1. Week #14-2
Operations Management Material Requirements Planning (MRP) & ERP Chapter 14

2. Outline GLOBAL COMPANY PROFILE: COLLINS INDUSTRIES
DEPENDENT INVENTORY MODEL REQUIREMENTS
Master Production Schedule
Bills of Materials
Accurate Inventory records
Purchase Orders Outstanding
Lead Times for Each Component
MRP STRUCTURE

3. Outline - Continued MRP MANAGEMENT LOT-SIZING TECHNIQUES
MRP Dynamics
MRP and JIT
LOT-SIZING TECHNIQUES
EXTENSIONS IN MRP
Closed-Loop MRP
Capacity Planning
Material Requirements Planning II (MRP II)
MRP IN SERVICES

4. Outline - Continued DISTRIBUTION RESOURCE PLANNING (DRP)
ENTERPRISE RESOURCE PLANNING (ERP)
Advantages and Disadvantages of ERP System
ERP in the Service Sector

5. Learning Objectives
When you complete this chapter, you should be able to :
Identify or Define:
Planning bills and kits
Phantom bills
Low-level coding
Lot sizing

6. Learning Objectives - Continued
When you complete this chapter, you should be able to :
Describe or Explain:
Material requirements planning
Distribution requirements planning
Enterprise resource planning
How ERP works
Advantages and disadvantages of ERP systems

7. Collins Industries Largest manufacturer of ambulances in the world
International competitor
12 major ambulance designs
18,000 different inventory items
6,000 manufactured parts
12,000 purchased parts
MRP: IBM’s MAPICS

8. Collins Industries Collins requires:
Material plan must meet both the requirements of the master schedule and the capabilities of the production facility
Plan must be executed as designed
Effective “time-phased” deliveries, consignments, and constant review of purchase methods
Maintenance of record integrity
One thought to be remembered from Collins is the emphasis on maintenance of record integrity. Error rates as low as percent may lead to instability in an MRP system.

9. Inventory Classifications
Process stage
Demand Type
Number & Value
Other
Raw Material
WIP
Finished Goods
Independent Dependent
A Items B Items C Items
Maintenance Operating

10. Dependent versus Independent Demand
Item
Materials With
Independent Demand
Dependent Demand
Demand
Source
Company Customers
Parent Items
Material
Type
Finished Goods
WIP & Raw Materials
Method of
Estimating
Forecast & Booked
Customer Orders
Calculated
Planning
Method
EOQ & ROP
MRP
We start this chapter by linking Dependent Demand Inventory back to Independent Demand Inventory. You might note to students that independent demand is created external to the company, dependent demand, internally.

11. Requirements for Effective Use of Dependent Demand Inventory Models
Effective use of dependent demand inventory models requires that the operations manager know the:
master production schedule
specifications or bills-of-material
inventory availability
purchase orders outstanding
lead times
You might add to this list that the operations manager must know that inventory records, bill-of-materials, etc., are accurate.

12. Inputs to the Production Plan
Aggregate Production Plan
Marketing
Customer
Demand
Engineering
Design
Completion
Management
Return on
Investment
Capital
Human
Resources
Manpower
Planning
Procurement
Supplier
Performance
Finance
Cash Flow
Production
Capacity
Inventory

13. The Planning Process Aggregate production plan
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?

14. Aggregate Production Plan
1,200
1,500
Aggregate Production Plan (shows the total quantity of amplifiers
100
300
75 watt amplifier
450
500
150 watt amplifier
240 watt amplifier
Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 8 7 6 5 4 3 2 1
Weeks
February
January
Months

15. 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
Students should be asked to explain why the focus of the Master Production Schedule changes depending upon the nature of the production process.

16. Bill-of-Material
List of components & quantities needed to make product
Provides product structure (tree)
Parents: Items above given level
Children: Items below given level
Shows low-level coding
Lowest level in structure item occurs
Top level is 0; next level is 1 etc.
A bicycle provides a good example for deriving a bill-of-material. Most students remember enough of the parts of a bicycle to develop several levels.

17. Product Structure for “Awesome” A
You might ask students to develop a similar product for a product with which they are familiar. Possibly a ball-point pen?

18. Special Bills-of-Material
Modular bills
Modules are final components used to make assemble-to-stock end items
Planning bills
Used to assign artificial parent
Reduces number of items scheduled
Phantom bills
Used for subassemblies that exist temporarily
The bicycle is simple, yet complex enough to be used for a special bills example also.
Modules - pair of wheels; gearshift & cables; multiple sprockets; etc.
Etc.
The following slide outlines such an example.

19. Bill-of-Material Product Structure Tree
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

20. Time-Phased Product Structure1 2 3 4 5 6 7 8
3 weeks F
2 weeks E A
1 week C G D
Start production of D B
2 weeks to produce
Must have D and E completed here so production can begin on B
This slide has been animated to demonstrate backward scheduling - item A is scheduled first, then the remaining items are scheduled so as to produce A at the proper time.

