1 Operations Management Lesson 6 Material Requirements Planning and Enterprise Resource Planning

2 What you will learn in this unit: Material Resource Planning MRP Objectives and Demand Enterprise Resource Planning Advantages and Disadvantages of ERP systems

3 What is MRP? Material Requirements Planning, is an effective inventory planning tool. Computerized MRP dates to the early 1960’s.Joseph Orlicky wrote the classic work on MRP in MRP is a straightforward computer programme that makes mathematical calculations. The programme uses existing inventory data, determines total requirements for each item, compares it to what is already on hand and calculates what needs to be ordered. The objective of the MRP is to provide the right part, at the right time.

4 MRP Objectives There are two objectives for MRP namely;- To determine the quantity of material and when it is required at the assembly plant To determine the priority of the material in view of the manufacturing activities and processes

5 Input/Output - MRP Process

6 Customer orders Master production schedule Forecast demand Bills of MaterialsInventory Records Material plansWorks ordersPurchase orders Materials Requirements Planning Materials requirement planning (MRP I)

7 An Overview of MRP MRP uses the concept of backward scheduling to determine how much and when to order and replenish The CPR module checks to make sure the scheduled work load profile is feasible The MPS module contains the authorized schedule The BOM module contains the product structure for each unique product The Inventory Record module keeps track of the inventory status for each item in the database MRP output includes schedules for all internal activities and parts as well as orders for all supply chain items

8 Types of Demand There are two types of demand. Independent Demand Is the demand for finished products Does not depend on the demand of other products Needs to be forecasted Dependent Demand Is the demand derived from finished products Is the demand for component parts based on the number of end items being produced and is managed by the MRP system

9 Objectives of MRP Determines the quantity and timing of material requirements Determines what to order (checks BOM), how much to order (lot size rules), when to place the order (need date minus lead time), and when to schedule delivery (on date needed) Maintain priorities In a changing environment, MRP reorganizes priorities to keep plans current and viable

10 Enterprise Resource Planning What Is ERP? Software designed for organizing and managing business processes Modules share information across all business functions Can share customer sales data with the supply chain to help with global replenishment All modules are fully integrated and use a common database – some PC based

11 Quality Management and Maintenance What you will learn in this unit: Quality and its Impact Total Quality Management Quality Management Tools Maintenance Total Productive Maintenance

12 What is TQM? Meeting quality expectations as defined by the customer Integrated organizational effort designed to improve quality of processes at every business level

13 Defining Quality – 5 Ways Conformance to specifications Does product/service meet targets and tolerances defined by designers? Fitness for use Evaluates performance for intended use Value for price paid Evaluation of usefulness vs. price paid Support services Quality of support after sale Psychological e.g. Ambiance, prestige, friendly staff

14 Manufacturing Quality vs. Service Quality Manufacturing quality focuses on tangible product features Conformance, performance, reliability, features Service organizations produce intangible products that must be experienced Quality often defined by perceptional factors like courtesy, friendliness, promptness, waiting time, consistency

15 Evolution of TQM – New Focus

16 TQM Philosophy – What’s Different? Focus on Customer Identify and meet customer needs Stay tuned to changing needs, e.g. fashion styles Continuous Improvement Continuous learning and problem solving, e.g. Kaizen, 6 sigma Quality at the Source Inspection vs. prevention & problem solving Employee Empowerment Empower all employees; external and internal customers

17 TQM Philosophy– What’s Different? ( continued ) Understanding Quality Tools Ongoing training on analysis, assessment, and correction, & implementation tools Team Approach Teams formed around processes – 8 to 10 people Meet weekly to analyze and solve problems Benchmarking Studying practices at “best in class” companies Managing Supplier Quality Certifying suppliers vs. receiving inspection

18 TQM Philosophy– What’s Different? ( continued ) Understanding Quality Tools Ongoing training on analysis, assessment, and correction, & implementation tools Team Approach Teams formed around processes – 8 to 10 people Meet weekly to analyze and solve problems Benchmarking Studying practices at “best in class” companies Managing Supplier Quality Certifying suppliers vs. receiving inspection

19 Four Dimensions of Quality Quality of design Determining which features to include in the final design Quality of conformance to design Production processes are set up to meet design specifications Ease of use Instructions, operation, maintenance, safety Post-sale service Responsiveness, rapid repair, p.m., spare parts

20 Cost of Quality – 4 Categories Early detection/prevention is less costly May be less by a factor of 10

21 ISO Standards ISO 9000 Standards: Certification developed by International Organization for Standardization Set of internationally recognized quality standards Companies are periodically audited & certified ISO 9000:2000 QMS – Fundamentals and Standards ISO 9001:2000 QMS – Requirements ISO 9004:2000 QMS - Guidelines for Performance More than 40,000 companies have been certified ISO 14000: Focuses on a company’s environmental responsibility