1. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-1 Operations Management Material Requirements Planning (MRP) & ERP Chapter 14

2. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-2 Different Views of Inventory Demand Type Independent Dependent Process stage Raw Material Work in Process Finished Goods Other Maintenance / Repair Operating Supplies Types of Inventory Cycle Pipeline Safety Stock Anticipation Annual $ Volume A B C

3. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-3 Inventory Classifications A B C Independent Demand Demand for an item is created external to the company Dependent Demand Demand for one item is related to the demand for another item Raw WIP Finished Material Goods

4. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-4 Independent Demand Demand for an item is created external to the company Dependent Demand Demand for one item is related to the demand for another item PARENT COMPONENT Independent vs. Dependent Demand

5. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-5 Item Materials With Independent Demand Materials With Dependent Demand Demand Source Company CustomersParent Items Material Type Finished Goods WIP & Raw Materials Method of Estimating Demand Forecast & Booked Customer Orders Calculated Planning Method EOQ & ROP MRP Independent vs. Dependent Demand

6. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-6 Material Requirements Planning (MRP) Material Requirements Planning System Master Production Schedule (MPS) Planned Order & Other Reports Inventory Records - Inventory available - Purchase Orders - Lead Times Bill of Materials Item Master

7. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-7 The Planning Process Change master production schedule? Execute material plans Execute capacity plans Detail capacity plan Material requirements plan Master production schedule Aggregate production plan Change requirements? Change capacity? Realistic No Yes Change production plan? Is capacity plan being met? Is execution meeting the plan?

8. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-8 Planning / Scheduling Relationships Capacity Planning 1. Facility size 2. Equipment procurement Aggregate Planning 1. Facility utilization 2. Personnel needs 3. Subcontracting Master Schedule 1. MRP 2. Disaggregation of master plan Short-term Scheduling 1. Work center loading 2. Job sequencing Long-term Intermediate-term Short-term Intermediate-term

9. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-9 Aggregate Production Plan MPS 1,2001,500 Aggregate Production Plan shows the total quantity of bicycles 100300 Mountain bike 450 500 Hybrid bike 100 Road bike Master Production Schedule Shows the specific type and quantity of bike to be produced 87654321 Weeks FebruaryJanuaryMonths

10. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-10 Master Production Schedule – MPS Item: Road Bike Order Policy: 100 units Lead Time: 2 weeks Forecast 1 38 40 2 27 45 3 20 45 4 5 5 0 50 6 0 55 7 0 8 0 Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 5550 January February 40 Quantity on Hand: 17 77 100 Projected on-hand = 17 on hand + 100 MPS – 40 forecasted orders = 77

11. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-11 Master Production Schedule – MPS Item: Road Bike Order Policy: 100 units Lead Time: 2 weeks Forecast 1 38 40 2 27 45 3 20 45 4 5 5 0 50 6 0 55 7 0 8 0 Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 5550 January February 40 Quantity on Hand: 17 77 100 3792 Projected on-hand = 37 on hand + 100 MPS – 45 forecasted orders = 92 Requires MPS start in week 1 for MPS quantity in week 3 100

12. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-12 Master Production Schedule – MPS Item: Road Bike Order Policy: 100 units Lead Time: 2 weeks Forecast 1 38 40 2 27 45 3 20 45 4 5 5 0 50 6 0 55 7 0 8 0 Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 5550 January February 40 Quantity on Hand: 17 77 100 379247 97 47 92 37

13. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-13 Typical Focus of the Master Production Schedule Make to Order (Process Focus) Assemble to Order or Forecast (Repetitive) Stock to Forecast (Product Focus) Schedule finished product Steel, Beer, Bread Light bulbs, Paper Print shop Machine shop Fine dining restaurant Examples: Number of end items Number of inputs Typical focus of the master production schedule Schedule orders Schedule modules Motorcycles, autos, TVs, fast-food restaurant

14. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-14 Material Requirements Planning (MRP) Material Requirements Planning System Master Production Schedule (MPS) Planned Order & Other Reports Inventory Records - Inventory available - Purchase Orders - Lead Times Bill of Materials Item Master

15. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-15 Bicycle (1) P/N 1000 Handle Bars (1) P/N 1001 Frame Assembly (1) P/N 1002 Wheels (2) P/N 1003 Frame (1) P/N 1004 Bill Of Material Product Structure Tree

16. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-16 Time-Phased Product Structure 0 1234567 3 weeks F 2 weeks E A 1 week C G 2 weeks D 1 week E 2 weeks Start production of D D 1 week B 2 weeks to produce Must have D and E completed here so production can begin on B

17. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-17 Material Requirements Planning (MRP) Material Requirements Planning System Planned Order & Other Reports Inventory Records - Inventory available - Purchase Orders - Lead Times Bill of Materials Item Master Master Production Schedule (MPS)

18. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-18 Item: B Description: Frame assembly Lot Size: 1000 units Lead Time: 2 weeks Gross requirements 100 1 1000 500 2 0 400 3 0 500 4 0 5 0 150 6 0 450 7 0 8 0 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 115 Week 200100 MRP – Inventory Record

19. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-19 Material Requirements Planning (MRP) Material Requirements Planning System Master Production Schedule (MPS) Planned Order & Other Reports Inventory Records - Inventory available - Purchase Orders - Lead Times Bill of Materials Item Master

20. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-20 Structure of the MRP System Master Production Schedule BOM Lead Times (Item Master File) Inventory Data Purchasing data MRP planning programs (computer and software) MRP by Period Report MRP by date report Planned order report Purchase advice Exception report

21. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-21 Item: B Description: Frame assembly Lot Size: 1000 units Lead Time: 2 weeks Gross requirements 100 1 1000 500 2 0 400 3 0 500 45 0 150 6 0 450 78 0 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 115 Week 200100 MRP – Planned Orders 1015 515 615115 515 1000 915 365 1000 715 00 1000 1000

22. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-22 Item: Frame assembly Lot size: 1000 units Lead time: 2 weeks Gross requirements 100 123 500 45 150 6 450 78 Planned receipts Planned order releases Week 500100400200 1000 Item: Wheel Lot size: 2500 units Lead time: 1 week Gross requirements 0 1 0 23 0 45678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 400 Week 2000 0 000 2500 00 Item: Frame Lot size: L4L Lead time: 1 week Gross requirements 0 1 0 23 0 45678 Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week 1000 0 000 00 Usage quantity: 2 Usage quantity: 1 MRP Explosion

23. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-23 Gross Material Requirements Plan for 50 Awesome A Speaker Kits

24. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-24 The Planning Process Change master production schedule? Execute material plans Execute capacity plans Detail capacity plan Material requirements plan Master production schedule Aggregate production plan Change requirements? Change capacity? Realistic No Yes Change production plan? Is capacity plan being met? Is execution meeting the plan?

25. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-25 Capacity Requirements Planning (CRP)

26. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-26 Closed Loop MRP

27. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-27 MRP and ERP Integrated Information Flows

28. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-28 Customer Orders Booked Item: Road Bike Order Policy: 200 units Lead Time: 2 weeks Forecast 123456 0 7 0 8 0 Customer orders (booked) Projected on-hand inventory MPS quantity MPS start April May Quantity on Hand: 85 6070708080808060 807248 30 8 5133 63 1931133315373 200

29. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-29 Forecast vs. Booked Orders Item: Road Bike Order Policy: 200 units Lead Time: 2 weeks Forecast 123456 0 7 0 8 0 Customer orders (booked) Projected on-hand inventory MPS quantity MPS start April May Quantity on Hand: 85 6070708080808060 807248 30 8 5133 63 1931133315373 200 Use the greater of forecasted orders or booked orders to develop the MPS

30. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-30 Item: Road Bike Order Policy: 200 units Lead Time: 2 weeks Forecast 1 80 60 2 72 70 3 48 70 4 30 5 8 80 6 0 80 7 0 8 0 Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 8080 April May 60 Quantity on Hand: 85 5133 631931133315373 0200 00 00 0 0 00 0 Available-to- promise (ATP) inventory 0 Available to Promise Available to Promise is the quantity of end items that Marketing can promise to deliver on specified dates

31. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-31 Item: Road Bike Order Policy: 200 units Lead Time: 2 weeks Forecast 1 80 60 2 72 70 3 48 70 4 30 5 8 80 6 0 80 7 0 8 0 Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 8080 April May 60 Quantity on Hand: 85 5133 631931133315373 0200 00 00 0 0 00 0 Available-to- promise (ATP) inventory 0 Available to Promise for each MPS quantity: ATP = Planned production – Booked orders for the first (current) week: ATP = (Current on hand inventory + MPS quantity) – Booked orders up to next MPS quantity

32. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-32 Item: Road Bike Order Policy: 200 units Lead Time: 2 weeks Forecast 1 80 60 2 72 70 3 48 70 4 30 5 8 80 6 0 80 7 0 8 0 Customer orders (booked) Projected on-hand inventory MPS quantity MPS start 8080 April May 60 Quantity on Hand: 85 5133 631931133315373 0200 00 00 0 0 00 0 Available-to- promise (ATP) inventory 0 Available to Promise for each MPS quantity: ATP = Planned production – Booked orders for the first (current) week: ATP = (Current on hand inventory + MPS quantity) – Booked orders up to next MPS quantity 5 80 162200

33. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-33 Available to Promise Available-to- promise (ATP) inventory 5 80 162200 12345678 Customer A wants 50 bikes in week 3 – can we commit? Available-to- promise (ATP) inventory 5 80 162200 12345678 30 YES Customer B wants 200 bikes in week 6 – can we commit? 162 + 30 + 5 = 197 < 200 Available-to- promise (ATP) inventory 5 80 162200 12345678 NO 30

34. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-34 Available to Promise - continued Available-to- promise (ATP) inventory 5 80 162200 12345678 Customer C wants 175 bikes in week 4 – can we commit? Note: To commit 175 in week 4, take 162 from week 4 and 13 from week 2 (working from right to left). Do not work from left to right (5 + 30 + 140) 30 Available-to- promise (ATP) inventory 5 80 162200 12345678 30 YES 0 17