1. MRP and ERP

2. MRP
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 is applied to answer 3 questions: What is needed? How much is needed? When is it needed? *****

3. 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.

4. Dependant Demand
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.

5. Dependent vs Independent Demand
Time
Demand
Stable demand
“Lumpy” demand
Amount on hand
Safety stock

6. Overview of MRP MRP Inputs MRP Processing MRP Outputs Master schedule
Bill of
materials
Inventory
records
MRP computer
programs
Changes
Order releases
Planned-order
schedules
Exception reports
Planning reports
Performance-
control
reports
transaction
Primary
Secondary

7. MPR Inputs
Master Production Schedule (+Time-phased plan specifying timing and quantity of production for each end item).
BOM
Inventory records

8. 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.

9. Planning Horizon 1 2 3 4 5 6 7 8 9 10 Fabrication Assembly
Procurement
Fabrication
Subassembly
Assembly
Time Period (weeks)

10. 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.
Low-level coding: Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level the component occurs

11. Assembly diagram & Production tree

12. Product Structure Tree
Level 3
Level 2
Level 1
Level 0 X
B(2)
D(3)
E(4) E C
E(2)
F(2)
Use this tree diagram to:
Determine the quantities of B, C, D, E, and F needed to assemble one X
Determine the quantities of those components required to assemble 10 Xs, if there are on hand inventory of various components:
Component On Hand
B 4 C 10 D 8 E 60

13. Low-Level Coding Low-level coding
Restructuring the bill of material so that multiple occurrences of a component all coincide with the lowest level at which the component occurs
Level 3
Level 2
Level 1
Level 0 X
B(2)
D(3)
E(4) E C
E(2)
F(2)

14. 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 …

15. Assembly Time Chart 1 2 3 4 5 6 7 8 9 10 11 Week Number Procurement of
raw material D
raw material F
part C
part H
raw material I
Fabrication
of part G
of part E
Subassembly A
Subassembly B
Final assembly
and inspection
= Order point
Available for
Delivery
Week Number

16. MRP Processing Gross requirements Schedule receipts Projected on hand
Net requirements
Planned-order receipts
Planned-order releases

17. MPR Processing Gross requirements Scheduled receipts Planned on hand
Total expected demand
Scheduled receipts
Open orders scheduled to arrive
Planned on hand
Expected inventory on hand at the beginning of each time period

18. MPR Processing Net requirements Planned-order receipts
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

19. MRP Record Gross requirements Scheduled receipts Projected Available
Week Number 1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release
Gross requirements
Total expected demand
Scheduled receipts
Open orders scheduled to arrive
Projected Available
Expected inventory on hand at the beginning of each time period

20. MRP Record Net requirements Planned-order receipts
Week Number 1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release
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

21. Exp1
A firm that produces wood shutters and bookcases has received two orders: one for 100 shutters and one for 150 shutters. The 100-unit order is due for delivery at the start of week 4 and the 150-unit order is due for delivery at the start of week 8. Each shutter consists of two frames and four slatted wood sections. The wood sections are made by the firm, and fabrication take one week. There is a scheduled receipt of 70 wood sections in (i.e., at the beginning of) week 1. Determine the size and timing of planned-order releases necessary to meet delivery requirements under each of these conditions:
Lot-for-lot ordering (i.e., planned-order release equal to net requirements)
Lot-size ordering with a lot size of 320 units for frames and 70 units for wood sections.

22. Exp 1 (LOT-FOR-LOT ORDERING)
MPS schedule (Shutters)
Week Number
Beg Inv. 1 2 3 4 5 6 7 8
Quantity
MRP schedule ()
Week Number
Beg Inv. 1 2 3 4 5 6 7 8
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release

23. Exp 1 (LOT-FOR-LOT ORDERING)
MRP (Shutters)
Week Number
Beg Inv. 1 2 3 4 5 6 7 8
Planned-order release
100
MRP schedule (Frames)
Week Number
Beg Inv. 1 2 3 4 5 6 7 8
Gross Requirements
200
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release

24. Exp 1 (LOT-FOR-LOT ORDERING)
MRP (Shutters)
Week Number
Beg Inv. 1 2 3 4 5 6 7 8
Planned-order release
100
MRP schedule (sections)
Week Number
Beg Inv. 1 2 3 4 5 6 7 8
Gross Requirements
400
Scheduled Receipts 70
Projected on hand
Net requirements
330
Planned-order-receipt
Planned-order release

