Operations Management Material Requirements Planning (MRP) & ERP Chapter 14

Collins Industries • Largest manufacturer of ambulances in the world • International competitor • 12 major ambulance designs • 18,000 different inventory items • 6,000 manufactured parts • 12,000 purchased parts • MRP: IBM’s MAPICS © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Collins Industries • Collins requires: • Material plan must meet both the requirements of the master schedule and the capabilities of the production facility • Plan must be executed as designed • Effective “time-phased” deliveries, consignments, and constant review of purchase methods • Maintenance of record integrity © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Inventory Process stage Number & Value Demand Type Other Raw Material WIP Finished Goods A Items B Items C Items Independent Dependent Maintenance Operating Inventory Classifications © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Materials With Materials With Item Independent Demand Dependent Demand Demand Company Customers Parent Items Source Material Finished Goods WIP & Raw Materials Type Method of Forecast & Booked Calculated Estimating Customer Orders Demand Planning EOQ & ROP MRP Method Dependent versus Independent Demand © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Requirements for Effective Use of Dependent Demand Inventory Models • Effective use of dependent demand inventory models requires that the operations manager know the: • master production schedule • specifications or bills-of-material • inventory availability • purchase orders outstanding • lead times © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Marketing Customer Demand Production Capacity Inventory Finance Cash Flow Human Resources Manpower Planning Aggregate Production Plan Procurement Supplier Performance Management Return on Investment Capital Engineering Design Completion Inputs to the Production Plan © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Aggregate production plan Change production plan? Master production schedule Change master production schedule? Change requirements? Material requirements plan Change capacity? Detail capacity plan Is execution meeting the plan? Is capacity plan being met? Realistic No Yes Execute capacity plans Execute material plans The Planning Process © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Months January February Aggregate Production Plan (shows the total quantity of amplifiers 1,500 1,200 Weeks 1 2 3 4 5 6 7 8 Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 240 watt amplifier 100 100 100 100 150 watt amplifier 500 500 450 450 75 watt amplifier 300 100 Aggregate Production Plan © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Assemble to Order or Forecast (Repetitive) Stock to Forecast (Product Focus) Schedule finished product Make to Order (Process Focus) Number of end items Typical focus of the master production schedule Schedule modules Schedule orders Number of inputs Motorcycles, autos, TVs, fast-food restaurant Print shop Machine shop Fine dining restaurant Steel, Beer, Bread Light bulbs, Paper Examples: Typical Focus of the Master Production Schedule © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Bill-of-Material • List of components & quantities needed to make product • Provides product structure (tree) • Parents: Items above given level • Children: Items below given level • Shows low-level coding • Lowest level in structure item occurs • Top level is 0; next level is 1 etc. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Special Bills-of-Material • Modular bills • Modules are final components used to make assemble-to-stock end items • Planning bills • Used to assign artificial parent • Reduces number of items scheduled • Phantom bills • Used for subassemblies that exist temporarily © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Bicycle(1) P/N 1000 Frame Assembly (1) Handle Bars (1) P/N 1001 P/N 1002 Wheels (2) Frame (1) P/N 1003 P/N 1004 Bill-of-Material Product Structure Tree © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Must have D and E completed here so production can begin on B Start production of D 1 week D 2 weeks to produce B 2 weeks E A 2 weeks E 1 week 2 weeks 1 week G C 3 weeks F 1 week D 1 2 3 4 5 6 7 8 Time-Phased Product Structure © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Material Requirements Planning (MRP) • Manufacturing computer information system • Determines quantity & timing of dependent demand items © 1995 Corel Corp. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

MRP Requirements • Computer system • Mainly discrete products • Accurate bill-of-material • Accurate inventory status • 99% inventory accuracy • Stable lead times © 1984-1994 T/Maker Co. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

MRP Benefits • Increased customer satisfaction due to meeting delivery schedules • Faster response to market changes • Improved labor & equipment utilization • Better inventory planning & scheduling • Reduced inventory levels without reduced customer service © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Master Production Schedule BOM MRP by Period Report MRP by date report Lead Times Planned order report (Item Master File) Purchase advice Exception report Inventory Data Exception report MRP planning programs (computer and software) Purchasing data Structure of the MRP System © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Item/Week Oct 3 Oct 10 Oct 17 Oct 24 Drills 300 200 310 300 Saws 300 450 310 330 Master Production Schedule • Shows items to be produced • End item, customer order, module • Derived from aggregate plan Example © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

A S C B C B Master schedule for S sold directly Lead time = 4 for A Master schedule for A Lead time = 6 for S Master schedule for S 6 5 9 10 11 12 2 7 8 9 11 10 13 3 8 1 40 50 15 40 20 30 10 10 Periods 1 2 3 4 5 6 7 8 10 50 20 40+10 = 50 15+30 = 45 40 Gross requirements: B Derivation of Master Schedule Periods Therefore, these are the gross requirements for B © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

MRP Dynamics • Supports “replanning” • Problem with system “nervousness” • “Time fence” - allows a segment of the master schedule to be designated as “not to be rescheduled” • “Pegging” - tracing upward in the bill-of-materials from the component to the parent item • That a manager can react to changes, doesn’t mean he/she should © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

MRP and JIT • MRP - a planning and scheduling technique with fixed lead times • JIT - a way to move material expeditiously • Integrating the two: • Small bucket approach and back flushing • Balanced flow approach © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Extensions of MRP • Closed loop MRP • Capacity planning - load reports • MRP II - Material Resource Planning • Enterprise Resource Planning © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Extensions of MRPCapacity Planning • Tactics for smoothing the load and minimizing the impact of changed lead time include: • Overlapping - reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation • Operations splitting - sends the lot to two different machines for the same operation • Lot splitting - breaking up the order and running part of it ahead of the schedule © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

MRP in Services • Can be used when demand for service or service items is directly related to or derived from demand for other services • restaurant - rolls required for each meal • hospitals - implements for surgery • etc. © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Operations Management Material Requirements Planning (MRP) & ERP Chapter 14