Chapter 13
MRP and ERP
1
MRP
Material requirements planning (MRP): Computerbased information system (i.e. glorified database)
for ordering and scheduling of dependent
demand inventories
It is a production planning process that starts from the
demand for finished products and plans the production
step by step of subassemblies and parts.
2
Independent and Dependent Demand
Independent demand: Demand for final products.
Dependent demand: Demand fort items that are subassemblies or
component parts to be used in production of finished goods.
Independent Demand
A
Dependent Demand
C(2)
B(4)
D(2)
E(1)
D(3)
F(2)
Independent demand is uncertain.
Dependent demand is certain.
3
Is Dependant Demand lumpier?
Dep. Demand
Time
Safety stock
Time
Amount on hand
Stable demand
Amount on hand
Indep. Demand
The book claims that “the independent demand is continuous while the
dependent demand is lumpy”. I do not believe in this statement.
“Lumpy” demand
Time
Time
4
The dependent demand is not necessarily any
lumpier than the independent demand
• Example: Say shoe demand rate is 80 pairs per week at a
retailer. The demand rate for shoe sole is 80 for left and 80
for the right pair. The demand rate for shoe laces is 160
per week.
• Example continued: What is the demand rate for the shoe
lace supplier? Still 160 per week. But if the orders for the
laces are placed once a week, lace demand is lumpy.
Lumpy dependent
demand
Order once in a week
Smooth dependent
demand
Order twice
Order 4 times
5
MRP Inputs
MRP Processing
MRP Outputs
Changes
Order releases
Master
schedule
Planned-order
schedules
Primary
reports
Bill of
materials
Inventory
records
MRP computer
programs
Exception reports
Planning reports
Secondary
reports
Performancecontrol
reports
Inventory
transaction
6
MRP Inputs: 1. MPS
• Master Production Schedule: MPS
– Time-phased plan specifying timing and quantity of production for
each end item.
– MPS comes from sales and marketing
– MPS covers about 1-3 months into the future
• Must cover 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.
– From Now until Cumulative lead time plans are generally
frozen
• Sometimes MPS is capacity filtered; MPS is curtailed after
taking the available capacity into account.
7
MRP inputs: 2. BOM
Bill of materials (BOM): 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.
Most often people do not use the term product
structure tree. Instead use BOM to mean the
product structure tree.
8
Product Structure Tree
Level
0
1
Chair
Leg
Assembly
2 Legs (4)
Cross
Bar(2)
Seat
Back
Assembly
Side Cross
Back
Rails (2) bar Supports (3)
9
Explosion Example
• How many leg assemblies are needed for 1
chair?
• How many Cross bars are needed for 5 chairs?
• Computing how many parts are required per a
final product is called BOM explosion.
• MRP answers these questions by taking
production lead times into account: Not only it
tells how many, but also when.
10
Bill of Materials – Example 1
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(4)
E
C
E(2)
F(2)
X:10, B:15, C:5, D:40, E: 180, F:5
11
Bill of Materials – Example 2
How many more of each component is needed to make 15 Xs if
there are 8 of each already in stock?
X
B(2)
D(3)
E(4)
E
C
E(2)
F(2)
X:7, B:6, C:0, D:10, E: 38, F:0
12
Lead Times
Assembly
Subassembly
Fabrication
Procurement
1
2
3
4
5
6
7
8
9
10
13
Assembly Time Chart
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
Fabrication
of part G
Procurement of
raw material I
1
2
3
Subassembly B
4
5
6
7
8
9
10
11
Days
14
MRP input: 3. Inventory levels
• Beginning inventory on hand
• Scheduled receipts
– Pipeline inventory not received yet but it is in the
process of coming to the inventory. We know
when this will be available for use.
