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12 – MRP and ERP Dr. Ron Lembke. Historical Perspective mrp – material requirements planning MRP II – Manufacturing Resource Planning ERP- Enterprise.

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Presentation on theme: "12 – MRP and ERP Dr. Ron Lembke. Historical Perspective mrp – material requirements planning MRP II – Manufacturing Resource Planning ERP- Enterprise."— Presentation transcript:

1 12 – MRP and ERP Dr. Ron Lembke

2 Historical Perspective mrp – material requirements planning MRP II – Manufacturing Resource Planning ERP- Enterprise Resource Planning

3 MRP Crusade (1975) Material Requirements Planning Make sure you have enough parts when you need them Take future demands, factor in lead times (time phase), compare to on hand, order Determine order size and timing Control and plan purchasing vs. OSWO inventory management

4 Closed-Loop MRP Capacity Consideration: Part routings Calculate loads on each work station See if scheduled load exceeds capacity Lead-time long enough to allow some shuffling to make plan feasible

5 MRP II -- Manufacturing Resource Planning “A method for the effective planning of all resources of a manufacturing company” (APICS def.) Financial accounting incorporated Sales Operations Planning Simulate capacity requirements of different possible Master Production Schedules 1989, $1.2B MRPII sales in U.S., one third of total software sales

6 Success? MRP Crusade Begins

7 Electronic Data Interchange My computer talks to yours, tells you exactly what I want to order, when You fill out a form, very compressed message sent, viewed as form Software, hardware expensive to implement Sample Purchase Transaction ST88850*1Transaction Set identifier BEG*00*NE* **010698Beginning of Segment PID*X*08*MC**Large WidgetDescription of Product P01**5*DZ*4.55*TDBaseline Item Data CTT*1Transaction Totals SE*1*1End of Segment

8 XML e X tensible M arkup L anguage XML provides self-describing information. Much easier, faster to implement or modify than EDI. Expected to replace EDI. Standardization through RosettaNet efforts

9 ERP differences Material planning Capacity planning Product design Information warehousing All functions in the entire company operate off of one common set of data Instantaneous updating, visibility

10 Historical Perspective Database Server(s) Application Server(s) User PCs

11 ERP Sales Y2K: Worldwide sales of top 10 vendors 1995$2.8 B 1996$4.2 B 1997 $5.8 B$3.2 B SAP Fortune survey: 44% reported spending at least 4 times as much on implementation as on software

12 ERP Challenges Modules assume “best practices:” Change software to reflect company ($) Change company to follow software (?) Accuracy of data Drives entire system Ownership of / responsibility for Ability to follow structure

13 ERP Novel? “Goal-like” novel Hero learns more about ERP, deciding if it is right for his company Company rushes through installation General introduction to ERP systems, what they do, how different from MRP SAP R/3 screen shots

14 3 Reasons for ERP 1.Legacy systems outdated and need replacing anyway 2.Desire for greater communication between locations 3.Reconfigure business to take advantage of current and future communications and computing breakthroughs

15 Why ERP? Common Client Multiple Processes Multiple Clients Multiple Processes Common Client “Best Practices” Multiple Clients Mostly “Best Practices” HighLow Centralization High Low Flexibility

16 ERP Considerations 1. Control: how much centralization, drill-down visibility? 2. Structure: How large & dispersed, how tightly integrated does it need to be? 3. Database: desired structure, accessibility 4. Customization: out/in source, how willing? Ability to modify in real time. Creating in-house experts vs. continued consulting dependence 5. Best practices: how willing to embrace? Source: Carol A. Ptak “ERP: Tools, Techniques and Applications for Integrating the Supply Chain,” St. Lucie Press, APICS Series on Resource Management, 1999, p. 252.

17 The Heart of the Matter - mrp System for organizing WIP releases Work in Process – work that has been started, but not yet finished Consider Lead Time (LT)for each item Look at BOM to see what parts needed Bill of Materials – what goes into what Release so they will arrive just as needed Example – Snow Shovel Order quantity is 50 units LT is one week

18 MRP Table 6 units short

19 MRP Table Order 50 units week earlier

20 Ending Inventory Ending inventory

21 Terminology Projected Available balance Not on-hand (that may be greater) Tells how many will be available Available to Promise – the units aren’t spoken for yet, we can assign them to a customer Planned order releases ≠ scheduled receipts Only when material has been committed to their production Move to scheduled receipts as late as possible Preserves flexibility

22 1605 Snow Shovel 1605 Snow Shovel 048 Scoop-shaft connector Top Handle Assy 314 scoop assembly 118 Shaft (wood) 062 Nail (4) Rivet (4)

23 314 scoop assembly Rivet (6) 019 Blade (steel) 2142 Scoop (aluminum)

24 13122 Top Handle Assembly 1118 Top handle Coupling (steel) Welded Top handle bracket Assembly Top Handle Assembly 457 Top handle (wood) 129 Top Handle Bracket (steel) 082 Nail (2)

25 BOM Explosion Process of translating net requirements into components part requirements Take into account existing inventories Consider also scheduled receipts

26 BOM Explosion Example Need to make 100 shovels We are responsible for handle assemblies.

27 13122 Top Handle Assembly 1118 Top handle Coupling (steel) Welded Top handle bracket Assembly Top Handle Assembly 457 Top handle (wood) 129 Top Handle Bracket (steel) 082 Nail (2)