25. MRP Outputs: Primary Primary Outputs Planned orders Order releases
A schedule indicating the amount and timing of future orders
Order releases
Authorizing the execution of planned orders
Changes
Revisions of the dates or quantities, or the cancellation of orders

26. MRP Outputs: Secondary
Secondary Outputs
Performance-control reports
Evaluation of system operation, including deviations from plans and cost information
e.g., missed deliveries and stockouts
Planning reports
Data useful for assessing future material requirements
e.g., purchase commitments
Exception reports
Data on any major discrepancies encountered
E.g., late and overdue orders, excessive scrap rates, requirements for nonexistent parts

27. Updating the System An MRP is not a static document As time passes
Some orders get completed
Other orders are nearing completion
New orders will have been entered
Existing orders will have been altered
Quantity changes
Delays
Missed deliveries

28. Updating the System Regenerative system Net-change system
Updates MRP records periodically
Net-change system
Updates MPR records continuously

29. MRP Benefits Enables managers to easily Additional benefits
determine the quantities of each component for a given order size
To know when to release orders for each component
To be alerted when items need attention
Additional benefits
Low levels of in-process inventories
The ability to track material requirements
The ability to evaluate capacity requirements
A means of allocating production time
The ability to easily determine inventory usage via backflushing

30. MRP Requirements To implement an effective MRP system requires:
A computer and the necessary software to handle computations and maintain records
Accurate and up-to-date
Master schedules
Bills of materials
Inventory records
Integrity of data files

31. MRP Considerations Safety Stock
Theoretically, MRP systems should not require safety stock
Variability may necessitate the strategic use of safety time/stock
A bottleneck process or one with varying scrap rates may cause shortages in downstream operations
Shortages may occur if orders are late or fabrication or assembly times are longer than expected
When lead times are variable, the concept of safety time is often used
Safety time
Scheduling orders for arrival or completions sufficiently ahead of their need that the probability of shortage is eliminated or significantly reduced
When quantities are variable, the concept of safety stock is used

32. MRP Lot Sizing Rules Lot-for-Lot ordering
The order or run size is set equal to the demand for that period
Minimizes investment in inventory
It results in variable order quantities
A new setup is required for each run

33. MRP Lot Sizing Rules Economic Order Quantity (EOQ)
Can lead to minimum costs if usage of item is fairly uniform
This may be the case for some lower-level items that are common to different ‘parents’
Less appropriate for ‘lumpy demand’ items because inventory remnants often result

34. MRP Lot Sizing Rules Fixed Period Ordering
Provides coverage for some predetermined number of periods

35. MRP II Expanded MRP with emphasis placed on integration
Financial planning
Marketing
Engineering
Purchasing
Manufacturing

36. MRP II
Note: RCCP is approximate balancing of capacity and demand to test the feasibility of a master schedule

37. Closed Loop MRP
When MRP II systems began to include feedback loops, they were referred to as closed loop MRP
Closed Loop MRP
Systems evaluate a proposed material plan relative to available capacity
If a proposed plan is not feasible, it must be revised
This evaluation is referred to as capacity requirements planning

38. Capacity Requirements Planning
Capacity requirements planning (CRP)
The process of determining short-range capacity requirements.
Inputs to capacity requirement planning
Planned-order releases for the MPR
Current shop loading
Routing information
Job time
Key outputs
Load reports for each work center

39. 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.

40. resource requirements
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
Revise tentative
Change
Yes No
Note: Using MRP to assist in planning capacity requirement

41. Load Reports Load reports
Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.

42. Enterprise Resource Planning
Enterprise resource planning (ERP)
ERP was the next step in an evolution that began with MRP and evolved into MRPII
ERP, like MRP II, typically has an MRP core
Represents an expanded effort to integration financial, manufacturing, and human resources on a single computer system
ERP systems are composed of a collection of integrated modules

43. Overview of ERP Software Modules

44. ERP Considerations
How can ERP improve a company’s business performance?
How long will an ERP implementation project take?
How will ERP affect current business processes?
What is the ERP total cost of ownership?
What are the hidden costs of ERP ownership?