Material Requirements Planning and Enterprise Resource Planning Dr. Ron Lembke

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

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. OSWO inventory management

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

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

Success? MRP Crusade Begins

ERP differences Material planning Capacity planning Product design Information warehousing All functions in the entire company operate off of one common set of data Instantaneous updating, visibility

ERP Sales Y2K: Worldwide sales of top 10 vendors 1995$2.8 B 1996$4.2 B 1997 $5.8 B$3.2 B SAP Fortune survey: 44% reported spending at least 4 times as much on implementation as on software

ERP Challenges Modules assume “best practices:” Change software to reflect company ($) Change company to follow software (?) Accuracy of data Drives entire system Ownership of / responsibility for Ability to follow structure

ERP Novel? “Goal-like” novel Hero learns more about ERP, deciding if it is right for his company Company rushes through installation General introduction to ERP systems, what they do, how different from MRP SAP R/3 screen shots

The Heart of the Matter - mrp System for organizing WIP releases Work in Process – work that has been started, but not yet finished Consider Lead Time (LT)for each item Look at BOM to see what parts needed Bill of Materials – what goes into what Release so they will arrive just as needed

Bike Production Due Mar Apr Assemble Parts Arrive Frame Wheels Drivetrain Seat, Bars OCLV Carbon

Snow Shovels Example – Snow Shovel Order quantity is 50 units LT is one week Simple Bill of Materials - BOM

MRP Table 6 units short

MRP Table Order 50 units week earlier

Ending Inventory Ending inventory

Terminology Projected Available balance Not on-hand (that may be greater) Tells how many will be available Available to Promise – the units aren’t spoken for yet, we can assign them to a customer Planned order releases ≠ scheduled receipts Only when material has been committed to their production Move to scheduled receipts as late as possible Preserves flexibility

1605 Snow Shovel 1605 Snow Shovel 048 Scoop-shaft connector Top Handle Assy 314 scoop assembly 118 Shaft (wood) 062 Nail (4) Rivet (4)

314 scoop assembly Rivet (6) 019 Blade (steel) 2142 Scoop (aluminum)

13122 Top Handle Assembly 1118 Top handle Coupling (steel) Welded Top handle bracket Assembly Top Handle Assembly 457 Top handle (wood) 129 Top Handle Bracket (steel) 082 Nail (2)

BOM Explosion Process of translating net requirements into components part requirements Take into account existing inventories Consider also scheduled receipts

BOM Explosion Example Need to make 100 shovels We are responsible for handle assemblies.

13122 Top Handle Assembly 1118 Top handle Coupling (steel) Welded Top handle bracket Assembly Top Handle Assembly 457 Top handle (wood) 129 Top Handle Bracket (steel) 082 Nail (2)

Net Requirements SchGrossNet Part DescriptionInvRecReqReq Top handle assy Top handle2225 Nail (2 required)450 Bracket Assy27-- Top bracket15-- Top coupling3915

Net Requirements SchGrossNet Part DescriptionInvRecReqReq Top handle assy Top handle Nail (2 required) Bracket Assy Top bracket15-- Top coupling3915

13122 Top Handle Assembly 1118 Top handle Coupling (steel) Welded Top handle bracket Assembly Top Handle Assembly 457 Top handle (wood) 129 Top Handle Bracket (steel) 082 Nail (2)

Net Requirements SchGrossNet Part DescriptionInvRecReqReq Top handle assy Top handle Nail (2 required) Bracket Assy Top bracket Top coupling

Timing of Production This tells us how many of each we need Doesn’t tell when to start Start as soon as possible? Dependent events (oh no, not that!)

13122 Top Handle Assy Order policy: Lot-for-lot

13122 Top Handle Assy-2 Order policy: Lot-for-lot

457 Top Handle One handle for Each assembly

457 Top Handle Order policy: Lot-for-lot

457 Top Handle Order policy: Lot-for-lot

082 Nail (2 required) Two nails for Each assembly

082 Nail (2 required)

11495 Bracket Assembly One bracket for Each assembly

11495 Bracket Assembly Order policy: Lot-for-lot

129 Top Bracket

129 Top handle bracket Order policy: Lot-for-lot

1118 Top handle coupling

Order policy: Lot-for-lot

1118 Top handle coupling

Other considerations Safety stock if uncertainty in demand or supply quantity Don’t let available go down to 0 Safety LT if uncertainty in arrival time Place order earlier than necessary Order quantities EOQ – Economic Order Quantity, Fixed Size If that’s not enough, order what you need, OR order two or more of the Fixed Size Lot-For-Lot, Periodic Order quantity, others

Summary Demand for final products Compute needs for it and Dependent Demand for components Look at all parts of the Bill of Materials Complete the Table for each Bottom row (Pl Order Releases) becomes top row (Gross Requirements) of input components (also called children) Multiplied by # needed for each parent