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14
Material Requirements
Planning (MRP) and ERP
PowerPoint presentation to accompany
Heizer and Render
Operations Management, 10e
Principles of Operations Management, 8e
PowerPoint slides by Jeff Heyl
1
Outline
 Dependent Inventory Model Requirements
 Master Production Schedule
 Bills of Material
 Lead Times for Components
 MRP Structure
 MRP Management
 MRP In Services
 Enterprise Resource Planning (ERP)
 Advantages and Disadvantages of ERP Systems
2
Learning Objectives
1. Develop a product structure
2. Build a gross requirements plan
3. Build a net requirements plan
4. Describe MRP II
5. Describe closed-loop MRP
6. Describe ERP
3
Wheeled Coach
 Largest manufacturer of ambulances
 12 major ambulance designs
 18,000 different inventory items
 6,000 manufactured parts
 12,000 purchased parts
 Four Key Tasks
 Material plan must meet both the
requirements of the customer and the
capabilities of production
 Plan must be executed as designed
 Minimize inventory investment
 Maintain excellent record integrity
4
Dependent Demand
 The demand for one item is related
to the demand for another item
 Given a quantity for the end item,
the demand for all parts and
components can be calculated
 In general, used whenever a
schedule can be established for an
item
 MRP is the common technique
5
Dependent Demand
Effective use of dependent demand
inventory models requires the
following
1. Master production schedule
2. Specifications or bill of material
3. Inventory availability
4. Purchase orders outstanding
5. Lead times
6
The Planning Process
Production
Capacity
Inventory
Marketing
Customer
demand
Procurement
Supplier
performance
Management
Return on
investment
Capital
Finance
Cash flow
Human resources
Manpower
planning
Aggregate
production
plan
Master production
schedule
Engineering
Design
completion
Change
production
plan?
Figure 14.1
7
The Planning Process
Master production
schedule
Change
requirements?
Change
master
production
schedule?
Material
requirements plan
Change
capacity?
Capacity
requirements plan
No
Realistic?
Yes
Is capacity
plan being
met?
Is execution
meeting the
plan?
Execute capacity
plans
Execute
material plans
Figure 14.1
8
Master Production Schedule
(MPS)
Can be expressed in any of the
following terms:
1. A customer order in a job shop (maketo-order) company
2. Modules in a repetitive (assemble-toorder or forecast) company
3. An end item in a continuous (stock-toforecast) company
9
MPS Examples
For Nancy’s Specialty Foods
Gross Requirements for Crabmeat Quiche
Day
Amount
6
50
7
8
100
9
47
10
60
11
12
110
13
75
14 and so on
Gross Requirements for Spinach Quiche
Day
Amount
7
8
9
100 200 150
10
11
12
60
13
75
14
15
100
16 and so on
Table 14.1
10
Bills of Material
 List of components, ingredients,
and materials needed to make
product
 Provides product structure
 Items above given level are called
parents
 Items below given level are called
children
11
BOM Example
Level
Product structure for “Awesome” (A)
0
A
E(2)
2
3
12” Speaker kit w/
C(3) Std.
amp-booster
B(2) Std. 12” Speaker kit
1
D(2)
F(2) Std. 12” Speaker
E(2)
Packing box and
installation kit of wire,
bolts, and screws
booster assembly
G(1)
D(2)
Amp-booster
12” Speaker
12” Speaker
12
BOM Example
Level
Product structure for “Awesome” (A)
0
A
1
2
3
D(2)
Part B: 2 x number of As =
(2)(50) =Std. 12” Speaker100
kit w/
BPart
12” Speaker kit
C
(2) Std.
(3)
C: 3 x number of As =
(3)(50) =amp-booster 150
Part D: 2 x number of Bs
+ 2 x number of Fs = (2)(100) + (2)(300) = 800
E(2) 2 x number of Bs
E(2)
F(2) Std. 12” Speaker
Part E:
booster assembly
+ 2 x number of Cs = (2)(100) + (2)(150) = 500
Part F: 2 x Packing
numberbox
ofand
Cs =
(2)(150) =
300
kit of wire,
G(1)
D(2)
Part G: 1installation
xbolts,
number
of
Fs
=
(1)(300)
=
300
and screws
Amp-booster
12” Speaker
12” Speaker
13
Lead Times
 The time required to purchase,
produce, or assemble an item
 For production – the sum of the
order, wait, move, setup, store,
and run times
 For purchased items – the time
between the recognition of a need
and the availability of the item for
production
14
Time-Phased Product
Structure
Must have D and E
completed here so
production can
begin on B
Start production of D
1 week
D
2 weeks to
produce
B
2 weeks
E
A
2 weeks
1 week
E
1 week
2 weeks
G
C
3 weeks
F
1 week
D
|
|
|
1
2
3
|
|
4
5
Time in weeks
|
|
|
6
7
8
Figure 14.4
15
MRP Structure
Data Files
Output Reports
BOM
MRP by
period report
Master
production schedule
MRP by
date report
Lead times
Planned order
report
(Item master file)
Inventory data
Purchasing data
Material
requirement
planning
programs
(computer and
software)
Purchase advice
Exception reports
Order early or late
or not needed
Order quantity too
small or too large
Figure 14.5
16
Determining Gross
Requirements
 Starts with a production schedule for the
end item – 50 units of Item A in week 8
 Using the lead time for the item,
determine the week in which the order
should be released – a 1 week lead time
means the order for 50 units should be
released in week 7
 This step is often called “lead time
offset” or “time phasing”
17
Determining Gross
Requirements
 From the BOM, every Item A requires 2
Item Bs – 100 Item Bs are required in
week 7 to satisfy the order release for
Item A
 The lead time for the Item B is 2 weeks –
release an order for 100 units of Item B in
week 5
 The timing and quantity for component
requirements are determined by the order
release of the parent(s)
18
Determining Gross
Requirements
 The process continues through the entire
BOM one level at a time – often called
“explosion”
 By processing the BOM by level, items
with multiple parents are only processed
once, saving time and resources and
reducing confusion
 Low-level coding ensures that each item
appears at only one level in the BOM
19
Gross Requirements Plan
1
A.
