CHAPTER 15:
MRP AND ERP
Teaching Notes
When covering the material the following points should be emphasized:

Dependent demand item needs are generated from higher level item needs of which they are a part.

The dependent demand needs tend to be lumpy and not dispersed uniformly.

Dependent demand item needs are calculated from higher level item needs of which they are a part.

MRP creates schedules identifying the parts and materials required to be purchased or manufactured,
time of the order release as well as the size of the order or production quantity.

MRP keeps track of inventory levels and serves as a link between inventory, purchasing and
production.

MRP inputs are:
a. Master Production Schedule
b. Bill of Materials
c. Inventory Records

Master Production Schedule is the driving force and the control mechanism of the MRP system
because it specifies the quantity required of each end item or key assembly by time period.

The theme of MRP is producing or purchasing the right materials at the right time and having them
available in the right places.

The MRP system uses backward scheduling. It uses low-level-coding and starts at the end item level
and explodes requirements level-by-level.

MRP provides feedback about delayed or cancelled orders, changes in quantities and due dates of
open and future orders.

MRP nervousness occurs as a result of the high frequency of updating the MRP system and the
amount and timing of changes, cancellations, additions, delays in order/manufacturing quantities of
an MRP system. If an MRP system is updated too frequently, the system becomes unstable and
inefficient. On the other hand, if the system is not updated frequently enough, the system becomes
inflexible. The trade-off between stability and flexibility can be balanced with the use of time fences.
Time fence is a time period between current date and some time into the future where the schedule is
frozen and no changes are allowed in the master production schedule. The shorter the time fence the
more flexible and nervous the system is and the longer the time fence the more stable and inflexible
the system is.

ERP constitutes the most general level of planning, followed by MRP II and MRP, while shop floor
scheduling and control involves the most detailed planning.
I have found the following approach to work quite well in terms of developing student understanding of
MRP:
1.
Emphasize the difference between independent and dependent demand, even though it repeats
material covered in the previous chapter.
Instructor’s Manual, Chapter 15
305
2.
Present an overview of MRP. Students find visual aids very helpful. Walk them through Figures
2, 3, 4, 5, 8, and 9.
3.
Go back through in more detail, covering low-level coding, lot-for-lot ordering, and working
through a product-tree and developing a material requirements plan.
4.
Emphasize the inputs of MRP.
5.
Solve at least two MRP problems completing two or three MRP tables for each problem.
6.
Make copies of the blank MRP tables on the next page and distribute multiple copies to each
student.
Answers to Discussion and Review Questions
1.
Independent demand refers to demand for end items; dependent demand refers to usage of
subassemblies and component parts which is dependent on demand for a “parent” item.
Independent demand is often random and therefore somewhat unpredictable; dependent demand
is derived from demand for end items.
2.
MRP is appropriate when requirements planning must be accomplished for items with derived
demand. It is best suited to situations in which demand is “lumpy” rather than continual, and
where lead times are fairly well known.
3.
a. A master schedule specifies the quantity and timing planned for finished goods.
b. A bill of materials indicates the components and their quantities needed to make and/or
assemble one unit of an end item.
c. An inventory status file maintains a record of inventories on-hand and on-order as well as
other information concerning suppliers, lead times, order sizes, and so on.
d. The gross requirement for an end item or component indicates how much of that item will be
needed.
e. The net requirement for an item is its gross requirement minus the quantity of that item
expected to be on-hand.
f.
A time-phased plan is essentially a product-tree with the various components displayed on a
time-scale utilizing lead times.
g. Low-level coding refers to a product structure in which each item is listed at the lowest level
that it appears in the tree or BOM.
4.
5.
306
Safety stock is not normally needed for dependent demand items below the end-item level
because the usage of these items are calculated from the quantities established for the end item in
the master schedule. However, in practice, there are a number of reasons to carry safety stock in
an MRP system. Some of these reasons include scrap, defective units, late deliveries due to
longer than expected production time of components or late deliveries of parts from the suppliers.
Maintaining safety stock is important for multi-level items because a shortage for a lower level
item in the BOM will cause a shortage for the end-item. However, if safety stock is carried for all
dependent demand items, the main advantage of MRP will be lost.
The need for safety stock arises when variability exits in usage and/or lead time. With derived
demand, the causes of variability in lead time can be related to vendor deliveries or variabilities in
internal processing (e.g., due to scheduling problems, machine breakdowns, material shortages,
etc.). Usage variabilities may be due to excessive scrap or increases in order sizes (say, related to
independent demand for certain items).
Operations Management, 7/e
6.
Because of the pyramid relationship that exists for components in an MRP system, it is not
realistic to attempt to provide safety stock at all levels because this would result in huge carrying
costs. Moreover, because shortage at any level will mean shortages from that point up to the top
of the tree, safety stock at lower levels provides only minimal protection. Instead, on items
subject to lead time variability, orders are submitted a bit earlier than needed, thereby gaining
some “safety time” to compensate for the possibility of increased lead time.
7.
A net change system is one that is updated as changes occur, while a regenerative system is
updated periodically. The regenerative system is best suited to systems which are fairly stable. It
affords lower processing costs than a net change system but it permits a lag between the time a
change occurs and the time it can be recorded. Hence, under a regenerative system, management
may not have the latest information for planning and control.
8.
Successful MRP requires accurate inputs (master schedules, bills of materials, and inventory
records). It also requires a computer to process information and generate material requirements
plans and plan.
9.
Among the usually mentioned advantages of MRP are low levels of in-process inventories, the
ability to evaluate material requirements which a given master schedule will entail, and an ability
to keep track of very large amounts of information. The disadvantages of MRP are mainly a
function of the disillusionment which arises when it takes much longer than expected and/or
personnel problems.
