BUAD306 MRP/ERP

MRP

Disaggregating & Why It’s Important Enables managers to take aggregate plan and break it down into actual units being produced Especially important in companies with multiple product lines Show quantities and timing of items to be produced (specific products) Enables rough cut capacity planning to test feasibility Feeds the MRP process

Materials Requirement Planning (MRP) A computerized inventory control and production planning system for dependent demand inventories (individual parts that make up a final product). Objective: To ensure that material is available when needed and to maintain the lowest possible level of inventory.

Dependent Demand Items are used internally to produce a final product Example: Production of cookies

MRP Impacts Inventory levels Purchasing materials Manufacturing activities Delivery schedules

MRP Questions MRP is designed to answer these three questions: What is needed? How much is needed? When is it needed?

MRP Inputs MRP Outputs Master Production Schedule Material Requirements Planning Bill of Materials Inventory Master File Planned Order Releases MRP Outputs Work Orders Purchase Orders Rescheduling Notices

MRP Uses Dependent and discrete items (where demand varies) Complex products Job shop production (where each job takes a different path through the system) Assemble-to-order environments (previously completed subassemblies are configured to order)

Master Production Schedule Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders & demand forecasts Quantities represent what needs to be produced, not what can be produced

Terms of Production Time Periods/Buckets – how long it takes to execute portions of the master schedule tasks Cumulative lead time - the total length of time needed to manufacture a product Time fence - a date beyond which no changes in the master schedule are allowed

Bill of Materials (BOM) The list of items that go into the product Includes a brief description of each item Specifies when and in what quantity each item is needed in the assembly process Created with Product Structure Tree

Product Structure Tree Visual depiction of the BOM requirements– where all components are listed by level

Product Structure Tree Shelves Legs Wheel Assemblies Stickers Electrical Assembly Mat AV Cart

Electrical Assembly(1) Continued - Product Structure Tree Cart Shelves (3) Mat (1) Legs(4) Stickers(2) Wheel Assembly(4) Electrical Assembly(1) Tires(1) Surge Protector(1) Axels(1) Power Cord (1) Brakes (1)

Example A - Product Structure Tree for Product X Level X 1 B(4) C 2 D(3) E(2) E(2) F(2) What total quantity of each component (B, C, D, E and F) is needed to produce one X? 3 E(4)

Inventory Master File A database of information on every item produced, ordered, or inventoried Cycle Counting – Taking physical counts of at least some inventory items reconciling differences as they occur

What if you needed 10 X’s and we had the following inventory: Example B - Product Structure Tree for Product X Level X 1 B(4) C 2 D(3) E(2) E(2) F(2) What if you needed 10 X’s and we had the following inventory: B – 4 C – 10 D – 8 E – 60 F - 10 3 E(4)

End item B (2) C D (3) E (2) F (3) G (2) H (4) EXAMPLE C: The table below lists the components needed to assemble an end item, lead times, and quantities on hand. If 30 units of the end item are to be assembled, how many additional units of E are needed? End item B (2) C D (3) E (2) F (3) G (2) H (4)

End item B (2) C D (3) E (2) F (3) G (2) H (4) EXAMPLE D – CUMULATIVE LEAD TIME: An order for the end item is scheduled to be shipped at the start of week 11. What is the latest week that the order can be started and still be ready to ship on time? (You do not have to develop an MRP) End item B (2) C D (3) E (2) F (3) G (2) H (4)

Time-Phased Plan Lot-for-lot: the order or run size for each period is set equal to the demand for that period.

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 using the bill of materials offset by lead times.

