Material Requirements Planning and Enterprise Resource Planning

Historical Perspective mrp – material requirements planning MRP II – Manufacturing Resource Planning ERP- Enterprise Resource Planning

14-3 Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials. – enables low levels of in-process inventories – helps to track material requirements – helps to evaluate capacity requirements – allocating production time MRP

MRP Crusade (1975) Material Requirements Planning Make sure you have enough parts when you need them – Take future demands, factor in lead times (time phase), compare to on hand, order – Determine order size and timing – Control and plan purchasing vs. inventory management

MRP Based on a master production schedule, a material requirements planning system:  Creates schedules identifying the specific parts and materials required to produce end items  Determines exact unit numbers of materials, components, subassemblies, etc.  how much to order  Determines the dates when to orders for those materials should be released, based on lead times  working backward from the due date So that ordering, fabrication, and assembly can be scheduled for timely completition of end items while inventory levels are kept low

) Materials requirements planning (MRP) A computerized inventory planning and control system for determining when (no earlier and no later) and how many of each of the parts, components, and materials should be ordered or produced Dependent and discrete items Complex products Job shop production Assemble-to-order environments

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. Product Structure Tree

Demand Characteristics Week 400 – 300 – 200 – 100 – No. of tables Continuous demand M T W Th F M T W Th F – – – – No. of tables Discrete demand Independent demand 100 tables Dependent demand 100 x 1 = 100 tabletops 100 x 4 = 400 table legs

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 The demand of end-products are usually independent Dependant Demand

Comparison of independent and dependent demand Time Demand Stable demand “Lumpy” demand Amount on hand Safety stock

© The McGraw-Hill Companies, Inc., 2004 Firm orders from known customers Forecasts of demand from random customers Aggregate production plan Bill of material file Engineering design changes Inventory record file Inventory transactions Master production Schedule (MPS) Primary reports Secondary reports Planned order schedule for inventory and production control (work orders, purchase orders), rescheduling notices Exception reports Planning reports Reports for performance control Material planning (MRP computer program)

Overview of MRP 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

Inputs of MRP Master production schedule: states which end products are to be produced, when and in what quantities. – Inputs of the master schedule are customer orders and forcasts. Separates the planning horizonts into time buckets. – It should cover the cumulative lead time. Bill-of-Materials (BOM): a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product. – It is hierarchical assembly diagram shows the quantities, product structure tree, low level coding Inventory records: Includes information on the status of each item by time period – (Gross requirements, scheduled receipts, amount on hand, lead times, lot sizes, etc.)

MRP Inputs 1: Master Production Schedule Drives MRP process with a schedule of finished products states which end items are to be produced, when these are needed, and in what quantities Quantities may consist of a combination of customer orders & demand forecasts Quantities represent what needs to be produced, not what can be produced

Master Production Schedule (MPS) Time-phased plan specifying how many and when the firm plans to build each end item Aggregate Plan (Product Groups) Aggregate Plan (Product Groups) MPS (Specific End Items)

Master Production Schedule Item / Week Oct 3 Oct. 10 Oct. 17 Oct.24 Oct. 31 Clipboard Lapdesk Lapboard Pencil Case Shows items to be produced Derived from aggregate plan Example:

MRP Inputs 2: Bill-of-Materials Bill of materials (BOM) : 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.

14-18 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.

Planning Horizon Procurement Fabrication Subassembly Assembly Time Period (weeks)

14-20 Bill-of-Materials Bill of materials (BOM): 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. Low-level coding : Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level the component occurs

14-21 Product Structure Tree Chair Seat Legs (2) Cross bar Side Rails (2) Cross bar Back Supports (3) Leg Assembly Back Assembly Level

14-22 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 …

14-23 Inventory Requirements Net requirements: Available Inventory: Net Requirements = Gross Requirements – Available Inventory Available Inventory = Projected on hand – Safety stock – Inventory allocated to other items

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

14-25 MRP Processing Gross requirements Schedule receipts Projected on hand Net requirements Planned-order receipts Planned-order releases

14-26 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

14-27 MPR Processing Net requirements – Actual amount needed in each time period Planned-order receipts – Quantity expected to received at the beginning of the period – Offset by lead time Planned-order releases – Planned amount to order in each time period

14-28 Updating the System Regenerative system – Updates MRP records periodically Net-change system – Updates MPR records continuously

14-29 MRP Primary Reports 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.

14-30 MRP Secondary Reports Performance-control reports Planning reports Exception reports

14-31 Other Considerations Safety Stock Lot sizing – Lot-for-lot ordering – Economic order quantity – Fixed-period ordering

14-32 Benefits of MRP Low levels of in-process inventories Ability to track material requirements Ability to evaluate capacity requirements Means of allocating production time Ability to easily determine inventory usage by backflushing Backflushing: Exploding an end item’s bill of materials to determine the quantities of the components that were used to make the item.

14-33 Requirements of MRP Computer and necessary software Accurate and up-to-date – Master schedules – Bills of materials – Inventory records Integrity of data

Closed-Loop MRP Capacity Consideration: – Part routings – Calculate loads on each work station – See if scheduled load exceeds capacity – Lead-time long enough to allow some shuffling to make plan feasible

MPR Processing 2 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

MPR Processing 3 Net requirements – Actual amount needed in each time period Planned-order receipts – Quantity expected to received at the beginning of the period – Offset by lead time Planned-order releases – Planned amount to order in each time period

Updating the System Regenerative system – Updates MRP records periodically Net-change system – Updates MPR records continuously

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.

MRP Secondary Reports Performance-control reports: evaluate system operation Planning reports: help to forecast future inventory requirements, e. g. purchase commitments Exception reports: call attention to major discrepancies

Other Considerations Safety Stock Lot sizing – Lot-for-lot ordering – Economic order quantity – Fixed-period ordering

MRP is services Services also need material components like packages, tools, physical environment or materials used in the services.

Expanded MRP with emphasis placed on integration – Financial planning – Marketing – Engineering – Purchasing – Manufacturing MRP II

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

– 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. Enterprise resource planning (ERP)

MRP II -- Manufacturing Resource Planning “A method for the effective planning of all resources of a manufacturing company” (APICS def.) – Financial accounting incorporated – Sales – Operations Planning – Simulate capacity requirements of different possible Master Production Schedules 1989, $1.2B MRPII sales in U.S., one third of total software sales