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Chapter 13

Chapter 13. MRP and ERP. MRP. Material requirements planning (MRP): Computer-based information system (i.e. glorified database) for ordering and scheduling of dependent demand inventories

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Chapter 13

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  1. Chapter 13 MRP and ERP

  2. MRP Material requirements planning (MRP): Computer-based 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.

  3. 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.

  4. Is Dependant Demand lumpier? The book claims that “the independent demand is continuous while the dependent demand is lumpy”. I do not believe in this statement. “Lumpy” demand Stable demand Dep. Demand Indep. Demand Time Time Amount on hand Amount on hand Safety stock Time Time

  5. 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 Smooth dependent demand Order once in a week Order twice Order 4 times

  6. MRP Inputs MRP Processing MRP Outputs Changes Order releases Master schedule Planned-order schedules Primary reports Exception reports Bill of materials Planning reports MRP computer programs Secondary reports Performance- control reports Inventory records Inventory transaction

  7. 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.

  8. 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.

  9. Level 0 Chair Leg Assembly Back Assembly 1 Seat Cross Bar(2) Side Rails (2) Cross bar Back Supports (3) Legs (4) 2 Product Structure Tree

  10. 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.

  11. 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) C D(3) E E(2) F(2) E(4) X:10, B:15, C:5, D:40, E: 180, F:5

  12. 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) C D(3) E E(2) F(2) E(4) X:7, B:6, C:0, D:10, E: 38, F:0

  13. Assembly Subassembly Fabrication Procurement 6 7 1 2 3 4 5 8 9 10 Lead Times

  14. Procurement of raw material D Fabrication of part E Subassembly A Procurement of raw material F Final assembly and inspection Procurement of part C Procurement of part H Subassembly B Fabrication of part G Procurement of raw material I 6 7 1 2 3 4 5 8 9 10 11 Assembly Time Chart Days

  15. 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.

  16. 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

  17. 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)

  18. MRP example with LT=2 and 1 level Inputs Outputs

  19. Figure 13-8

  20. 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

  21. MRP example with Lot size=5, LT=2 and 1 level Inputs Outputs

  22. Figure 13-9

  23. 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

  24. 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

  25. 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.

  26. Develop a tentative master production schedule Use MRP to simulate material requirements Convert material requirements to resource requirements Revise tentative master production schedule No Can capacity be changed to meet requirements Is shop capacity adequate? No Yes Yes Firm up a portion of the MPS Change capacity MRP Planning

  27. 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

  28. 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

  29. Requirements of MRP • Computer and necessary software • Accurate and up-to-date inputs: • Master schedules • Bills of materials • Inventory records • Integrity of data

  30. MRP II • Expanded MRP with and emphasis placed on integration • Financial planning • Marketing • Engineering • Purchasing • Manufacturing

  31. Master production schedule Market Demand Finance Manufacturing Marketing Production plan MRP Adjust master schedule Rough-cut capacity planning Capacity planning Adjust production plan No Yes Requirements schedules No Yes Problems? Problems? MRP II

  32. 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

  33. Summary • MRP: • Dependent vs Independent demand • Inputs (BOM), • Processing, • Outputs • Benefits and requirements • Capacity planning • MRP-II and ERP

  34. 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

  35. 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

  36. 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

  37. 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

  38. 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

  39. 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

  40. Chapter 14 Just-In-Time Systems

  41. 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”

  42. JIT Goals • Eliminate disruptions • Make system flexible by reduce setup and lead times • Eliminate waste, especially excess inventory

  43. Sources of Waste • Overproduction • Waiting time • Unnecessary transportation • Processing waste • Inefficient work methods • Product defects

  44. 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

  45. JIT Building Blocks • 1. Product design • 2. Process design • 3. Personnel/organizationalelements • 4. Manufacturing planning and control

  46. 1. Product Design • Standard parts • Modular design • Highly capable production systems

  47. 2. Process Design • Small lot sizes • Setup time reduction • Manufacturing cells • Limited work in process • Quality improvement • Production flexibility • Little inventory storage

  48. Reduces inventory Less rework Less storage space Problems are more apparent Increases product flexibility Easier to balance operations Benefits of Small Lot Sizes

  49. 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

  50. 3. Personnel/Organizational Elements • Workers as assets • Cross-trained workers • Continuous improvement • Cost accounting • Leadership/project management

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