15
MPR Processing
• Gross requirements
– Total expected demand
• Scheduled receipts
– Open orders scheduled to arrive
• Planned on hand
– Expected inventory on hand at the beginning of each time period
• 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
16
MRP Processing
• Gross requirements: (Forecasted)Demand period by period
• Net requirements(t)
=Gross requirements(t)-Projected inventory(t-1)
-Scheduled receipt(t)
• If Net requirement(t) > 0
set Planned order receipts(t)>=Net requirement(t)
• Planned-order receipts is the production planned
• Projected inventory(t)
=Projected inventory(t-1)+Scheduled receipt(t)
+Planned order receipts(t)-Gross requirements(t)
• Planned order release(t-LT)=Planned-order receipts(t)
17
MRP example with LT=2 and 1 level
Periods
Gross requirements
Scheduled receipts
Projected on hand
0
10
Net requirements
1
6
2
2
11
3
3
7
0
6
0
0
0
2
7
2
7
Planned order receipts
Planned order releases
2
Inputs
Outputs
7
18
Figure 13-8
19
Other Considerations
• Safety Stock
– Not much for items with dependent demand
• Lot sizing
–
–
–
–
Lot-for-lot ordering
Economic order quantity
Fixed-period ordering
Part-period model
20
MRP example with Lot size=5, LT=2 and 1 level
Periods
Gross requirements
Scheduled receipts
1
6
2
2
11
3
3
9
0
6
3
4
Net requirements
5
10
Planned order receipts
5
10
Projected on hand
Planned order releases
0
10
5
Inputs
Outputs
10
21
Figure 13-9
22
MRP updates
• Regenerative MRP
– Do the planning from scratch
– Time between regenerations is long
– Ok for stable environments
• Net Change MRP
– Update the plan according to changes
23
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.
• Performance-control reports
• Planning reports
• Exception reports
24
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.
25
MRP Planning
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?
Yes
Firm up a portion
of the MPS
No
Can
capacity be
changed to meet
requirements
Yes
Change
capacity
26
MRP in Services
• Food catering service
– End items are the catered food
– Dependent demands are ingredients for
each recipe, i.e. bill of materials
• Taco Bell menu items
• Hotel renovation
– Activities and materials “exploded” into
component parts
27
Benefits of MRP
• Low levels of in-process inventories
• Ability to track material requirements
• Ability to evaluate capacity requirements
• Means of allocating production time
Eventually it is a database with limited decision
making capability
28
Requirements of MRP
• Computer and necessary software
• Accurate and up-to-date inputs:
– Master schedules
– Bills of materials
– Inventory records
• Integrity of data
29
MRP II
• Expanded MRP with and emphasis
placed on integration
– Financial planning
– Marketing
– Engineering
– Purchasing
– Manufacturing
30
MRP II
Manufacturing
Master
production schedule
Marketing
Production
plan
MRP
Rough-cut
capacity planning
Capacity
planning
Adjust
production plan
Yes
Problems?
No
Requirements
schedules
No
Problems?
Adjust master schedule
Market
Demand
Finance
Yes
31
ERP
• Enterprise resource planning (ERP):
An expanded effort to integrate standardized record
keeping that will permit information sharing throughout
the organization
• Strategic considerations
–
–
–
–
High initial cost
High cost to maintain
Future upgrades
Training
• See ERP courses in the course catalog
32
Summary
• MRP:
–
–
–
–
–
Dependent vs Independent demand
Inputs (BOM),
Processing,
Outputs
Benefits and requirements
• Capacity planning
• MRP-II and ERP
33
Practice Questions
1. The master production schedule states which end items
are to be produced both when and how many.
Answer: True Page: 577
2.Load reports show capacity requirements for departments
or work centers which may be more or less than the
capacity available in that work center.
Answer: True Page: 593
3.MRP II permits the simultaneous planning of production,
marketing, and financial resources to support a production
plan.
Answer: True Page: 592
34
Practice Questions
• 1. The output of MRP is:
•
A)
gross requirements
•
B)
net requirements
•
C)
a schedule of requirements for all parts
and end items
•
D)
inventory reorder points
•
E)
economic order quantities and reorder
points
• Answer: C Page: 577
35
Practice Questions
2. The MRP input listing the assemblies,
subassemblies, parts, and raw materials needed
to produce one unit of finished product is the:
•
A)
master production schedule
•
B)
bill-of-materials
•
C)
inventory-records
•
D)
assembly-time chart
•
E)
net-requirements chart
• Answer: B Page: 578
36
Practice Questions
• 3. Which one of the following most closely
describes net material requirements?
