1. MRP and ERP
Chapter 12
MIS 373: Basic Operations Management
Additional content from Jeff Heyl and L. Beril Toktay

2. Learning Objectives After this lecture, students will be able to
Describe the inputs, outputs, and nature of MRP processing.
Explain bill of materials
Explain time-phased product structure
Describe differences between MRP and ERP
MIS 373: Basic Operations Management

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?
MIS 373: Basic Operations Management

4. MRP Overview How much and when finished product is desired
Composition of a finished products
How much inventory is on hand or on order
MIS 373: Basic Operations Management

5. MRP Inputs MRP Inputs Master schedule
How much and when finished product is desired
Bill of Materials (BOM)
Composition of a finished products
Inventory Records
How much inventory is on hand or on order
MIS 373: Basic Operations Management

6. 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).
Weekly Quantity
Item X 11 12 13 14 15 16 17 18
Quantity
100
150
MIS 373: Basic Operations Management

7. 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
Weekly Quantity
Item X 11 12 13 14 15 16 17 18
Quantity
100
150
MIS 373: Basic Operations Management

8. 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
Weekly Quantity
Item X 11 12 13 14 15 16 17 18
Quantity
100
150
MIS 373: Basic Operations Management

9. 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
MIS 373: Basic Operations Management

10. 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
MIS 373: Basic Operations Management

11. 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
MIS 373: Basic Operations Management

12. MRP Inputs: Bill of Materials
Bill of Materials (BOM)
A listing of all of the assemblies, subassemblies, parts, and raw materials needed to produce one unit of a product
Product structure tree
A visual depiction of the requirements in a bill of materials, where all components are listed by levels
MIS 373: Basic Operations Management

13. 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
MIS 373: Basic Operations Management

14. 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)
MIS 373: Basic Operations Management

15. 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
MIS 373: Basic Operations Management

16. 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
MIS 373: Basic Operations Management

17. 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
MIS 373: Basic Operations Management

18. 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
MIS 373: Basic Operations Management

19. Example: Time-Phased Product Structure
An example BOM
The respective lead time
Parts / Product
Process Lead Time A 10 B 15 C D E A
B(2)
C(1)
D(3)
E(3)
D(1)
Question:
When do we start producing/ordering each part?
MIS 373: Basic Operations Management

20. Example: Time-Phased Product Structure
Let’s assume that we need 50 units of A…
Based on the BOM, we will need
Level 1: 100 units of B
Level 2: 300 units of D
Level 1: 50 units of C
Level 2: 50 units of D
Level 2: 150 units of E
Putting together:
100 B, 50 C, 350D, 150 E
Assembly A
B(2)
C(1)
Purchase
D(3)
E(3)
D(1)
MIS 373: Basic Operations Management

21. Example: Time-Phased Product Structure
Let’s assume that we need 50 units of A…
Delivery date for final product
Parts-Products A B C D E
MIS 373: Basic Operations Management
5 days

22. Example: Time-Phased Product Structure
50 units of A
Start assembly for 50 units of A A
B(2)
C(1)
Parts-Products A B C D E
D(3)
E(3)
D(1)
Parts / Product
Process Lead Time A 10 B 15 C D E
5 days
MIS 373: Basic Operations Management

23. Example: Time-Phased Product Structure
50 units of A
Start assembly for 100 units of B A
B(2)
C(1)
Parts-Products A B C D E
D(3)
E(3)
D(1)
Parts / Product
Process Lead Time A 10 B 15 C D E
5 days
MIS 373: Basic Operations Management

24. Example: Time-Phased Product Structure
50 units of A
Start assembly for 50 units of C A
B(2)
C(1)
Parts-Products A B C D E
D(3)
E(3)
D(1)
Parts / Product
Process Lead Time A 10 B 15 C D E
5 days
MIS 373: Basic Operations Management

25. Example: Time-Phased Product Structure
50 units of A
Order 300 units of D for B’s process A
B(2)
C(1)
Parts-Products A B C D E
D(3)
E(3)
D(1)
Parts / Product
Process Lead Time A 10 B 15 C D E
5 days
MIS 373: Basic Operations Management

26. Example: Time-Phased Product Structure
50 units of A
Order 50 units of D for C’s assembly A
B(2)
C(1)
Parts-Products A B C D E
D(3)
E(3)
D(1)
Parts / Product
Process Lead Time A 10 B 15 C D E
5 days
MIS 373: Basic Operations Management

27. Example: Time-Phased Product Structure
50 units of A
Order 150 units of E for C’s assembly A
B(2)
C(1)
Parts-Products A B C D E
D(3)
E(3)
D(1)
Parts / Product
Process Lead Time A 10 B 15 C D E
5 days
MIS 373: Basic Operations Management

28. 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
MIS 373: Basic Operations Management

29. 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
MIS 373: Basic Operations Management

30. Enterprise Resource Planning (ERP)
ERP was the next step in an evolution that began with MRP
ERP typically has an MRP core
Many organizations use a functional structure. Information tends to flow freely within each function but less so between functions.
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
MIS 373: Basic Operations Management

31. 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
MIS 373: Basic Operations Management

32. Focused Reading Enterprise Resource Planning (ERP) Instruction:
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
Instruction:
A group should have 4 persons, each with a different article
Take a few minutes to read the article you have; take notes
Share the key ideas from your reading to your team members

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

34. ERP Common Mistakes Poor plan Not hiring correct people
Need time to plan and to revise
Revise process
Not hiring correct people
Experience third party
IT consultants
Referencing
Restrictions, lack of capability
No sufficient training
Underestimation: accurate data, time, resources, training,
Maintenance strategy

35. 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

36. Cloud ERP 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

37. Key Points
The usage of components in production of assembled items depends on how many of each component are needed per item, and how many items are to be produced. Hence the term dependent demand.
MRP is a tool used for dependent-demand components, to assist in making the two basic decisions in inventory management: how much of each component to order, and when to order it.
ERP is a software-based enterprise-wide system that allows access to production, sales, accounting, warehouse, and supply chain information.
MIS 373: Basic Operations Management