Chapter 12
MIS 373: Basic Operations Management
Additional content from Jeff Heyl and L. Beril Toktay
1

• After this lecture, students will be able to
1. Describe the inputs, outputs, and nature of MRP processing.
2. Explain bill of materials
3. Explain time-phased product structure
4. Describe differences between MRP and ERP
MIS 373: Basic Operations Management 2

• A computer-based information system that translates master schedule requirements for end items into timephased requirements for subassemblies, components, and raw materials.
• The MRP is designed to answer three questions:
1. What is needed?
2. How much is needed?
3. When is it needed?
MIS 373: Basic Operations Management 3

How much and when finished product is desired
Composition of a finished products
How much inventory is on hand or on order
MIS 373: Basic Operations Management
4

• Master schedule
• How much and when finished product is desired
• Bill of Materials (BOM)
• Composition of a finished products
• Inventory Records
• How much inventory is on hand or on order
MIS 373: Basic Operations Management 5

MASTER SCHEDULE
• Master schedule:
• States:
• Which end items are to be produced
• When these are needed
• In what quantities (customer orders, forecasts, order from warehouses to build up seasonal inventories).
Item X
Quantity
Weekly Quantity
11 12 13 14 15 16 17 18
100 150
MIS 373: Basic Operations Management 6

MASTER SCHEDULE
• Master schedule:
• States:
• Which end items are to be produced Item X
• When these are needed
• In what quantities (customer orders, forecasts, order from warehouses to build up seasonal inventories).
Item X
Quantity
Weekly Quantity
11 12 13 14 15 16 17 18
100 150
MIS 373: Basic Operations Management 7

MASTER SCHEDULE
• Master schedule:
• States:
• Which end items are to be produced Item X
• When these are needed at beginning of week 14 and at beginning of week 18
• In what quantities (customer orders, forecasts, order from warehouses to build up seasonal inventories).
Item X
Quantity
Weekly Quantity
11 12 13 14 15 16 17 18
100 150
MIS 373: Basic Operations Management 8

MASTER SCHEDULE
• Master schedule:
• States:
• Which end items are to be produced Item X
• When these are needed at beginning of week 14 and at beginning of week 18
• In what quantities (customer orders, forecasts, order from warehouses to build up seasonal inventories).
100 at beginning of week 14
150 at beginning of week 18
Item X
Quantity
Weekly Quantity
11 12 13 14 15 16 17 18
100 150
MIS 373: Basic Operations Management 9

 The master schedule should cover a period that is at least equivalent to the cumulative lead time
– 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.
CLT = 9 weeks
MIS 373: Basic Operations Management 10

• Following the previous example, if CLT=9
• When should we start work for the demand on the week 14?
• When should we start work for the demand on the week 18?
Item X
Quantity
Weekly Quantity
11 12 13 14 15 16 17 18
100 150
MIS 373: Basic Operations Management 11

BILL OF MATERIALS
• A listing of all of the assemblies, subassemblies, parts, and raw materials needed to produce one unit of a product
• Product structure tree
• A visual depiction of the requirements in a bill of materials, where all components are listed by levels
MIS 373: Basic Operations Management 12

parent component
Amount needed for assembly at the next higher level only
MIS 373: Basic Operations Management parent component
Level 0 = end item
Level 1
Level 2
13

• Low-level coding
• Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level at which the component occurs
• Example: 1 X requires: 2 B, 1 C, 6 D, 28 E, and 2 F
X: 1
Level 0 X
Level 1 B(2) C C: 1 x 1 = 1 B: 2 x 1 = 2
D: 3 x 2 = 6
E: 1 x 2 = 2
E: 4 x 6 = 24
Level 2
Level 3
D(3)
E(4)
E E(2) F(2) E: 2 x 1 = 2
F: 2 x 1 = 2
MIS 373: Basic Operations Management 14

X: 1
Level 0 X
B: 2 x 1 = 2
Level 1 B(2) C
D: 3 x 2 = 6
E: 1 x 2 = 2
E: 4 x 6 = 24
Level 2 D(3) E
Level 3 E(4)
MIS 373: Basic Operations Management
• 1 X requires:
B: 2
C: 1
D: 6
E: 2+24+2=28
F: 2
E(2) F(2)
C: 1 x 1 = 1
E: 2 x 1 = 2
F: 2 x 1 = 2
15

