1. CHAPTER 14
MRP and ERP

2. MRP

3. End Item, Subassemblies, and Components
Scissors
Bottom Blade Assembly
Top Blade Assembly
Straight Blade
Straight Plastic Grip
Bent Blade
Bent Plastic Grip
Screw

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

5. Dependant vs. Independent Demand
Independent demand: Demand for end items.
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.
Require a different inventory management technique from Chapter 12

6. Comparison (Figure 14.1) Independent demand Dependent demand Time
Stable demand
Time
Demand
“Lumpy” demand
Time
Amount on hand
Safety stock
Amount on hand
Time

7. 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.
MRP works backward from the due date using lead times and other information to determine when and how much to order.
Main aim: To ensure that the finished goods required by customers and the materials and intermediate products required by production are available at the time and in the quantities with a minimum of unnecessary stock or work in progress inventory.
MRP: A production plan for a specified number of finished products (MPS) is translated into requirements for component parts and raw materials by working backward from the due date, using lead times and other information to determine when and how much to order.

8. MRP
MRP begins with a schedule for finished goods that is converted into a schedule of requirements for subassemblies, component parts and raw materials needed to produce the finished items in the specified time frame
MRP designed to answer the following questions
What is needed ?
How much is needed?
When is it needed ?

9. Overview of MRP

10. MRP
-- Input

11. 1. A master production schedule 2. A Bill of Materials
MPR Inputs
1. A master production schedule
2. A Bill of Materials
3. An inventory records file
Product Structure Tree
Three major information elements are mandatory in the MRP system (inputs):
Lead Times

12. 1. Master Schedule
Master (production) schedule (MPS): states which end items are to be produced, when these are needed, and in what quantities.
Example: A master schedule for end item X:
The MPS is initially developed from firm customer orders or from forecasts of demand. The MPS identifies the quantity of each end product (end item) and when it needs to be produced during future period in the production planning horizon.
Come from: customer orders, forecasts and orders from warehouses to build up seasonal inventories

13. Master Schedule (Cont.)
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.
The master schedule should cover the cumulative lead time.

14. Planning Horizon
The master schedule separates the planning horizon into a series of time periods and cover the cumulative lead time. 1 2 3 4 5 6 7 8 9 10
Procurement
Fabrication
Subassembly
Assembly
Time period (weeks)

15. 2. Bill-of-Materials
Bill of materials (BOM): a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.
Each finished product has its own bill of materials.
Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.
The BOM identifies, how each end product is manufactured, specifying all subcomponent items, their sequence of buildup, their quantities in each finished unit, and which work centers perform the buildup sequence in the facility. This information is obtained from product design documents, work flow analysis, and other standard manufacturing and industrial engineering documentation.

16. Assembly Diagram & Product Structure Tree

17. Example 1: Page 652
Requirements for end items generate requirements for lower-level components, which are broken down by planning periods (e.g., weeks) so that ordering, fabrication, and assembly can be scheduled for timely completion of end items while inventory is kept reasonably low.

18. Using the information above to do the follows:
Example 1 (Cont.)
Using the information above to do the follows:
a) Determine the quantities of B, C, D, E, and F needed to assemble one X.

19. Solution to Example 1 a). X Thus, one X will require B(2) C D(3) E
F(2)
Thus, one X will require
B: C: 1
D: F: 2
E: 28 (Note that E occurs in three places, with )

20. Using the information above to do the follows:
Example 1 (Cont.)
Using the information above to do the follows:
a) Determine the quantities of B, C, D, E, and F needed to assemble one X.
b) Determine the quantities of B, C, D, E, and F needed to assemble ten X's, if you have the following in inventory:
Component B C D E
On hand 4 10 8 60

21. Solution to Example 1 (Cont.)
Component B C D E
On hand 4 10 8 60
Solution to Example 1 (Cont.)
B(2) X C
D(3) E
E(4)
E(2)
F(2)
b).
Thus, given the amounts of on-hand inventory, 10 Xs will require
B: C: 0
D: F: 0
E: 116 (=16+100)

22. 3. Inventory Records File
Inventory records: includes information on the status of each item by time period:
Gross requirements
Scheduled receipts
Expected amount on hand
Lead time
Lot size policy
And more …
The system must retain an up-to-date file of the inventory status of each item in the product structure. This file provides accurate information about the availability of every item controlled by MRP.

