1. 14 - 1© 2014 Pearson Education Material Requirements Planning (MRP) and ERP PowerPoint presentation to accompany Heizer and Render Operations Management, Global Edition, Eleventh Edition Principles of Operations Management, Global Edition, Ninth Edition PowerPoint slides by Jeff Heyl 14 © 2014 Pearson Education

2. 14 - 2© 2014 Pearson Education Dependent Demand For any product for which a schedule can be established, dependent demand techniques should be used

3. 14 - 3© 2014 Pearson Education Dependent Demand ▶ The demand for one item is related to the demand for another item ▶ Given a quantity for the end item, the demand for all parts and components can be calculated ▶ In general, used whenever a schedule can be established for an item ▶ MRP is the common technique

4. 14 - 4© 2014 Pearson Education Dependent Inventory Model Requirements Effective use of dependent demand inventory models requires the following 1.Master production schedule 2.Specifications or bill of material 3.Inventory availability 4.Purchase orders outstanding 5.Lead times

5. 14 - 5© 2014 Pearson Education Figure 14.1 The Planning Process

6. 14 - 6© 2014 Pearson Education Aggregate Production Plan MonthsJanuaryFebruary Aggregate Plan1,5001,200 (Shows the total quantity of amplifiers) Weeks12345678 Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 240-watt amplifier100100100100 150-watt amplifier500500450450 75-watt amplifier300100 Figure 14.2

7. 14 - 7© 2014 Pearson Education MPS Example TABLE 14.1 Master Production Schedule for Chef John’s Buffalo Chicken Mac & Cheese GROSS REQUIREMENTS FOR CHEF JOHN’S BUFFALO MAC & CHEESE Day67891011121314And so on Quantity450200350525235375

8. 14 - 8© 2014 Pearson Education Bills of Material ▶ List of components, ingredients, and materials needed to make product ▶ Provides product structure ▶ Items above given level are called parents ▶ Items below given level are called components or children

9. 14 - 9© 2014 Pearson Education BOM Example B (2) C (3) 1 E (2) F (2) 2 D (2) G (1) 3 Product structure for “Awesome” (A) A Level 0

10. 14 - 10© 2014 Pearson Education BOM Example B (2) C (3) 1 E (2) F (2) 2 D (2) G (1) 3 Product structure for “Awesome” (A) A Level 0 Part B:2 x number of As =(2)(50) =100 Part C:3 x number of As =(3)(50) =150 Part D:2 x number of Bs + 2 x number of Fs =(2)(100) + (2)(300) =800 Part E:2 x number of Bs + 2 x number of Cs =(2)(100) + (2)(150) =500 Part F:2 x number of Cs =(2)(150) =300 Part G:1 x number of Fs =(1)(300) =300 For an order of 50 Awesome speaker kits

11. 14 - 11© 2014 Pearson Education Accurate Inventory Records ▶ Accurate inventory records are absolutely required for MRP (or any dependent demand system) to operate correctly ▶ Generally MRP systems require more than 99% accuracy

12. 14 - 12© 2014 Pearson Education Purchase Orders Outstanding ▶ A by-product of well-managed purchasing and inventory control department ▶ Outstanding purchase orders must accurately reflect quantities and scheduled receipts

13. 14 - 13© 2014 Pearson Education Lead Times for Components ▶ The time required to purchase, produce, or assemble an item ▶ For production – the sum of the move, setup, and assembly or run times ▶ For purchased items – the time between the recognition of a need and when its available for production TABLE 14.2 Lead Times for Awesome Speaker Kits (As) COMPONENTLEAD TIME A1 week B2 weeks C1 week D E2 week F3 weeks G2 weeks

14. 14 - 14© 2014 Pearson Education MRP Structure Figure 14.4 Output Reports MRP by period report MRP by date report Planned order report Purchase advice Exception reports Order early or late or not needed Order quantity too small or too large Data Files Purchasing data BOM Lead times (Item master file) Inventory data Master production schedule Material requirement planning programs (computer and software)

15. 14 - 15© 2014 Pearson Education Gross Requirements Plan TABLE 14.3 Gross Material Requirements Plan for 50 Awesome Speaker Kits (As) with Order Release Dates Also Shown WEEK LEAD TIME 12345678 A.Required date50 1 week Order release date50 B.Required date100 2 weeks Order release date100 C.Required date150 1 week Order release date150 E.Required date200300 2 weeks Order release date200300 F.Required date300 3 weeks Order release date300 D.Required date600200 1 week Order release date600200 G.Required date300 2 weeks Order release date300

16. 14 - 16© 2014 Pearson Education Net Requirements Plan ITEMON HANDITEMON HAND A10E B15F5 C20G0 D10

17. 14 - 17© 2014 Pearson Education Net Requirements Plan

18. 14 - 18© 2014 Pearson Education S BC 302040 1213891011 Lead time = 6 for S Master schedule for S Gross Requirements Schedule Figure 14.5 10 123 Master schedule for B sold directly Periods Therefore, these are the gross requirements for B Gross requirements: B 10405020 40+1015+30 =50=45 12345678 Periods A B C Lead time = 4 for A Master schedule for A 567891011 401550

