1. Chapter 13 MRP and ERP

2. Material requirements planning (MRP)
Material requirements planning (MRP) Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.
BOM
MRP
MPS
Current
Availabilities
Planned
Order Releases
Priority
Planning
Lead
Times
Lot Sizing
Policies

3. Independent and Dependent Demand
Independent Demand A
Dependent Demand
B(4)
C(2)
D(2)
E(1)
D(3)
F(2)
Independent demand is uncertain. Dependent demand is certain.

4. Dependant Demand
Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods.
Once the independent demand is known, the dependent demand can be determined.

5. Dependent vs Independent Demand
“Lumpy” demand
Demand
Stable demand
Demand
Time
Time
Amount on hand
Amount on hand
Safety stock
Time
Time
Figure 14.1

6. Overview of MRP Figure 14.2 MRP Inputs MRP Processing MRP Outputs
Master
schedule
Bill of
materials
Inventory
records
MRP computer
programs
Changes
Order releases
Planned-order
schedules
Exception reports
Planning reports
Performance-
control
reports
transaction
Primary
Secondary
Figure 14.2

7. MRP Inputs Product Structure Tree Lead Times
Master Production Schedule
Time-phased plan specifying timing and quantity of production for each end item.
Material Requirement Planning Process
Product Structure Tree
Lead Times

8. Master Schedule Master schedule Cumulative lead time
One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities.
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.

9. Planning Horizon Figure 14.4 1 2 3 4 5 6 7 8 9 10 Time Period (weeks)
Procurement
Fabrication
Subassembly
Assembly
Time Period (weeks)
Figure 14.4

10. Bill-of-Materials
Bill of materials (BOM): One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.
Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.
Low-level coding: Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level the component occurs

11. Bill of Materials
Bill of Materials – Parent-child diagram that shows what goes into what.
Used to make sure enough parts for production plan
Each part has LT, ordering policy
One BOM for every end product
Bike
Frame
Assy
Wheel Assy
Components
Wheel
Tires
Hubs & Rims
Spokes

12. Product Structure Tree
Chair
Seat
Legs (2)
Cross
bar
Side
Rails (2)
Back
Supports (3)
Leg
Assembly
Level 1 2 3
Figure 14.5

13. Inventory Records One of the three primary inputs in MRP
Includes information on the status of each item by time period
Gross requirements
Scheduled receipts
Amount on hand
Lead times
Lot sizes
And more …

14. Inventory Requirements
Net requirements:
Net Requirements = Gross Requirements – Available Inventory
Available Inventory:
Available Inventory = Projected on hand – Safety stock – Inventory allocated to other items

15. Assembly Time Chart Figure 14.7 1 2 3 4 5 6 7 8 9 10 11 Procurement of
raw material D
raw material F
part C
part H
raw material I
Fabrication
of part G
of part E
Subassembly A
Subassembly B
Final assembly
and inspection 1 2 3 4 5 6 7 8 9 10 11

16. MRP Processing- Outputs
Gross requirements
Total expected demand
Scheduled receipts
Open orders scheduled to arrive
Planned on hand
Expected inventory on hand at the beginning of each time period

17. MRP Processing- Outputs …
Net requirements
Actual amount needed in each time period
Planned-order receipts
Quantity expected to received at the beginning of the period
Offset by lead time
Planned-order releases
Planned amount to order in each time period

18. Updating the System Regenerative system Net-change system
Updates MRP records periodically
Net-change system
Updates MPR records continuously

19. MRP Primary Reports
Planned orders - schedule indicating the amount and timing of future orders.
Order releases - Authorization for the execution of planned orders.
Changes - revisions of due dates or order quantities, or cancellations of orders.

20. MRP Secondary Reports Performance-control reports Planning reports
Exception reports

21. Other Considerations Safety Stock Lot sizing Lot-for-lot ordering
Economic order quantity
Fixed-period ordering

22. MRP in Services Food catering service Hotel renovation
End item => catered food
Dependent demand => ingredients for each recipe, i.e. bill of materials
Hotel renovation
Activities and materials “exploded” into component parts for cost estimation and scheduling

23. Benefits of MRP Low levels of in-process inventories
Ability to track material requirements
Ability to evaluate capacity requirements
Means of allocating production time
Ability to easily determine inventory usage by backflushing
Backflushing: Exploding an end item’s bill of materials to determine the quantities of the components that were used to make the item. And issue the materials after production.

