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Chapter 12

Chapter 12. MRP and ERP. The Objective of MRP ( M aterial R equirements P lanning). To ensure that the Manufacturing department has the correct amount of materials on hand at the time it is needed . Dependent Demand.

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Chapter 12

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  1. Chapter 12 MRP and ERP

  2. The Objective of MRP (Material Requirements Planning) To ensure that the Manufacturing department has the correct amount of materials on hand at the time it is needed.

  3. Dependent Demand Demand for items in inventory that are subassemblies or component parts to be used in the production of finished goods.

  4. Independent Demand Demand for items that are finished goods.

  5. Overview of MRP

  6. 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.

  7. Cumulative Lead Time Assembly Subassembly Fabrication Procurement 11 6 7 10 1 2 3 4 5 8 9

  8. Assembly Time Chart 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 Procurement of raw material I Fabrication of part G 6 7 1 2 3 4 5 8 9 10 11 Available for Delivery Week Number = Order point

  9. Bill of Materials (BOM) A listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product

  10. Product Structure Tree A visual depiction of the requirements in a Bill Of Materials, where all components are listed by levels.

  11. Product Structure Tree

  12. MRP Lot Sizing Rules Economic Order Quantity (EOQ) Can lead to minimum costs if usage of item is fairly uniform This may be the case for some lower-level items that are common to different ‘parents’ Less appropriate for ‘lumpy demand’ items because inventory remnants often result

  13. MRP Lot Sizing Rules Lot-for-Lot (L4L) ordering The order or run size is set equal to the demand for that period Minimizes investment in inventory It results in variable order quantities A new setup is required for each run

  14. MRP Lot Sizing Rules Fixed Period Ordering Provides coverage for some predetermined number of periods

  15. Example MRP

  16. Example MRP

  17. Example MRP

  18. Using the MRP Pegging The process of identifying the parent items that have generated a given set of material requirements for an item Backflushing Exploding an end item’s BOM to determine the quantities of the components that were used to make the item

  19. 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

  20. 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

  21. 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

  22. MRP in Services 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

  23. MRP Benefits Enables managers to easily determine the quantities of each component for a given order size To know when to release orders for each component To be alerted when items need attention Additional benefits Low levels of in-process inventories The ability to track material requirements The ability to evaluate capacity requirements A means of allocating production time The ability to easily determine inventory usage via backflushing

  24. MRP Requirements To implement an effective MRP system requires: A computer and the necessary software to handle computations and maintain records Accurate and up-to-date Master schedules Bills of materials Inventory records Integrity of data files

  25. MRP II Manufacturing resources planning (MRP II) Expanded approach to production resource planning, involving other areas of the firm in the planning process and enabling capacity requirements planning Most MRP II systems have the capability of performing simulation to answer a variety of “what if” questions so they can gain a better appreciation of available options and their consequences

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