Chapter 13 MRP and ERP

1. Chapter 13MRP and ERP

2. Material requirements planning (MRP)Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials. MRP Planned Order Releases MPS Current Availabilities Priority Planning Lot Sizing Policies Lead Times BOM

3. Independent and Dependent Demand Independent Demand Dependent Demand A C(2) B(4) D(2) E(1) D(3) F(2) Independent demand is uncertain. Dependent demand is certain.

4. Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods. Once the independent demand is known, the dependent demand can be determined. Dependant Demand

5. Dependent vs Independent Demand “Lumpy” demand Demand Stable demand Demand Time Time Amount on hand Amount on hand Safety stock Time Time Figure 14.1

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 Overview of MRP Figure 14.2

7. Master Production Schedule Time-phased plan specifying timing and quantity of production for each end item. Material Requirement Planning Process MRP Inputs Product Structure Tree Lead Times

8. Master schedule One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities. 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. Master Schedule

9. Assembly Subassembly Fabrication Procurement 6 7 1 2 3 4 5 8 9 10 Planning Horizon Time Period (weeks) Figure 14.4

10. Bill of materials (BOM): One of the three primary inputs of MRP; 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. Low-level coding: Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level the component occurs Bill-of-Materials

11. Bill of Materials • Bill of Materials – Parent-child diagram that shows what goes into what. Bike Frame Assy Wheel Assy Wheel Tires Components Frame Hubs & Rims Spokes

12. Level 0 Chair 1 Leg Assembly Back Assembly Seat Cross bar Side Rails (2) Cross bar Back Supports (3) Legs (2) 2 3 Product Structure Tree Figure 14.5

13. One of the three primary inputs in MRP Includes information on the status of each item by time period Gross requirements Scheduled receipts Amount on hand Lead times Lot sizes And more … Inventory Records

14. Net requirements: Net Requirements = Gross Requirements – Available Inventory Available Inventory: Available Inventory = Projected on hand – Safety stock – Inventory allocated to other items Inventory Requirements

15. Assembly Time Chart Figure 14.7 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

16. 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 MRP Processing- Outputs

17. 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 MRP Processing- Outputs …

18. Regenerative system Updates MRP records periodically Net-change system Updates MPR records continuously Updating the System

19. 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. MRP Primary Reports

20. Performance-control reports Planning reports Exception reports MRP Secondary Reports

21. Safety Stock Lot sizing Lot-for-lot ordering Economic order quantity Fixed-period ordering Other Considerations

22. Food catering service End item => catered food Dependent demand => ingredients for each recipe, i.e. bill of materials Hotel renovation Activities and materials “exploded” into component parts for cost estimation and scheduling MRP in Services

23. Low levels of in-process inventories Ability to track material requirements Ability to evaluate capacity requirements Means of allocating production time Ability to easily determine inventory usage by backflushing Backflushing: Exploding an end item’s bill of materials to determine the quantities of the components that were used to make the item. And issue the materials after production. Benefits of MRP

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

25. Example 2 • Plant produces • Wood Shutter • Book Cases Shutter Assembly LT = 1 Frames (2) Order LT =2 Wood Section (4) Fabrication LT = 1 Schedule Re. W 1 = 70

28. SAMPLE MRP Report

29. Computing the item Scheduled Releases Safety Stock Requirements Lot Sizing Policy Lead Time Gross Reqs Planned Order Releases Parent Sched. Rel. Planned Order Receipts Net Reqs Synthesizing item demand series Projecting Inv. Positions and Net Reqs. Lot Sizing Time- Phasing Item External Demand Scheduled Receipts Initial Inventory

30. Lot Sizing • If affordable, a lot-for-lot (L4L) policy will incur the lowest inventory holding costs and it will maintain a smoother production flow. • Possible reasons for departure from a L4L policy: • High set up times and costs => need for serial process batching to control the capacity losses • Processes that require a large production volume in order to maintain a high utilization (e.g., fermentors, furnaces, etc.) => need for parallel process batching • Selection of a pertinent process batch size • It must be large enough to maintain feasibility of the production requirements • It must control the incurred • inventory holding costs, and/or • part delays (this is a measure of disruption to the production flow caused by batching) • Move or transfer batches: The quantities in which parts are moved between the successive processing stations. • They should be as small as possible to maintain a smooth process flow

31. Some Lot Sizing Methods employed in the traditional MRP framework • Main focus: Balance set-up and holding costs • Wagner-Whitin Algorithm for dynamic Lot Sizing • Economic Order Quantity (EOQ): Compute a lot size using the EOQ formula with the demand rate D set equal to the average of the net requirements observed over the considered planning horizon. • Periodic Order Quantity (POQ): Compute T = round(EOQ/D), and every time you schedule a new lot, size it to cover the net requirements for the subsequent T periods.

32. Some Lot Sizing Methods employed in the traditional MRP framework … • Silver-Meal (SM): Every time you start a new lot, keep adding the net requirements of the subsequent periods, as long as the average (setup plus holding) cost per period decreases. • Least Unit Cost (LUC): Every time you start a new lot, keep adding the net requirements of the subsequent periods, as long as the average (setup plus holding) cost per unit decreases. • Part Period Balancing (PPB): Every time you start a new lot, add a number of subsequent periods such that the total holding cost matches the lot set up cost as much as possible.

33. MRP IIExpanded MRP with emphasis placed on integration

34. Master production schedule Market Demand Finance Manufacturing Marketing Production plan MRP Adjust master schedule Capacity planning Rough-cut capacity planning Adjust production plan No Yes Requirements schedules No Yes Problems? Problems? MRP II Figure 14.14

35. 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. Capacity Planning

36. Develop a tentative master production schedule Use MRP to simulate material requirements Rough-cut capacity planning 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 Capacity Planning Figure 14.15

37. Solved Problem 3

38. Service applications such as: Professional services Postal services Retail Banking Healthcare Higher education Engineering Logistical services Real estate MRP in Services

39. Enterprise resource planning (ERP) MRP >> MRPII >> ERP Integration of financial, manufacturing, and human resources on a single computer system.

40. ERP software provides a system to capture and make data available in real time to decision makers and other users in the organization Provides tools for planning and monitoring various business processes Includes Production planning and scheduling Inventory management Product costing Distribution ERP Software

41. High initial cost High cost to maintain Future upgrades Training ERP Strategy Considerations

43. Describe the conditions under which MRP is most appropriate. Describe the inputs, outputs, and nature of MRP processing. Explain how requirements in a master production schedule are translated into material requirements for lower-level items. Discuss the benefits and requirements of MRP. Learning Objectives

44. Explain how an MRP system is useful in capacity requirements planning. Outline the potential benefits and some of the difficulties users have encountered with MRP. Describe MRP II and its benefits. Describe ERP, what it provides, and its hidden costs. Learning Objectives