13-1 MRP and ERP Operations Management William J. Stevenson 8th edition 13-2 MRP and ERP CHAPTER 13 MRP and ERP Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 13-3 MRP and ERP MRP • Material requirements planning (MRP): Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials. 13-4 MRP and ERP Independent and Dependent Demand Independent Demand Dependent Demand A C(2) B(4) D(2) E(1) F(2) D(3) Independent demand is uncertain. Dependent demand is certain. 13-5 MRP and ERP Dependant Demand 13-6 • Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods. • Once the independent demand is known, the dependent demand can be determined. MRP and ERP Dependent vs Independent Demand Stable demand Demand Demand Figure 13.1 Time Amount on hand Amount on hand Time “Lumpy” demand Safety stock Time Time 13-7 MRP and ERP Figure 13.2 MRP Inputs MRP Processing MRP Outputs Changes Order releases Master schedule Planned-order schedules Primary reports Bill of materials MRP computer programs Secondary reports Inventory records 13-8 Exception reports Planning reports Performancecontrol reports Inventory transaction MRP and ERP MPR Inputs Master Production Schedule • Time-phased plan specifying timing and quantity of production for each end item. • Material Requirement Planning Process • t uc od Pr ee Tr 13-9 re c tu u r St L im dT ea es MRP and ERP Master Schedule Master schedule: One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities. Cumulative lead time: The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly. 13-10 MRP and ERP Planning Horizon Figure 13.4 Assembly Subassembly Fabrication Procurement 1 2 3 4 5 6 7 8 9 10 13-11 MRP and ERP Bill-of-Materials Bill of materials (BOM): One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product. Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels. 13-12 MRP and ERP Product Structure Tree Figure 13.5 Level 0 1 Chair Leg Assembly 2 Legs (2) 3 Cross bar Seat Back Assembly Side Cross Back Rails (2) bar Supports (3) 13-13 MRP and ERP Inventory Records • • One of the three primary inputs in MRP Includes information on the status of each item by time period Gross requirements Scheduled receipts • Amount on hand • Lead times • Lot sizes • And more … • • 13-14 MRP and ERP Assembly Time Chart Figure 13.7 Procurement of raw material D Fabrication of part E Subassembly A Procurement of raw material F Procurement of part C Final assembly and inspection Procurement of part H 1 2 3 Subassembly B Fabrication of part G Procurement of raw material I 4 5 6 7 8 13-15 MRP and ERP MRP Processing • Gross requirements • Schedule receipts • Projected on hand • Net requirements • Planned-order receipts • Planned-order releases 9 10 11 13-16 MRP and ERP MPR Processing • Gross requirements • • Scheduled receipts • • Total expected demand Open orders scheduled to arrive Planned on hand • Expected inventory on hand at the beginning of each time period 13-17 MRP and ERP MPR Processing • Net requirements • • • Actual amount needed in each time period Planned-order receipts • Quantity expected to received at the beginning of the period • Offset by lead time Planned-order releases • Planned amount to order in each time period 13-18 MRP and ERP Updating the System • Regenerative system • • Updates MRP records periodically Net-change system • Updates MPR records continuously 13-19 MRP and ERP MRP Outputs • Planned orders - schedule indicating the amount and timing of future orders. • Order releases - Authorization for the execution of planned orders. • Changes - revisions of due dates or order quantities, or cancellations of orders. 13-20 MRP and ERP MRP Secondary Reports • Performance-control reports • Planning reports • Exception reports 13-21 MRP and ERP Other Considerations • • Safety Stock Lot sizing Lot-for-lot ordering Economic order quantity • Fixed-period ordering • • 13-22 MRP and ERP MRP in Services • • Food catering service • End item => catered food • Dependent demand => ingredients for each recipe, i.e. bill of materials Hotel renovation • Activities and materials “exploded” into component parts for cost estimation and scheduling 13-23 MRP and ERP Benefits of MRP • Low levels of in-process inventories • Ability to track material requirements • Ability to evaluate capacity requirements • Means of allocating production time 13-24 MRP and ERP Requirements of MRP • Computer and necessary software • Accurate and up-to-date • Master schedules Bills of materials • Inventory records • • Integrity of data 13-25 MRP and ERP MRP II • Expanded MRP with emphasis placed on integration • Financial planning • Marketing • Engineering • Purchasing • Manufacturing 13-26 MRP and ERP MRP II Figure 13.14 Manufacturing Master production schedule Marketing Production plan MRP Rough-cut capacity planning Capacity planning Adjust production plan Yes Problems? No Requirements schedules No Problems? 13-27 MRP and ERP Capacity Planning Capacity requirements planning: The process of determining short-range capacity requirements. Load reports: Department or work center reports that compare known and expected future capacity requirements with projected capacity availability. Time fences: Series of time intervals during which order changes are allowed or restricted. Adjust master schedule Market Demand Finance Yes 13-28 MRP and ERP Capacity Planning Figure 13.15 Develop a tentative master production schedule Use MRP to simulate material requirements Convert material requirements to resource requirements Revise tentative master production schedule No Is shop capacity adequate? No Can capacity be changed to meet requirements Yes Firm up a portion of the MPS Yes Change capacity 13-29 MRP and ERP ERP • Enterprise resource planning (ERP): Next step in an evolution that began with MPR and evolved into MRPII • Integration of financial, manufacturing, and human resources on a single computer system. • 13-30 MRP and ERP ERP Strategy Considerations High initial cost High cost to maintain • Future upgrades • Training • • 13-31 MRP and ERP CHAPTER 13 Additional PowerPoint slides contributed by Geoff Willis, University of Central Oklahoma. 13-32 MRP and ERP Bill of Materials – Part 1 A listing of all raw materials, parts, subassemblies, and assemblies needed to produce one unit Product structure Tree Level X 0 B(2) D(3) C E E(2) 1 F(2) 2 13-33 MRP and ERP Bill of Materials – Part 2 How many more of each component is needed to make 15 Xs if there are 5 of each already in stock? X B(2) D(3) E C E(2) F(2)