1. MRP and ERP
Chapter 12

2. Learning Objectives
Describe the inputs, outputs, and nature of MRP processing.
Explain bill of materials
Explain time-phased product structure
Describe differences between MRP and ERP

3. MRP Material requirements planning (MRP):
A computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.
The MRP is designed to answer three questions:
What is needed?
How much is needed?
When is it needed?

4. Overview of MRP How much and when finished product is desired
Composition of a finished products
How much inventory is on hand or on order

5. MRP Inputs: Master Schedule
States:
Which end items are to be produced
When these are needed
In what quantities (customer orders, forecasts, order from warehouses to build up seasonal inventories).
Item X
at beginning of week 14 and
at beginning of week 18
100 at beginning of week 14
150 at beginning of week 18
Weekly Quantity
Item X 11 12 13 14 15 16 17 18
Quantity
100
150

6. Cumulative Lead Time
The master schedule should cover a period that is at least equivalent to the 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.
CLT = 9 weeks

7. Cumulative Lead Time Following the previous example, if CLT=9
When should we start work for the demand on the week 14?
When should we start work for the demand on the week 18?
Weekly Quantity
Item X 11 12 13 14 15 16 17 18
Quantity
100
150

8. MRP Inputs: Bill of Materials
Bill of Materials (BOM)
A hierarchical listing of all of the assemblies, subassemblies, parts, and raw materials needed to produce one unit of a product
Each finished product has its own BOM
Product structure tree
A visual depiction of the requirements in a bill of materials, where all components are listed by levels

9. Assembly Diagram and Product Structure Tree
parent
Level 0 = end item
component
Level 1
parent
Level 2
component
Amount needed for assembly at the next higher level only

10. Low-Level Coding Low-level coding
Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level at which the component occurs
Example: 1 X requires: 2 B, 1 C, 6 D, 28 E, and 2 F
Level 0 X
X: 1
B: 2 x 1 = 2
Level 1
B(2) C
C: 1 x 1 = 1
D: 3 x 2 = 6
Level 2
E: 2 x 1 = 2
D(3) E
E(2)
F(2)
F: 2 x 1 = 2
E: 1 x 2 = 2
E: 4 x 6 = 24
Level 3
E(4)

11. Low-Level Coding: 1 X 1 X requires: Level 0 X X: 1 B: 2 x 1 = 2
C: 1 x 1 = 1
D: 3 x 2 = 6
Level 2
E: 2 x 1 = 2
D(3) E
E(2)
F(2)
F: 2 x 1 = 2
E: 1 x 2 = 2
E: 4 x 6 = 24
Level 3
E(4)
1 X requires:
B: 2
C: 1
D: 6
E: =28
F: 2

12. Low-Level Coding: 10 X with on hand inventory
B(2) C
Level 2
D(3) E
E(2)
F(2)
Level 3
E(4)
1 X requires:
B: 2
C: 1
D: 6
E: 28
F: 2
10 X require:
B: 2x10-4=16
C: 1x10-10=0
D: 6x10-8=52
E: 28x10-60=220
F: 2x10-0=20
Does not consider item hierarchy!
On hand inventory
B: 4
C: 10
D: 8
E: 60
F: 0

13. Low-Level Coding: 10 X with on hand inventory
B(2) C
B: 2 x = 16
C: 1 x =0
Level 2
D(3) E
E(2)
F(2)
D: 3 x 16 – 8=40
F: 2 x 0 = 0
Level 3
E: 4 x 40 – 60=100
E(4)
“Low-level coding”
E: 1 x 16 = 16
E: 2 x 0 = 0
10X require:
B: 16
C: 0
D: 40
E: =116
F: 0
On hand inventory
B: 4
C: 10
D: 8
E: 60
F: 0

14. MRP Processing
MRP processing takes the end item requirements specified by the master schedule and “explodes” them into time-phased requirements for assemblies, parts, and raw materials offset by lead times
Part E fabrication lead-time
Sub assembly lead-time
Material F delivery lead-time
Final assembly lead-time

15. MRP Inputs: Inventory Records
Includes information on the status of each item by time period (called time buckets)
Information about
Gross requirements
Scheduled receipts
Expected amount on hand
Other details for each item such as
Supplier
Lead time
Lot size policy
Changes due to stock receipts and withdrawals
Canceled orders and similar events

16. MRP Record Gross requirements Scheduled receipts Projected on hand
Total expected demand (during each period) without regard to the amount on hand.
Scheduled receipts
Open orders scheduled to arrive (at the beginning of a period)
Projected on hand
Expected inventory on hand (at the beginning of each time period)
Week Number 1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release
Net requirements
Actual amount needed in each time period
Planned-order receipts
Quantity expected to received (at the beginning of the period)
Under Lot-for-lot will equal net requirements
Planned-order releases
Planned amount to order in each time period.
Equal planned-order receipts offset by lead time.
12-16

17. Projected on hand inventory + Scheduled receipts
MRP Processing
Gross requirements are generated by exploding the bill of materials
The core of MRP processing is determining net requirements (netting) -> materials that are actually needed to meet demand
Net requirements
Gross requirements
Available inventory = -
Available inventory
Projected on-hand
Scheduled receipts = +
Projected on hand inventory + Scheduled receipts
Net requirements
Gross requirements = -