10.
MRP can contribute to productivity by providing management with the kinds of information it
needs to make the best use of available resources. For example, it can be used for capacity
planning to help reduce bottlenecks and better smooth demands on the system.
11.
MRP II is a second-generation approach to planning that incorporates MRP. It has a broader
scope to manufacturing resource planning in that it links business planning, production planning,
and the master schedule. [See Figure 15-16.]
12.
The term lot sizing refers to selecting a lot size to order. In the case of uniform demand, an EOQ
approach will yield an appropriate lot size. Under lumpy demand, it usually makes sense to time
orders so that they arrive as needed. The EOQ amount, though, may not equal the quantity needed
at a particular point in time. Lot-for-lot ordering is often used instead. However, some other lot
size may yield lower total costs. Because of the variations in timing and quantity generally
inherent in lumpy demand cases, there may not be a single approach which will consistently yield
a reasonably good answer.
Planned order receipts refers to a plan for future ordering; scheduled receipts indicates an actual
order has been made and when it is expected to arrive.
13.
14.
In the 1970s, manufacturers began to recognize the importance of the difference between
independent demand which is relatively stable and dependent demand which is rather “lumpy” by
nature. Earlier EOQ models which worked well for independent demand items did not work very
well for the more “lumpy” dependent demand items. Hence, MRP was developed to handle the
more “lumpy” dependent demand items. Adjustments still have to be made under MRP, but it
was developed to handle seasonal variations better than the older EOQ models.
15.
MRP II (Manufacturing Resource Planning) involves an effort to expand the scope of production
resource planning to include other functional areas of the firm in the planning process such as
marketing, finance, and purchasing. The integration of these areas in the formulation of the
resource plan allows the company to develop a plan that works and is acceptable to different areas
of the company. On the other hand ERP is an expanded effort to integrate standardized record
keeping that will permit information sharing among different departments in order to make better
decisions more rapidly and to manage the system more effectively. While MRP II builds links
between the overall business plan, aggregate plan and the master production schedule, ERP
Instructor’s Manual, Chapter 15
307
attempts to link and synchronize various independent databases within the firm and integrate
them into one system.
16.
The unforeseen costs of MRP include the following:
a. Training: The workers have to be trained to learn and become proficient with a new system
and its processes.
b. Integration and testing: Integrating the computer systems associated with different areas of
the firm and testing the links between various corporate areas and systems.
c. Data conversion and data analysis
d. Consultant fees
e. Solving implementation problems on an ongoing basis
f. Dealing with disappointing short-term results
g. Competition for high quality workers especially in the IT field.
Memo Writing Exercises
1.
It is possible that an intuitive scheduling approach without using MRP may function at an
inefficient level. However, the operational inefficiency may be ignored or may go unnoticed. It
is very important that Bill of Materials (BOM) and inventory records are accurate for MRP
execution because inaccuracies can lead to many problems including shortages, excess inventory,
missed schedules and deliveries. It is possible that current BOM is not updated after design
changes and stockroom inventories may not match computerized records mainly due to
employees not recording transactions. Both inventory records and BOM have to be streamlined
before MRP is implemented. In addition, appropriate education and training of employees should
help reduce the resistance to change and make implementation smoother. The above preimplementation actions will most likely take considerable time. However, if the implementation
begins without proper preparation and correction of problems, significant problems in customer
service and production efficiency may be experienced.
2.
An end item such as this chair is considered to be an independent demand item with uniform
demand. It is appropriate to use EOQ/ROP for the independent demand items because the
assumption of continual (uniform) usage and continuous monitoring is met.
The components and parts that go into end items are considered to be dependent demand items.
Their demand is dependent on the demand for the respective end items. Demand for the parts and
components tend to be lumpy and not continuous. Therefore, instead of continuous stocking and
monitoring the levels of inventory, these parts need to be stocked just prior to the time they will
be needed for manufacturing. This policy of stocking just prior to need on the shop floor will in
turn assist in reducing inventory investment.
In addition, while demand for independent demand items such as the chair is forecasted, demand
for the parts such as the legs, side rails, back support, etc., is calculated based on the demand for
the chair. If EOQ/ROP approach is used for the dependent demand parts, a lot of unnecessary
time could be spent to forecast each and every individual part. Since each forecast would be
independent, there could be great amount of discrepancy and disagreement between the forecast
for the end item and the forecast for the various parts. Safety stock will rarely be needed for
dependent demand items because the usage rate of the component is based on the parent part,
which is very predictable.
Therefore, it would be very inefficient to use EOQ/ROP approach for the dependent demand
items. For these items, instead of using EOQ/ROP approach, the company should consider
installing an MRP system.
308
Operations Management, 7/e
Master
Schedule for:
Week
Beg.
Inv.
1
2
3
4
5
6
7
8
5
6
7
8
5
6
7
8
5
6
7
8
5
6
7
8
Quantity
Week
Beg.
Inv.
1
2
3
4
Gross requirements
Scheduled receipts
On hand
Net requirements
Planned order receipt
Planned order release
Week
Beg.
Inv.
1
2
3
4
Gross requirements
Scheduled receipts
On hand
Net requirements
Planned order receipt
Planned order release
Week
Beg.
Inv.
1
2
3
4
Gross requirements
Scheduled receipts
On hand
Net requirements
Planned order receipt
Planned order release
Week
Beg.
Inv.
1
2
3
4
Gross requirements
Scheduled receipts
On hand
Net requirements
Planned order receipt
Planned order release
Instructor’s Manual, Chapter 15
309
Solutions
1.
