1. BUAD306
MRP/ERP

2. MRP

3. Disaggregating & Why It’s Important
Enables managers to take aggregate plan and break it down into actual units being produced
Especially important in companies with multiple product lines
Show quantities and timing of items to be produced (specific products)
Enables rough cut capacity planning to test feasibility
Feeds the MRP process

4. Materials Requirement Planning (MRP)
A computerized inventory control and production planning system for dependent demand inventories (individual parts that make up a final product).
Objective: To ensure that material is available when needed and to maintain the lowest possible level of inventory.

5. Dependent Demand Items are used internally to produce a final product
Example: Production of cookies

6. MRP Impacts Inventory levels Purchasing materials
Manufacturing activities
Delivery schedules

7. MRP Questions MRP is designed to answer these three questions:
What is needed?
How much is needed?
When is it needed?

8. MRP Inputs MRP Outputs Master Production Schedule Material
Requirements
Planning
Bill of
Materials
Inventory
Master
File
Planned Order Releases
MRP Outputs
Work Orders
Purchase Orders
Rescheduling Notices

9. MRP Uses Dependent and discrete items (where demand varies)
Complex products
Job shop production (where each job takes a different path through the system)
Assemble-to-order environments (previously completed subassemblies are configured to order)

10. Master Production Schedule
Drives MRP process with a schedule of finished products
Quantities represent production not demand
Quantities may consist of a combination of customer orders & demand forecasts
Quantities represent what needs to be produced, not what can be produced

11. Terms of Production
Time Periods/Buckets – how long it takes to execute portions of the master schedule tasks
Cumulative lead time - the total length of time needed to manufacture a product
Time fence - a date beyond which no changes in the master schedule are allowed

12. Bill of Materials (BOM)
The list of items that go into the product
Includes a brief description of each item
Specifies when and in what quantity each item is needed in the assembly process
Created with Product Structure Tree

13. Product Structure Tree
Visual depiction of the BOM requirements– where all components are listed by level

14. Product Structure Tree
Shelves
Legs
Wheel Assemblies
Stickers
Electrical Assembly
Mat
AV Cart

15. Electrical Assembly(1)
Continued - Product Structure Tree
Cart
Shelves (3)
Mat (1)
Legs(4)
Stickers(2)
Wheel Assembly(4)
Electrical Assembly(1)
Tires(1)
Surge Protector(1)
Axels(1)
Power Cord (1)
Brakes (1)

16. Example A - Product Structure Tree for Product X
Level X 1
B(4) C 2
D(3)
E(2)
E(2)
F(2)
What total quantity of each component (B, C, D, E and F) is needed to produce one X? 3
E(4)

17. Inventory Master File
A database of information on every item produced, ordered, or inventoried
Cycle Counting – Taking physical counts of at least some inventory items reconciling differences as they occur

18. What if you needed 10 X’s and we had the following inventory:
Example B - Product Structure Tree for Product X
Level X 1
B(4) C 2
D(3)
E(2)
E(2)
F(2)
What if you needed 10 X’s and we had the following inventory:
B – 4
C – 10
D – 8
E – 60
F - 10 3
E(4)

19. End item B (2) C D (3) E (2) F (3) G (2) H (4)
EXAMPLE C: The table below lists the components needed to assemble an end item, lead times, and quantities on hand.
If 30 units of the end item are to be assembled, how many additional units of E are needed?
End item
B (2) C
D (3)
E (2)
F (3)
G (2)
H (4)

20. End item B (2) C D (3) E (2) F (3) G (2) H (4)
EXAMPLE D – CUMULATIVE LEAD TIME:
An order for the end item is scheduled to be shipped at the start of week 11. What is the latest week that the order can be started and still be ready to ship on time? (You do not have to develop an MRP)
End item
B (2) C
D (3)
E (2)
F (3)
G (2)
H (4)

21. Time-Phased Plan
Lot-for-lot: the order or run size for each period is set equal to the demand for that period.

22. MRP Processing
Takes the end item requirements specified by the master schedule and “explodes” them into time-phased requirements for assemblies, parts, and raw materials using the bill of materials offset by lead times.

