1. MRP, MRP II, and ERP

2. MRP, Material Requirements Planning
Overview
MRP, Material Requirements Planning
Planning and scheduling technique used for batch production of assembled items.
MRP II, Manufacturing Resource Planning
ERP, Enterprise Resource Planning
The extensive use of software to integrate record keeping and information sharing throughout an organization.

3. Independent vs. Dependent Demand
Independent demand: Demand of finished goods.
Dependent demand: Demand for items that are subassemblies or component parts to be used in the production of finished goods.
The amount of dependent demand is the function of the amount of independent demand.
Independent demand refers to the demand of finished goods. Dependent demand refers to the demand for items that are subassemblies or component parts to be used in the production of finished goods. The amount of dependent demand is the function of the amount of independent demand.
For example, the parts and materials that go into the production of an automobile are examples of dependent demand, because the total amount of parts and raw materials needed during any time period is a function of the number of cars that will be produced. Conversely, demand for the finished cars is independent. A car is not a component of another item.
Independent demand is fairly stable once allowances are made for seasonal variations, but independent demand tends to be sporadic or "lumpy"; large quantities are used at specific points in time with little or no usage at other times.
Some independent-demand items must be carried on a continual basis; some dependent-demand items need only to be stocked just priori to the time they will be needed in the production process. The predictability of some dependent-demand items means that there is little or no need for safety stock.
For example, a firm that produces lawn and garden equipment might make a variety of items, such as trimmers, lawn mowers, and small tractors. Suppose that the various products are produced periodically --- in one month, push mowers; in the next month, mulching mowers; and in the third month, tractors. Some components may be used in most of the items (e.g., nuts and bolts, screws). It makes sense to have a continual inventory of these parts because they are always needed. On the other hand, some parts may be used for only one item. Consequently, demand for those parts occurs only when that item is being produced, which might be once every eight or nine weeks; the rest of the time, demand is zero. Thus, demand is "lumpy."

4. Material Requirement Planning (MRP)
Material requirements planning (MRP): Computer-based information system for ordering and scheduling of dependent demand inventories.
What to order
When to order
How much to order
Material requirement planning (MRP) is a computer-based information system designed to handle ordering and scheduling of dependent-demand inventories (e.g., raw materials, component parts, and subassemblies).
A production plan for a specified number of finished products is translated into requirements for component parts and raw materials working backward from the due date, using lead times and other information to determine when and how much to order. Hence, requirements for end items generate requirements for low-level components, which are broken down by planning periods (e.g., weeks) so that ordering, fabrication, and assembly can be scheduled for timely completion of end items while inventory levels are kept reasonably low.
Material requirement planning is as much a philosophy as it is a technique, and as much an approach to scheduling as it is to inventory control. Historically, ordering and scheduling of assembled products suffered from two difficulties. One was the enormous task of setting up schedules, keeping track of large numbers of parts and components, and coping with schedule and order changes. The other was a lack of differentiation between independent demand and dependent demand. A great deal of the credit for publicizing MRP and creating potential users about MRP goes to Joseph Orlicky, George Plossl, Oliver Wight, and APICS. APICS offers certification information and exams.
MRP begins with a schedule for finished goods that is converted into a schedule of requirements for the subassemblies, component parts, and raw materials needed to produce the finished items in the specified time frame. Thus, MRP is designed to answer three questions: what is needed? how much is needed? and when is needed?

5. Bill of materials Inventory records
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
The primary inputs of MRP are a bill of materials, which tells the composition of a finished product; a master schedule, which tells how much finished product is desired and when; and an inventory record file, which tells how much inventory is on hand or on order. The planner processes this information to determine the net requirements for each period of the planning horizon.
Outputs from the process include planned-order schedules, order releases, changes, performance-control reports, planning reports, and exception reports.

6. MPR Inputs: Master Schedule
Master Production Schedule
which end items are to be produced,
when they are needed, and
in what quantities.
Sources of quantities: customer orders, forecasts, orders from warehouses, and external demand.
The master schedule, also referred to as the master production schedule, states which end items are to be produced, when they are needed, and in what quantities.
The quantities in a master schedule come from a number of different sources, including customer orders, forecasts, orders from warehouses to build up seasonal inventories, and external demand.

7. MPR Inputs: Master Schedule
Figure 14-4 1 2 3 4 5 6 7 8 9 10
Procurement
Fabrication
Subassembly
Assembly
The master schedule separates the planning horizon into a series of time periods or time buckets, which are often expressed in weeks. However, the time buckets need not to be of equal length. In particular, it is important that the master schedule cover the stacked or cumulative lead time necessary to produce the end items. This amounts to the sum of the lead times that sequential phases of the production or assembly process require, as illustrated in the figure below, where a total of nine weeks of lead time is needed from ordering parts and raw materials until final assembly is completed.