24. Requirements of MRP Computer and necessary software
Accurate and up-to-date
Master schedules
Bills of materials
Inventory records
Integrity of data

25. Example 2 Plant produces Wood Shutter Book Cases 1 2 3 4 5 6 7 8 100
Quantity
100
150
Shutter
Assembly LT = 1
Frames (2)
Order LT =2
Wood Section (4)
Fabrication LT = 1
Schedule Re. W 1 = 70

26. Shutter 1 2 3 4 5 6 7 8
Quantity
100
150
Shutter 1 2 3 4 5 6 7 8
Gross Req.
100
150
Scheduled Receipts
Projected on hand
Net requirement
Planned order receipts
Planned order release

27. Shutter 1 2 3 4 5 6 7 8
Planned order release
100
150
Frames 1 2 3 4 5 6 7 8
Gross Req.
200
300
Scheduled Receipts
Projected on hand
Net requirement
Planned order receipts
Planned order release

28. SAMPLE MRP Report

29. Computing the item Scheduled Releases
Safety Stock
Requirements
Lot Sizing
Policy
Lead Time
Parent
Sched. Rel.
Gross
Reqs
Planned
Order
Releases
Planned
Order
Receipts
Synthesizing
item demand
series
Projecting
Inv. Positions
and
Net Reqs.
Lot Sizing
Time-
Phasing
Net
Reqs
Item External
Demand
Scheduled
Receipts
Initial
Inventory

30. Lot Sizing
If affordable, a lot-for-lot (L4L) policy will incur the lowest inventory holding costs and it will maintain a smoother production flow.
Possible reasons for departure from a L4L policy:
High set up times and costs => need for serial process batching to control the capacity losses
Processes that require a large production volume in order to maintain a high utilization (e.g., fermentors, furnaces, etc.) => need for parallel process batching
Selection of a pertinent process batch size
It must be large enough to maintain feasibility of the production requirements
It must control the incurred
inventory holding costs, and/or
part delays (this is a measure of disruption to the production flow caused by batching)
Move or transfer batches: The quantities in which parts are moved between the successive processing stations.
They should be as small as possible to maintain a smooth process flow

31. Some Lot Sizing Methods employed in the traditional MRP framework
Main focus: Balance set-up and holding costs
Wagner-Whitin Algorithm for dynamic Lot Sizing
Economic Order Quantity (EOQ): Compute a lot size using the EOQ formula with the demand rate D set equal to the average of the net requirements observed over the considered planning horizon.
Periodic Order Quantity (POQ): Compute T = round(EOQ/D), and every time you schedule a new lot, size it to cover the net requirements for the subsequent T periods.

32. Some Lot Sizing Methods employed in the traditional MRP framework …
Silver-Meal (SM): Every time you start a new lot, keep adding the net requirements of the subsequent periods, as long as the average (setup plus holding) cost per period decreases.
Least Unit Cost (LUC): Every time you start a new lot, keep adding the net requirements of the subsequent periods, as long as the average (setup plus holding) cost per unit decreases.
Part Period Balancing (PPB): Every time you start a new lot, add a number of subsequent periods such that the total holding cost matches the lot set up cost as much as possible.

33. MRP II Expanded MRP with emphasis placed on integration
Financial planning
Marketing
Engineering
Purchasing
Manufacturing

34. MRP II Figure 14.14 Market Demand Production plan Problems? Rough-cut
capacity planning
Yes No
Finance
Marketing
Manufacturing
Adjust
production plan
Master
production schedule
MRP
Capacity
planning
Requirements
schedules
Adjust master schedule

35. Capacity Planning
Capacity requirements planning: The process of determining short-range capacity requirements.
Load reports: Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.
Time fences: Series of time intervals during which order changes are allowed or restricted.

36. Capacity Planning Figure 14.15 Develop a tentative master production
schedule
Use MRP to
simulate material
requirements
Rough-cut
capacity planning
Firm up a portion
of the MPS
Is shop
capacity
adequate?
Can
capacity be
changed to meet
Revise tentative
Change
Yes No

37. Solved Problem 3 Std. Times Prod. Schedule Labor 0.5 hrs/unit Week 1 24
Machines
Quantity
200
300
100
150
Labor hr 50 75
Av. Capacity
Machine hrs
hrs
Labor Util.
50.00%
75.00%
25.00%
37.50%
250
Machine Util.
80.00%
120.00%
40.00%
60.00%

38. MRP in Services Service applications such as: Professional services
Postal services
Retail
Banking
Healthcare
Higher education
Engineering
Logistical services
Real estate

39. Enterprise resource planning (ERP)
MRP >> MRPII >> ERP
Integration of financial, manufacturing, and human resources on a single computer system.

40. ERP Software
ERP software provides a system to capture and make data available in real time to decision makers and other users in the organization
Provides tools for planning and monitoring various business processes
Includes
Production planning and scheduling
Inventory management
Product costing
Distribution

41. ERP Strategy Considerations
High initial cost
High cost to maintain
Future upgrades
Training

43. Learning Objectives
Describe the conditions under which MRP is most appropriate.
Describe the inputs, outputs, and nature of MRP processing.
Explain how requirements in a master production schedule are translated into material requirements for lower-level items.
Discuss the benefits and requirements of MRP.

44. Learning Objectives
Explain how an MRP system is useful in capacity requirements planning.
Outline the potential benefits and some of the difficulties users have encountered with MRP.
Describe MRP II and its benefits.
Describe ERP, what it provides, and its hidden costs.