Material Requirements Planning
(MRP) & ERP
Chapter 14
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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
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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
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Outline - Continued
 DISTRIBUTION RESOURCE PLANNING (DRP)
 ENTERPRISE RESOURCE PLANNING (ERP)
 Advantages and Disadvantages of ERP System
 ERP in the Service Sector
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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
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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
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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
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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
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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 (what is to be made and when) specifications or bills-of-material (amount of materials and parts required to make the product) inventory availability purchase orders outstanding (what is on order) lead times (time it takes to get various components)
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Production
Capacity
Inventory
Marketing
Customer
Demand
Finance
Cash Flow
Procurement
Supplier
Performance
Aggregate
Production Plan
Human
Resources
Manpower
Planning
Management
Return on
Investment
Capital
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Engineering
Design
Completion
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The Planning Process
Aggregate production plan
Change production plan?
Master production schedule
Change requirements?
Material requirements plan
Change master production schedule?
Change capacity?
Detail capacity plan
No
Realistic
Is capacity plan being met?
Yes
Execute capacity plans
Is execution meeting the plan?
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Execute material plans
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Aggregate Production Plan
Months January
Aggregate Production Plan
(shows the total quantity of amplifiers
Weeks
Master Production Schedule
(Shows the specific type and quantity of amplifier to be produced
240 watt amplifier
150 watt amplifier
75 watt amplifier
1
100
2
1,500
500
3
100
300
4
500
February
5
100
6
1,200
450
7
100
100
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14-12
8
450
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Typical Focus of the Master
Production Schedule
Number of end items
Make to Order
(Process Focus)
Assemble to
Order or Forecast
(Repetitive)
Stock to Forecast
(Product Focus)
Schedule finished product
Typical focus of the master production schedule
Number of inputs
Schedule orders
Schedule modules
Examples:
Print shop
Machine shop
Fine dining restaurant
Motorcycles, autos,
TVs, fast-food restaurant
Steel, Beer,
Bread Light bulbs, Paper
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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


A part gets the lowest level code in item structure.
Top level is 0; next level is 1 etc.
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Product Structure for “Awesome” A
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Ex: Calculate the Part Requirements
For an order size of 50 A items:
 #Part B=2(#A)=(2)(50)=100
 #Part C=3(#A)=(3)(50)=150
 #Part E=2(#B)+2(#C)=(2)(100)+2(150)=500
 #Part F=2(#C)=(2)(150)=300
 #Part D=2(#B)+2(#F)=(2)(100)+2(300)=800
 #Part G=1(#F)=300
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Issues in MRP:
Accurate Inventory Records
 Good inventory management is an absolute necessity for an MRP system to work, i.e., one needs to know what is in stock.
 If the firm has not yet received at least 99% record accuracy, then MRP will not work.
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Issues in MRP:
Purchase Orders Outstanding
 When purchase orders are executed, records of those orders and their scheduled delivery dates must be available to production personnel.
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Issues in MRP:
Lead Times
 The time required to acquire an item is the lead time
 Lead time of a manufactured item consists of move, setup, assembly or run times.
 Lead time of a purchased item includes the time between order release and its retreival.
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Time-Phased Product Structure for Awesome Speakers
Start production of
D
2 weeks
1 week
G
Must have D and E completed here so production can begin on B
1 week
D 2 weeks to produce
2 weeks
B
E
2 weeks
E
1 week
1 week
A
3 weeks C
F
D
1 2 3 4 5 6 7 8
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Material Requirements Planning
(MRP)
 Manufacturing computer information system
 Determines quantity & timing of dependent demand items
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts
Available
Net Requirements
Planned Order Receipts
Planned Order Releases
5 30
25 23 33 33 8
7
7
7
© 1995
Corel
Corp.
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MRP Requirements
 Computer system
 Mainly discrete products
 Accurate bill-of-material
 Accurate inventory status
 99% inventory accuracy
 Stable lead times
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© 1984-1994 T/Maker Co.
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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
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Structure of the MRP System
BOM
Master Production
Schedule
Lead Times
(Item Master File)
Inventory Data
MRP planning programs
(computer and software)
MRP by Period Report
MRP by date report
Planned order report
Purchase advice
Exception report
Exception report
Purchasing data
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Time-Phased Product Structure for Awesome Speakers
Start production of
D
2 weeks
1 week
G
Must have D and E completed here so production can begin on B
1 week
D 2 weeks to produce
2 weeks
B
E
2 weeks
E
1 week
1 week
A
3 weeks C
F
D
1 2 3 4 5 6 7 8
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Gross Material Requirements Plan for 50 “Awesome A” Speaker Kits
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Net Material Requirements Plan
Item Onhand
A
B
10
15
C
D
E
F
G
20
10
10
5
0
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Net Requirements Plan
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Net Requirements Plan
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Derivation of Master Schedule
Periods
A
B
Lead time = 4 for A
Master schedule for A
C
5 6 7 8 9 10 11
40 50 15
S
B C
Lead time = 6 for S
Master schedule for S
8 9 10
40
11
20
12 13
30
Master schedule for S sold directly
1 2 3
10 10
Periods
Gross requirements: B
1 2 3 4 5 6 7 8
10 40+10
= 50
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40 50 20
14-30
15+30
= 45
Therefore, these are the gross requirements for B
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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
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MRP and JIT
 MRP - a planning technique but not a detailed scheduling technique, so there may be capacity problems!
 Does not machine schedule
 Plan with fixed lead times
 JIT - a way to move material expeditiously
 Integrating the two:


Finite capacity scheduling with time buckets (say weekly)
Small bucket approach and back flushing


Balanced flow approach: pulling material in small lot sizes
Supermarket: An inventory area that holds common items replenished by Kanban systems
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Lot-Sizing Techniques
 Lot-for-lot
 Economic Order Quantity
 Part Period Balancing
 Wagner-Whitin Algorithm
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MRP Lot-Sizing Problem: Lot-for-Lot
Techniques
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MRP Lot-Sizing Problem: EOQ
Technique
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Extensions of MRP
 Closed loop MRP
 Capacity planning - load reports
 MRP II - Material Resource Planning
 Enterprise Resource Planning
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Closed Loop MRP
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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
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Initial Resource
Requirements/Smoothed
Resource Requirements
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Extensions to MRP
Material Requirements Planning II
 MRP plan is measured in quantities or units.
 MRPII allows the inventory data to be augmented by other resources like labor hours, m/c hours, accounts payable.
 MRP II should be integrated to other systems like MRP, purchasing, production scheduling, capacity planning, warehouse management, etc.
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Extensions to MRP
Enterprise Resource Planning
 MRP II is enhanced by the additional ties to customers and suppliers to achieve ERP systems.
 ERP is a software system to


Automate and integrate many of their business processes
Share common data base and business practices
 Produce information in real time
 Objective is to coordinate a firm’s whole business
 Basic modules: MRP, Finance, HR, SCM, CRM
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MRP and ERP Information Flows,
Integrated with Other Systems
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Advantages of ERP Systems
1. Provides integration of the supply chain, production, and administration
2. Creates commonality of databases
3. Can incorporate improved best processes
4. Increases communication and collaboration between business units and sites
5. Has an off-the-shelf software database
6. May provide a strategic advantage

Disadvantages of ERP Systems
1. Is very expensive to purchase and even more so to customize
2. Implementation may require major changes in the company and its processes
3. Is so complex that many companies cannot adjust to it
4. Involves an ongoing, possibly never completed, process for implementation
5. Expertise is limited with ongoing staffing problems

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