8. MRP Inputs: Bill-of-Materials
Bill of materials: 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.
A bill of material (BOM) contains a listing of all of the assemblies, subassemblies, parts, and raw materials that are needed to produce one unit of a finished product. The nature of a bill of material is clear when you consider a product structure tree, which provides a visual depiction of the subassemblies and components needed to assemble a product.

9. MRP Inputs: Bill-of-Materials

10. MRP Inputs: Bill-of-Materials, Example
Example: Use the information presented in the following figure to do the following:
Determine the quantities of B, C, D, E, and F needed to assemble one X.
Determine the quantities of these components that will be required to assemble 10 Xs, taking into account the quantities on hand (i.e., in inventory) of various components.
Component
On Hand B 4 C 10 D 8 E 60

11. MRP Inputs: Bill-of-Materials, Example

12. MRP Inputs: Bill-of-Materials, Example

13. MRP Inputs: Bill-of-Materials, Example

14. MRP Inputs: Bill-of-Materials, Summary
Many products have considerably more components.
Timing is essential (i.e., when must the components be ordered or made).
The amounts on hand must be netted out (i.e., subtracted from the apparent requirements) to determine the true requirements.
Accurate records are a prerequisite.
complex and time-consuming
Determining total requirements is usually more complicated than the example suggests. For one thing, many products have considerably more components. For another, the issue of timing is essential (i.e., when must the components be ordered or made) and must be included in analysis. Finally, for a variety of reasons, some of the components / subassemblies may be on hand. Consequently, in determining total requirements, the amounts on hand must be netted out (i.e., subtracted from the apparent requirements) to determine the true requirements.
Accurate records are a prerequisite for effective MRP, since errors at one level becomes magnified by the multiplication process used to determine quantity requirements. The task of maintaining these records are also complex and time-consuming. Many companies find themselves with incorrect bill-of-material records, which make it impossible to effectively determine material requirements.

15. MRP Inputs: Inventory Records
Inventory records refer to standard information on the status of each item by time period.
Gross requirements, scheduled receipts, and expected amount on hand.
Supplier, lead time, and lot size.
Changes due to stock receipts and withdrawals, canceled orders, and similar events.
Like the bill of materials, inventory records must be accurate.
Inventory records refer to standard information on the status of each item by time period. This includes gross requirements, scheduled receipts, and expected amount on hand. It also includes other details for each item, such as supplier, lead time, and lot size. Changes due to stock receipts and withdrawals, canceled orders, and similar events also are recorded in this file.
Like the bill of materials, inventory records must be accurate. Erroneous information on requirements or lead times can have a determined impact on MRP and create turmoil when incorrect quantities are on hand or expected delivery times are not met.

16. MRP Processing
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.
The determination of the net requirements (netting) is the core of MRP processing.
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.
The determination of the net requirements (netting) is the core of MRP processing. One accomplishes it by subtracting from gross requirements the sum of inventory on hand and any scheduled receipts, and then adding in safety stock requirements, if applicable. Net requirements are sometimes adjusted to include an allowance for waste.

17. MRP Processing Figure 15-8 1 2 3 4 5 6 7 8 9 10 11 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
For example, raw materials D, F, and I must be ordered at the start of week 2, part C at the start of week 4, and part H at the start of week 5 in order to be available for delivery as planned.

18. MRP Processing: Terminologies
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
Gross requirements: The total expected demand for an end item or raw material during each time period without regard to the amount on hand. For end items, these quantities are shown in the master schedule; for components, these quantities are derived from the planned-order releases of their immediate "parents."
Scheduled receipts: Open orders scheduled to arrive from vendors or elsewhere in the pipeline by the beginning of a period.
Projected on hand: The expected amount of inventory that will be on hand at the beginning of each time period, i.e., scheduled receipts plus available inventory from last period.
Net requirements: The actual amount needed in each time period.
Planned-order receipts: The quantity expected to be received by the beginning of the period in which it is shown. Under lot-for-lot ordering, this quantity will equal net requirements. Under lot-sizing ordering, this quantity may exceed net requirements. Any excess is added to available inventory in the next time period for simplicity, although in reality, it would be available in that period.
Planned-order releases: Indicates a planned amount to order in each time period; equals planned-order receipts offset by lead time. This amount generates gross requirements at the next level in the assembly or production chain. When an order is executed, it is removed from "planned-order releases" and enter under "scheduled receipts."

19. MRP Processing: Example
A firm that produces wood shutters and bookcases has received two orders for shutters: one for 100 shutters and one for 150 shutters.
The 100-unit order is due for delivery at the start of week 4 of the current schedule, and the 150-unit order is due for delivery at the start of week 8.
There is a scheduled receipt of 70 wood sections in (i.e., at the beginning of) week 1.
Each shutter consists of two frames and four slatted wood sections. The wood sections are made by the firm, and fabrication takes one week. The frames are ordered, and lead time is two weeks. Assembly of the shutters requires one week.
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., order size equal to net requirements).
Lot-size ordering with a lot size of 320 units for frames and 70 units for wood sections.