MRP Processing Terms Gross Requirements: Total expected demand for an item or raw material in a time period. Scheduled Receipts: Open orders scheduled to arrive from vendors or elsewhere in the pipeline. Projected on hand: Expected amount of inventory that will be on hand at the beginning of each time period

MRP Processing Terms Net Gross Projected Requirements = Requirements - inventory + Safety in period t in period t in period t stock Net requirements: The actual amount needed in each time period Planned-order releases: Planned amount to order in each time period; planned-order receipts offset by lead time

MRP EXAMPLE 1 – MRP SCHEDULE A product structure tree for end item X is below. A manager wants to know the materials requirements for ordered part R that will be needed to complete 120 units of X by the start of week 5. Lead times for items are one week for level 0 and level 1 items and 2 weeks for level 2 items. There is a scheduled receipt of 60 units of M at the END of week 1 and 100 units of R at the START of week 1. Lot for lot ordering is used. X Level 0 M (3) I (2) Level 1 R (2) Level 2 P N (4) V

MRP EXAMPLE 1a – MRP SCHEDULE A product structure tree for end item X is below. A manager wants to know the materials requirements for ordered part R that will be needed to complete 120 units of X for the start of week 6 and 150 for the start of week 8. Lead times for items are one week for level 0 and level 1 items and 2 weeks for level 2 items. There is a scheduled receipt of 60 units of M at the END of week 1 and 100 units of R at the START of week 1. Lot for lot ordering is used. X Level 0 M (3) I (2) Level 1 R (2) Level 2 P R (4) V

MRP EXAMPLE 1b – MRP SCHEDULE A product structure tree for end item X is below. A manager wants to know the materials requirements for ordered part R that will be needed to complete 150 units of X for the start of week 6 and 200 for the start of week 8. Lead times for items are one week for X and M and 2 weeks for all other items. There is a scheduled receipt of 60 units of M at the END of week 1 and 100 units of R at the START of week 1. Lot for lot ordering is used. X Level 0 M (3) I (2) Level 1 R (2) Level 2 P R (4) V

MRP EXAMPLE 1c – MRP SCHEDULE Demand for X: 100 in SOW 7 All LTs = 1 week 100 in SOW8 60 Ms to arrive in EOW1 100 Rs to arrive SOW1 I has a minimum order requirement of 500 units M must be ordered in BATCHES of 300 X Level 0 M (3) I (2) R (2) Level 1 R (2) Level 2 P R (4) V

MRP HW # 5 End item P is composed of three subassemblies: K, L and W. K is assembled using 3Gs and 4 Hs. L is made of 2 Ms and 2 Ns. W is made of 3 Zs. On hand inventories are 20 Ls, 40 Gs, and 200 Hs. Scheduled receipts are 10 Ks at the start of week 3, 30 Ks at the start of week 6, and 200 Ws at the start of week 3. One hundred Ps will be shipped at the start of week 6 and another 100 at the start of week 7. Lead times are two weeks for subassemblies and one week for components G, H and M. Final assembly of P requires one week. Include an extra 10% scrap allowance in each planned order of G. Minimum order size for H is 200.

ERP

Business Systems - Past Minimal data sharing Data duplication / inconsistency Applications were not integrated Isolated decisions lead to overall inefficiencies Increased expenses

ERP Set of integrated business applications that enable core business functions: general ledger, accounting, purchasing, HR, sales, etc. Centralizes functions and practices into real-time, shared, common system across the company Adopts “best practice” mentality across company

ERP Value (to Company) Improves efficiency Increases cost effectiveness Increases availability of information Facilitates strategic planning Standardizes business practices Ensures “common” data platform Real-time data

ERP Value (to Stakeholders) Improves productivity Improves customer satisfaction Provides current information Enhances competitive position Enhances supplier relationships Potential for increased sales

ERP Phases Screening Evaluation Planning Gap Analysis Reengineering Development Testing Training P Implementation Post Implementation

Issues for Implementation Time consuming Cost Lack of consistent “terms” Lack of internal expertise for implementation and ongoing Inconsistency with business practices Impact to existing procedures and structure Resistance to change

Ensuring ERP Success Top management leadership Long term commitment Proper system selection Project Management expertise Change Management expertise Training IT excellence

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