© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Operations Management Material Requirements Planning (MRP) & ERP Chapter 14

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Different Views of Inventory Demand Type Independent Dependent Process stage Raw Material Work in Process Finished Goods Other Maintenance / Repair Operating Supplies Types of Inventory Cycle Pipeline Safety Stock Anticipation Annual $ Volume A B C

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Inventory Classifications A B C Independent Demand Demand for an item is created external to the company Dependent Demand Demand for one item is related to the demand for another item Raw WIP Finished Material Goods

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Independent Demand Demand for an item is created external to the company Dependent Demand Demand for one item is related to the demand for another item PARENT COMPONENT Independent vs. Dependent Demand

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Item Materials With Independent Demand Materials With Dependent Demand Demand Source Company CustomersParent Items Material Type Finished Goods WIP & Raw Materials Method of Estimating Demand Forecast & Booked Customer Orders Calculated Planning Method EOQ & ROP MRP Independent vs. Dependent Demand

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Material Requirements Planning (MRP) Material Requirements Planning System Master Production Schedule (MPS) Planned Order & Other Reports Inventory Records - Inventory available - Purchase Orders - Lead Times Bill of Materials Item Master

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J The Planning Process Change master production schedule? Execute material plans Execute capacity plans Detail capacity plan Material requirements plan Master production schedule Aggregate production plan Change requirements? Change capacity? Realistic No Yes Change production plan? Is capacity plan being met? Is execution meeting the plan?

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Planning / Scheduling Relationships Capacity Planning 1. Facility size 2. Equipment procurement Aggregate Planning 1. Facility utilization 2. Personnel needs 3. Subcontracting Master Schedule 1. MRP 2. Disaggregation of master plan Short-term Scheduling 1. Work center loading 2. Job sequencing Long-term Intermediate-term Short-term Intermediate-term

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Aggregate Production Plan MPS 1,2001,500 Aggregate Production Plan shows the total quantity of bicycles Mountain bike Hybrid bike 100 Road bike Master Production Schedule Shows the specific type and quantity of bike to be produced Weeks FebruaryJanuaryMonths

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Master Production Schedule – MPS Item: Road Bike Order Policy: 100 units Lead Time: 2 weeks Forecast Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 5550 January February 40 Quantity on Hand: Projected on-hand = 17 on hand MPS – 40 forecasted orders = 77

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Master Production Schedule – MPS Item: Road Bike Order Policy: 100 units Lead Time: 2 weeks Forecast Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 5550 January February 40 Quantity on Hand: Projected on-hand = 37 on hand MPS – 45 forecasted orders = 92 Requires MPS start in week 1 for MPS quantity in week 3 100

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Master Production Schedule – MPS Item: Road Bike Order Policy: 100 units Lead Time: 2 weeks Forecast Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 5550 January February 40 Quantity on Hand:

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Typical Focus of the Master Production Schedule Make to Order (Process Focus) Assemble to Order or Forecast (Repetitive) Stock to Forecast (Product Focus) Schedule finished product Steel, Beer, Bread Light bulbs, Paper Print shop Machine shop Fine dining restaurant Examples: Number of end items Number of inputs Typical focus of the master production schedule Schedule orders Schedule modules Motorcycles, autos, TVs, fast-food restaurant

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Material Requirements Planning (MRP) Material Requirements Planning System Master Production Schedule (MPS) Planned Order & Other Reports Inventory Records - Inventory available - Purchase Orders - Lead Times Bill of Materials Item Master

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Bicycle (1) P/N 1000 Handle Bars (1) P/N 1001 Frame Assembly (1) P/N 1002 Wheels (2) P/N 1003 Frame (1) P/N 1004 Bill Of Material Product Structure Tree

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Time-Phased Product Structure weeks F 2 weeks E A 1 week C G 2 weeks D 1 week E 2 weeks Start production of D D 1 week B 2 weeks to produce Must have D and E completed here so production can begin on B

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Material Requirements Planning (MRP) Material Requirements Planning System Planned Order & Other Reports Inventory Records - Inventory available - Purchase Orders - Lead Times Bill of Materials Item Master Master Production Schedule (MPS)

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Item: B Description: Frame assembly Lot Size: 1000 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 115 Week MRP – Inventory Record

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Material Requirements Planning (MRP) Material Requirements Planning System Master Production Schedule (MPS) Planned Order & Other Reports Inventory Records - Inventory available - Purchase Orders - Lead Times Bill of Materials Item Master

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Structure of the MRP System Master Production Schedule BOM Lead Times (Item Master File) Inventory Data Purchasing data MRP planning programs (computer and software) MRP by Period Report MRP by date report Planned order report Purchase advice Exception report

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Item: B Description: Frame assembly Lot Size: 1000 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 115 Week MRP – Planned Orders

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Item: Frame assembly Lot size: 1000 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week Item: Wheel Lot size: 2500 units Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 400 Week Item: Frame Lot size: L4L Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week Usage quantity: 2 Usage quantity: 1 MRP Explosion

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Gross Material Requirements Plan for 50 Awesome A Speaker Kits

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J The Planning Process Change master production schedule? Execute material plans Execute capacity plans Detail capacity plan Material requirements plan Master production schedule Aggregate production plan Change requirements? Change capacity? Realistic No Yes Change production plan? Is capacity plan being met? Is execution meeting the plan?

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Capacity Requirements Planning (CRP)

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Closed Loop MRP

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J MRP and ERP Integrated Information Flows

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Customer Orders Booked Item: Road Bike Order Policy: 200 units Lead Time: 2 weeks Forecast Customer orders (booked) Projected on-hand inventory MPS quantity MPS start April May Quantity on Hand:

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Forecast vs. Booked Orders Item: Road Bike Order Policy: 200 units Lead Time: 2 weeks Forecast Customer orders (booked) Projected on-hand inventory MPS quantity MPS start April May Quantity on Hand: Use the greater of forecasted orders or booked orders to develop the MPS

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Item: Road Bike Order Policy: 200 units Lead Time: 2 weeks Forecast Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 8080 April May 60 Quantity on Hand: Available-to- promise (ATP) inventory 0 Available to Promise Available to Promise is the quantity of end items that Marketing can promise to deliver on specified dates

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Item: Road Bike Order Policy: 200 units Lead Time: 2 weeks Forecast Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 8080 April May 60 Quantity on Hand: Available-to- promise (ATP) inventory 0 Available to Promise for each MPS quantity: ATP = Planned production – Booked orders for the first (current) week: ATP = (Current on hand inventory + MPS quantity) – Booked orders up to next MPS quantity

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Item: Road Bike Order Policy: 200 units Lead Time: 2 weeks Forecast Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 8080 April May 60 Quantity on Hand: Available-to- promise (ATP) inventory 0 Available to Promise for each MPS quantity: ATP = Planned production – Booked orders for the first (current) week: ATP = (Current on hand inventory + MPS quantity) – Booked orders up to next MPS quantity

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Available to Promise Available-to- promise (ATP) inventory Customer A wants 50 bikes in week 3 – can we commit? Available-to- promise (ATP) inventory YES Customer B wants 200 bikes in week 6 – can we commit? = 197 < 200 Available-to- promise (ATP) inventory NO 30

© 2004 by Prentice Hall, Inc. Upper Saddle River, N.J Available to Promise - continued Available-to- promise (ATP) inventory Customer C wants 175 bikes in week 4 – can we commit? Note: To commit 175 in week 4, take 162 from week 4 and 13 from week 2 (working from right to left). Do not work from left to right ( ) 30 Available-to- promise (ATP) inventory YES 0 17