1. MRP and ERP McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. You should be able to: 1. Describe the conditions under which MRP is most appropriate 2. Describe the inputs, outputs, and nature of MRP processing 3. Explain how requirements in a MPS are translated into material requirements for lower-level items 4. Discuss the benefits and requirements of MRP 5. Explain how an MRP system is useful in capacity requirements planning 6. Outline the potential benefits and some of the difficulties users have encountered with MRP 7. Describe MRPII and its benefits 8. Describe ERP, what it provides, and its hidden costs 12-2 Student Slides

3. Master Production Scheduling (MPS) Master Production Scheduling (MPS) Material Requirements Planning (MRP) Material Requirements Planning (MRP) Capacity Requirements Planning (CRP) Capacity Requirements Planning (CRP) AggregatePlanningAggregatePlanning ResourceRequirementsPlanning

4. Material Requirements Planning (MRP)

5. Dependent demand Demand for items that are subassemblies or component parts to be used in the production of finished goods. Dependent demand tends to be sporadic or “lumpy” Large quantities are used at specific points in time with little or no usage at other times 12-5 Student Slides

6. Material requirements planning (MRP): A computer-based information system that translates master schedule requirements for end items into time- phased requirements for subassemblies, components, and raw materials. The MRP is designed to answer three questions: 1. What is needed? 2. How much is needed? 3. When is it needed? Student Slides 12-6

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8. 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 offset by lead times Student Slides 12-8

9. The MRP is based on the product structure tree diagram Requirements are determined level by level, beginning with the end item and working down the tree The timing and quantity of each “parent” becomes the basis for determining the timing and quantity of the “children” items directly below it. The “children” items then become the “parent” items for the next level, and so on Student Slides 12-9

10. Begins with number of end items needed Add service parts not included in MPS Explode MPS into gross requirements by consulting bill of materials file Modify gross requirements to get net requirements: Net Requirements = Gross Requirements + Allocated Inventory + Safety Stock - Inventory On Hand Offset orders to allow for lead time

11. Shutter Frames (2) Wood sections (4) Student Slides 12-11

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14. Enables managers to easily determine the quantities of each component for a given order size To know when to release orders for each component To be alerted when items need attention Additional benefits Low levels of in-process inventories The ability to track material requirements The ability to evaluate capacity requirements A means of allocating production time The ability to easily determine inventory usage via backflushing Exploding an end item’s BOM to determine the quantities of the components that were used to make the item 12-14 Student Slides

15. To implement an effective MRP system requires: A computer and the necessary software to handle computations and maintain records Accurate and up-to-date Master schedules Bills of materials Inventory records Integrity of data files 12-15 Student Slides

16. Manufacturing resources planning (MRP II) Expanded approach to production resource planning, involving other areas of the firm in the planning process and enabling capacity requirements planning Most MRP II systems have the capability of performing simulation to answer a variety of “what if” questions so they can gain a better appreciation of available options and their consequences Student Slides 12-16

17. Enterprise resource planning (ERP) ERP was the next step in an evolution that began with MRP and evolved into MRPII ERP, like MRP II, typically has an MRP core Represents an expanded effort to integrate standardized that will permit information sharing among different areas of an organization in order to manage the system more effectively ERP systems are composed of a collection of integrated modules Student Slides 12-17

18. ERP strategic implications High initial cost High cost to maintain Need for future upgrades Intensive training required ERP as a strategic planning tool Can improve supply chain management Stronger links between their customers and their supplier Makes the organization more capable of satisfying changing customer requirements Offers opportunities for continuous improvement 12-18 Student Slides

19. LocoMopeds is a manufacturer of off-road mopeds. The following product structure diagram represents the bill of materials for its dual-carburetor Model 442 moped. MOPEDMOPED ENGINEASSEMBLYENGINEASSEMBLY MOTORMOTORCARBURETOR(2)CARBURETOR(2) GASTANKGASTANKWHEELASSEMBLY(2)WHEELASSEMBLY(2) HUBASSEMBLYHUBASSEMBLYTIRETIRE FRAMEFRAME Level 0 Level 1 Level 2

20. Bill of Material ParentComponentLevelCompon. CodeCodeCodeDescriptionReq’d 4420#442 Moped 442EA1Engine Assem.1 GT1Gas Tank1 WA1Wheel Assem.2 F1Frame1 EAM2Motor1 C2Carburetor2 WAHA2Hub Assem.1 T2Tire1

21. Inventory Status ReportItemCodeOn-HandSafetyStockLotSizeLeadTime Sched. Receipts Qnty. Week 442500200LFL1---- EA3001005001100010 GT600200LFL290010 WA5004005001200010 F600020003200010 M2500LFL1---- C1501002000+2---- HA1000LFL1240011 T500500100033000,200011,12