F: 2
J: 2 x 2 = 4
D: 2 x 4 = 8
G: 1
L: 1 x 2 = 2
J: 1 x 2 = 2
H:
A:
C:
D:
1
1x4=4
1x2=2
1x2=2
Totals: F = 2; G = 1; H = 1; J = 6; D = 10; L = 2; A = 4; C = 2.
2.
a. B: 20 x 2 = 40 - 10 = 30
E: 30 x 2 = 60 - 12 = 48
C: 20 x 1 = 20 - 10 = 10
E: 20 x 2 = 40
D: 20 x 3 = 60 - 25 = 35
E: 35 x 2 = 70
Total: 48 + 20 + 60 = 138
b.
End Item
B(2)
E(2)
C
F(3)
G(2)
D(3)
E(2)
H(4)
E(2)
Total LT
4
5
5
5
6
The longest sequence is 6 weeks. Week 11 - 6 weeks = Week 5.
5
End Item
3.
L(2)
B(2)
C
J(3)
G(2)
K(3)
B(2)
H(4)
b.
Total LT:
5
6
7
6
6
The longest sequence is 7 days. Thus, Day 8 - 7 Days = Day 1 (now).
a. L: 2 x 40 = 80
C: 1 x 40 = 40
K: 3 x 40 = 120
-10
-15
-20
70
25
100
B: 2 x 70 = 140
B: 2 x 25 = 50
B: 2 x 100 = 200
-30
110
Total: 110 + 50 + 200 = 360
310
B(2)
6
Operations Management, 7/e
Solutions (continued)
4.
a.
Master
Schedule
E
Week
Beg.
Inv.
1
2
3
4
5
Quantity
LT = 2 wks.
6
80
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
80
Scheduled receipts
Projected on hand
Net requirements
80
Planned-order receipts
80
Planned-order releases
B(2)
LT = 1 wk.
80
Beg.
Inv.
1
2
3
Gross requirements
4
5
6
20
20
5
6
160
Scheduled receipts
Projected on hand
60
60
60
60
60
Net requirements
100
Planned-order receipts
120
Planned-order releases
J(4) & J(3) LT = 2 wks.
120
Beg.
Inv.
1
Gross requirements
2
480
Scheduled receipts
Projected on hand
3
20
20
20
4
240
30
30
30
50
80
50
Net requirements
460
160
Planned-order receipts
480
180
Planned-order releases
Instructor’s Manual, Chapter 15
480
50
180
311
Solutions (continued)
4.
b.
Master
Schedule
E
Week
Beg.
Inv.
1
2
3
4
5
Quantity
LT = 2 wks.
6
70
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
70
Scheduled receipts
Projected on hand
Net requirements
70
Planned-order receipts
70
Planned-order releases
B(2)
LT = 1 wk.
70
Beg.
Inv.
1
2
3
Gross requirements
4
5
6
40
40
5
6
140
Scheduled receipts
Projected on hand
60
60
60
60
Net requirements
80
Planned-order receipts
120
Planned-order releases
J(4) & J(3) LT = 2 wks.
120
Beg.
Inv.
1
Gross requirements
2
3
480
Scheduled receipts
Projected on hand
60
20
20
20
4
210
30
30
30
50
80
80
Net requirements
460
130
Planned-order receipts
480
180
Planned-order releases
480
80
180
There will be an additional 20 units of B and 30 units of J.
312
Operations Management, 7/e
Solutions (continued)
5. a. Product Structure Tree
P
K
3G
L
4H
W
2M
2N
Beg.
Inv.
1
3Z
c.
Weeks
6
7
100
100
6
7
100
100
Net requirements
100
100
Planned-order receipts
100
100
Master
Schedule
d.
P
2
3
4
5
Quantity
LT = 1 wk.
Beg.
Inv.
1
2
3
4
5
Gross requirements
Scheduled receipts
Projected on hand
Planned-order releases
K
LT = 2 wk.
Beg.
Inv.
1
2
3
4
Gross requirements
Scheduled receipts
10
Projected on hand
10
100
100
5
6
100
100
30
10
10
Net requirements
90
70
Planned-order receipts
90
70
5
6
Planned-order releases
G(3)
LT = 1 wk.
Beg.
Inv.
1
2
Gross requirements
7
90
70
3
4
270
210
7
Scheduled receipts
Projected on hand
40
40
40
40
Net requirements
230
210
Planned-order receipts
253
231
Planned-order releases
Instructor’s Manual, Chapter 15
253
231
313
Solutions (continued)
H(4)
LT = 1 wk.
Beg.
Inv.
1
2
3
4
360
280
200
40
Net requirements
160
240
Planned-order receipts
200
240
Gross requirements
5
6
7
Scheduled receipts
Projected on hand
Planned-order releases
314
200
200
200
200
240
Operations Management, 7/e
Solutions (continued)
6.
Day
Beg.
Inv.
4
5
100
150
4
5
100
150
200
Net requirements
100
150
200
Planned-order receipts
100
110
200
Master
Schedule
1
2
3
Quantity
Table (Variable LT)
Beg.
Inv.
1
2
3
Gross requirements
6
7
200
6
7
Scheduled receipts
Projected on hand
Planned-order releases
Wood Sections LT = 2 wks.
Beg.
Inv.
1
2
Gross requirements
Scheduled receipts
Projected on hand
100
150
200
3
4
200
300
400
5
6
100
60
60
100
100
Net requirements
100
300
400
Planned-order receipts
100
300
400
Planned-order releases
Braces
LT = 3 wks.
7
440
Beg.
Inv.
1
2
Gross requirements
400
3
4
5
6
300
450
600
7
Scheduled receipts
Projected on hand
60
60
60
60
Net requirements
240
450
600
Planned-order receipts
240
450
600
Planned-order releases
Legs
LT = 4 wks.
Beg.
Inv.
