13-1MRP and ERP William J. Stevenson Operations Management 8 th edition

13-2MRP and ERP MRP

13-3MRP and ERP  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

13-4MRP and ERP Independent and Dependent Demand Independent Demand A B(4) C(2) D(2)E(1) D(3) F(2) Dependent Demand Independent demand is uncertain. Dependent demand is certain.

13-5MRP and ERP  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. Dependent Demand

13-6MRP and ERP Dependent vs Independent Demand Time Demand Stable demand “Lumpy” demand Amount on hand Safety stock Figure 13.1

13-7MRP and ERP MRP  MRP begins with a schedule for finished goods that is converted into a schedule of requirements for subassemblies, component parts and raw materials needed to produce the finished items in the specified time frame  MRP is designed to answer the following questions What What is needed ? How much How much is needed? When When is it needed ?

13-8MRP and 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 Figure 13.2

13-9MRP and ERP  Master Production Schedule  A Bill of Materials  An inventory records file Product Structure Tree Lead Times MRP Inputs

13-10MRP and ERP Master Schedule  Master (production) schedule (MPS):  Master (production) schedule (MPS): states which end items are to be produced, when these are needed, and in what quantities. Example: A master schedule for end item X: Come from: customer orders, forecasts and orders from warehouses to build up seasonal inventories

13-11MRP and ERP Master Schedule 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. MRP whenhow much MRP works backward from the due date using lead times and other information to determine when and how much to order.

13-12MRP and ERP Planning Horizon Procurement Fabrication Subassembly Assembly Figure 13.4

13-13MRP and ERP Bill-of-Materials Bill of materials (BOM): 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.

13-14MRP and ERP Assembly Diagram & Product Structure Tree Assembly Diagram & Product Structure Tree

13-15MRP and ERP Product Structure Tree Chair Seat Legs (2) Cross bar Side Rails (2) Cross bar Back Supports (3) Leg Assembly Back Assembly Level Figure 13.5

13-16MRP and ERP Product Structure Tree

13-17MRP and ERP Example of Explosion Type

13-18MRP and ERP Product Structure Top clip (1)Bottom clip (1) Pivot (1)Spring (1) Rivets (2) Finished clipboardPressboard (1) Clipboard

13-19MRP and ERP Product Structure Tree Clipboard Level 0 Level 1 Level 2 Spring (1) Bottom Clip (1) Top Clip (1) Pivot (1) Rivets (2) Clip Ass’y (1) Pressboard (1)

13-20MRP and ERP Indented BOM List Clipboardea Clip Assemblyea Top Clipea Bottom Clipea Pivotea Springea Rivetea Press Boardea1 LEVELITEMUNIT OF MEASUREQUANTITY

13-21MRP and ERP 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 …

13-22MRP and ERP DESCRIPTIONINVENTORY POLICY ItemPressboardLead time1 Item no.734Annual demand5000 Item typePurchHolding cost1 Product/sales classCompOrdering/setup cost50 Value classBSafety stock 0 Buyer/plannerRSRReorder point39 Vendor/drawing07142EOQ316 Phantom codeNMinimum order qty100 Unit price/cost1.25Maximum order qty500 PeggingYMultiple order qty LLC1Policy code3 Inventory Records File

13-23MRP and ERP PHYSICAL INVENTORYUSAGE/SALES CODES On hand100YTD usage/sales1100 LocationW142MTD usage/sales75 On order100YTD receipts1200 Allocated75MTD receipts0 Cycle3Last receipt8/25 Last count9/5Last issue10/5 Difference-2 Cost acct Routing00326 Engr07142 Inventory Records File (cont.)

13-24MRP and 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 13.7

13-25MRP and ERP Time-phased Bills Forward scheduling: start at today‘s date and schedule forward to determine the earliest date the job can be finished. If each item takes one period to complete, the clipboards can be finished in three periods Backward scheduling: start at the due date and schedule backwards to determine when to begin work. If an order for clipboards is due by period three, we should start production now

13-26MRP and ERP MRP Processing Logic  Based on the master schedule to determine the components schedules for successively lower-level items throughout the product structures.  It calculates schedules for each of the time periods (usually weekly) in the scheduling time horizon Gross requirements Schedule receipts Projected on hand Net requirements Planned-order receipts Planned-order releases

13-27MRP and ERP MRP Processing  Gross requirements:  Gross requirements: Total expected demand for an item or raw material in a time period.  Scheduled receipts:  Scheduled receipts: Open orders scheduled to arrive from vendors or elsewhere in the pipeline by the beginning of a period.  Projected on hand:  Projected on hand: Expected amount of inventory that will be on hand at the beginning of each time period: Scheduled receipts + inventory carried forward

13-28MRP and ERP MRP Processing  Net requirements:  Net requirements: The actual amount that we need to procure in each time period: Gross requirements - projected on-hand  Planned-order receipts:  Planned-order receipts: The quantity expected to be received by the beginning of the period in which it is shown.  Planned-order releases:  Planned-order releases: Planned amount to order in each time period; planned-order receipts offset by lead time.

