15-1 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Chapter 15 MRP and ERP

15-2 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Material requirements planning (MRP): Computer-based information system for ordering and scheduling of dependent demand inventories MRP

15-3 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods. Dependant Demand

15-4 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Dependent vs Independent Demand Time Demand Stable demand “Lumpy” demand Amount on hand Safety stock

15-5 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP MRP InputsMRP ProcessingMRP Outputs Master schedule Bill of materials Inventory records MRP computer programs Changes Order releases Planned-order schedules Exception reports Planning reports Performance- control reports Inventory transaction Primary reports Secondary reports

15-6 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP 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 MPR Inputs

15-7 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Master Schedule Master 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.

15-8 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Planning Horizon Procurement Fabrication Subassembly Assembly Figure 14-4

15-9 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP 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.

15-10 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Product Structure Tree Chair Seat Legs (2) Cross bar Side Rails (2) Cross bar Back Supports (3) Leg Assembly Back Assembly Level Figure 15-5

15-11 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Assembly Time Chart Procurement of raw material D Procurement of raw material F Procurement of part C Procurement of part H Procurement of raw material I Fabrication of part G Fabrication of part E Subassembly A Subassembly B Final assembly and inspection Figure 15-8

15-12 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP MRP Processing Gross requirements Schedule receipts Projected on hand Net requirements Planned-order receipts Planned-order releases

15-13 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP MRP Outputs Planned orders - schedule indicating the amount and timing of future orders. Order releases - Authorization for the execution of planned orders. Changes - revisions of due dates or order quantities, or cancellations of orders.

15-14 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP MRP Secondary Reports Performance-control reports Planning reports Exception reports

15-15 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Other Considerations Safety Stock Lot sizing –Lot-for-lot ordering –Economic order quantity –Fixed-period ordering –Part-period model

15-16 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP 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. Time fences: Series of time intervals during which order changes are allowed or restricted.

15-17 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP MRP Planning Develop a tentative master production schedule Use MRP to simulate material requirements Convert material requirements to resource requirements Firm up a portion of the MPS Is shop capacity adequate? Can capacity be changed to meet requirements Revise tentative master production schedule Change capacity Yes No Yes No

15-18 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Food catering service –End item => catered food –Dependent demand => ingredients for each recipe, i.e. bill of materials Hotel renovation –Activities and materials “exploded” into component parts MRP in Services

15-19 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Benefits of MRP Low levels of in-process inventories Ability to track material requirements Ability to evaluate capacity requirements Means of allocating production time

15-20 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Requirements of MRP Computer and necessary software Accurate and up-to-date –Master schedules –Bills of materials –Inventory records Integrity of data

15-21 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Expanded MRP with and emphasis placed on integration –Financial planning –Marketing –Engineering –Purchasing –Manufacturing MRP II

15-22 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Market Demand Production plan Problems? Rough-cut capacity planning Yes No Yes No Finance Marketing Manufacturing Adjust production plan Master production schedule MRP Capacity planning Problems? Requirements schedules Adjust master schedule MRP II

15-23 McGraw-Hill/Irwin Operations Management, Seventh Edition, by William J. Stevenson Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. MRP & ERP Enterprise resource planning (ERP): An expanded effort to integrate standardized record-keeping that will permit information sharing throughout the organization ERP