1. 12 – MRP and ERP
Dr. Ron Lembke

2. Historical Perspective
ERP- Enterprise Resource Planning
MRP II – Manufacturing
Resource Planning
mrp – material
requirements
planning

3. MRP Crusade (1975) Material Requirements Planning
Make sure you have enough parts when you need them
Take future demands, factor in lead times (time phase), compare to on hand, order
Determine order size and timing
Control and plan purchasing vs. OSWO inventory management

4. Closed-Loop MRP Capacity Consideration: Part routings
Calculate loads on each work station
See if scheduled load exceeds capacity
Lead-time long enough to allow some shuffling to make plan feasible

5. MRP II -- Manufacturing Resource Planning
“A method for the effective planning of all resources of a manufacturing company” (APICS def.)
Financial accounting incorporated
Sales
Operations Planning
Simulate capacity requirements of different possible Master Production Schedules
1989, $1.2B MRPII sales in U.S., one third of total software sales

6. Success?
MRP Crusade
Begins

7. Electronic Data Interchange
My computer talks to yours, tells you exactly what I want to order, when
You fill out a form, very compressed message sent, viewed as form
Software, hardware expensive to implement
Sample Purchase Transaction
ST88850*1 Transaction Set identifier
BEG*00*NE* ** Beginning of Segment
PID*X*08*MC**Large Widget Description of Product
P01**5*DZ*4.55*TD Baseline Item Data
CTT*1 Transaction Totals
SE*1*1 End of Segment

8. XML eXtensible Markup Language
XML provides self-describing information.
Much easier, faster to implement or modify than EDI.
Expected to replace EDI.
Standardization through RosettaNet efforts

9. ERP differences Material planning Capacity planning Product design
Information warehousing
All functions in the entire company operate off of one common set of data
Instantaneous updating, visibility

10. Historical Perspective
Database
Server(s)
Application
Server(s)
User PCs

11. ERP Sales Y2K: Worldwide sales of top 10 vendors
1995 $2.8 B
1996 $4.2 B
1997 $5.8 B $3.2 B SAP
Fortune survey: 44% reported spending at least 4 times as much on implementation as on software

12. ERP Challenges Modules assume “best practices:” Accuracy of data
Change software to reflect company ($)
Change company to follow software (?)
Accuracy of data
Drives entire system
Ownership of / responsibility for
Ability to follow structure

13. ERP Novel? “Goal-like” novel
Hero learns more about ERP, deciding if it is right for his company
Company rushes through installation
General introduction to ERP systems, what they do, how different from MRP
SAP R/3 screen shots

14. 3 Reasons for ERP Legacy systems outdated and need replacing anyway
Desire for greater communication between locations
Reconfigure business to take advantage of current and future communications and computing breakthroughs

15. Mostly “Best Practices”
Why ERP?
Common Client
Multiple Processes
Multiple Clients
Multiple Processes
High
Low
Flexibility
Common Client
“Best Practices”
Multiple Clients
Mostly “Best Practices”
High Low
Centralization

16. ERP Considerations
1. Control: how much centralization, drill-down visibility?
2. Structure: How large & dispersed, how tightly integrated does it need to be?
3. Database: desired structure, accessibility
4. Customization: out/in source, how willing? Ability to modify in real time. Creating in-house experts vs. continued consulting dependence
5. Best practices: how willing to embrace?
Source: Carol A. Ptak “ERP: Tools, Techniques and Applications for Integrating the Supply Chain,” St. Lucie Press, APICS Series on Resource Management, 1999, p. 252.

17. The Heart of the Matter - mrp
System for organizing WIP releases
Work in Process – work that has been started, but not yet finished
Consider Lead Time (LT)for each item
Look at BOM to see what parts needed
Bill of Materials – what goes into what
Release so they will arrive just as needed
Example – Snow Shovel
Order quantity is 50 units
LT is one week

18. MRP Table
6 units short

19. MRP Table
Order 50 units week earlier

20. Ending Inventory
Ending inventory

21. Terminology Projected Available balance
Not on-hand (that may be greater)
Tells how many will be available
Available to Promise – the units aren’t spoken for yet, we can assign them to a customer
Planned order releases ≠ scheduled receipts
Only when material has been committed to their production
Move to scheduled receipts as late as possible
Preserves flexibility

22. 1605 Snow Shovel 1605 Snow Shovel 13122 062 Nail (4) Top Handle 048
Assy
062 Nail (4)
048
Scoop-shaft
connector
14127
Rivet (4)
314 scoop assembly
118 Shaft (wood)

23. 314 scoop assembly 314 scoop assembly 019 Blade (steel)
14127 Rivet (6)
2142 Scoop (aluminum)

24. 13122 Top Handle Assembly 13122 Top Handle Assembly 11495 Welded
Top handle bracket
Assembly
457 Top handle
(wood)
1118
Top handle
Coupling (steel)
129 Top Handle
Bracket (steel)
082 Nail (2)

25. BOM Explosion
Process of translating net requirements into components part requirements
Take into account existing inventories
Consider also scheduled receipts

26. BOM Explosion Example Need to make 100 shovels
We are responsible for handle assemblies.

27. 13122 Top Handle Assembly 13122 Top Handle Assembly 11495 Welded
Top handle bracket
Assembly
457 Top handle
(wood)
1118
Top handle
Coupling (steel)
129 Top Handle
Bracket (steel)
082 Nail (2)