19. 14 - 19© 2014 Pearson Education Net Requirements Plan The logic of net requirements Available inventory Net requirements On hand Scheduled receipts +–= Total requirements Gross requirements Allocations +

20. 14 - 20© 2014 Pearson Education MRP Planning Sheet Figure 14.6

21. 14 - 21© 2014 Pearson Education Lot-Sizing Techniques ▶ Lot-for-lot techniques order just what is required for production based on net requirements ▶ May not always be feasible ▶ If setup costs are high, lot-for-lot can be expensive ▶ Economic order quantity (EOQ) ▶ EOQ expects a known constant demand and MRP systems often deal with unknown and variable demand

22. 14 - 22© 2014 Pearson Education Lot-for-Lot Example WEEK12345678910 Gross requirements 35304001040300 55 Scheduled receipts Projected on hand 35 000000000 Net requirements 0304001040300 55 Planned order receipts 3040104030 55 Planned order releases 3040104030 55 Holding cost = $1/week; Setup cost = $100; Lead time = 1 week

23. 14 - 23© 2014 Pearson Education Lot-for-Lot Example WEEK12345678910 Gross requirements 35304001040300 55 Scheduled receipts Projected on hand 35 000000000 Net requirements 0304001040300 55 Planned order receipts 3040104030 55 Planned order releases 3040104030 55 Holding cost = $1/week; Setup cost = $100; Lead time = 1 week No on-hand inventory is carried through the system Total holding cost = $0 There are seven setups for this item in this plan Total ordering cost = 7 x $100 = $700

24. 14 - 24© 2014 Pearson Education Lot-Sizing Summary ▶ In theory, lot sizes should be recomputed whenever there is a lot size or order quantity change ▶ In practice, this results in system nervousness and instability ▶ Lot-for-lot should be used when low-cost setups can be achieved

25. 14 - 25© 2014 Pearson Education Extensions of MRP ▶ MRP II ▶ Closed-Loop MRP ▶ Capacity Planning

26. 14 - 26© 2014 Pearson Education Material Requirements Planning II ▶ Requirement data can be enriched by other resources ▶ Generally called MRP II or Material Resource Planning ▶ Outputs can include scrap, packaging waste, effluent, carbon emissions ▶ Data used by purchasing, production scheduling, capacity planning, inventory, warehouse management

27. 14 - 27© 2014 Pearson Education Material Resource Planning TABLE 14.4Material Resource Planning (MRP II) Weeks LT5678 Computer1100 Labor Hrs:.2 each20 Machine Hrs:.2 each20 Scrap: 1 ounce fiberglass each6.25lb Payables: $0 each$0 PC Board (1 each)2100 Labor Hrs:.15 each15 Machine Hrs:.1 each10 Scrap:.5 ounces copper each3.125lb Payables: raw material at $5 each$500 Processors (5 each)4500 Labor Hrs:.2 each100 Machine Hrs:.2 each100 Scrap:.01 ounces of acid waste each0.3125lb Payables: processors at $10 each$5,000

28. 14 - 28© 2014 Pearson Education Closed-Loop MRP System Figure 14.7 Priority Management Develop Master Production Schedule Prepare Materials Requirements Pan Detailed Production Activity Control (Shop Scheduling/Dispatching) Capacity Management Evaluate Resource Availability (Rough Cut) Determine Capacity Availability Implement Input/Output Control Aggregate Plan OK?NO OK?NO OK? YES Planning Execution (in repetitive systems JIT techniques are used)

29. 14 - 29© 2014 Pearson Education Capacity Planning ▶ Feedback from the MRP system ▶ Load reports show resource requirements for work centers ▶ Work can be moved between work centers to smooth the load or bring it within capacity

30. 14 - 30© 2014 Pearson Education MRP in Services ▶ Some services or service items are directly linked to demand for other services ▶ These can be treated as dependent demand services or items ▶ Restaurants ▶ Hospitals ▶ Hotels

31. 14 - 31© 2014 Pearson Education Distribution Resource Planning (DRP) Using dependent demand techniques through the supply chain ► Expected demand or sales forecasts become gross requirements ► All other levels are computed ► DRP pulls inventory through the system ► Small and frequent replenishments

32. 14 - 32© 2014 Pearson Education Enterprise Resource Planning (ERP) ▶ An extension of the MRP system to tie in customers and suppliers 1.Allows automation and integration of many business processes 2.Shares common data bases and business practices 3.Produces information in real time ▶ Coordinates business from supplier evaluation to customer invoicing

33. 14 - 33© 2014 Pearson Education Enterprise Resource Planning (ERP) ▶ ERP modules include ▶ Basic MRP ▶ Finance ▶ Human resources ▶ Supply chain management (SCM) ▶ Customer relationship management (CRM) ▶ Sustainability

34. 14 - 34© 2014 Pearson Education ERP and MRP Figure 14.10

35. 14 - 35© 2014 Pearson Education ERP in the Service Sector ▶ ERP systems have been developed for health care, government, retail stores, hotels, and financial services ▶ Also called efficient consumer response (ECR) systems ▶ Objective is to tie sales to buying, inventory, logistics, and production