18. MRP: Development
The MRP is based on the product structure tree diagram
Requirements are determined level by level, beginning with the end item and working down the tree
The timing and quantity of each “parent” becomes the basis for determining the timing and quantity of the “children” items directly below it.
The “children” items then become the “parent” items for the next level, and so on

19. Example MRP Shutter Wood sections (4) Frames (2) Orders:
100 units for delivery at (the start of) week 4
150 units at (the start of) week 8.
Assembly:
Wood sections made by the firm. Fabrication takes 1 week.
Frames are ordered. Lead time is 2 weeks.
Shutter assembly requires 1 week.
Schedule receipts:
70 wood sections at (the beginning of) week 1.
Determine the size and timing of planned-order releases (under Lot-for-Lot ordering)
Shutter
Frames (2)
Wood sections (4)

20. MRP Lot-For-Lot Ordering
Shutter
[LT=1 week]
Frames (2)
[LT=2 weeks]
Wood sections (4)
[LT= 1 weeks]

21. MRP Lot-For-Lot Ordering
Shutter
[LT=1 week]
Frames (2)
[LT=2 weeks]
Wood sections (4)
[LT= 1 weeks]
200*1
330*3
300*1
600*3
Widget (1)
[LT=1 weeks]
Widget (3)
[LT=1 weeks]

22. Updating the System An MRP is not a static document As time passes
Some orders get completed
Other orders are nearing completion
New orders will have been entered
Existing orders will have been altered
Quantity changes
Delays
Missed deliveries
Rolling Horizon

23. MRP Outputs: Primary Primary Outputs Planned orders Order releases
A schedule indicating the amount and timing of future orders
Order releases
Authorizing the execution of planned orders
Changes
Revisions of the dates or quantities, or the cancellation of orders

24. MRP Outputs: Secondary
Secondary Outputs
Performance-control reports
Evaluation of system operation, including deviations from plans and cost information
e.g., missed deliveries and stockouts
Planning reports
Data useful for assessing future material requirements
e.g., purchase commitments
Exception reports
Data on any major discrepancies encountered
E.g., late and overdue orders, excessive scrap rates, requirements for nonexistent parts

25. Enterprise Resource Planning (ERP)
Many organizations use a functional structure. Information tends to flow freely within each function but less so between functions.
Enterprise Resource Planning (ERP)
ERP was the next step in an evolution that began with MRP
ERP typically has an MRP core
ERP represents an expanded effort to integrate standardized record keeping that will permit information sharing among different areas of an organization in order to manage the system more effectively
A system to capture and make data available in real-time to decision makers throughout the organization.
ERP systems are composed of a collection of integrated modules

26. ERP Software Modules Module Brief Description Accounting/Finance
A central component of most ERP systems. It provides a range of financial reports, including general ledger, accounts payable, accounts receivable, payroll, income statements, ad balance sheets
Marketing
Supports lead generation, target marketing, direct mail, and sales
Human Resources
Maintains a complete data base of employee information such as date of hire, salary, contact information, performance evaluations, and other pertinent information
Purchasing
Facilitates vendor selection, price negotiation, making purchasing decisions, and bill payment
Production Planning
Integrates information on forecasts, orders, production capacity, on-hand inventory quantities, bills of material, work in process, schedules, and production lead times
Inventory Management
Identifies inventory requirements, inventory availability, replenishment rules, and inventory tracking
Distribution
Contains information on third-party shippers, shipping and delivery schedules, delivery tracking
Sales
Information on orders, invoices, order tracking, and shipping
Supply Chain Management
Facilitates supplier and customer management, supply chain visibility, and event management

27. Focused Reading (MIS Major Required)
Enterprise resource planning (ERP)—A brief history
13 Common ERP Mistakes and How to Avoid Making Them
ERP and Business Process Re-engineering
ERP: The Business Process Re-engineering Dilemma
To BPR, or not to BPR, that is the question
Cloud ERP
What Is Cloud ERP, and How Is It Different from Traditional Solutions?
Benefits of Cloud ERP Software

28. ERP History tapes IBM 1960~1970 1980s SAP, Peoplesoft, 1990
MRP: focus on cost reporting, materials, manufacturing
tapes
IBM
1960~1970
MRPII: scheduling, procurement
1980s
ERP
SAP, Peoplesoft,
1990
Client-server architecture

29. ERP Common Mistakes Poor Planning Not properly vetting ERP vendors
Not understanding or using key features
Understanding the time and resources required
Not having the right people on the team from the start
Not setting priorities
Not investing in training and change management
Underestimating the importance of accurate data
Taking the kitchen sink approach
Not decommissioning legacy applications
Not having an active load testing environment
Ignoring third-party support alternatives
Not having a maintenance strategy

30. ERP & Business Process Re-engineering
Take place before ERP system selection
Output of BPR  ERP
To be process vs. as is process
Difference ways to do business globally
Process standardization after acquisition
Legacy systems
Make sure the process lead to higher values

31. Cloud ERP Outsource operation, easy to setup, monthly/annually fee
Cloud ERP vs. traditional ERP
Traditional:
Cloud:
Outsource operation, easy to setup, monthly/annually fee
Minimal initial cost
Automate operation
cons
Less control, data security, service outage