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1 14 Material Requirements Planning (MRP) and ERP PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations.

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Presentation on theme: "1 14 Material Requirements Planning (MRP) and ERP PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations."— Presentation transcript:

1 1 14 Material Requirements Planning (MRP) and ERP PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl

2 2 Outline Dependent Inventory Model Requirements Master Production Schedule Bills of Material Lead Times for Components MRP Structure MRP Management MRP In Services Enterprise Resource Planning (ERP) Advantages and Disadvantages of ERP Systems

3 3 Learning Objectives 1.Develop a product structure 2.Build a gross requirements plan 3.Build a net requirements plan 4.Describe MRP II 5.Describe closed-loop MRP 6.Describe ERP

4 4 Wheeled Coach Largest manufacturer of ambulances 12 major ambulance designs 18,000 different inventory items 6,000 manufactured parts 12,000 purchased parts Four Key Tasks Material plan must meet both the requirements of the customer and the capabilities of production Plan must be executed as designed Minimize inventory investment Maintain excellent record integrity

5 5 Dependent Demand The demand for one item is related to the demand for another item Given a quantity for the end item, the demand for all parts and components can be calculated In general, used whenever a schedule can be established for an item MRP is the common technique

6 6 Dependent Demand 1.Master production schedule 2.Specifications or bill of material 3.Inventory availability 4.Purchase orders outstanding 5.Lead times Effective use of dependent demand inventory models requires the following

7 7 Figure 14.1 Change production plan? Master production schedule Management Return on investment Capital Engineering Design completion Aggregate production plan Procurement Supplier performance Human resources Manpower planning Production Capacity Inventory Marketing Customer demand Finance Cash flow The Planning Process

8 8 Figure 14.1 Is capacity plan being met? Is execution meeting the plan? Change master production schedule? Change capacity? Change requirements? No Execute material plans Execute capacity plans Yes Realistic? Capacity requirements plan Material requirements plan Master production schedule

9 9 Master Production Schedule (MPS) 1.A customer order in a job shop (make- to-order) company 2.Modules in a repetitive (assemble-to- order or forecast) company 3.An end item in a continuous (stock-to- forecast) company Can be expressed in any of the following terms:

10 10 MPS Examples Gross Requirements for Crabmeat Quiche Gross Requirements for Spinach Quiche Day and so on Amount Day and so on Amount Table 14.1 For Nancys Specialty Foods

11 11 Bills of Material List of components, ingredients, and materials needed to make product Provides product structure Items above given level are called parents Items below given level are called children

12 12 BOM Example B (2) Std. 12 Speaker kit C (3) Std. 12 Speaker kit w/ amp-booster 1 E (2) F (2) Packing box and installation kit of wire, bolts, and screws Std. 12 Speaker booster assembly 2 D (2) 12 Speaker D (2) 12 Speaker G (1) Amp-booster 3 Product structure for Awesome (A) A Level 0

13 13 BOM Example B (2) Std. 12 Speaker kit C (3) Std. 12 Speaker kit w/ amp-booster 1 E (2) F (2) Packing box and installation kit of wire, bolts, and screws Std. 12 Speaker booster assembly 2 D (2) 12 Speaker D (2) 12 Speaker G (1) Amp-booster 3 Product structure for Awesome (A) A Level 0 Part B:2 x number of As =(2)(50) =100 Part C:3 x number of As =(3)(50) =150 Part D:2 x number of Bs + 2 x number of Fs =(2)(100) + (2)(300) =800 Part E:2 x number of Bs + 2 x number of Cs =(2)(100) + (2)(150) =500 Part F:2 x number of Cs =(2)(150) =300 Part G:1 x number of Fs =(1)(300) =300

14 14 Lead Times The time required to purchase, produce, or assemble an item For production – the sum of the order, wait, move, setup, store, and run times For purchased items – the time between the recognition of a need and the availability of the item for production

15 15 Time-Phased Product Structure |||||||| |||||||| Time in weeks F 2 weeks 3 weeks 1 week A 2 weeks 1 week D E 2 weeks D G 1 week Start production of D Must have D and E completed here so production can begin on B Figure week 2 weeks to produce B C E

16 16 MRP Structure Figure 14.5 Output Reports MRP by period report MRP by date report Planned order report Purchase advice Exception reports Order early or late or not needed Order quantity too small or too large Data Files Purchasing data BOM Lead times (Item master file) Inventory data Master production schedule Material requirement planning programs (computer and software)

17 17 Determining Gross Requirements Starts with a production schedule for the end item – 50 units of Item A in week 8 Using the lead time for the item, determine the week in which the order should be released – a 1 week lead time means the order for 50 units should be released in week 7 This step is often called lead time offset or time phasing

18 18 Determining Gross Requirements From the BOM, every Item A requires 2 Item Bs – 100 Item Bs are required in week 7 to satisfy the order release for Item A The lead time for the Item B is 2 weeks – release an order for 100 units of Item B in week 5 The timing and quantity for component requirements are determined by the order release of the parent(s)