22. The company is currently planning production for weeks 10 through 16. Based on existing orders and demand forecasts, the master production schedule is as follows: Master Production Schedule: #442 Moped Determine the MRP schedule required to support the master production schedule for the Model 442 moped in weeks 10-16. 11 130080012001400 101615141312 010000 WEEK QUANTITY

23. MRP Schedule for #442 Mopeds for Weeks 10 - 16, considering that: Gross Requirements come from the moped MPS There is an On-Hand balance of 500 mopeds at the end of week 9 There are no Scheduled Receipts for mopeds A lot-for-lot rule is used for ordering mopeds Safety stock of 200 mopeds is desired Lead time for mopeds is one week

24. MRP Schedule for #442 Mopeds... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: 442 MOPED LT: 1 ITEM: 442 MOPED LT: 1 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: 200 0 10 1000 0 111213 1300 800 1514 1400 1200 16 WEEK

25. MRP Schedule for #442 Mopeds... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: 442 MOPED LT: 1 ITEM: 442 MOPED LT: 1 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: 200 0 300 1000 10 1000 1000 300 1300 1300 0 0 111213 1300 1200800 1200800 14001200 1300 1300 800 0000 1400 800 15 1400 14 1400 1200 16 WEEK

26. MRP Schedule for Gas Tanks for Weeks 10 - 16, considering that: Gross Requirements come from moped Planned-Order- Releases There is an On-Hand balance of 600 gas tanks at the end of week 9 There is a Scheduled Receipt for 900 tanks in week 10 A lot-for-lot rule is used for ordering gas tanks Safety stock of 200 gas tanks is desired Lead time for gas tanks is two weeks

27. MRP Schedule for Gas Tanks... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 600) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: GAS TANK LT: 2 ITEM: GAS TANK LT: 2 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: 200 1000 900 10 0 1300 111213 800 1200 1514 0 1400 16 WEEK

28. MRP Schedule for Gas Tanks... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 600) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: GAS TANK LT: 2 ITEM: GAS TANK LT: 2 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: 200 1000 900 1300 1000 10 800 0 1200 300 1300 111213 800 1200 1400 1200 1514 01400 16 WEEK 300000 1000 1000800 800 1400 14001200 0

29. MRP Schedule for Frames for Weeks 10 - 16, considering that: Gross Requirements come from moped Planned-Order- Releases There is an On-Hand balance of 600 frames at the end of week 9 There is a Scheduled Receipt for 2000 frames in week 10 The firm uses a Lot Size (multiple) of 2000 for ordering frames No safety stock of frames is desired Lead time for frames is 3 weeks

30. MRP Schedule for Frames... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES PLANNED ORDER RELEASES ITEM: FRAME LT: 3 ITEM: FRAME LT: 3 LOT SIZE: 2000 SS: 0 LOT SIZE: 2000 SS: 0 1000 2000 10 01300 111213 8001200 1514 01400 16 WEEK 600

31. MRP Schedule for Frames... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 600) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: FRAME LT: 3 ITEM: FRAME LT: 3 LOT SIZE: 2000 SS: 0 LOT SIZE: 2000 SS: 0 1000 2000 2600 0 2000 10 1600 0 2000 1600 1300 111213 800 2000 500 2000 300300900 0 1200 1514 01400 16 WEEK 00 1500 01100

32. MRP Schedule for Engine Assemblies for Weeks 10 - 16, considering that: Gross Requirements come from moped Planned-Order- Releases There is an On-Hand balance of 300 engine assemblies at the end of week 9 There is a Scheduled Receipt for 1000 engine assemblies in week 10 The firm uses a Lot Size (multiple) of 500 for ordering engine assemblies Safety Stock of 100 engine assemblies is desired Lead time for engine assemblies is 1 week

33. MRP Schedule for Engine Assemblies... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 300) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: ENGINE ASSEM. LT: 1 ITEM: ENGINE ASSEM. LT: 1 LOT SIZE: 500 SS: 100 LOT SIZE: 500 SS: 100 1000 1000 10 0 1300 111213 800 1200 1514 0 1400 16 WEEK

34. MRP Schedule for Engine Assemblies... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 300) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: ENGINE ASSEM. LT: 1 ITEM: ENGINE ASSEM. LT: 1 LOT SIZE: 500 SS: 100 LOT SIZE: 500 SS: 100 1000 1000 1200 1200 10 1500 200 0 500 1500 1100 200 1300 111213 800 10001100 10001500 1000 400 500 1500 4001004000 1200 1514 0 1400 16 WEEK

35. MRP Schedule for Motors for Weeks 10 - 16, considering that: Gross Requirements come from engine assembly Planned-Order-Releases There is an On-Hand balance of 250 motors at the end of week 9 There are no Scheduled Receipts for motors A lot-for-lot rule is used for ordering motors No Safety Stock of motors is desired Lead time for motors is 1 week