21. Material Requirements Planning (MRP)
Manufacturing computer information system
Determines quantity & timing of dependent demand items
A point to stress here is that while MRP is heavily computer-based, it is more than simply a computer program.
© 1995 Corel Corp.

22. MRP Requirements Computer system Mainly discrete products
Accurate bill-of-material
Accurate inventory status
99% inventory accuracy
Stable lead times
It is important to emphasize the need for accurate records - both bill-of-material and inventory.
© T/Maker Co.

23. MRP Benefits
Increased customer satisfaction due to meeting delivery schedules
Faster response to market changes
Improved labor & equipment utilization
Better inventory planning & scheduling
Reduced inventory levels without reduced customer service
While MRP certainly can produce these benefits, it is useful to discuss the problems faced in establishing an MRP system. A number of companies have given up on the task - the necessary transformation of old processes has simply proven too difficult.

24. 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
Emphasize that this slide illustrates the overall technological structure of MRP - people and process are also extremely important in its actual success.

25. Gross Material Requirements Plan for 50 “Awesome A” Speaker Kits

26. MRP and The Production Planning Process
Forecast &
Firm Orders
Material
Requirements
Planning
Aggregate
Production
Resource
Availability
Master
Scheduling
Shop
Floor
Schedules
Capacity
Realistic?
No, modify CRP, MRP, or MPS
Yes
This slide illustrates the fit of MRP into the overall production planning process. It would be helpful to walk through the actual relationship with your students.

27. MRP Systems - Input and Output
Inventory
Purchasing
Master
Production
Schedule
Bill of
Materials
Material
Requirements
Planning System
Status
Planned Order
& Other Reports
Item Master
Data
It is helpful here to briefly review the “contents” of each of the boxes - i.e., what is contained in an Item Master file, what purchasing data is expected, etc.

28. Master Production Schedule
Shows items to be produced
End item, customer order, module
Derived from aggregate plan
Example
Item/Week
Oct 3
Oct 10
Oct 17
Oct 24
Drills
300
200
310
Saws
450
330

29. Derivation of Master Schedule40 50 15 A C B 5 6 7 8 9 10 11
Lead time = 4 for A
Master schedule for A 40 20 30 S B C 8 9 10 12 11 13
Lead time = 6 for S
Master schedule for S 10 1 2 3
Master schedule for S sold directly
Periods
This slide is also animated in an attempt to demonstrate the “building” of the master schedule. 10
40+10
= 50 40 50 20
15+30
= 45
Periods
Gross requirements: B
Therefore, these are the gross requirements for B

30. MRP Dynamics Supports “replanning”
Problem with system “nervousness”
“Time fence” - allows a segment of the master schedule to be designated as “not to be rescheduled”
“Pegging” - tracing upward in the bill-of-materials from the component to the parent item
That a manager can react to changes, doesn’t mean he/she should
This slide does merit discussion - especially the items about system nervousness and the manager’s reaction to change.

31. MRP and JIT
MRP - a planning and scheduling technique with fixed lead times
JIT - a way to move material expeditiously
Integrating the two:
Small bucket approach and back flushing
Balanced flow approach
Students sometimes begin to think of MRP and JIT as in some way interchangeable. Here is a chance to stress the differences.

32. Lot-Sizing Techniques
Lot-for-lot
Economic Order Quantity
Part Period Balancing
Wagner-Whitin Algorithm

33. MRP Lot-Sizing Problem: Lot-for-Lot Techniques

34. MRP Lot-Sizing Problem: EOQ Technique

35. MRP Lot-Sizing Problem: PPB Technique

36. Extensions of MRP Closed loop MRP Capacity planning - load reports
MRP II - Material Resource Planning
Enterprise Resource Planning
What does one gain by implementing one of the extensions of MRP?

37. Closed Loop MRP

38. Extensions of MRP Capacity Planning
Tactics for smoothing the load and minimizing the impact of changed lead time include:
Overlapping - reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation
Operations splitting - sends the lot to two different machines for the same operation
Lot splitting - breaking up the order and running part of it ahead of the schedule
It usually seems to be helpful to discuss the overall concept of load leveling before tackling load leveling and MRP.

39. Initial Resource Requirements/Smoothed Resource Requirements

40. Extensions to MRP Enterprise Resource Planning
MRP II with ties to customers and suppliers

41. MRP and ERP Information Flows, Integrated with Other Systems

42. MRP in Services
Can be used when demand for service or service items is directly related to or derived from demand for other services
restaurant - rolls required for each meal
hospitals - implements for surgery
etc.
Have the students consider what modifications may be necessary for MRP to be valuable in services.

43. Product Structure, Bill of Materials, Bill of Labor for Veal Picante

44. Distribution Resource Planning
DRP requires:
Gross requirements, which are the same as expected demand or sales forecasts
Minimum levels of inventory to meet customer service levels
Accurate lead times
Definition of the distribution structure