B.
C.
E.
F.
D.
G.
2
3
Week
4
5
6
Required date
Order release date
8 Lead Time
50
50
Required date
Order release date
1 week
100
100
Required date
Order release date
2 weeks
150
150
Required date
Order release date
200
200
Required date
Order release date
1 week
300
300
2 weeks
300
300
Required date
Order release date
Required date
Order release date
7
3 weeks
600
600
200
200
1 week
300
300
2 weeks
Table 14.3
20
Net Requirements Plan
21
Net Requirements Plan
22
Determining Net
Requirements
 Starts with a production schedule for the
end item – 50 units of Item A in week 8
 Because there are 10 Item As on hand,
only 40 are actually required – (net
requirement) = (gross requirement - onhand inventory)
 The planned order receipt for Item A in
week 8 is 40 units – 40 = 50 - 10
23
Determining Net
Requirements
 Following the lead time offset procedure,
the planned order release for Item A is
now 40 units in week 7
 The gross requirement for Item B is now
80 units in week 7
 There are 15 units of Item B on hand, so
the net requirement is 65 units in week 7
 A planned order receipt of 65 units in
week 7 generates a planned order release
of 65 units in week 5
24
Determining Net
Requirements
 A planned order receipt of 65 units in
week 7 generates a planned order release
of 65 units in week 5
 The on-hand inventory record for Item B
is updated to reflect the use of the 15
items in inventory and shows no on-hand
inventory in week 8
 This is referred to as the Gross-to-Net
calculation and is the third basic function
of the MRP process
25
Gross Requirements
Schedule
Figure 14.6
S
A
B
B
C
Lead time = 4 for A
Master schedule for A
Periods
5
6
7
40
Periods
Gross requirements: B
8
9 10 11
50
15
1
2
10
40+10
=50
3
40
C
Lead time = 6 for S
Master schedule for S
8
9 10 11 12 13
40
4
50
5
20
6
20
7
15+30
=45
30
Master schedule
for B
sold directly
1
2
3
10 10
8
Therefore, these
are the gross
requirements for B
26
Net Requirements Plan
The logic of net requirements
Gross
Allocations
requirements +
Total requirements
–
On
Scheduled
hand + receipts
Net
= requirements
Available inventory
27
MRP Management
 MRP is a dynamic system
 Time fences put limits on replanning
 Pegging links each item to its parent
 MRP II
 Closed-Loop MRP
 Capacity Planning


Outputs include
 Scrap
 Packaging waste
 Carbon emissions
Data used by purchasing, production scheduling, capacity
planning, inventory
28
Closed-Loop MRP System
Aggregate Production Plan
OK?
NO
OK?
NO
Priority Management
Capacity Management
Develop Master Production
Schedule
Evaluate Resource Availability
(Rough Cut)
Planning
OK? YES
Prepare Materials
Requirements Pan
Determine Capacity Availability
OK? YES
Detailed Production
Activity Control
(Shop Scheduling/Dispatching)
Implement Input/Output Control
Execution
(in repetitive
systems JIT
techniques
are used)
Figure 14.8
29
MRP in Services
 Some services or service items are
directly linked to demand for other
services
 These can be treated as dependent
demand services or items
 Restaurants
 Hospitals
 Hotels
30
MRP in Services
(a) PRODUCT STRUCTURE TREE
Veal
picante
#10001
Helper one;
Work
Center #2
Cooked
linguini
#20002
Uncooked
linguini
#30004
Spinach
#20004
Chef;
Work
Center #1
Prepared veal
and sauce
#20003
Sauce
#30006
Asst. Chef;
Work
Center #3
Veal
#30005
Figure 14.10
31
Enterprise Resource
Planning (ERP)
 An extension of the MRP system to
tie in customers and suppliers
 Allows automation and integration of
many business processes
 Shares common data bases and
business practices
 Produces information in real time
 Coordinates business from supplier
evaluation to customer invoicing
32
ERP and MRP
Figure 14.11
33
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
34
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
35
ERP in the Service Sector
 ERP systems have been developed
for health care, government, retail
stores, hotels, and financial
services
 Also called efficient consumer
response (ECR) systems
 Objective is to tie sales to buying,
inventory, logistics, and production
36
In-Class Problems from the
Lecture Guide Practice Problems
Problem 1:
The Hunicut and Hallock Corporation makes two versions of the same
basic file cabinet, the TOL (Top-of-the-line) five drawer file cabinet and
the HQ (High-quality) five drawer filing cabinet.
The TOL and HQ use the same cabinet frame and locking mechanism.
The drawer assemblies are different although both use the same drawer
frame assembly. The drawer assemblies for the TOL cabinet use a
sliding assembly that requires four bearings per side whereas the HQ
sliding assembly requires only two bearings per side. (These bearings
are identical for both cabinet types.) 100 TOL and 300 HQ file cabinets
need to be assembled in week #10. No current stock exists.
Develop a material structure tree for the TOL and the HQ file cabinets.
37