240
450
600
1
2
3
4
400
600
800
Gross requirements
5
6
7
Scheduled receipts
Projected on hand
120
120
120
120
Net requirements
280
600
800
Planned-order receipts
308
660
880
Planned-order releases
Instructor’s Manual, Chapter 15
968
880
315
Solutions (continued)
7.
Master
Schedule for: X
Week
Beg.
Inv.
1
2
3
4
5
Quantity
6
7
80
8
30
Week
Part X
Beg.
Inv.
1
2
3
4
5
Gross requirements
Lot size: LFL
6
7
8
80
30
Net requirements
80
30
Planned order receipt
80
30
Scheduled receipts
On hand
Planned order release
80
30
Week
Part B
Beg.
Inv.
1
2
3
4
Gross requirements
5
6
160
7
8
60
Scheduled receipts
Lot size: LFL
On hand
30
30
30
30
30
30
0
0
Net requirements
130
60
Planned order receipt
130
60
Planned order release
130
0
60
Week
Part D
Beg.
Inv.
1
2
Gross requirements
Lot size = 50
Scheduled receipts
On hand
50
20
20
70
3
5
6
7
260
240
120
90
50
50
70
4
10
50
20
0
0
Net requirements
140
180
100
40
Planned order receipt
150
200
100
50
200
100
50
Planned order release
150
*Note that the lead time is a function of the lot size.
316
8
Operations Management, 7/e
10
Solutions (continued)
8.
Master
Schedule
Week
A
LT = 1 wk.
Beg.
Inv.
1
2
3
Quantity
Beg.
Inv.
1
2
3
Gross requirements
4
5
6
40A
60B
30C
4
5
6
5
6
40
Scheduled receipts
Projected on hand
Net requirements
40
Planned order receipt
40
Planned order release
B
LT = 1 wk.
40
Beg.
Inv.
1
2
3
4
Gross requirements
60
Scheduled receipts
Projected on hand
10
10
10
10
10
10
Net requirements
50
Planned order receipt
50
Planned order release
C
LT = 2 wks.
50
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
30
Scheduled receipts
Projected on hand
10
10
10
10
10
10
10
Net requirements
20
Planned order receipt
20
Planned order release
D
LT = 2 wks.
20
Beg.
Inv.
1
2
Gross requirements
Scheduled receipts
Projected on hand
3
4
40
180
125
85
25
125
125
5
95
Planned order receipt
Instructor’s Manual, Chapter 15
6
100
Net requirements
Planned order release
5
100
100
317
Solutions (continued)
9.
Saw
A(2)
B
E(3)
D
C(3)
D(2)
F(3)
E(2)
D(2)
D
A
E
F
Saw
B
D
D
C
E
1
2
3
4
5
6
7
8
week
318
Operations Management, 7/e
Solutions (continued)
9. (continued)
Master
Schedule for
Saws
Week
Beg.
Inv.
1
2
3
4
5
6
7
Quantity
8
50
Week
Item: Saw
LT = 2 wks.
Beg.
Inv.
1
2
3
4
5
6
7
8
Gross requirements
Scheduled receipts
50
Projected on hand
Net requirements
Planned order receipt
Planned order release
15
35
35
35
Week
Item: A(2)
LT = 1 wk.
Beg.
Inv.
1
2
3
4
5
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned order receipt
LT = 2 wks.
Beg.
Inv.
1
2
3
4
5
6
8
7
8
105
30
75
75
75
Beg.
Inv.
5
Gross requirements
Scheduled receipts
150
180
Projected on hand
Net requirements
10
140
180
Planned order receipt
140
180
Instructor’s Manual, Chapter 15
7
60
4
Planned order release
8
10
60
60
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
Item: E(3) & E(2) LT = 1 wk.
7
70
Planned order release
Item: C(3)
6
1
2
3
140
6
180
319
Solutions (continued)
9. c.
E
LT = 1 wk.
Beg.
Inv.
1
2
3
Gross requirements
4
5
150
180
130
80
20
100
100
6
7
8
6
7
8
Scheduled receipts
Projected on hand
10
10
30
130
Net requirements
Planned order receipt
Planned order release
20
10.
20
100
100
100
100
100
Robot
C(3)
B
E
F
G
G(2)
H
I
Master
Schedule for
Robot
Week
Beg.
Inv.
1
2
3
4
5
Quantity
Item: Robot LT = 2 wks.
40
Beg.
Inv.
1
2
3
4
5
6
Gross requirements
7
8
40
Scheduled Receipts
Projected on hand
10
10
10
10
10
10
10
Net Requirements
30
Planned order receipts
30
Planned order releases
320
10
30
Operations Management, 7/e
Solutions (continued)
10. (continued)
Item: C(3) LT = 1 wk.
Beg.
Inv.
1
2
3
4
Gross requirements
5
6
7
8
5
6
7
8
5
5
5
5
90
Scheduled receipts
Projected on hand
20
20
20
20
20
20
Net Requirements
70
Planned order receipts
70
Planned order releases
Item: G(2C + 1 Robot) LT = 2 wks.
70
Beg.
Inv.
1
2
3
Gross requirements
4
170
Scheduled receipts
Projected on hand
15
15
15
15
15
Net requirements
155
Planned order receipts
160
Planned order releases
Instructor’s Manual, Chapter 15
160
321
Solutions (continued)
11. a.
Master
Schedule
E)
Period
Beg.
Inv.
1
2
3
4
5
Quantity
LT = 1 wk.
Beg.
Inv.
1
2
3
4
5
120
Scheduled receipts
0
Projected on hand
0
Net requirements
120
Planned order receipts
120
Planned order releases
LT = 1 wk.
Beg.
Inv.
