) E(1) D(3) F(2)

Dependent Demand

Independent demand is uncertain. Dependent demand is certain.

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• Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods.

• Once the independent demand is known, the dependent demand can be determined.

Dependant Demand

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• Material requirements planning (MRP): Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.

MRP

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• Master Production Schedule• Time-phased plan specifying timing and quantity of production for

each end item.• Material Requirement Planning Process

Product Structure

Tree

Lead Times

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MRP Inputs MRP Processing MRP Outputs

Masterschedule

Bill ofmaterials

file

Inventoryrecords

file

MRP computerprograms

Changes

Order releases

Planned-orderschedules

Exception reports

Planning reports

Performance-controlreports

Inventorytransaction

Primaryreports

Secondaryreports

MRP

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Planning Horizon

1 2 3 4 5 6 7 8 9 10 Weeks

Procurement

Fabrication

Subassembly

Assembly

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Master ScheduleMaster schedule: One of three primary inputs in MRP;

states which end items are to be produced, when these are needed, and in what quantities.

Cumulative lead time: The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly.

Time fences: Series of time intervals during which order changes are allowed or restricted.

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Bill-of-Materials

Bill of materials: One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.

Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.

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Product Structure Tree

Chair

Seat

Legs (2)Cross

barSide

Rails (2)Cross

barBack

Supports (3)

LegAssembly

BackAssembly

Level 0

1

2

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Inventory Records

• One of the three primary inputs in MRP• Includes information on the status of

each item by time period– Gross requirements– Scheduled receipts– Amount on hand– Lead times– Lot sizes– And more …

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Other Considerations

• Safety Stock

• Lot sizing

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MRP Processing

• Gross requirements

• Schedule requirements

• Projected on hand

• Net requirements

• Planned-order receipts

• Planned-order releases

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MPR Processing

• Gross requirements

– Total expected demand

• Scheduled receipts

– Open orders scheduled to arrive

• Planned on hand

– Expected inventory on hand at the beginning of each time period

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MPR Processing

• Net requirements

– Actual amount needed in each time period

• Planned-order receipts

– Quantity expected to received at the beginning of the period in which it is shown, reflecting the lot size

• Planned-order releases

– Planned amount to order in each time period; same as Planned-order receipts offset by lead time

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Inventory Requirements

• Net requirements:

• Available Inventory:

Net Requirements = Gross Requirements – Available Inventory

Available Inventory = Projected on hand– Safety stock – Inventory allocated to other items

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T14-1: MRP - Example

Master Schedule Week Number 1 2 3 4 5 6 7 8 for Shutters: Quantity 100 150

Shutters: Gross requirements 0 0 0 100 0 0 0 150Scheduled receipts

Quantity = 1 Projected on hand 0 0 0 0 0 0 0 0LT = 1 Net requirements 0 0 0 100 0 0 0 150

Lot Size = 1 Planned-order receipts 0 0 0 100 0 0 0 150Planned-order releases 0 0 100 0 0 0 150 0

Frames: Gross requirements 0 0 200 0 0 0 300 0Scheduled receipts

Quantity = 2 Projected on hand 0 0 0 120 120 120 120 140LT = 2 Net requirements 0 0 200 0 0 0 180 0

Lot Size = 320 Planned-order receipts 0 0 320 0 0 0 320 0Planned-order releases 320 0 0 0 320 0 0 0

Wood sections: Gross requirements 0 0 400 0 0 0 600 0Scheduled receipts 70

Quantity = 4 Projected on hand 70 70 70 20 20 20 20 50LT = 1 Net requirements 0 0 330 0 0 0 580 0

Lot Size = 70 Planned-order receipts 0 0 350 0 0 0 630 0Planned-order releases 0 350 0 0 0 630 0 0

Note: Use Lot Size = 1 for lot-for-lot ordering.

Clear

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A Key MRP Output

• Planned orders (referring to Planned Order Releases)- schedule indicating the amount and timing of future orders. It tells us how when to order and how much, assuring us a lower level of inventory than if we did not use MRP.

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Other MRP Outputs (MRP Secondary Reports)

• Performance-control reports

• Planning reports

• Exception reports

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Capacity Planning

Capacity requirements planning: The process of determining short-range capacity requirements.

Load reports: Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.

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Capacity Requirements in MRP Planning

Develop a tentativemaster production

schedule

Develop a tentativemaster production

schedule

Use MRP tosimulate material

requirements

Use MRP tosimulate material

requirements

Convert materialrequirements to

resource requirements

Firm up a portionof the MPS

Is shopcapacity

adequate?

Cancapacity be

changed to meetrequirements

Revise tentativemaster production

schedule

Changecapacity

Yes

No

Yes

No

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Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements

• Ability to evaluate capacity requirements

• Means of allocating production time

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Requirements of MRP• Computer and necessary software

• Accurate and up-to-date– Master schedules

– Bills of materials

– Inventory records

• Integrity of data

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MRP II or Manufacturing Resource Planning

• Expanded MRP with and emphasis placed on integration

– Financial planning

– Marketing

– Engineering

– Purchasing

– Manufacturing

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MarketDemand

Productionplan

Productionplan

Problems?Problems?

Rough-cutcapacity planning

Rough-cutcapacity planning

Yes No YesNo

Finance

Marketing

Manufacturing

Adjustproduction plan

Adjustproduction plan

Masterproduction schedule

Masterproduction schedule

MRP

Capacityplanning

Problems?Requirementsschedules

Requirementsschedules

Ad

just

mas

ter

sch

edu

le

MRP II

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• Enterprise resource planning (ERP): – Next step in an evolution that began

with MPR and evolved into MRPII– Integration of financial, manufacturing,

and human resources on a single computer system.

ERP

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ERP Software

– ERP software provides a system to capture and make data available in real time to decision makers and other users in the organization

– Provides tools for planning and monitoring various business processes

– Includes• Production planning and scheduling

• Inventory management

• Product costing

• Distribution

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MRP in Services

• Service applications such as:– Professional services– Postal services– Retail– Banking– Healthcare– Higher education– Engineering– Logistical services– Real estate

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ERP Strategy Considerations

• High initial cost

• High cost to maintain

• Future upgrades

• Training

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The following slides are from a consultant who marketsERP systems. Please review the slides. As time permits.we can go through them in class. Note the reason for these slides is to illustrate a situation you might find yourself in if you are a manager in a company makinga decision to purchase an ERP system. It can be a veryintimidating process for your company when the sellerhas all the information about a complex system, and thebuyer is at the mercy of the seller’s knowledge and technical know-how.

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Basic Definitions

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End of slides for MRP/ERP