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• Material requirements planning (MRP):
– 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?

How much and when finished product is desired
Composition of a finished products
How much inventory is on hand or on order

• 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 at beginning of week 14 and at beginning of week 18
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

 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

• 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

• Bill of Materials (BOM)
– A hierarchical listing of all of the assemblies, subassemblies, parts, and raw materials needed to produce one unit of a product
– Each finished product has its own BOM
– Product structure tree
• A visual depiction of the requirements in a bill of materials, where all components are listed by levels

parent component
Amount needed for assembly at the next higher level only parent component
Level 0 = end item
Level 1
Level 2

• 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

X: 1
B: 2 x 1 = 2
D: 3 x 2 = 6
E: 1 x 2 = 2
E: 4 x 6 = 24
Level 0
Level 1 B(2)
X
Level 2 D(3) E
Level 3 E(4)
• 1 X requires:
B: 2
C: 1
D: 6
E: 2+24+2=28
F: 2
E(2)
C
F(2)
C: 1 x 1 = 1
E: 2 x 1 = 2
F: 2 x 1 = 2

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

X
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
B(2)
D(3) E
E(4)
E: 1 x 16 = 16
E(2)
C
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

• 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

• Inventory records
– Includes information on the status of each item by time period (called time buckets)
• Information about
– Gross requirements
– Scheduled receipts
– Expected amount on hand
• Other details for each item such as
– Supplier
– Lead time
– Lot size policy
– Changes due to stock receipts and withdrawals
– Canceled orders and similar events

Gross requirements
• Total expected demand (during each
Week period) without regard to the amount
Number on hand.
Gross Scheduled receipts
• Open orders scheduled to arrive (at the
Requirements
Scheduled beginning of a period)
Receipts
Projected on hand
• Expected inventory on hand (at the
Projected on hand beginning of each time period)
Net requirements
• Actual amount needed in each time period
Net requirements
Planned-orderreceipt Planned-order receipts
• Quantity expected to received (at the beginning of the period)
• Under Lot-for-lot will equal net requirements
Planned-order release
1 2 3 4 5 6
Planned-order releases
• Planned amount to order in each time period.
• Equal planned-order receipts offset by lead time.
12-16

• Gross requirements are generated by exploding the bill of materials
• The core of MRP processing is determining net
requirements (netting) -> materials that are actually needed to meet demand
Net requirements
Available inventory
=
Gross requirements
-
=
Projected on-hand
+
Scheduled receipts
Available inventory
Net requirements
=
Gross requirements
-
Projected on hand inventory +
Scheduled receipts

• The MRP is based on the product structure tree diagram
• Requirements are determined level by level, beginning with the end item and working down the tree
• The timing and quantity of each “parent” becomes the basis for determining the timing and quantity of the “children” items directly below it.
• The “children” items then become the “parent” items for the next level, and so on

• Orders:
• 100 units for delivery at (the start of) week
4
• 150 units at (the start of) week 8.
• Assembly:
• Wood sections made by the firm.
•
•
Fabrication takes 1 week.
• Frames are ordered. Lead time is 2 weeks.
• Shutter assembly requires 1 week.
• Schedule receipts:
• 70 wood sections at (the beginning of) week 1.
Determine the size and timing of plannedorder releases (under Lot-for-Lot ordering)
Shutter
Frames (2)
Wood sections (4)

Shutter
[LT=1 week]
Frames (2)
[LT=2 weeks]
Wood sections (4)
[LT= 1 weeks]

200*1 330*3
300*1 600*3
Shutter
[LT=1 week]
Frames (2)
[LT=2 weeks]
Wood sections (4)
[LT= 1 weeks]
Widget (1)
[LT=1 weeks]
Widget (3)
[LT=1 weeks]

• An MRP is not a static document
– As time passes
• Some orders get completed
• Other orders are nearing completion
• New orders will have been entered
• Existing orders will have been altered
– Quantity changes
– Delays
– Missed deliveries
– Rolling Horizon

• Primary Outputs
– Planned orders
• A schedule indicating the amount and timing of future orders
– Order releases
• Authorizing the execution of planned orders
– Changes
• Revisions of the dates or quantities, or the cancellation of orders

 Secondary Outputs
 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

• Many organizations use a functional structure. Information tends to flow freely within each function but less so between functions.
• Enterprise Resource Planning (ERP)
– ERP was the next step in an evolution that began with MRP
– ERP typically has an MRP core
– 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

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
Management
Facilitates supplier and customer management, supply chain visibility, and event management

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

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

• Poor Planning
• Not properly vetting ERP vendors
• Not understanding or using key features
• Understanding the time and resources required
• Not having the right people on the team from the start
• Not setting priorities
• Not investing in training and change management
• Underestimating the importance of accurate data
• Taking the kitchen sink approach
• Not decommissioning legacy applications
• Not having an active load testing environment
• Ignoring third-party support alternatives
• Not having a 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