1
2
3
6
7
8
4
5
6
7
8
5
6
7
8
240
Scheduled receipts
40
Projected on hand
40
40
Net requirements
200
Planned order receipts
200
Planned order releases
LT = 2 wks.
8
120
Gross requirements
N(4)
7
120
Gross requirements
I(2)
6
200
Beg.
Inv.
1
2
Gross requirements
3
4
800
Scheduled receipts
Projected on hand
100
100
100
Net requirements
700
Planned order receipts
700
Planned order releases
322
100
700
Operations Management, 7/e
Solutions (continued)
11. a. (continued)
V
LT = 2 wks.
Beg.
Inv.
1
2
3
Gross requirements
200
Scheduled receipts
10
4
5
6
7
8
4
5
6
7
8
Projected on hand
Net requirements
190
Planned order receipts
190
Planned order releases
190
b.
Master
Schedule for E
Period
Beg.
Inv.
1
2
3
Quantity
100
50
Week
E
LT = 1 wk.
Beg.
Inv.
1
2
3
4
5
6
7
8
Gross requirements
100
50
Scheduled receipts
0
0
Projected on hand
0
0
Net requirements
100
50
Planned order receipt
100
50
Planned order release
Instructor’s Manual, Chapter 15
100
50
323
Solutions (continued)
11. b. (continued)
I(2)
LT = 1 wk.
Beg.
Inv.
1
2
3
Gross requirements
4
5
200
Scheduled receipts
40
Projected on hand
40
6
7
8
6
7
8
660
660
660
6
7
8
150
150
150
100
40
Net requirements
160
100
Planned order receipts
160
100
Planned order releases
N(4)
LT = 2 wks.
160
Beg.
Inv.
1
2
Gross requirements
3
100
4
640
5
400
Scheduled receipts
Projected on hand
100
100
100
260
Net requirements
540
140
Planned order receipts
800
800
Planned order releases
V
LT = 2 wks.
800
Beg.
Inv.
1
800
2
3
Gross requirements
160
Scheduled receipts
10
Projected on hand
4
5
100
50
50
Net requirements
150
50
Planned order receipts
200
200
Planned order releases
324
260
200
200
Operations Management, 7/e
Solutions (continued)
11. c. Case 1.
One week elapsed
Week
Master
Schedule for
Quantity
E
LT = 1 wk.
Beg.
Inv.
1
2
3
4
5
6
7
8
120
Week
Beg.
Inv.
1
2
3
4
100
5
6
7
8
Gross requirements
120
100
Scheduled receipts
0
0
Projected on hand
0
0
Net requirements
120
100
Planned order receipt
120
100
Planned order release
120
100
Week
I (2)
LT = 1 wk.
Beg.
Inv.
1
2
Gross requirements
3
4
5
6
7
240
Scheduled receipts
40
Projected on hand
40
8
200
0
40
0
Net requirements
200
200
Planned order receipt
200
200
Planned order release
200
200
Week
N (4)
LT = 2 wks.
Beg.
Inv.
1
Gross requirements
2
3
4
5
800
6
Net requirements
100
Planned order receipt
100
0
700
800
700
800
Planned order release
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned order receipt
Planned order release
Instructor’s Manual, Chapter 15
7
8
0
Projected on hand
LT = 2 wks.
8
800
Scheduled receipts
V
7
800
Week
Beg.
Inv.
1
2
3
4
200
10
5
6
200
0
0
200
200
190
190
200
325
Solutions (continued)
11. c. Case 2.
Three weeks elapsed
Master Schedule
for Saws
Week
Beg.
Inv.
1
Quantity
2
3
4
5
6
7
8
7
8
6
7
8
5
6
7
8
5
6
7
8
120
100
Week
E
LT = 1 wk.
Beg.
Inv.
1
2
3
4
5
6
Gross requirements
120
100
Scheduled receipts
0
0
Projected on hand
0
0
Net requirements
120
100
Planned order receipt
120
100
Planned order release
120
100
Week
I (2)
LT = 1 wk.
Beg.
Inv.
Gross requirements
1
2
3
4
5
240
200
Scheduled receipts
0
Projected on hand
40
0
Net requirements
200
200
Planned order receipt
200
200
Planned order release
N (4)
LT = 2 wks.
200
Week
Beg.
Inv.
1
2
3
4
Gross requirements
800
Scheduled receipts
0
Projected on hand
0
Net requirements
800
Planned order receipt
800
Planned order release
800
Week
V
LT = 2 wks.
1
2
3
4
Gross requirements
200
Scheduled receipts
0
Projected on hand
0
Net requirements
200
Planned order receipt
200
Planned order release
326
Beg.
Inv.
200
Operations Management, 7/e
Solutions (continued)
12. a.
Golf
Cart
Top
Supports (4)
Base
Cover
Motor
Body
Frame
Controls
Seats (2)
Wheels (4)
Supports
Top
b.
Cover
Cart
Motor
Frame
Body
Controls
Base
Wheels
Seats
2
3
4
5
6
7
week
Instructor’s Manual, Chapter 15
327
Solutions (continued)
12. c.
Master
Week
Schedule for
golf carts
Quantity
Item: Gold Cart LT = 1 wk.
Beg.
Inv.
1
2
3
4
5
6
7
8
200
Beg.
Inv.
1
2
3
4
5
6
7
Gross requirements
8
200
Scheduled receipts
Projected on hand
Net requirements
200
Planned order receipts
200
Planned order releases
Item: Top LT = 1 wk.
200
Beg.
Inv.
1
2
3
4
5
6
Gross requirements
7
8
200
Scheduled receipts
Projected on hand
40
40
40
40
40
40
40
40
Net requirements
160
Planned order receipts
160
Planned order releases
Item: Supports (4) LT = 1
wk.
Gross requirements
160
Beg.
Inv.