23. MRP Processing Terms
Gross Requirements: Total expected demand for an item or raw material in a time period.
Scheduled Receipts: Open orders scheduled to arrive from vendors or elsewhere in the pipeline.
Projected on hand: Expected amount of inventory that will be on hand at the beginning of each time period

24. MRP Processing Terms
Net Gross Projected
Requirements = Requirements - inventory Safety
in period t in period t in period t stock
Net requirements: The actual amount needed in each time period
Planned-order releases: Planned amount to order in each time period; planned-order receipts offset by lead time

25. MRP EXAMPLE 1 – MRP SCHEDULE
A product structure tree for end item X is below. A manager wants to know the materials requirements for ordered part R that will be needed to complete 120 units of X by the start of week 5. Lead times for items are one week for level 0 and level 1 items and 2 weeks for level 2 items. There is a scheduled receipt of 60 units of M at the END of week 1 and 100 units of R at the START of week 1. Lot for lot ordering is used. X
Level 0
M (3)
I (2)
Level 1
R (2)
Level 2 P
N (4) V

26. MRP EXAMPLE 1a – MRP SCHEDULE
A product structure tree for end item X is below. A manager wants to know the materials requirements for ordered part R that will be needed to complete 120 units of X for the start of week 6 and 150 for the start of week 8. Lead times for items are one week for level 0 and level 1 items and 2 weeks for level 2 items. There is a scheduled receipt of 60 units of M at the END of week 1 and 100 units of R at the START of week 1. Lot for lot ordering is used. X
Level 0
M (3)
I (2)
Level 1
R (2)
Level 2 P
R (4) V

27. MRP EXAMPLE 1b – MRP SCHEDULE
A product structure tree for end item X is below. A manager wants to know the materials requirements for ordered part R that will be needed to complete 150 units of X for the start of week 6 and 200 for the start of week 8. Lead times for items are one week for X and M and 2 weeks for all other items. There is a scheduled receipt of 60 units of M at the END of week 1 and 100 units of R at the START of week 1. Lot for lot ordering is used. X
Level 0
M (3)
I (2)
Level 1
R (2)
Level 2 P
R (4) V

28. MRP EXAMPLE 1c – MRP SCHEDULE
Demand for X: 100 in SOW 7 All LTs = 1 week
100 in SOW8
60 Ms to arrive in EOW1
100 Rs to arrive SOW1
I has a minimum order requirement of 500 units
M must be ordered in BATCHES of 300 X
Level 0
M (3)
I (2)
R (2)
Level 1
R (2)
Level 2 P
R (4) V

29. MRP HW # 5
End item P is composed of three subassemblies: K, L and W. K is assembled using 3Gs and 4 Hs. L is made of 2 Ms and 2 Ns. W is made of 3 Zs. On hand inventories are 20 Ls, 40 Gs, and 200 Hs. Scheduled receipts are 10 Ks at the start of week 3, 30 Ks at the start of week 6, and 200 Ws at the start of week 3.
One hundred Ps will be shipped at the start of week 6 and another 100 at the start of week 7. Lead times are two weeks for subassemblies and one week for components G, H and M. Final assembly of P requires one week.
Include an extra 10% scrap allowance in each planned order of G. Minimum order size for H is 200.

30. ERP

31. Business Systems - Past
Minimal data sharing
Data duplication / inconsistency
Applications were not integrated
Isolated decisions lead to overall inefficiencies
Increased expenses

32. ERP
Set of integrated business applications that enable core business functions: general ledger, accounting, purchasing, HR, sales, etc.
Centralizes functions and practices into real-time, shared, common system across the company
Adopts “best practice” mentality across company

33. ERP Value (to Company) Improves efficiency
Increases cost effectiveness
Increases availability of information
Facilitates strategic planning
Standardizes business practices
Ensures “common” data platform
Real-time data

34. ERP Value (to Stakeholders)
Improves productivity
Improves customer satisfaction
Provides current information
Enhances competitive position
Enhances supplier relationships
Potential for increased sales

35. ERP Phases Screening Evaluation Planning Gap Analysis Reengineering
Development
Testing
Training P
Implementation
Post Implementation

36. Issues for Implementation
Time consuming
Cost
Lack of consistent “terms”
Lack of internal expertise for implementation and ongoing
Inconsistency with business practices
Impact to existing procedures and structure
Resistance to change

37. Ensuring ERP Success Top management leadership Long term commitment
Proper system selection
Project Management expertise
Change Management expertise
Training
IT excellence

38. Top ERP Vendors