•
A)
gross requirements - amount on-hand scheduled receipts
•
B)
gross requirements - planned receipts
•
C)
gross requirements - order releases +
amount on-hand
•
D)
gross requirements - planned order
releases
•
E)
gross requirements - amount on-hand +
planned order releases
• Answer: A Page: 581
37
Practice Questions
4.In MRP, "scheduled receipts" are:
•
A)
identical to "planned-order receipts"
•
B)
identical to "planned-order releases"
•
C)
open orders (that is, ordered before the
first time bucket, but not delivered yet)
•
D)
"net requirements"
•
E)
available to promise inventory
• Answer: C Page: 582
38
Practice Questions
5. Which is true of a net-change system?
A) It is a batch-type system which is updated
periodically.
B) It is usually run at the beginning of each month.
C) The basic production plan is modified to reflect
changes as they occur.
D) It is used to authorize the execution of planned
orders.
E) It indicates the amount and timing of future
changes.
• Answer: C Page: 588
39
Chapter 14
Just-In-Time
Systems
40
JIT/Lean Production
• Just-in-time: Repetitive production system in
which processing and movement of materials
and goods occur just as they are needed,
usually in small batches
• JIT is characteristic of lean production
systems
• JIT operates with very little “fat”
41
JIT Goals
• Eliminate disruptions
• Make system flexible by reduce
setup and lead times
• Eliminate waste, especially excess
inventory
42
Sources of Waste
• Overproduction
• Waiting time
• Unnecessary transportation
• Processing waste
• Inefficient work methods
• Product defects
43
Big vs. Little JIT
• Big JIT – broad focus
– Vendor relations
– Human relations
– Technology management
– Materials and inventory management
• Little JIT – narrow focus
– Scheduling materials
– Scheduling services of production
44
JIT Building Blocks
• 1. Product design
• 2. Process design
• 3. Personnel/organizational
elements
• 4. Manufacturing
planning and control
45
1. Product Design
• Standard parts
• Modular design
• Highly capable production systems
46
2. Process Design
• Small lot sizes
• Setup time reduction
• Manufacturing cells
• Limited work in process
• Quality improvement
• Production flexibility
• Little inventory storage
47
Benefits of Small Lot Sizes
Reduces inventory
Less rework
Less storage space
Problems are more apparent
Increases product flexibility
Easier to balance operations
48
Production Flexibility
• Reduce downtime by reducing
changeover time
• Use preventive maintenance to
reduce breakdowns
• Cross-train workers to help clear
bottlenecks
• Reserve capacity for important
customers
49
3. Personnel/Organizational Elements
• Workers as assets
• Cross-trained workers
• Continuous
improvement
• Cost accounting
• Leadership/project
management
50
4. Manufacturing Planning and Control
• Level loading
• Pull systems
• Visual systems
• Close vendor relationships
• Reduced transaction processing
• Preventive maintenance
51
Pull/Push Systems
• Pull system: System for moving work
where a workstation pulls output from
the preceding station as needed. (e.g.
Kanban)
• Push system: System for moving work
where output is pushed to the next
station as it is completed
52
Kanban Production Control System
• Kanban: Card or other device that
communicates demand for work or materials
from the preceding station
• Kanban is the Japanese word meaning
“signal” or “visible record”
• Paperless production control system
• Authority to pull, or produce comes
from a downstream process.
53
Traditional Supplier Network
Buyer
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Suppiler
54
Tiered Supplier Network
Buyer
First Tier Supplier
Supplier
Second Tier Supplier
Third Tier Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
55
Summary JIT Goals and Building Blocks
Ultimate
A
Goal balanced
rapid flow
Supporting
Goals
Reduce setup
and lead times
Eliminate waste
Eliminate disruptions
Make the system flexible
Minimize inventories
Product
Design
Process
Design
Personnel
Elements
Manufacturing Planning
Building
Blocks
56
Converting to a JIT System
• Get top management commitment
• Decide which parts need most effort
• Obtain support of workers
• Start by trying to reduce setup times
• Gradually convert operations
• Convert suppliers to JIT
• Prepare for obstacles
57
Obstacles to Conversion
• Management may not be committed
• Workers/management may not be
cooperative
• Suppliers may
resist
58
JIT in Service
The basic goal of the demand flow
technology in the service organization is to
provide optimum response to the customer
with the highest quality service and
lowest possible cost.
