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
B(4)
C(2)
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
Indep. Demand
Dep. 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. Bill of materials Inventory records
MRP Inputs
MRP Processing
MRP Outputs
Master
schedule
Bill of
materials
Inventory
records
MRP computer
programs
Changes
Order releases
Planned-order
schedules
Exception reports
Planning reports
Performance-
control
reports
transaction
Primary
Secondary

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

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

14. Assembly Time Chart Days 1 2 3 4 5 6 7 8 9 10 11 Procurement of
raw material D
raw material F
part C
part H
raw material I
Fabrication
of part G
of part E
Subassembly A
Subassembly B
Final assembly
and inspection
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 Scheduled receipts Planned on hand
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 set Planned order receipts(t)>=Net requirement(t)
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
Periods 1 2 3
Gross requirements 6 11 7
Scheduled receipts
Projected on hand 10
Net requirements
Planned order receipts
Planned order releases
Inputs
Outputs

19. Figure 13-8

20. Other Considerations Safety Stock Lot sizing
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
Periods 1 2 3
Gross requirements 6 11 9
Scheduled receipts
Projected on hand 10 4
Net requirements 5
Planned order receipts
Planned order releases
Inputs
Outputs

22. Figure 13-9

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

27. MRP in Services Food catering service Hotel renovation
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. Computer and necessary software Accurate and up-to-date inputs:
Requirements of MRP
Computer and necessary software
Accurate and up-to-date inputs:
Master schedules
Bills of materials
Inventory records
Integrity of data

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

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

32. ERP Enterprise resource planning (ERP): Strategic considerations
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: Capacity planning MRP-II and ERP
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. Little JIT – narrow focus
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/organizational elements
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. Benefits of Small Lot Sizes
Reduces inventory
Less storage space
Less rework
Problems are more apparent
Increases product flexibility
Easier to balance operations

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

51. 4. Manufacturing Planning and Control
Level loading
Pull systems
Visual systems
Close vendor relationships
Reduced transaction processing
Preventive maintenance

52. Pull/Push Systems
Pull system: System for moving work where a workstation pulls output from the preceding station as needed. (e.g. Kanban)
Push system: System for moving work where output is pushed to the next station as it is completed

53. Kanban Production Control System
Kanban: Card or other device that communicates demand for work or materials from the preceding station
Kanban is the Japanese word meaning “signal” or “visible record”
Paperless production control system
Authority to pull, or produce comes from a downstream process.

54. Traditional Supplier Network
Buyer
Supplier
Suppiler

55. Tiered Supplier Network
Buyer
First Tier Supplier
Second Tier Supplier
Third Tier Supplier

56. Summary JIT Goals and Building Blocks
Product
Design
Process
Personnel
Elements
Manufactur- ing Planning
Eliminate disruptions
Make the system flexible
Reduce setup
and lead times
Eliminate waste
Minimize inventories A
balanced
rapid flow
Ultimate
Goal
Supporting
Goals
Building
Blocks

57. Converting to a JIT System
Get top management commitment
Decide which parts need most effort
Obtain support of workers
Start by trying to reduce setup times
Gradually convert operations
Convert suppliers to JIT
Prepare for obstacles

58. Obstacles to Conversion
Management may not be committed
Workers/management may not be cooperative
Suppliers may resist

59. JIT in Service
The basic goal of the demand flow technology in the service organization is to provide optimum response to the customer with the highest quality service and lowest possible cost.
Eliminate disruptions
Make system flexible
Reduce setup and lead times
Eliminate waste
Minimize WIP
Simplify the process

60. How about Exchange purchasing: Auctions?
JIT Purchasing
New challenges
Meeting manufacturing requirements
Changing from traditional thinking and practices – frequent on-time delivery of small quantities
Long term relationships with suppliers as partners
How about Exchange purchasing: Auctions?

61. JIT II
JIT II: the practice of allowing vendors to manage some aspects of buying their products or services for the buyer

62. Benefits of JIT Systems
Reduced inventory levels
High quality
Flexibility
Reduced lead times
Increased productivity

63. Benefits of JIT Systems (cont’d)
Increased equipment utilization
Reduced scrap and rework
Reduced space requirements
Pressure for good vendor relationships
Reduced need for indirect labor

64. Elements of JIT Smooth flow of work (the ultimate goal)
Elimination of waste
Continuous improvement
Eliminating anything that does not add value
Simple systems that are easy to manage
Use of product layouts to minimize moving materials and parts
Quality at the source

65. Elements of JIT (cont’d)
Poka-yoke – fail safe tools and methods
Preventative maintenance
Good housekeeping
Set-up time reduction
Cross-trained employees
A pull system

66. Case Study based on a trip on Nov 19, 02
NUMMI

67. History/Products Late 70’s oil crisis
GM closes Fremont, CA plant firing 6000 in 1982
Toyota approaches GM to set up Toyota production system at a GM plant, United Auto Workers accepts the deal
GM and Toyota put together $400M in GM owns the infrastructure, Toyota is the tenant.
Nummi = New United Motor Manufacturing, Inc is born in 1984 as the unique example of a Toyota – GM joint venture
Products: Toyota Corolla, Tacoma Trucks, Pontiac Vibe (Toyota bottom, GM top) and Toyota Voltz (Toyota bottom, GM top, sold in Japan) , GM Prism until 13/12/01

68. Workers Nummi has about 4500 unionized workers
Workers are under two types:
Production, high school graduates
Maintenance
Workers work in teams of 4-6
Workers in a team rotate the tasks every 1-3 hours
Team leader is responsible for the rotation.
Team leader withdraws parts from the inventory (every 1-2 hours) and provides the tools as necessary
Workers make $17 per hour

69. Capacity Nummi has a cycle time of 60 seconds for Corolla, 1 body
82 seconds for Tacoma, 3 bodies (only cabin is produced at Nummi, the bottom and the back are bought from suppliers)
Nummi works in two shifts
I: 6:00-14:30, II: 16:30-1:00
Each shift has 1 hour lunch/dinner break
Starting the first shift at 6:00 workers avoid heavy morning traffic
Two hours between shifts I and II is to allow for overtime after the first shift when necessary

70. Work Flow
Stamping: Forming metal (side, back, front) panels with presses
Body & Weld: Putting panels together
Paint: Paint inspection is the current bottleneck
Primer body paint applied by robots (chemically hazardous task)
Door jambs painted manually
Plastics: Making bumpers, inside panels
Assembly: Putting in tires, engine, seats, bumpers, harnessing. Cars , trucks on 2 km , 0.8 km conveyors
Cars contain Building manifest = BOM = Ingredients list at every step of these operations

71. Just in time Kaizen: continuous improvement
Kanban: replenishment every 1-2 hours
Jidoka: Assure 100% quality. Otherwise pull the Andon chord
1000 times per shift
9% of line stops are longer than 30 seconds
Line stops longer than an hour once every month
Muda: Waste to be eliminated
Genchi Genbutsu: Go to the source to learn and to solve the problems
This Japanese terminology is all over the boards in the plant

72. Creative Tool / Work Place Design
Die change at the stamping in 3 hours
Tilted storage bins for ease of access
Collapsing storage boxes when empty
To reduce the empty box storage requirements in trucks returning to suppliers, say in Indiana
These boxes save about $10M annually
The worker who suggested the boxes earned several thousand points. 1 point = $1.
More info