Material Requirements Planning and Enterprise Resource Planning Dr. Ron Lembke

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

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

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

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

Success? MRP Crusade Begins http://www.census.gov/econ/currentdata/dbsearch

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

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

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

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

Bike Production Frame OCLV Carbon Drivetrain Wheels Assemble Parts Arrive Seat, Bars Due 1 7 14 21 28 4 Mar 11 18 Apr

MRP Table 6 units short

MRP Table Order 50 units week earlier

Ending Inventory Ending inventory

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

1605 Snow Shovel 1605 Snow Shovel Front View 1605 Snow Shovel Back View

1605 Snow Shovel 1605 Snow Shovel 082 Nail (4) 13122 048 Top Handle Scoop-shaft connector 13122 Top Handle Assy 118 Shaft (wood) 14127 Rivet (4) 314 scoop assembly 082 Nail (4)

314 scoop assembly 314 scoop assembly 019 Blade (steel) 14127 2142 Scoop (aluminum) 019 Blade (steel) 14127 Rivet (6)

13122 Top Handle Assembly 13122 Top Handle Assembly 457 Top handle (wood) 082 Nail (2) 11495 Welded Top handle bracket Assembly 1118 Top handle Coupling (steel) 129 Top Handle Bracket (steel)

Linking the Records Process of translating net requirements for one product into Gross Requirements for its component parts Take into account existing inventories Consider also scheduled receipts AKA Bill of Materials Explosion

Put in the Scoop Pieces 1605 Snow Shovel 118 Shaft (wood) 048 Scoop-shaft connector 13122 Top Handle Assy 082 Nail (4) 14127 Rivet (4) 314 scoop assembly 2142 Scoop (aluminum) 14127 Rivet (6) 019 Blade (steel)

Entire BOM 1605 Snow Shovel 13122 Top Handle Assy 118 Shaft (wood) 082 Nail (4) 048 Scoop-shaft connector 14127 Rivet (4) 314 scoop assembly 14127 Rivet (6) 019 Blade (steel) 2142 Scoop (aluminum) 11495 Welded 457 handle 082 Nail (2) 1118 Coupling 129 Top Bracket

Product Structure Diagram 1605 Snow Shovel 118 Shaft 13122 Top Handle Assy 082 Nail (4) 048 connector 14127 Rivet (4) 314 scoop assembly 2142 Scoop 14127 Rivet (6) 019 Blade 082 Nail (2) 11495 Welded 457 handle 1118 Coupling 129 Top Bracket

Product Structure Diagram 1605 Snow Shovel LEVEL 0 13122 Top Handle Assy 118 Shaft 048 connector LEVEL 1 314 scoop assembly LEVEL 2 2142 Scoop 14127 Rivet (6) 14127 Rivet (4) 019 Blade 11495 Welded 457 handle 082 Nail (2) 082 Nail (4) 1118 Coupling 129 Top Bracket LEVEL 3

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

Net Requirements Sch Gross Net Part Description Inv Rec Req Req Top handle assy 25 -- 100 75 Top handle 22 25 75 28 Nail (2 required) 4 50 150 96 Bracket Assy 27 -- 75 48 Top bracket 15 -- 48 33 Top coupling 39 15 48 -- Doesn’t tell us when to order what.

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

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

13122 Top Handle Assembly 13122 Top Handle Assembly 11495 Welded Top handle bracket Assembly 457 Top handle (wood) 1118 Top handle Coupling (steel) 129 Top Handle Bracket (steel) 082 Nail (2)

457 Wooden Dowel One handle for Each assembly

457 Wooden Dowel Order policy: Q = 50

457 Wooden Dowel Order policy: Q = 50

082 Nail (2 required) x2!!! Two nails for Each assembly

082 Nail (2 required) x4!!! +300 +200 +120 +240 +100 +80 Four nails for Each shovel final assembly +160 +80

082 Nail (2 required)

11495 Bracket Assembly One bracket for Each assembly

11495 Bracket Assembly Periodic Ordering Quantity: 2 periods

11495 Bracket Assembly Periodic Ordering Quantity: 2 periods

129 Top Bracket

129 Top handle bracket Order policy: Lot-for-lot

1118 Top handle coupling

1118 Top handle coupling LT = 1 Order policy: Lot-for-lot, Safety Stock = 20

1118 Top handle coupling LT = 1 Order policy: Lot-for-lot, Safety Stock = 20

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

Summary Demand for final products Compute needs for it and Dependent Demand for components Look at all parts of the Bill of Materials Complete the Table for each Bottom row (Pl Order Releases) becomes top row (Gross Requirements) of input components (also called children) Multiplied by # needed for each parent

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

Summary Demand for final products Compute needs for it and Dependent Demand for components Look at all parts of the Bill of Materials Complete the Table for each Bottom row (Pl Order Releases) becomes top row (Gross Requirements) of input components (also called children) Multiplied by # needed for each parent