1. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-1 Operations Management Material Requirements Planning (MRP) & ERP Chapter 14

2. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-2 Outline  GLOBAL COMPANY PROFILE: COLLINS INDUSTRIES  DEPENDENT INVENTORY MODEL REQUIREMENTS  Master Production Schedule  Bills of Materials  Accurate Inventory records  Purchase Orders Outstanding  Lead Times for Each Component  MRP STRUCTURE

3. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-3 Outline - Continued  MRP MANAGEMENT  MRP Dynamics  MRP and JIT  LOT-SIZING TECHNIQUES  EXTENSIONS IN MRP  Closed-Loop MRP  Capacity Planning  Material Requirements Planning II (MRP II)  MRP IN SERVICES

4. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-4 Outline - Continued  DISTRIBUTION RESOURCE PLANNING (DRP)  ENTERPRISE RESOURCE PLANNING (ERP)  Advantages and Disadvantages of ERP System  ERP in the Service Sector

5. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-5 Learning Objectives When you complete this chapter, you should be able to : Identify or Define :  Planning bills and kits  Phantom bills  Low-level coding  Lot sizing

6. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-6 Learning Objectives - Continued When you complete this chapter, you should be able to : Describe or Explain:  Material requirements planning  Distribution requirements planning  Enterprise resource planning  How ERP works  Advantages and disadvantages of ERP systems

7. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-7 Collins Industries  Largest manufacturer of ambulances in the world  International competitor  12 major ambulance designs  18,000 different inventory items  6,000 manufactured parts  12,000 purchased parts  MRP: IBM’s MAPICS

8. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-8 Collins Industries  Collins requires:  Material plan must meet both the requirements of the master schedule and the capabilities of the production facility  Plan must be executed as designed  Effective “time-phased” deliveries, consignments, and constant review of purchase methods  Maintenance of record integrity

9. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-9 Requirements for Effective Use of Dependent Demand Inventory Models Effective use of dependent demand inventory models requires that the operations manager know the:  master production schedule (what is to be made and when)  specifications or bills-of-material (amount of materials and parts required to make the product)  inventory availability  purchase orders outstanding (what is on order)  lead times (time it takes to get various components)

10. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-10 Inputs to the Aggregate Production Plan Aggregate Production Plan Marketing Customer Demand Engineering Design Completion Management Return on Investment Capital Human Resources Manpower Planning Procurement Supplier Performance Finance Cash Flow Production Capacity Inventory

11. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-11 The Planning Process Change master production schedule? Execute material plans Execute capacity plans Detail capacity plan Material requirements plan Master production schedule Aggregate production plan Change requirements? Change capacity? Realistic No Yes Change production plan? Is capacity plan being met? Is execution meeting the plan?

12. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-12 Aggregate Production Plan 1,2001,500 Aggregate Production Plan (shows the total quantity of amplifiers 100300 75 watt amplifier 450 500 150 watt amplifier 100 240 watt amplifier Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 8 7654321Weeks FebruaryJanuaryMonths

13. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-13 Typical Focus of the Master Production Schedule Make to Order (Process Focus) Assemble to Order or Forecast (Repetitive) Stock to Forecast (Product Focus) Schedule finished product Steel, Beer, Bread Light bulbs, Paper Print shop Machine shop Fine dining restaurant Examples: Number of end items Number of inputs Typical focus of the master production schedule Schedule orders Schedule modules Motorcycles, autos, TVs, fast-food restaurant

14. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-14  List of components & quantities needed to make product  Provides product structure (tree)  Parents: Items above given level  Children: Items below given level  Shows low-level coding  A part gets the lowest level code in item structure.  Top level is 0; next level is 1 etc. Bill-of-Material

15. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-15 Product Structure for “Awesome” A

16. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-16 Ex: Calculate the Part Requirements For an order size of 50 A items:  #Part B=2(#A)=(2)(50)=100  #Part C=3(#A)=(3)(50)=150  #Part E=2(#B)+2(#C)=(2)(100)+2(150)=500  #Part F=2(#C)=(2)(150)=300  #Part D=2(#B)+2(#F)=(2)(100)+2(300)=800  #Part G=1(#F)=300

17. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-17 Issues in MRP: Accurate Inventory Records  Good inventory management is an absolute necessity for an MRP system to work, i.e., one needs to know what is in stock.  If the firm has not yet received at least 99% record accuracy, then MRP will not work.

18. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-18 Issues in MRP: Purchase Orders Outstanding  When purchase orders are executed, records of those orders and their scheduled delivery dates must be available to production personnel.

19. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-19 Issues in MRP: Lead Times  The time required to acquire an item is the lead time  Lead time of a manufactured item consists of move, setup, assembly or run times.  Lead time of a purchased item includes the time between order release and its retreival.

20. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-20 Time-Phased Product Structure for Awesome Speakers 1 2345678 3 weeks F 2 weeks E A 1 week C G 2 weeks D 1 week E 2 weeks Start production of D D 1 week B 2 weeks to produce Must have D and E completed here so production can begin on B

21. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-21  Manufacturing computer information system  Determines quantity & timing of dependent demand items © 1995 Corel Corp. Material Requirements Planning (MRP)

22. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-22  Computer system  Mainly discrete products  Accurate bill-of-material  Accurate inventory status  99% inventory accuracy  Stable lead times © 1984-1994 T/Maker Co. MRP Requirements

23. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-23  Increased customer satisfaction due to meeting delivery schedules  Faster response to market changes  Improved labor & equipment utilization  Better inventory planning & scheduling  Reduced inventory levels without reduced customer service MRP Benefits

24. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-24 Structure of the MRP System Master Production Schedule BOM Lead Times (Item Master File) Inventory Data Purchasing data MRP planning programs (computer and software) MRP by Period Report MRP by date report Planned order report Purchase advice Exception report

25. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-25 Time-Phased Product Structure for Awesome Speakers 1 2345678 3 weeks F 2 weeks E A 1 week C G 2 weeks D 1 week E 2 weeks Start production of D D 1 week B 2 weeks to produce Must have D and E completed here so production can begin on B

26. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-26 Gross Material Requirements Plan for 50 “Awesome A” Speaker Kits

27. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-27 Net Material Requirements Plan Item Onhand A10 B15 C20 D10 E10 F 5 G 0

28. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-28 Net Requirements Plan

29. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-29 Net Requirements Plan

30. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-30 Derivation of Master Schedule Therefore, these are the gross requirements for B Periods 10 1 2 3 Master schedule for S sold directly 405015 A C B 5 6 7 8 9 10 11 Lead time = 4 for A Master schedule for A 402030 S B C 8 9 10 12 11 13 Lead time = 6 for S Master schedule for S 10 40+10 = 50 40 50 20 15+30 = 45 1 2 3 4 5 6 7 8 Periods Gross requirements: B

31. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-31 MRP Dynamics  Supports “replanning”  Problem with system “nervousness”  “Time fence” - allows a segment of the master schedule to be designated as “not to be rescheduled”  “Pegging” - tracing upward in the bill-of-materials from the component to the parent item  That a manager can react to changes, doesn’t mean he/she should

32. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-32 MRP and JIT  MRP - a planning technique but not a detailed scheduling technique, so there may be capacity problems!  Does not machine schedule  Plan with fixed lead times  JIT - a way to move material expeditiously  Integrating the two:  Finite capacity scheduling with time buckets (say weekly)  Small bucket approach and back flushing  Balanced flow approach: pulling material in small lot sizes  Supermarket: An inventory area that holds common items replenished by Kanban systems

33. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-33 Lot-Sizing Techniques  Lot-for-lot  Economic Order Quantity  Part Period Balancing  Wagner-Whitin Algorithm

34. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-34 MRP Lot-Sizing Problem: Lot-for-Lot Techniques

35. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-35 MRP Lot-Sizing Problem: EOQ Technique

36. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-36 Extensions of MRP  Closed loop MRP  Capacity planning - load reports  MRP II - Material Resource Planning  Enterprise Resource Planning

37. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-37 Closed Loop MRP

38. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-38 Extensions of MRP Capacity Planning  Tactics for smoothing the load and minimizing the impact of changed lead time include:  Overlapping - reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation  Operations splitting - sends the lot to two different machines for the same operation  Lot splitting - breaking up the order and running part of it ahead of the schedule

39. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-39 Initial Resource Requirements/Smoothed Resource Requirements

40. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-40 Extensions to MRP Material Requirements Planning II  MRP plan is measured in quantities or units.  MRPII allows the inventory data to be augmented by other resources like labor hours, m/c hours, accounts payable.  MRP II should be integrated to other systems like MRP, purchasing, production scheduling, capacity planning, warehouse management, etc.

41. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-41 Extensions to MRP Enterprise Resource Planning  MRP II is enhanced by the additional ties to customers and suppliers to achieve ERP systems.  ERP is a software system to  Automate and integrate many of their business processes  Share common data base and business practices  Produce information in real time  Objective is to coordinate a firm’s whole business  Basic modules: MRP, Finance, HR, SCM, CRM

42. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-42 MRP and ERP Information Flows, Integrated with Other Systems

43. Advantages of ERP Systems 1.Provides integration of the supply chain, production, and administration 2.Creates commonality of databases 3.Can incorporate improved best processes 4.Increases communication and collaboration between business units and sites 5.Has an off-the-shelf software database 6.May provide a strategic advantage

44. Disadvantages of ERP Systems 1.Is very expensive to purchase and even more so to customize 2.Implementation may require major changes in the company and its processes 3.Is so complex that many companies cannot adjust to it 4.Involves an ongoing, possibly never completed, process for implementation 5.Expertise is limited with ongoing staffing problems

45. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-45 MRP in Services  Can be used when demand for service or service items is directly related to or derived from demand for other services  restaurant - rolls required for each meal  hospitals - implements for surgery  etc.

46. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5e, and Operations Management, 7e © 2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458 14-46 Product Structure, Bill of Materials, Bill of Labor for Veal Picante