1
2
3
4
5
6
7
8
640
Scheduled receipts
Projected on hand
200
200
200
200
200
Net requirements
440
Planned order receipts
440
Planned order releases
328
0 200
440
Operations Management, 7/e
Solutions (continued)
12. c. (continued)
Item: Cover LT = 1 wk.
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
7
8
7
8
160
Scheduled receipts
Projected on hand
Net requirements
160
Planned order receipts
160
Planned order releases
Item: Base LT = 1 wk.
160
Beg.
Inv.
1
2
3
4
5
6
Gross requirements
200
Scheduled receipts
Projected on hand
20
20
20
20
20
20
20
Net requirements
180
Planned order receipts
180
Planned order releases
Item: Motor LT = 2 wks.
180
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
7
8
120
120
180
Scheduled receipts
Projected on hand
Net requirements
300
300
300
300
300
300
(120)
Planned order receipts
Planned order releases
Instructor’s Manual, Chapter 15
329
Solutions (continued)
12. c. (Continued)
Item: Body LT = 3 wks.
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
7
8
7
8
7
8
180
Scheduled receipts
Projected on hand
50
50
50
50
50
50
50
Net requirements
130
Planned order receipts
130
Planned order releases
Item: Seats LT = 2 wks.
130
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
360
Scheduled receipts
Projected on hand
120
120
120
120
120
120
120
Net requirements
240
Planned order receipts
240
Planned order releases
Item: Frame LT = 1 wk.
240
Beg.
Inv.
1
2
Gross requirements
3
4
5
6
130
Scheduled receipts
Projected on hand
35
35
Net requirements
95
Planned order receipts
95
Planned order releases
330
35
95
Operations Management, 7/e
Solutions (continued)
12. c. (Continued)
Beg.
Inv.
Item: Controls LT = 1 wk.
1
2
3
Gross requirements
4
5
6
7
8
4
5
6
7
8
130
Scheduled receipts
Projected on hand
Net requirements
130
Planned order receipts
130
Planned order releases
130
Beg.
Inv.
Item: Wheel Assemblies LT = 1 wk.
1
2
3
Gross requirements
520
Scheduled receipts
Projected on hand
240
240
240
240
Net requirements
280
Planned order receipts
280
Planned order releases
280
13. a.
Master
Schedule for
golf carts
Week
Beg.
Inv.
1
2
3
4
5
8
9
100
100
8
9
100
100
100
Net requirements
100
100
100
Planned order receipts
100
100
100
Quantity
6
7
100
b.
Item: Golf cart LT = 1 wk.
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
7
Scheduled receipts
Projected on hand
Planned order releases
Instructor’s Manual, Chapter 15
100
100
100
331
Solutions (continued)
13. b. (continued)
Week
Beg.
Inv.
1
2
3
4
5
Quantity
Item: Tops LT = 1 wk.
6
7
8
9
100
100
7
8
9
100
100
100
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
100
Scheduled receipts
Projected on hand
40
40
40
40
40
40
Net requirements
60
100
100
Planned order receipts
60
100
100
Planned order releases
Item: Base LT = 1 wk.
60
Beg.
Inv.
1
2
3
4
5
Gross requirements
100
100
6
7
8
100
100
100
9
Scheduled receipts
Projected on hand
20
20
20
20
20
20
Net requirements
80
100
100
Planned order receipts
80
100
100
Planned order releases
80
100
100
6
7
c. Master schedule for golf carts
Week
Beg.
Inv.
1
2
3
4
5
8
9
100
100
8
9
100
100
100
Net requirements
100
100
100
Planned order receipts
100
100
100
Quantity
Item: Golf Cart LT = 1 wk.
100
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
7
Scheduled receipts
Projected on hand
Planned order releases
332
100
100
Operations Management, 7/e
Solutions (continued)
13. c. (continued)
Beg.
Inv.
Week
1
2
3
4
5
6
Quantity
7
8
9
100
100
7
8
9
100
100
100
50
100
50
50
100
Item: Bases LT = 1 wk.
Beg.
Inv.
1
2
3
4
Gross requirements
5
6
100
Scheduled receipts
Projected on hand
20
20
20
20
50
Net requirements
Planned order releases
EPP =
50
0
Planned order receipts
14. a.
100
30
Setup Cost
Carrying cost/unit/month
=
30
50
50
50
50
50
50
50
50
50
$11
= 78.56  79 part periods
.14
Part Period Model
Month
(Period)
1
2
3
4
5
6
7
8
Demand
80
10
30
30
30
Lot Size
120**
60**
-
Part
Periods
10 x 1 = 10
30 x 2 = 60
30 x 2 = 60
Extra
Cumulative
Inventory
Part Periods
Carried
40
10
30
70*
30
30
60
Total = 130
* 70 is the closest cumulative part period to 79(EPP)
** Manufacture 120 units and 60 units in the second and the 6th month respectively.
Total Cost = Carrying cost + Setup cost
Total Cost = (130 units) x ($.14/month) = $18.20
Setup Cost = (2 setups) x ($11/setup) = $22.00
Total CostEPP = $18.20 + $22.00 = $40.20
Instructor’s Manual, Chapter 15
333
Solutions (continued)
14. b. EOQ Method
Total demand for 8 months = 80 + 10 + 30 + 30 + 30 = 180 units
180
Average demand per month =
= 22.5 units/month
8
2DS
2(22.5)(11)
495
EOQ =
=
=
= 3535.71 = 59.46  60 units
H
.14
.14
EOQ Method
Extra
Inventory
Month
Demand
Lot Size
Carried
1
2
80
120*
40
3
10
30
4
30
5
6
30
60*
30
7
30
8
30
Total = 130
*Two lots are produced (produce 120 units in the second month
and 60 units in the 6th month)
Total Cost = Carrying cost + Setup cost
Carrying cost = (130 units) x ($.14/month) = $18.20
Setup Cost = (2 setups) x ($11/setup) = $22.00
Total CostEOQ = $18.20 + $22.00 = $40.20
c.
