15.768: MRP/ERP
What is the Purpose and Logic of MRP ?
Inventory
Transactions
Inventory
Status
Forecasts
Master
Production
Schedule
Customer
Orders
Engineering
Changes
MRP:
(Explosion
Offsets,
Nets)
Bill of
Materials
Schedules
& Exception
Reports
What is the Purpose and Logic of MRP?
• Coordination of Production and Inventory in large, multi-stage
production systems
• Used for
- Scheduling & re-scheduling
- Capacity Planning
- Supplier coordination (internal & external)
• Timely dissemination of information
• Time-phased production & procurement
- with lead time offsets & BOM explosions
• Independent vs. Dependent demand
• Requires centralized information system; hence ERP
• Organizes large complex production and
delivery coordination requirements
Criticisms of MRP
• Deterministic Model
• Push system
• poor data ==> GIGO
• Self-fulfilling lead times
• Difficult/costly to install & maintain
• Centralized command & control mindset
Three Principles of Forecasting
1. The Forecast is always wrong
2. The longer the forecast horizon,
the worse the forecast
3. End item forecasts are less accurate
than aggregate forecasts
What is the Purpose and Logic of ERP ?
Human
Resources
Data
Analysis
Manufacturing
ERP
System
Sales
Finance
Supply
Chain
Management
Service
Engineering?
What is the Purpose and Logic of ERP?
• Financial & Operational Planning & Control
-uniform business processes
• Integration of corporate data & systems
• Used for
- Financial analysis & reports
- Coordinating operations, sales, engineering
- Supplier coordination (internal & external)
• Timely aggregation and dissemination of information
• Requires centralized information system;
• enables decentralized control?
Criticisms of ERP systems
• Implementation nightmares
• Encourages centralized control
• Enforces uniformity; can stifle innovation
• Very expensive
Management issues:
1. Process redesign
2. Flexibility and internal capabilities
3. Implementation
Lessons from Cisco’s Implementation?
• make it a top priority; resource accordingly
• do it quickly
• rapid prototype iterations
• in-house capabilities
(outsource capacity, not knowledge)
• need realistic-scale testing
Volatility Amplification in the Supply Chain:
“The Bullwhip Effect”
Customer
Retailer
Distributor
Information lags
Delivery lags
Over- and underordering
Misperceptions of feedback
Lumpiness in ordering
Chain accumulations
Factory
Tier 1 Supplier Equipment
SOLUTIONS:
Countercyclical Markets
Countercyclical Technologies
Collaborative channel mgmt.
(Cincinnati Milacron & Boeing)
“We are experiencing a 100-year flood.” J. Chambers, 4/16/01
100
% Chg. GDP
% Chg. Vehicle Production Index
% Chg. Net New Orders Machine Tool Industry
80
% Change, Year to Year
60
40
20
0
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
-20
-40
-60
"Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," Anderson, Fine &
Parker Production and Operations Management, Vol. 9, No. 3, Fall 2000, pp. 239-261.
-80
% Change, Year-to-Year
100.00
80.00
60.00
40.00
20.00
0.00
1961
-20.00
-40.00
-60.00
1965
1969
1973
1977
1981
1985
1989
1993
Year
Worldwide Semiconductor Manufacturing Equipment Sales
Worldwide Semiconductor Shipments
Electronics, Computing and Communications Equipment Output
GDP World
GDP USA
1997
2001
LESSONS FROM A FRUIT FLY:
CISCO SYSTEMS
1. KNOW YOUR LOCATION IN THE VALUE CHAIN
2. UNDERSTAND THE DYNAMICS
OF VALUE CHAIN FLUCTUATIONS
3. THINK CAREFULLY ABOUT THE ROLE
OF VERTICAL COLLABORATIVE RELATIONSHIPS
4. INFORMATION AND LOGISTICS SPEED DO NOT REPEAL BUSINESS
CYCLES OR THE BULLWHIP.
Bonus Question:
How does clockspeed impact volatility?
Class 8 Wrap-Up
•
•
•
MRP for production planning
ERP Systems: Implementation & Process Design are key
Bullwhip Dynamics
Next Time: Southwest Air
Beef Supply Chain
Inputs
 Millions of farmers
provide feed and corn
input
 Multiple companies
provide genetics
Cow-Calf,
Dairy Cows
Feedlots
Packers
 900,000+ operations
 2,000+ operations
 Less than 50 companies  ~100 companies
 62% of cow-calf
operations have herd
size of less than 50
 Top 5 control
approximately 15% of
the market
 Largest 4 control
 800 packers and
dominant share (~75%) processor plants in the
US
 Various levels of
 Numerous inputs affect  Concentrated in 10
integration into

 Genetics and feed have
the product
states
processing
a dramatic impact on
the animal’s
 Large operations include  Numerous inputs affect  Largest players offer
development and meat
King Ranch, Lykes
the product
packing and processing
produced
Brothers and Desert

 Similar genetics
Cattle
 Large operations include  Large operations include
and feed lead to
Cactus Feeders,
Excel, Tyson, Swift and
little variation
 In addition, there are
ContiBeef and Caprock
Smithfield
(5%)
dairy operations which
 Different feed and provide lean cows
 In addition, there are
 Dairy cows are generally
genetics lead to
dairy operations and
slaughtered by mid
wide variation
imports (AU-NZ)
sized packers
(40%)
 Additionally, animals are
subject to animal health
products and
medications
Grinder
(Processors)
Distribution
Center
(e.g., McD)
 40 company owned
distribution centers
across the US
 DCs consolidate
products for individual
stores
Midsized companies
($50-500 MM) are
generally more focused  Stores make one
on processing
communication to
restock the entire store
Key suppliers are loyal,
highly focused suppliers
(Keystone and OSI)
MIT OpenCourseWare
http://ocw.mit.edu
15.768 Management of Services: Concepts, Design, and Delivery
Fall 2010
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