23. MRP
-- Process

24. Assembly Time Chart

25. MRP Processing Logic
Based on the master schedule to determine the components schedules for successively lower-level items throughout the product structures.
It calculates schedules for each of the time periods (usually weekly) in the scheduling time horizon
Gross requirements
Schedule receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
so that all materials arrive just when needed. This data processing continues until it has determined the requirements for all items that will be used to meet the master production schedule.

26. Scheduled receipts + inventory carried forward
MRP Processing
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 by the beginning of a period.
Projected on hand: Expected amount of inventory that will be on hand at the beginning of each time period:
Scheduled receipts + inventory carried forward

27. MRP Processing
Net requirements: The actual amount that we need to procure in each time period:
Gross requirements - projected on-hand
Planned-order receipts: The quantity expected to be received by the beginning of the period in which it is shown.
Planned-order releases: Planned amount to order in each time period; planned-order receipts offset by lead time.

28. Format of MRP 1 2 3 4 5 6 7 8 Item: Week Number Gross requirements1 2 3 4 5 6 7 8
Item:
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases

29. Example 3—Page
Consider the two product structure trees shown below:
Develop a MRP for item D. Given that the master schedule calls for 80 units of A in week 4 and 50 units of C in week 5. There’s a beg. inv. of 110 units of D on hand and all items have lead times of one week. A B D C
D(2) F

30. Solution to Example 3-- MPR for Item A
Week Number 1 2 3 4 5 6
Quantity of A
Quantity of C 80 50
Item:
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
A LT=1 week 80 80 80 80
times 1

31. Solution to Example 3-- MRP for Item C
Week Number 1 2 3 4 5 6
Quantity of A
Quantity of C 80 50
Item:
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
C LT=1 week 50 50 50 50
times 2

32. Solution to Example 3-- MRP for Item D80 50
Item A
times 1
Item C
times 2 1 2 3 4 5 6
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
D LT=1 week 80
100
110
110
110
110 30 70 70 70

33. A material requirements plan is dynamic Two basic updating systems:
Updating the System
A material requirements plan is dynamic
Two basic updating systems:
Regenerative system: Approach that updates MRP records periodically.
Best suited to fairly stable systems because of lag between receiving new information and creating a new plan.
Net-change system: Approach that updates MRP records continuously.
Best suited to systems that have frequent changes.

34. MRP
-- Output

35. MRP Outputs -- Primary Reports
Planned orders - Schedule indicating the amount and timing of future orders.
Order release - Authorization for the execution of planned orders.
Changes - revisions of due dates or order quantities, or cancellations of orders.
MRP Processing logic (computer program) provides three kinds of information outputs about each product component:

36. MRP Outputs --Secondary Reports
Performance-control reports evaluate system operations.
Planning reports are useful in forecasting future inventory requirements.
Exception reports call attention to major discrepancies.
1. - Measure deviations from plans (missed deliveries and stockouts)
- Providing information that can be used to assess cost performance.
2. They include purchase commitments and other data that can be used to assess future material requirements.
3. : late and overdue orders, excessive scrap rates, reporting errors, and requirements for nonexistent parts.

37. MRP II

38. MRP II
Manufacturing Resources Planning (MRP II): Expanded MRP with emphasis placed on integration
Financial planning
Marketing
Engineering
Purchasing
Manufacturing

39. An Overview of MRP II Figure 13.14 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

40. ERP

41. Enterprise resource planning (ERP):
Next step in an evolution that began with MPR and evolved into MRPII.
Integration of financial, manufacturing, and human resources on a single computer system.
Typically, has an MRP core.
An extension of MRP II is Enterprise Resource Planning (ERP).
It is intended to improve resource planning by extending the scope of planning to include more of the supply chain than MRP II.

42. Recap Independent/dependent demand MRP Primary/secondary output MRP II
Three inputs
MPS, Cumulative lead time
BOM, Product structure tree
Inventory record
Process
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
Primary/secondary output
Planned orders
Order release Changes
Performance-control reports
Planning reports
Exception reports
MRP II
ERP