1. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-1 Operations Management Material Requirements Planning (MRP) & ERP Chapter 14

2. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 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. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-3 Outline - Continued  MRP MANAGEMENT  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. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-4 Outline - Continued  DISTRIBUTION RESOURCE PLANNING (DRP)  ENTERPRISE RESOURCE PLANNING (ERP)  Advantages and Disadvantages of ERP System  ERP in the Service Sector

5. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-5 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. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-6 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. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-7 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. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-8 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

9. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-9 Inventory Process stage Demand Type Number & Value Other Raw Material WIP Finished Goods Independent Dependent A Items B Items C Items Maintenance Operating Inventory Classifications

10. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-10 Item Materials With Independent Demand Materials With Dependent Demand Demand Source Company CustomersParent Items Material Type Finished GoodsWIP & Raw Materials Method of Estimating Demand Forecast & Booked Customer Orders Calculated Planning Method EOQ & ROPMRP Dependent versus Independent Demand

11. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-11 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

12. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-12 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. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-13 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?

14. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-14 Aggregate Production Plan 1,2001,500 Aggregate Production Plan (shows the total quantity of amplifiers 100300 75 watt amplifier 450 500 150 watt amplifier 100 240 watt amplifier Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 8 7654321Weeks FebruaryJanuaryMonths

15. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-15 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

16. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-16  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. Bill-of-Material

17. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-17 Product Structure for “Awesome” A

18. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-18  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 Special Bills-of-Material

19. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-19 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

20. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-20 Time-Phased Product Structure 1 2345678 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

21. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-21  Manufacturing computer information system  Determines quantity & timing of dependent demand items © 1995 Corel Corp. Material Requirements Planning (MRP)

22. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-22  Computer system  Mainly discrete products  Accurate bill-of-material  Accurate inventory status  99% inventory accuracy  Stable lead times © 1984-1994 T/Maker Co. MRP Requirements

23. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-23  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 MRP Benefits

24. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-24 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

25. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-25 Gross Material Requirements Plan for 50 “Awesome A” Speaker Kits

26. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-26 Forecast & Firm Orders Material Requirements Planning Aggregate Production Planning Resource Availability Master Production Scheduling Shop Floor Schedules Capacity Requirements Planning Realistic? No, modify CRP, MRP, or MPS Yes MRP and The Production Planning Process

27. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-27 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

28. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-28  Shows items to be produced  End item, customer order, module  Derived from aggregate plan Master Production Schedule Item/WeekOct 3Oct 10Oct 17Oct 24 Drills300200310300 Saws300450310330 Example

29. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-29 Derivation of Master Schedule Therefore, these are the gross requirements for B Periods 10 1 2 3 Master schedule for S sold directly 405015 A C B 5 6 7 8 9 10 11 Lead time = 4 for A Master schedule for A 402030 S B C 8 9 10 12 11 13 Lead time = 6 for S Master schedule for S 10 40+10 = 50 40 50 20 15+30 = 45 1 2 3 4 5 6 7 8 Periods Gross requirements: B

30. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-30 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

31. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-31 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

32. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-32 Lot-Sizing Techniques  Lot-for-lot  Economic Order Quantity  Part Period Balancing  Wagner-Whitin Algorithm

33. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-33 MRP Lot-Sizing Problem: Lot-for-Lot Techniques

34. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-34 MRP Lot-Sizing Problem: EOQ Technique

35. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-35 MRP Lot-Sizing Problem: PPB Technique