13-29MRP and 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.

13-30MRP and ERP Other Considerations  Safety Stock  Lot sizing  Lot-for-lot ordering  Economic order quantity  Fixed-period ordering

13-31MRP and ERP MRP Table

13-32MRP and ERP Format of MRP Week Number Item: Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases

13-33MRP and ERP Requirements of MRP  Computer and necessary software  Accurate and up-to-date  Master schedules  Bills of materials  Inventory records  Integrity of data

13-34MRP and ERP Example 1 Master Production Schedule Clipboard Item Master File CLIPBOARD On hand25 On order175 (Period 1) (sch receipt) (sch receipt) Lot sizeL4L Lead time1

13-35MRP and ERP ITEM: CLIPBOARDPERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand25 Net Requirements Planned Order Receipts Planned Order Releases MRP: Example 1 (cont.)

13-36MRP and ERP MRP: Example 1 (cont.) ITEM: CLIPBOARDPERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand25115 Net Requirements0 Planned Order Receipts Planned Order Releases ( ) = 200 units available ( ) = 115 on hand at the end of Period 1

13-37MRP and ERP ITEM: CLIPBOARDPERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand Net Requirements00 Planned Order Receipts Planned Order Releases 115 units available ( ) = 20 on hand at the end of Period 2 MRP: Example 1 (cont.)

13-38MRP and ERP ITEM: CLIPBOARDPERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand Net Requirements00100 Planned Order Receipts100 Planned Order Releases units available ( ) = -100 — 100 additional Clipboards are required Order must be placed in Period 2 to be received in Period 3 MRP: Example 1 (cont.)

13-39MRP and ERP ITEM: CLIPBOARDPERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand Net Requirements Planned Order Receipts Planned Order Releases Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases MRP: Example 1 (cont.)

13-40MRP and ERP Example 2 A firm that produces wood shutters has received two orders: 100 shutters—delivery at start of week shutters—delivery at start of week 8 Each shutter has four wood sections and two frames. Wood sections are made by the firm and fabrication takes one week. The frames are ordered, and lead time is two weeks. Assembly of shutters requires one week. There is a scheduled receipt of 70 wood sections in week 1 (i.e. at the beginning of). Determine the size and timing of planned-order releases necessary to meet delivery requirements under each of these conditions: 1. Lot-for-lot ordering 2. Lot-size ordering with a lot size of 320 units for frames and 70 units for wood sections.

13-41MRP and ERP Example 2 a. Develop an MPS. b. Develop a product structure tree. Week Quantity Shutter Frames (2)Wood sections (4)

13-42MRP and ERP Example 2 ITEM: Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases Week Quantity

13-43MRP and ERP Example 3 A product structure tree for end item E is shown below. The manager wants to know the material requirements for part R that will be needed to complete 120 units of E by the start of week 5. Lead times for items are one week for level 0 and level 1 items and two weeks for level 2 items. There is a schedule receipt of 60 units of M at the end of week 1 and 100 units of R at the start of week 1. Lot-for-lot ordering is used.

13-44MRP and ERP Example 3 M (3)I (2) R (2)PN (4)V E

13-45MRP and ERP Example 4 A(2)B(1) D(5)C(2) X C(3) Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

13-46MRP and ERP A(2) X It takes 2 A’s for each X

13-47MRP and ERP B(1)A(2) X It takes 1 B for each X

13-48MRP and ERP A(2)B(1) X C(3) It takes 3 C’s for each A

13-49MRP and ERP A(2)B(1) C(2) X C(3) It takes 2 C’s for each B

13-50MRP and ERP A(2)B(1) D(5)C(2) X C(3) It takes 5 D’s for each B

13-51MRP and ERP  Expanded MRP with emphasis placed on integration  Financial planning  Marketing  Engineering  Purchasing  Manufacturing MRP II

13-52MRP and ERP MarketDemand Productionplan Problems? Rough-cut capacity planning Yes No Yes No Finance Marketing Manufacturing Adjust production plan Master production schedule MRP Capacityplanning Problems? Requirementsschedules Adjust master schedule MRP II Figure 13.14

13-53MRP and 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.

13-54MRP and ERP Capacity 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 Figure 13.15

13-55MRP and ERP  Enterprise resource planning (ERP):  Next step in an evolution that began with MRP and evolved into MRPII  Integration of financial, manufacturing, and human resources on a single computer system. ERP

13-56MRP and ERP ERP Strategy Considerations  High initial cost  High cost to maintain  Future upgrades  Training