MRP and ERP

1. MRP and ERP Chapter 12

2. Learning Objectives • Describe the inputs, outputs, and nature of MRP processing. • Explain bill of materials • Explain time-phased product structure • Describe differences between MRP and ERP

3. MRP • Material requirements planning (MRP): • A computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials. • The MRP is designed to answer three questions: • What is needed? • How much is needed? • When is it needed?

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

5. MRP Inputs: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 at beginning of week 14 and at beginning of week 18 100 at beginning of week 14 150 at beginning of week 18

6. Cumulative Lead Time • 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

7. Cumulative Lead Time • 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?

8. MRP Inputs:Bill of Materials • 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

9. Assembly Diagram and Product Structure Tree Level 0 = end item parent component Level 1 parent Level 2 component Amount needed for assembly at the next higher level only

10. Low-Level Coding • 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 • Level 0 • X X: 1 • Level 1 C: 1 x 1 = 1 • B(2) • C B: 2 x 1 = 2 D: 3 x 2 = 6 E: 2 x 1 = 2 • Level 2 • D(3) • F(2) • E • E(2) F: 2 x 1 = 2 E: 1 x 2 = 2 • Level 3 E: 4 x 6 = 24 • E(4)

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

12. Low-Level Coding: 10 Xwith on hand inventory • Level 0 • 1 X requires: B: 2 C: 1 D: 6 E: 28 F: 2 • X • Level 1 • B(2) • C • Level 2 • D(3) • F(2) • E • E(2) • Level 3 • E(4) • 10 X require: B: 2x10-4=16 C: 1x10-10=0 D: 6x10-8=52 E: 28x10-60=220 F: 2x10-0=20 • On hand inventory B: 4 C: 10 D: 8 E: 60 F: 0 Does not consider item hierarchy!

13. Low-Level Coding: 10 Xwith on hand inventory • Level 0 • X X: 10 • Level 1 • B(2) • C C: 1 x 10 -10=0 B: 2 x 10 - 4 = 16 • Level 2 • D(3) • F(2) • E • E(2) F: 2 x 0 = 0 D: 3 x 16 – 8=40 • Level 3 • E(4) E: 4 x 40 – 60=100 “Low-level coding” E: 2 x 0 = 0 E: 1 x 16 = 16 • 10X require: B: 16 C: 0 D: 40 E: 100+16+0=116 F: 0 • On hand inventory B: 4 C: 10 D: 8 E: 60 F: 0

14. MRP Processing • MRP processing takes the end item requirements specified by the master schedule and “explodes” them into time-phasedrequirements for assemblies, parts, and raw materials offset by lead times Part E fabrication lead-time Sub assembly lead-time Material F delivery lead-time Final assembly lead-time

15. MRP Inputs:Inventory Records • 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

16. MRP Record • Gross requirements • Total expected demand (during each period) without regard to the amount on hand. • Scheduled receipts • Open orders scheduled to arrive (at the beginning of a period) • Projected 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) • Under Lot-for-lot will equal net requirements • Planned-order releases • Planned amount to order in each time period. • Equal planned-order receipts offset by lead time. 12-16

17. MRPProcessing • Gross requirementsare 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 Gross requirements Available inventory = - Available inventory Projected on-hand Scheduled receipts = + Projected on hand inventory + Scheduled receipts Net requirements Gross requirements = -

18. MRP: Development • 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

19. Example MRP • 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 planned-order releases (under Lot-for-Lot ordering)

20. MRPLot-For-Lot Ordering

21. MRPLot-For-Lot Ordering • 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] 330*3 200*1 600*3 300*1

22. Updating the System • 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

23. MRP Outputs: Primary • 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

24. MRP Outputs: Secondary • 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

25. Enterprise Resource Planning (ERP) • 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 organizationin 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

26. ERP Software Modules

27. Focused Reading (MIS Major Required) • Enterprise resource planning (ERP)—A brief history • 13 Common ERP Mistakes and How to Avoid Making Them • ERP and Business Process Re-engineering • ERP: The Business Process Re-engineering Dilemma • To BPR, or not to BPR, that is the question • Cloud ERP • What Is Cloud ERP, and How Is It Different from Traditional Solutions? • Benefits of Cloud ERP Software

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

29. ERP Common Mistakes • 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

30. ERP & Business Process Re-engineering • 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

31. Cloud ERP • 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