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

13-2MRP and ERP CHAPTER 13 MRP and ERP McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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. Dependant 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 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

13-8MRP and ERP  Master Production Schedule  Time-phased plan specifying timing and quantity of production for each end item.  Material Requirement Planning Process Product Structure Tree Lead Times MPR Inputs

13-9MRP and ERP 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.

13-10MRP and ERP Planning Horizon Procurement Fabrication Subassembly Assembly Figure 13.4

13-11MRP and ERP Production Process/Steps PT2 Federal Signal

13-12MRP and ERP 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.

13-13MRP and ERP Bill of Materials PT3 Federal Signal

13-14MRP 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

13-15MRP and ERP Bill of Materials – Part 1 A listing of all raw materials, parts, subassemblies, and assemblies needed to produce one unit Product structure Tree X F(2)E(2)ED(3) CB(2) Level

13-16MRP and ERP How many more of each component is needed to make 15 Xs if there are 5 of each already in stock? X F(2)E(2)ED(3) CB(2) Bill of Materials – Part 2

13-17MRP 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 …

13-18MRP 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

13-19MRP and ERP MRP Processing  Gross requirements  Schedule receipts  Projected on hand  Net requirements  Planned-order receipts  Planned-order releases

13-20MRP and ERP 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

13-21MRP and ERP 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

13-22MRP and ERP Updating the System  Regenerative system  Updates MRP records periodically  Net-change system  Updates MPR records continuously

13-23MRP 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.

13-24MRP and ERP MRP Secondary Reports  Performance-control reports  Planning reports  Exception reports

13-25MRP and ERP Other Considerations  Safety Stock  Lot sizing  Lot-for-lot ordering  Economic order quantity  Fixed-period ordering

13-26MRP and ERP  Food catering service  End item => catered food  Dependent demand => ingredients for each recipe, i.e. bill of materials  Hotel renovation  Activities and materials “exploded” into component parts for cost estimation and scheduling MRP in Services

13-27MRP and ERP Benefits of MRP  Low levels of in-process inventories  Ability to track material requirements  Ability to evaluate capacity requirements  Means of allocating production time

13-28MRP and ERP Requirements of MRP  Computer and necessary software  Accurate and up-to-date  Master schedules  Bills of materials  Inventory records  Integrity of data

13-29MRP and ERP  Expanded MRP with emphasis placed on integration  Financial planning  Marketing  Engineering  Purchasing  Manufacturing MRP II

13-30MRP 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

13-31MRP 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.

13-32MRP 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

13-33MRP and ERP  Enterprise resource planning (ERP):  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. ERP

13-34MRP and ERP ERP Strategy Considerations  High initial cost  High cost to maintain  Future upgrades  Training

13-35MRP and ERP ERP Benefits ERP2 Summary