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Chapter 13 MRP and ERP.

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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

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

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