Fixed Period Ordering: 2 Month Interval
Period
(Month)
1
2
3
4
5
6
7
8
Demand
80
10
30
30
30
Lot Size
90
30
30
30
Extra
Inventory
Carried
10
-
Total Cost = Carrying cost + Setup cost
Carrying cost = (10 units) x ($.14/unit/month) = $1.40
Setup Cost = (4 setups) x ($11/setup) = $44.00
Total Cost = $1.40 + $44.00 = $45.40
Since the total cost for EPP = EOQ = $40.20 we would recommend EPP and EOQ approach
over fixed period approach because the total cost for fixed period approach is $45.40 > 40.20
334
Operations Management, 7/e
Solutions (continued)
15.
EPP =
Fixed Cost
=
Carrying Cost
Period
1
3
16.
Lot Size
125
1.65
= 75.76  76
Extra
Inv. carried
Periods
carried
Part
periods
Cum.
part-periods
40
60
160
0
20
100
0
1
2
0
20
200
0
20*
220
100
120
140
0
20
20
0
1
3
0
20
60
0
20
80*
[closest to 76]
[closest to 76]
7
80
0
0
0
0
Produce 60 units in period 1; Produce 140 units in period 3; Produce 80 units in period 7.
Week
1
2
3
4
Material
40
80
60
70
Week
Labor hr.
1
160
Mach. hr.
120
a. Capacity utilization
Week
1
Labor
53.3%
2
320
3
240
4
280
240
180
210
2
106.7%
3
80%
4
93.3%
Machine
60%
120%
90%
105%
b. Capacity utilization exceeds 100% for both labor and machine in week 2, and for machine alone in
week 4.
Production could be shifted to earlier or later weeks in which capacity is underutilized. Shifting to
an earlier week would result in added carrying costs; shifting to later weeks would mean backorder
costs.
Another option would be to work overtime. Labor cost would increase due to overtime premium, a
probable decrease in productivity, and possible increase in accidents.
Instructor’s Manual, Chapter 15
335
Solutions (continued)
17.
Fabrication
Labor
Mach.
Assembly
Labor
Mach.
Packaging
Labor
Mach.
Day
Product
Mon
A
B
400
300
700
200
300
500
300
300
600
200
300
500
200
450
650
100
150
250
Tue
A
B
800
200
1000
400
200
600
600
200
800
400
200
600
400
300
700
200
100
300
Wed
A
B
200
200
400
100
200
300
150
200
350
100
200
300
100
300
400
50
100
150
Summary:
Labor capacity of 700 hours is exceeded on Tuesday in the Fabrication Department and the
Assembly Department.
Machine capacity of 500 hours is also exceeded in the same two departments on Tuesday.
Shift 150 units of A (300 labor hours, 150 machine hours) to Wednesday in the Fabrication
Department. For assembly, a similar shift of 150 units of A could be made, although other
combinations are possible (e.g., some A and some B).
336
Operations Management, 7/e
Solutions (continued)
18.
Master
Schedule for
#565
Week
Beg.
Inv.
1
2
3
4
5
Quantity
6
7
8
7
8
6
7
8
6
7
8
180
Week
Item: #565 LT = 1 wk.
Beg.
Inv.
1
2
3
4
5
Gross requirements
6
180
Scheduled receipts
On hand
Net requirements
180
Planned order receipt
180
Planned order release
180
Week
Item: Y36(2) LT = 1 wk.
Beg.
Inv.
1
2
3
4
Gross requirements
5
360
Scheduled receipts
On hand
200
Net requirements
160
Planned order receipt
160
Planned order release
160
Week
Item: J27(4) LT = 2 wks.
Beg.
Inv.
1
2
3
Gross requirements
4
5
640
Scheduled receipts
On hand
Net requirements
640
Planned order receipt
640
Planned order release
Instructor’s Manual, Chapter 15
640
337
Solutions (continued)
18. (continued)
Master
Schedule for:
B
Week
Beg.
Inv.
1
2
3
Quantity
4
5
6
7
8
15
15
15
15
15
4
5
6
7
8
15
15
15
15
15
25
10
0
5
15
15
15
5
15
15
15
15
15
7
8
Week
Item: B
Beg.
LT = 2 wks. Inv.
1
2
3
Gross requirements
Scheduled receipts
On hand
20
5
25
25
25
Net requirements
Planned order receipt
Planned order release
5
15
Week
Item: W
Beg.
LT = 2 wks. Inv.
Gross requirements
1
2
3
4
5
6
5
15
15
15
Scheduled receipts
On hand
Net requirements
Planned order receipt
Planned order release
338
Operations Management, 7/e
Reading: ABCs of ERP
Answers to Questions
1.
ERP (Enterprise Resource Planning) is an integrated information system that is used to plan the
resources and processes needed to produce, ship and account for all customer orders both in
manufacturing and service organizations. Integration of databases permits standardization of
processes, allows easier access to information by various departments and more importantly makes
it possible to share information to make better and timely decisions in serving the customers. For
example, ERP would make it possible for departments such as accounting, sales, production,
materials management having immediate access and to new customer orders within the same
system. ERP would also allow the customer service representative to quickly check various
databases such as inventory, accounting, and marketing and production to rapidly respond to
questions from customers.
2.
Following are ways ERP can improve a company’s business performance:
a) Improvements in order tracking and order fulfillment
b) Rapid completion of orders by customer service representatives due to easy access to various
databases within the firm
c) Rapid movement of an order through the organization
d) Improvement in data analysis to make better decisions due to improved software capabilities
and integration of the different databases within the company
3.