20. MRP Processing: Example
Master Schedule
Product Directory Tree

21. MRP Processing: Example, Lot-for-Lot Ordering

22. MRP Processing: Example, Lot-Size Ordering

23. MRP Processing: Pegging
Pegging is the process of identifying the parent items that have generated a given set of material requirements for an item.
Pegging is the process of identifying the parent items that have generated a given set of material requirements for an item. Pegging enables managers to determine which product(s) will be affected if orders are late due to late deliveries, capacity changes, rescheduling, quality problems, and other problems.

24. MRP Processing: Pegging, Example
For example, consider the two product structure trees shown below.
Suppose that there is a beginning inventory of 110 units of D on hand, and all items have lead times of one week.
A cancellation of 50 units of C will require the pegging information in the following figure.

25. MRP Processing: Pegging, Example

26. MRP Processing: Regenerative vs. Net Change
A regenerative system is updated periodically. It is essentially a batch-type system.
Stable system.
Long lead time.
Less processing load.
A net change system is continuously updated. Only the changes are explored through the system, level by level; the entire plan would not be regenerated.
Frequent change.
Up-to-date information for planning and control purposes.
The two basic systems used to update MRP records are regenerative and net change. A regenerative system is updated periodically. It is essentially a batch-type system. A new plan is generated after every update. A net change system is continuously updated. Only the changes are explored through the system, level by level; the entire plan would not be regenerated. The regenerative system is best suited to fairly stable systems; whereas the net-change system is best suited to systems that have frequent changes.
The obvious disadvantage of a regenerative system is the potential amount of lag between the time information becomes available and the time it can be incorporated into the material requirement plan. On the other hand, processing costs are typically less using regenerative systems; changes that occur in a given time period could ultimately cancel each other, thereby avoiding the need to modify and then modify the plan. The disadvantage of the net-change system relates to the computer processing costs involved in continuously updating the system and the constant state of flux in a system caused by many small changes. One way around this is to enter minor changes periodically and major changes immediately. The primary advantage of the net-change system is that management can have up-to-date information for planning and control purposes.

27. Order releases - Authorization for the execution of planned orders.
MRP Primary Outputs
Planned orders - schedule indicating the amount and timing of future orders.
Order releases - Authorization for the execution of planned orders.
Changes to planned orders - revisions of due dates or order quantities, or cancellations of orders.
Planned orders: A schedule indicating the amount and timing of future orders.
Order releases: Authorizing the execution of planned orders.
Changes to planned orders, include revisions of due dates or order quantities and cancellation of orders.

28. MRP Secondary Outputs Performance-control reports Planning reports
missed deliveries and stockouts, and information for accessing cost performance.
Planning reports
purchase commitments and information for future material requirements.
Exception reports
late and overdue orders, excessive scrap rates, reporting errors, and nonexistent parts.
Performance-control reports: Evaluate system operation. They provide deviations from plans, including missed deliveries and stockouts, and by providing information that can be used to access cost performance.
Planning reports: They are useful in forecasting future inventory requirements. They include purchase commitments and other data that can be used to assess future material requirements.
Exception reports: They call attention to major discrepancies such as late and overdue orders, excessive scrap rates, reporting errors, and requirements for nonexistent parts.