28 Net Requirements SchGrossNet Part DescriptionInvRecReqReq Top handle assy Top handle2225 Nail (2 required)450 Bracket Assy27-- Top bracket15-- Top coupling3915

29 Net Requirements SchGrossNet Part DescriptionInvRecReqReq Top handle assy Top handle Nail (2 required) Bracket Assy Top bracket15-- Top coupling3915

30 13122 Top Handle Assembly 1118 Top handle Coupling (steel) Welded Top handle bracket Assembly Top Handle Assembly 457 Top handle (wood) 129 Top Handle Bracket (steel) 082 Nail (2)

31 Net Requirements SchGrossNet Part DescriptionInvRecReqReq Top handle assy Top handle Nail (2 required) Bracket Assy Top bracket Top coupling

32 Timing of Production This tells us how many of each we need Doesn’t tell when to start Start as soon as possible? Dependent events (oh no, not that!)

33 13122 Top Handle Assy Order policy: Lot-for-lot

34 13122 Top Handle Assy-2 Order policy: Lot-for-lot

35 13122 Top Handle Assy -3 Order policy: Lot-for-lot

36 457 Top Handle One handle for Each assembly

37 457 Top Handle Order policy: Lot-for-lot

38 457 Top Handle Order policy: Lot-for-lot

39 082 Nail (2 required) Two nails for Each assembly

40 082 Nail (2 required)

41

42

43 11495 Bracket Assembly One bracket for Each assembly

44 11495 Bracket Assembly One bracket for Each assembly

45 11495 Bracket Assembly One bracket for Each assembly

46 11495 Bracket Assembly Order policy: Lot-for-lot

47 129 Top Bracket

48 129 Top handle bracket

49 1118 Top handle coupling

50

51

52 Other considerations Safety stock if uncertainty in demand or supply quantity Don’t let available go down to 0 Safety LT if uncertainty in arrival time Place order earlier than necessary Order quantities EOQ – Economic Order Quantity, Fixed Size If that’s not enough, order what you need, OR order two or more of the Fixed Size Lot-For-Lot, Periodic Order quantity, others

53 MRP Priorities First: Get installed, part of ongoing managerial process, get users trained Understand critical linkages with other areas Achieve high levels of data integrity Link MRP with front end, engine, back end Then: Determine order quantities more exactly Buffering concepts Nervousness

54 Ordering Policies Dependent Demand Not independent demand Discrete – not continuous Lumpy – may have surges Complexity Reduces costs – ordering & holding Anything other than lot-for-lot Increases lumpiness downstream

55 Assumptions All requirements must be available at start of period All future requirements must be met, and can’t be backordered System operated on periodic basis (e.g. weekly) Requirements properly offset for LTs Parts used uniformly through a period Use average inventory levels for holding cost

56 Example Demands Try several lot-sizing methods Economic Order Quantity Periodic Order Quantity Part Period Balancing Wagner Within Order cost = $300 per order = C P Inventory Carrying cost = $2 / unit/ week = C H Avg Demand = 92.1 / wk = D

57 EOQ Minimizes total ordering & holding costs Assumes demand same every period Definitely not always true for this use Avg. demand and holding cost need same time units (e.g. per week) Economic Lot Size: Where: D = avg demand C P = ordering cost C H = holding cost

58 EOQ Sqrt( 2 * 300 * 92.1 / 2) = 166

59 EOQ Ordering cost = 6 * 300 = $1,800 Inv carry cost = 1,532.5 * 2 = $3,065 Total$4,865

60 Periodic Order Quantities EOQ Gave good tradeoff between ordering & holding resulted in a lot of leftovers. Only order enough to get through a certain number of periods – no leftovers How many? EOQ / avg. demand 166 / 92.1 = ~ 2 weeks’ worth

61 Periodic Order Quantities Ordering cost = 6 * 300 = $1,800 Inv carry cost =1,082.5 * 2 = $2,145 Total$3,945

62 Part Period Balancing (Least Total Cost) Increase the quantity until holding costs equal the ordering cost Order 10 – holding = 10/2*2 = 10 Order 20 – holding = *1.5*2 = $40 Order 35 = *2.5*2 = $115 Order 55 = *3.5*2 = $255 Order 125 = *4.5*2 = $85

63 Part Period Balancing Week 5: Order 70: Holding = 10*0.5*2 = $10 Order 250: *1.5*2 = $550 So I could: Order 250 units, pay $300 in ordering and $540 holding, for a total of $840, Order 70 now, 180 next week, and pay $600 in ordering and $ *0.5*2=180 in holding = $790 Seems like the second option is best.

64 Part Period Balancing When should we place a separate order? If 1.5*$2*D > 300. D>300/3 = 100 Whenever demand is >= 100, we might as well place a separate order. What about week 9? Order 230: holding = 230*0.5*2 = $230 Order 270: = *1.5*2 = $350 Order 280: = *3.5*2 = $420

65 Part Period Balancing

66 Wagner-Within Mathematically optimal Work back from planning period farthest in the future Consider all possibilities: Order for 5, 4 and 5, 3 and 4, then 5, etc. Uses “dynamic programming” – similar to linear programming

67 Simulation Experiments What is best under real-world conditions? Multiple levels to be concerned about Real-time changes


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