Obstacles to implementing ERP include:
a) Getting employees and departments to cooperate and to agree to a new software system
b) Implementation problem due to lack of training
c) Technical problems involving the software
d) Consultant problems
4.
ERP offers a natural platform to connect the firm's internal databases with e-commerce operations
of the company. However, due to specialized needs of e-commerce operations, ERP vendors are
unable to support all of the requirements and needs of Internet related operations of the firm. The
niche Internet software vendors provide firms with specialized e-commerce software that is easy to
hook-up and use. Both the ERP and specialized software vendors assist companies with their ecommerce applications. In addition, ERP also provides a natural platform to connect to the
databases of suppliers, and customers on the supply chain that permits sharing of information
regarding sales forecasts, inventories, production plans, etc. The integration of databases between
suppliers and customers assist firms in making better decisions as a result of having additional
information from their suppliers and or their customers on the supply chain.
Instructor’s Manual, Chapter 15
339
Case: DMD Enterprises
Master
Schedule for:
Arrows
Week
Master
Schedule for:
Darts
Week
Beg.
Inv.
1
2
3
4
5
6
7
8
15
15
15
15
15
4
5
6
7
8
10
10
10
10
10
4
5
6
7
8
15
15
15
15
15
10
0
0
0
0
Net requirements
5
15
15
15
Planned order receipt
5
15
15
15
15
15
4
5
6
7
8
10
10
10
10
10
12
2
0
0
0
Net requirements
8
10
10
Planned order receipt
8
10
10
7
8
5
5
Quantity
Beg.
Inv.
1
2
3
Quantity
Lot size: LFL
Arrows
LT = 2 wks.
Week
Beg.
Inv.
1
2
3
Gross requirements
Scheduled receipts
On hand
20
5
25
25
25
Planned order release
5
Lot size: LFL
Darts
LT = 2 wks.
Week
Beg.
Inv.
1
2
3
Gross requirements
Scheduled receipts
On hand
20
2 2
2
22
22
Planned order release
8
Lot size: 25
Part X
LT = 1 wk.
15
10
10
Week
Beg.
Inv.
1
2
3
4
5
6
5
15
15
15
0
10
20
5
Net requirements
15
5
Planned order receipt
25
25
Gross requirements
Scheduled receipts
On hand
Planned order release
340
5 5
5
5
25
25
Operations Management, 7/e
Case: DMD Enterprises (continued)
Lot size: LFL
Part M
LT = 1 wk.
Week
Beg.
Inv.
1
2
3
4
5
6
5
15
15
15
0
0
0
Net requirements
5
15
15
15
Planned order receipt
5
15
15
15
15
15
15
Gross requirements
7
8
7
8
Scheduled receipts
On hand
0 0
0
Planned order release
0
5
Lot size: LFL
Part K
LT = 1 wk.
Week
Beg.
Inv.
1
2
3
4
5
6
16
20
20
0
0
0
Net requirements
13
20
20
Planned order receipt
13
20
20
20
20
Gross requirements
Scheduled receipts
On hand
3 3
3
3
Planned order release
3
13
Lot size: 30
Part Q
LT = 1 wk.
Week
Beg.
Inv.
1
2
Gross requirements
Scheduled receipts
On hand
15
15
15
3
4
5
13
20
20
2
12
22
18
8
30
30
Net requirements
15
Planned order receipt
Planned order release
Instructor’s Manual, Chapter 15
0
30
6
7
8
22
22
22
30
341
Case: DMD Enterprises (continued)
Lot size: 30
Part F
LT = 1 wk.
Week
Beg.
Inv.
1
2
Gross requirements
Scheduled receipts
On hand
3
4
5
6
25
33
10
10
8
0
27
17
7
7
7
7
8
8
8
15
10
10
25
Net requirements
33
Planned order receipt
60
Planned order release
60
Lot size: 12
Part W LT* = 2 or 3 wks.
7
Week
Beg.
Inv.
1
2
3
4
5
6
31
55
55
15
1
6
11
8
Net requirements
11
54
49
4
Planned order receipt
12
60
60
12
Gross requirements
Scheduled receipts
On hand
Planned order release
18
2
20
72
20
60
12
*If the lot size is less than 36, then the lead time is 2 weeks, otherwise the lead time is 3 weeks.
342
Operations Management, 7/e
Operations Tour: Stickley Furniture
1.
Batches of different types of furniture, such as tables, chairs, desks, dressers, etc. Repetitive such
as sawing, drilling, finishing, etc., and job shop for expensive one-of-a-kind special orders that
may be received.
2.
Each job is accompanied by a set of bar codes that I.D. the job and the operation. As each
operation is completed, the operator removes a bar code sticker and delivers it to the scheduling
office where it is scanned into a computer, thereby enabling production control to keep track of
progress on a job, and to know its location in the shop.
3.
The information needed to plan, schedule and process the order for 40 mission oak dining room
sets:
a. Number of finished units presently in inventory.
b. Type of wood
c. Type of furniture
d. Style of furniture
e. Number of finished products needed
f.
List of component parts for each finished product
g. Operations required for each component part
h. Inventory for each component part
i.
Sequence of operations for each component
j.
Sequence of operations for each finished product
k. Orders already in progress or scheduled to precede this order
l.
Unutilized equipment and labor
m. Processing times for each component and total processing time for the finished product
4.
One benefit would be the stability brought about by the maintenance of a constant size work
force. A negative point would be the buildup of inventories during certain quarters of the year.
5.
Since you have a dependent demand situation, the installation of an MRP system might be of
great help to this company in meeting its orders on time and in keeping inventory costs down.
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343