29. MRP: Other Considerations
Safety Stock / Safety Time: Maintain smooth operations.
Lot sizing: Minimize the sum of ordering cost (or setup cost) and holding cost.
Lot-for-lot ordering
Economic order quantity
Fixed-period ordering
Part-period model
Safety Stock
Uncertainties from demand and supply (in terms of quantities and timing) require the consideration of safety stock to maintain smooth operations. When lead times are variable, the concept of safety time instead of safety stock is often used. A major advantage of MRP is lost by holding safety stock for all low-level items. Early arrivals or increased stocks increase on-hand inventory and carrying costs, but late arrivals or stockouts can raise havoc, possibly delaying all following operations. Frequently, managers elect to carry safety stock for end items, which are subject to random demand, and for selected lower-level operations when safety time is not feasible.
Lot Sizing
Lot sizing is considered to minimize the sum of ordering cost (or setup cost) and holding cost. For independent-demand items, managers often use economic order sizes and economic production quantities. For dependent-demand items, a much wide variety of plans is used to determine lot sizes. Demand tends to be lumpy for dependent demand, and the planning horizon shorter so that economic lot sizes are usually much more difficult to identify. However, no single plan has a clear advantage over the others. First, combining period demands into a single order, particularly for middle-level or end items, has a cascading effect down through the product tree; that is, in order to achieve this grouping, you must also group items at lower levels in the tree and incorporate their setup and holding costs into the decision. Second, the uneven period demand and the relatively short planning horizon require a continual recalculating and updating of lot sizes. Some of these methods are listed below.
Lot-for-Lot Ordering: The order or run size for each period is set equal to demand for that period. Due to many different order sizes, the method can not achieve the economics of fixed order size and it requires a new setup for each production run unless the setup costs can be significantly reduced.
Economic Order Quantity (EOQ) Model : This method leads to minimum costs if usage is fairly uniform. This is sometimes the case for lower-level items that are common to different parents and for raw materials.
Fixed-Period Ordering: This method provides coverage for some predetermined number of periods. A simple rule is to place an order to cover a two-period interval.
Part-Period Model: The term part period refers to holding a part or parts over a number of periods. For instance, if 10 parts were held for two periods, this would be 10 × 2 = 20 part periods. The economic part period (EPP) can be computed as the ratio of setup costs to the cost to hold a unit for one period. Thus, the formula for computing the EPP is: (not included here) To determine an order size that is consistent with the EPP, various cumulative order sizes are examined for a planning horizon, and each one's number of part periods is determined. The one that comes closet to the EPP is selected as the best lot size.
It is often necessary to run a proposed master schedule through MRP processing to obtain a clear picture of actual requirements, which can then be compared to available capacity and materials.

30. MRP in Services
MRP applications in services may involve material goods that form a part of the product-service package, or they may involve mainly service components.
Examples: Food catering and large-scale renovations such as sports stadium or a major hotel.
MRP applications in services may involve material goods that form a part of the product-service package, or they may involve mainly service components.
An example of a product-service package is a food catering service. To estimate quantities and costs of an order, the food manager would have to determine the quantities of the ingredients for each recipe on the menu (i.e., a bill of material), which would then be combined with the number of each meal to be prepared to obtain a material requirement plan for the event.
Similar examples occur for large-scale renovations, such as a sports stadium or a major hotel, where there are multiple repetitions of activities and related materials that must be "exploded" into their components for purposes of cost estimation and scheduling.

31. MRP in Services Food catering service Hotel renovation
End item => catered food
Dependent demand => ingredients for each recipe, i.e. bill of materials
Hotel renovation
Activities and materials “exploded” into component parts

32. Low levels of in-process inventories
Benefits of MRP
Low levels of in-process inventories
Ability to track material requirements
Ability to evaluate capacity requirements
Means of allocating production time
The benefits of MRP depend in large measure on the use of a computer to maintain up-to-date information on material requirements. The benefits include the following.
Low levels of in-process inventory.
The ability to keep track of material requirements.
The ability to evaluate capacity requirements generated by a given master schedule.
A means of allocating production time.
Typical users are production planners, production managers, plant foremen, customer service representatives, purchasing managers, and inventory managers.

33. Computer and necessary software Accurate and up-to-date
Requirements of MRP
Computer and necessary software
Accurate and up-to-date
Master schedules
Bills of materials
Inventory records
Integrity of data
In order to implement and operate an effective MRP system, it is necessary to have:
A computer and the necessary software to handle computations and maintain records.
Accurate and up-to-date
Master schedules
Bills of materials (BOM)
Inventory records
Integrity of data:
Problems of incorrect BOM include design changes not incorporated into records, same parts being under different part numbers, resistance from foremen and other people. Problems of inaccurate inventory records include missing parts, incorrect ordering, missing schedule, missing delivery dates.

34. Expanded MRP with and emphasis placed on integration
MRP II
Expanded MRP with and emphasis placed on integration
Financial planning
Marketing
Engineering
Purchasing
Manufacturing
Manufacturing resources planning (MRP II, 1980s) is an expanded approach to production resource planning, involving other areas of a firm in the planning process, such as marketing and finance. It does not replace MRP, nor is it an improved version of MRP.
Software is an essential component of MRP II systems. One of the leading products is Caliach MRP, offered by Manufacturing and Computer Systems. According to a survey done by APICS, it has an installed user base of over 70,000 users, with an average price of $20,000.

35. MRP II Market Demand Production plan Problems? Yes No Finance
Rough-cut
capacity planning
Yes No
Finance
Marketing
Manufacturing
Adjust
production plan
Master
production schedule
MRP
Capacity
planning
Requirements
schedules
Adjust master schedule

36. ERP
Enterprise resource planning (ERP): An expanded effort to integrate standardized record-keeping that will permit information sharing throughout the organization
Enterprise resource planning (ERP) represents an integration of financial, manufacturing, and human resources on a single computer system. It permits information sharing among different areas of an organization in order to manage the system more effectively.