19 19 Determining Gross Requirements The process continues through the entire BOM one level at a time – often called explosion By processing the BOM by level, items with multiple parents are only processed once, saving time and resources and reducing confusion Low-level coding ensures that each item appears at only one level in the BOM

20 20 Gross Requirements Plan Table 14.3 Week Lead Time A.Required date50 Order release date501 week B.Required date100 Order release date1002 weeks C.Required date150 Order release date1501 week E.Required date Order release date weeks F.Required date300 Order release date3003 weeks D.Required date Order release date week G.Required date 300 Order release date3002 weeks

21 21 Net Requirements Plan

22 22 Net Requirements Plan

23 23 Determining Net Requirements Starts with a production schedule for the end item – 50 units of Item A in week 8 Because there are 10 Item As on hand, only 40 are actually required – (net requirement) = (gross requirement - on- hand inventory) The planned order receipt for Item A in week 8 is 40 units – 40 =

24 24 Determining Net Requirements Following the lead time offset procedure, the planned order release for Item A is now 40 units in week 7 The gross requirement for Item B is now 80 units in week 7 There are 15 units of Item B on hand, so the net requirement is 65 units in week 7 A planned order receipt of 65 units in week 7 generates a planned order release of 65 units in week 5

25 25 Determining Net Requirements A planned order receipt of 65 units in week 7 generates a planned order release of 65 units in week 5 The on-hand inventory record for Item B is updated to reflect the use of the 15 items in inventory and shows no on-hand inventory in week 8 This is referred to as the Gross-to-Net calculation and is the third basic function of the MRP process

26 26 S BC Lead time = 6 for S Master schedule for S Gross Requirements Schedule Figure Master schedule for B sold directly Periods Therefore, these are the gross requirements for B Gross requirements: B =50= Periods A B C Lead time = 4 for A Master schedule for A

27 27 Net Requirements Plan The logic of net requirements Available inventory Net requirements On hand Scheduled receipts +–= Total requirements Gross requirements Allocations +

28 28 MRP Management MRP is a dynamic system Time fences put limits on replanning Pegging links each item to its parent MRP II Closed-Loop MRP Capacity Planning Outputs include Scrap Packaging waste Carbon emissions Data used by purchasing, production scheduling, capacity planning, inventory

29 29 Closed-Loop MRP System Figure 14.8 Priority Management Develop Master Production Schedule Prepare Materials Requirements Pan Detailed Production Activity Control (Shop Scheduling/Dispatching) Capacity Management Evaluate Resource Availability (Rough Cut) Determine Capacity Availability Implement Input/Output Control Aggregate Production Plan OK?NO OK?NO OK? YES Planning Execution (in repetitive systems JIT techniques are used)

30 30 MRP in Services Some services or service items are directly linked to demand for other services These can be treated as dependent demand services or items Restaurants Hospitals Hotels

31 31 Uncooked linguini #30004 Sauce #30006 Veal #30005 MRP in Services Chef; Work Center #1 Helper one; Work Center #2 Asst. Chef; Work Center #3 Cooked linguini #20002 Spinach #20004 Prepared veal and sauce #20003 (a) PRODUCT STRUCTURE TREE Veal picante #10001 Figure 14.10

32 32 Enterprise Resource Planning (ERP) An extension of the MRP system to tie in customers and suppliers Allows automation and integration of many business processes Shares common data bases and business practices Produces information in real time Coordinates business from supplier evaluation to customer invoicing

33 33 ERP and MRP Figure 14.11

34 34 Advantages of ERP Systems 1.Provides integration of the supply chain, production, and administration 2.Creates commonality of databases 3.Can incorporate improved best processes 4.Increases communication and collaboration between business units and sites 5.Has an off-the-shelf software database 6.May provide a strategic advantage

35 35 Disadvantages of ERP Systems 1.Is very expensive to purchase and even more so to customize 2.Implementation may require major changes in the company and its processes 3.Is so complex that many companies cannot adjust to it 4.Involves an ongoing, possibly never completed, process for implementation 5.Expertise is limited with ongoing staffing problems

36 36 ERP in the Service Sector ERP systems have been developed for health care, government, retail stores, hotels, and financial services Also called efficient consumer response (ECR) systems Objective is to tie sales to buying, inventory, logistics, and production

37 37 In-Class Problems from the Lecture Guide Practice Problems Problem 1: The Hunicut and Hallock Corporation makes two versions of the same basic file cabinet, the TOL (Top-of-the-line) five drawer file cabinet and the HQ (High-quality) five drawer filing cabinet. The TOL and HQ use the same cabinet frame and locking mechanism. The drawer assemblies are different although both use the same drawer frame assembly. The drawer assemblies for the TOL cabinet use a sliding assembly that requires four bearings per side whereas the HQ sliding assembly requires only two bearings per side. (These bearings are identical for both cabinet types.) 100 TOL and 300 HQ file cabinets need to be assembled in week #10. No current stock exists. Develop a material structure tree for the TOL and the HQ file cabinets.


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