• 1 X requires:
B: 2
C: 1
D: 6
E: 28
F: 2
Level 0 X
Level 1
Level 2 D(3)
B(2)
Level 3 E(4)
10 X require:
B: 2x104 =16
C: 1x1010 =0
D: 6x108 =52
E: 28x1060 =220
F: 2x100 =20
E
C
E(2) F(2)
Does not consider item hierarchy!
• On hand inventory
B: 4
C: 10
D: 8
E: 60
F: 0
MIS 373: Basic Operations Management 16

X: 10
Level 0
Level 1
B: 2 x 10 4 = 16
D: 3 x 16 – 8 = 40
Level 2
E: 4 x 40
–
60 =100
Level 3
• 10X require:
B: 16
C: 0
D: 40
E: 100+16+0=116
F: 0
MIS 373: Basic Operations Management
B(2)
D(3) E
E(4)
E: 1 x 16 = 16
X
C
E(2) F(2)
E: 2 x 0 = 0
C: 1 x 10 10 = 0
F: 2 x 0 = 0
“Low-level coding”
• On hand inventory
B: 4
C: 10
D: 8
E: 60
F: 0
17

• MRP processing takes the end item requirements specified by the master schedule and
“explodes” them into time-phased requirements for assemblies, parts, and raw materials offset by lead times
Material F delivery lead-time
Part E fabrication lead-time
Sub assembly lead-time Final assembly lead-time
MIS 373: Basic Operations Management 18

EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• An example BOM
A
B(2) C(1)
D(3) E(3) D(1)
The respective lead time
Parts /
Product
A
B
C
D
E
Process
Lead Time
10
15
10
15
10
Question:
When do we start producing/ordering each part?
MIS 373: Basic Operations Management 19

EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• Let’s assume that we need 50 units of A …
• Based on the BOM, we will need
• Level 1: 100 units of B
• Level 2: 300 units of D
• Level 1: 50 units of C
• Level 2: 50 units of D
• Level 2: 150 units of E
A
B(2) C(1)
D(3) E(3) D(1)
• Putting together:
• 100 B, 50 C, 350D, 150 E
Assembly
Purchase
MIS 373: Basic Operations Management 20

EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• Let’s assume that we need 50 units of A…
Delivery date for final product
Parts-Products
A
B
C
D
E
MIS 373: Basic Operations Management
5 days
21

EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A Start assembly for
50 units of A
A
B(2) C(1)
Parts-Products
A
B
C
D
E
MIS 373: Basic Operations Management
5 days
D(3) E(3) D(1)
Parts /
Product
A
B
C
D
E
Process
Lead Time
10
15
10
15
10
22

EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A Start assembly for
100 units of B
A
B(2) C(1)
Parts-Products
A
B
C
D
E
MIS 373: Basic Operations Management
5 days
D(3) E(3) D(1)
Parts /
Product
A
B
C
D
E
Process
Lead Time
10
15
10
15
10
23

EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A Start assembly for
50 units of C
A
B(2) C(1)
Parts-Products
A
B
C
D
E
MIS 373: Basic Operations Management
5 days
D(3) E(3) D(1)
Parts /
Product
A
B
C
D
E
Process
Lead Time
10
15
10
15
10
24

EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A Order 300 units of D for
B’s process
A
B(2) C(1)
Parts-Products
A
B
C
D
E
MIS 373: Basic Operations Management
5 days
D(3) E(3) D(1)
Parts /
Product
A
B
C
D
E
Process
Lead Time
10
15
10
15
10
25

EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A Order 50 units of D for
C’s assembly
A
B(2) C(1)
Parts-Products
A
B
C
D
E
MIS 373: Basic Operations Management
5 days
D(3) E(3) D(1)
Parts /
Product
A
B
C
D
E
Process
Lead Time
10
15
10
15
10
26

EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A Order 150 units of E for
C’s assembly
A
B(2) C(1)
Parts-Products
A
B
C
D
E
MIS 373: Basic Operations Management
5 days
D(3) E(3) D(1)
Parts /
Product
A
B
C
D
E
Process
Lead Time
10
15
10
15
10
27

• A schedule indicating the amount and timing of future orders
• Authorizing the execution of planned orders
• Revisions of the dates or quantities, or the cancellation of orders
MIS 373: Basic Operations Management 28


 Performance-control reports
 Evaluation of system operation, including deviations from plans and cost information
• e.g., missed deliveries and stockouts
 Planning reports
 Data useful for assessing future material requirements
• e.g., purchase commitments
 Exception reports
 Data on any major discrepancies encountered
• E.g., late and overdue orders, excessive scrap rates, requirements for nonexistent parts
MIS 373: Basic Operations Management 29

• ERP was the next step in an evolution that began with MRP
• ERP typically has an MRP core
• Many organizations use a functional structure. Information tends to flow freely within each function but less so between functions.
• ERP represents an expanded effort to integrate standardized record keeping that will permit information sharing among different areas of an organization in order to manage the system more effectively
• A system to capture and make data available in real-time to decision makers throughout the organization.
• ERP systems are composed of a collection of integrated modules
MIS 373: Basic Operations Management 30

Module Brief Description
Accounting/Finance
Marketing
Human Resources
A central component of most ERP systems. It provides a range of financial reports, including general ledger, accounts payable, accounts receivable, payroll, income statements, ad balance sheets
Supports lead generation, target marketing, direct mail, and sales
Maintains a complete data base of employee information such as date of hire, salary, contact information, performance evaluations, and other pertinent information
Purchasing
Production Planning
Facilitates vendor selection, price negotiation, making purchasing decisions, and bill payment
Integrates information on forecasts, orders, production capacity, on-hand inventory quantities, bills of material, work in process, schedules, and production lead times
Inventory Management Identifies inventory requirements, inventory availability, replenishment rules, and inventory tracking
Distribution
Sales
Contains information on third-party shippers, shipping and delivery schedules, delivery tracking
Information on orders, invoices, order tracking, and shipping
Supply Chain Facilitates supplier and customer management, supply chain visibility, and event
31

• Enterprise Resource Planning (ERP)
1.
Enterprise resource planning (ERP) —A brief history
2.
13 Common ERP Mistakes and How to Avoid Making Them
3.
ERP and Business Process Re-engineering
• ERP: The Business Process Re-engineering Dilemma
• To BPR, or not to BPR, that is the question
4.
Cloud ERP
• What Is Cloud ERP, and How Is It Different from Traditional Solutions?
• Benefits of Cloud ERP Software
• Instruction:
• A group should have 4 persons, each with a different article
• Take a few minutes to read the article you have; take notes
• Share the key ideas from your reading to your team members

• MRP: focus on cost reporting, materials, manufacturing
• tapes
• IBM
• 1960~1970
• MRPII: scheduling, procurement
• 1980s
• ERP
• SAP, Peoplesoft,
• 1990
• Client-server architecture

• Poor plan
• Need time to plan and to revise
• Revise process
• Not hiring correct people
• Experience third party
• IT consultants
• Referencing
• Restrictions, lack of capability
• No sufficient training
• Underestimation: accurate data, time, resources, training,
• Maintenance strategy

• Take place before ERP system selection
• Output of BPR  ERP
• To be process vs. as is process
• Difference ways to do business globally
• Process standardization after acquisition
• Legacy systems
• Make sure the process lead to higher values

• Cloud ERP vs. traditional ERP
• Traditional:
• Cloud:
• Outsource operation, easy to setup, monthly/annually fee
• Minimal initial cost
• Automate operation
• cons
• Less control, data security, service outage

• The usage of components in production of assembled items depends on how many of each component are needed per item, and how many items are to be produced. Hence the term dependent demand.
• MRP is a tool used for dependent-demand components, to assist in making the two basic decisions in inventory management: how much of each component to order, and when to order it.
• ERP is a software-based enterprise-wide system that allows access to production, sales, accounting, warehouse, and supply chain information.
MIS 373: Basic Operations Management 37