–
–
–
–
–
–
Eliminate disruptions
Make system flexible
Reduce setup and lead times
Eliminate waste
Minimize WIP
Simplify the process
59
JIT Purchasing
• New challenges
– Meeting manufacturing requirements
– Changing from traditional thinking and practices –
frequent on-time delivery of small quantities
– Long term relationships with suppliers as
partners
• How about Exchange purchasing: Auctions?
60
JIT II
• JIT II: the practice of allowing vendors
to manage some aspects of buying their
products or services for the buyer
61
Benefits of JIT Systems
• Reduced inventory levels
• High quality
• Flexibility
• Reduced lead times
• Increased productivity
62
Benefits of JIT Systems (cont’d)
• Increased equipment utilization
• Reduced scrap and rework
• Reduced space requirements
• Pressure for good vendor relationships
• Reduced need for indirect labor
63
Elements of JIT
•
•
•
•
Smooth flow of work (the ultimate goal)
Elimination of waste
Continuous improvement
Eliminating anything that does not add
value
• Simple systems that are easy to manage
• Use of product layouts to minimize
moving materials and parts
• Quality at the source
64
Elements of JIT (cont’d)
•
•
•
•
Poka-yoke – fail safe tools and methods
Preventative maintenance
Good housekeeping
Set-up time reduction
• Cross-trained employees
• A pull system
65
Case Study based on a trip on Nov 19, 02
NUMMI
66
History/Products
• Late 70’s oil crisis
• GM closes Fremont, CA plant firing 6000 in 1982
• Toyota approaches GM to set up Toyota production
system at a GM plant, United Auto Workers accepts the
deal
• GM and Toyota put together $400M in 1984. GM owns
the infrastructure, Toyota is the tenant.
• Nummi = New United Motor Manufacturing, Inc is born in
1984 as the unique example of a Toyota – GM joint
venture
• Products: Toyota Corolla, Tacoma Trucks, Pontiac Vibe
(Toyota bottom, GM top) and Toyota Voltz (Toyota
bottom, GM top, sold in Japan) , GM Prism until 13/12/01
67
Workers
• Nummi has about 4500 unionized workers
• Workers are under two types:
– Production, high school graduates
– Maintenance
• Workers work in teams of 4-6
• Workers in a team rotate the tasks every 1-3 hours
• Team leader is responsible for the rotation.
• Team leader withdraws parts from the inventory (every 12 hours) and provides the tools as necessary
• Workers make $17 per hour
68
Capacity
• Nummi has a cycle time of
– 60 seconds for Corolla, 1 body
– 82 seconds for Tacoma, 3 bodies (only cabin is
produced at Nummi, the bottom and the back are
bought from suppliers)
• Nummi works in two shifts
– I: 6:00-14:30, II: 16:30-1:00
– Each shift has 1 hour lunch/dinner break
– Starting the first shift at 6:00 workers avoid heavy
morning traffic
– Two hours between shifts I and II is to allow for
overtime after the first shift when necessary
69
Work Flow
• Stamping: Forming metal (side, back, front) panels with
presses
• Body & Weld: Putting panels together
• Paint: Paint inspection is the current bottleneck
– Primer body paint applied by robots (chemically
hazardous task)
– Door jambs painted manually
• Plastics: Making bumpers, inside panels
• Assembly: Putting in tires, engine, seats, bumpers,
harnessing. Cars , trucks on 2 km , 0.8 km conveyors
• Cars contain Building manifest = BOM = Ingredients list at
every step of these operations
70
Just in time
• Kaizen: continuous improvement
• Kanban: replenishment every 1-2 hours
• Jidoka: Assure 100% quality. Otherwise pull the Andon
chord
– 1000 times per shift
– 9% of line stops are longer than 30 seconds
– Line stops longer than an hour once every month
• Muda: Waste to be eliminated
• Genchi Genbutsu: Go to the source to learn and to solve
the problems
• This Japanese terminology is all over the boards in the
plant
71
Creative Tool / Work Place Design
• Die change at the stamping in 3 hours
• Tilted storage bins for ease of access
• Collapsing storage boxes when empty
– To reduce the empty box storage requirements in
trucks returning to suppliers, say in Indiana
– These boxes save about $10M annually
– The worker who suggested the boxes earned several
thousand points. 1 point = $1.
• More info www.nummi.com
72