36. MRP Schedule for Motors... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 250) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: MOTOR LT: 1 ITEM: MOTOR LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: 0 10 1500 500 111213 1500 1000 151416 WEEK

37. MRP Schedule for Motors... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 250) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: MOTOR LT: 1 ITEM: MOTOR LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: 0 250 1250 10 1250 500 1250 250 1500 1500 500 500 0 500 111213 1500 1000 1000 1500 1500 1000 0000 1000 151416 WEEK

38. MRP Schedule for Carburetors for Weeks 10 - 16, considering that: Gross Requirements come from engine assembly Planned-Order-Releases (times 2) There is an On-Hand balance of 150 carburetors at the end of week 9 There are no Scheduled Receipts for carburetors A Lot Size of 200+ is used for ordering carburetors Safety Stock of 100 carburetors is desired Lead time for carburetors is 2 weeks

39. MRP Schedule for Carburetors... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 150) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: CARBURETOR LT: 2 ITEM: CARBURETOR LT: 2 LOT SIZE: 2000+ SS: 100 LOT SIZE: 2000+ SS: 100 10 3000 1000 111213 3000 2000 151416 WEEK

40. MRP Schedule for Carburetors... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 150) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: CARBURETOR LT: 2 ITEM: CARBURETOR LT: 2 LOT SIZE: 2500+ SS: 100 LOT SIZE: 2500+ SS: 100 50 2500 10 2500 3050 3000 3000 2500 2500 950 50 1000 111213 3000 950 2500 1450 2500 1550105015501550 2000 151416 WEEK

41. MRP Schedule for Wheel Assemblies for Weeks 10 - 16, considering that: Gross Requirements come from moped Planned-Order- Releases (times 2) There is an On-Hand balance of 500 wheel assemblies at the end of week 9 There is a Scheduled Receipt for 2000 wheel assemblies in week 10 A Lot Size (multiple) of 500 is used for ordering wheel assemblies Safety Stock of 400 wheel assemblies is desired Lead time for wheel assemblies is 1 week

42. MRP Schedule for Wheel Assemblies... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: WHEEL ASSEM. LT: 1 ITEM: WHEEL ASSEM. LT: 1 LOT SIZE: 500 SS: 400 LOT SIZE: 500 SS: 400 2000 2000 10 0 2600 111213 1600 2400 1514 0 2800 16 WEEK

43. MRP Schedule for Wheel Assemblies... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: WHEEL ASSEM. LT: 1 ITEM: WHEEL ASSEM. LT: 1 LOT SIZE: 500 SS: 400 LOT SIZE: 500 SS: 400 2000 2000 2100 2100 10 2500 100 100 0 2000 2500 2500 2600 111213 1600 28002000 30002000 3000 1600 2000 2000 04000200 2400 1514 0 2800 16 WEEK

44. MRP Schedule for Hub Assemblies for Weeks 10 - 16, considering that: Gross Requirements come from wheel assembly Planned- Order-Releases There is an On-Hand balance of 100 hub assemblies at the end of week 9 There is a Scheduled Receipt of 2400 hub assemblies in week 11 A lot-for-lot rule is used for ordering hub assemblies No Safety Stock of hub assemblies is desired Lead time for hub assemblies is 1 week

45. MRP Schedule for Hub Assemblies... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 100) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: HUB ASSEM. LT: 1 ITEM: HUB ASSEM. LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: 0 0 10 2400 2500 2000 111213 2000 3000 1514 0 0 16 WEEK

46. MRP Schedule for Hub Assemblies... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 100) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: HUB ASSEM. LT: 1 ITEM: HUB ASSEM. LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: 0 0 100 100 10 2000 2500 2500 2400 2500 2000 2000 2000 0 2000 111213 2000 3000 3000 2000 2000 3000 0000 3000 1514 0 0 16 WEEK

47. MRP Schedule for Tires for Weeks 10 - 16, considering that: Gross Requirements come from wheel assembly Planned-Order-Releases There is an On-Hand balance of 500 tires at the end of week 9 There are Scheduled Receipts for 3000 and 2000 tires weeks 11 and 12, respectively A Lot Size (multiple) of 1000 is used for ordering tires Safety Stock of 500 tires is desired Lead time for tires is 3 weeks

48. MRP Schedule for Tires... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: TIRE LT: 3 ITEM: TIRE LT: 3 LOT SIZE: 1000 SS: 500 LOT SIZE: 1000 SS: 500 0 10 3000 2500 2000 2000 111213 2000 3000 1514 0 0 16 WEEK

49. MRP Schedule for Tires... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: TIRE LT: 3 ITEM: TIRE LT: 3 LOT SIZE: 1000 SS: 500 LOT SIZE: 1000 SS: 500 0 0 2000 10 3000 3000 3000 2500 2500 2000 2000 111213 2000 2500 3000 1500 2000 500 500 500500 3000 1514 0 0 16 WEEK