28. Net Requirements Sch Gross Net Part Description Inv Rec Req Req
Top handle assy
Top handle 22 25
Nail (2 required) 4 50
Bracket Assy 27 --
Top bracket 15 --
Top coupling 39 15

29. Net Requirements Sch Gross Net Part Description Inv Rec Req Req
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket 15 --
Top coupling 39 15

30. 13122 Top Handle Assembly 13122 Top Handle Assembly 11495 Welded
Top handle bracket
Assembly
457 Top handle
(wood)
1118
Top handle
Coupling (steel)
129 Top Handle
Bracket (steel)
082 Nail (2)

31. Net Requirements Sch Gross Net Part Description Inv Rec Req Req
Top handle assy
Top handle
Nail (2 required)
Bracket Assy
Top bracket
Top coupling

32. Timing of Production This tells us how many of each we need
Doesn’t tell when to start
Start as soon as possible?
Dependent events (oh no, not that!)

33. 13122 Top Handle Assy
Order policy: Lot-for-lot

34. 13122 Top Handle Assy-2
Order policy: Lot-for-lot

35. 13122 Top Handle Assy -3
Order policy: Lot-for-lot

36. 457 Top Handle
One handle for
Each assembly

37. 457 Top Handle
Order policy: Lot-for-lot

38. 457 Top Handle
Order policy: Lot-for-lot

39. 082 Nail (2 required)
Two nails for
Each assembly

40. 082 Nail (2 required)

41. 082 Nail (2 required)

42. 082 Nail (2 required)

43. 11495 Bracket Assembly
One bracket for
Each assembly

44. 11495 Bracket Assembly
One bracket for
Each assembly

45. 11495 Bracket Assembly
One bracket for
Each assembly

46. 11495 Bracket Assembly
Order policy: Lot-for-lot

47. 129 Top Bracket

48. 129 Top handle bracket

49. 1118 Top handle coupling

50. 1118 Top handle coupling

51. 1118 Top handle coupling

52. Other considerations
Safety stock if uncertainty in demand or supply quantity
Don’t let available go down to 0
Safety LT if uncertainty in arrival time
Place order earlier than necessary
Order quantities
EOQ – Economic Order Quantity, Fixed Size
If that’s not enough, order what you need, OR order two or more of the Fixed Size
Lot-For-Lot, Periodic Order quantity, others

53. MRP Priorities First: Then:
Get installed, part of ongoing managerial process, get users trained
Understand critical linkages with other areas
Achieve high levels of data integrity
Link MRP with front end, engine, back end
Then:
Determine order quantities more exactly
Buffering concepts
Nervousness

54. Ordering Policies Dependent Demand Complexity Not independent demand
Discrete – not continuous
Lumpy – may have surges
Complexity
Reduces costs – ordering & holding
Anything other than lot-for-lot Increases lumpiness downstream

55. Assumptions All requirements must be available at start of period
All future requirements must be met, and can’t be backordered
System operated on periodic basis (e.g. weekly)
Requirements properly offset for LTs
Parts used uniformly through a period
Use average inventory levels for holding cost

56. Example Demands Try several lot-sizing methods
Economic Order Quantity
Periodic Order Quantity
Part Period Balancing
Wagner Within
Order cost = $300 per order = CP
Inventory Carrying cost = $2 / unit/ week = CH
Avg Demand = 92.1 / wk = D

57. EOQ Minimizes total ordering & holding costs
Assumes demand same every period
Definitely not always true for this use
Avg. demand and holding cost need same time units (e.g. per week)
Economic Lot Size:
Where:
D = avg demand
CP = ordering cost
CH = holding cost

58. EOQ
Sqrt( 2 * 300 * 92.1 / 2) = 166

59. EOQ
Ordering cost = 6 * 300 = $1,800
Inv carry cost = 1,532.5 * 2 = $3,065
Total $4,865

60. Periodic Order Quantities
EOQ
Gave good tradeoff between ordering & holding
resulted in a lot of leftovers.
Only order enough to get through a certain number of periods – no leftovers
How many? EOQ / avg. demand
166 / 92.1 = ~ 2 weeks’ worth

61. Periodic Order Quantities
Ordering cost = 6 * 300 = $1,800
Inv carry cost =1,082.5 * 2 = $2,145
Total $3,945

62. Part Period Balancing (Least Total Cost)
Increase the quantity until holding costs equal the ordering cost
Order 10 – holding = 10/2*2 = 10
Order 20 – holding = *1.5*2 = $40
Order 35 = *2.5*2 = $115
Order 55 = *3.5*2 = $255
Order 125 = *4.5*2 = $85

63. Part Period Balancing Week 5: Order 70: Holding = 10*0.5*2 = $10
So I could:
Order 250 units, pay $300 in ordering and $540 holding, for a total of $840,
Order 70 now, 180 next week, and pay $600 in ordering and $ *0.5*2=180 in holding = $790
Seems like the second option is best.

64. Part Period Balancing
When should we place a separate order? If 1.5*$2*D > 300. D>300/3 = 100
Whenever demand is >= 100, we might as well place a separate order.
What about week 9?
Order 230: holding = 230*0.5*2 = $230
Order 270: = *1.5*2 = $350
Order 280: = *3.5*2 = $420

65. Part Period Balancing

66. Wagner-Within Mathematically optimal
Work back from planning period farthest in the future
Consider all possibilities:
Order for 5, 4 and 5, 3 and 4, then 5, etc.
Uses “dynamic programming” – similar to linear programming

67. Simulation Experiments
What is best under real-world conditions?
Multiple levels to be concerned about
Real-time changes