13-1 MRP and ERP

Operations Management

William J. Stevenson

8th edition
 13-2 MRP and ERP

CHAPTER
13

MRP and ERP

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
13-3 MRP and ERP

MRP

• Material requirements planning (MRP):

Computer-based
C t b d information
i f ti system
t that
th t
translates master schedule requirements for
endd items
it into
i t time-phased
ti h d requirements
i t for
f
subassemblies, components, and raw
materials.
t i l
13-4 MRP and ERP

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

uncertain.
Dependent demand is certain.
13-5 MRP and ERP

Dependant Demand

• Dependent demand: Demand for items that

are subassemblies
b bli or componentt partst to
t be
b
used in production of finished goods.
• Once the independent demand is known,
p
the dependent demand can be determined.
13-6 MRP and ERP

Dependent vs Independent Demand

Fi
Figure 13 1
13.1

d
Demand
Demand

“Lumpy” demand
Stable demand

Time Time
on hand

on hand
Amount o

Amount o

Safety stock
Time Time
13-7 MRP and ERP

Fi
Figure 13 2
13.2
MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
13-8 MRP and ERP

MPR Inputs

• Master Production Schedule

• Time-phased plan specifying timing and
quantity of production for each end item.
• Material Requirement Planning Process
13-9 MRP and ERP

Master Schedule

Master schedule: One of three primary

inputs in MRP; states which end items are
to be produced, when these are needed,
and in what quantities
quantities.
Cumulative lead time: The sum of the lead
times that
ti th t sequential
ti l phases
h off a process
require, from ordering of parts or raw
materials to completion of final assembly.
assembly
13-10 MRP and ERP

Planning Horizon
Figure 13.4

Assembly

Subassembly

Fabrication

Procurement

1 2 3 4 5 6 7 8 9 10
13-11 MRP and ERP

Bill--of-
Bill of-Materials

Bill of materials (BOM): One of the three primary

inputs of MRP; a listing of all of the raw materials
materials,
parts, subassemblies, and assemblies needed to produce
one unit of a product.
p

Product structure tree: Visual depiction of the

requirements in a bill of materials
materials, where all
components are listed by levels.
13-12 MRP and ERP

Product Structure Tree

Fi
Figure 13 5
13.5

Level Chair
0

1 Leg Back
Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

3
13-13 MRP and ERP

Inventory Records

• One of the three primary inputs in MRP

• Includes
I l d information
i f i on the
h status off eachh
item by time period
• Gross requirements
G i t
• Scheduled receipts
• Amount
A on hhand
d
• Lead times
• Lot sizes
• And more …
13-14 MRP and ERP

Assembly Time Chart

Fi
Figure 13 7
13.7

Procurement of
raw material D F
Fabrication
b i ti
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11
13-15 MRP and ERP

MRP Processing

• Gross requirements
• Schedule receipts
• Projected on hand
• Net requirements
• Planned-order receipts
• Pl
Planned-order
d d releases
l
13-16 MRP and ERP

MPR Processing

• Gross requirements
• Total expected demand
• Scheduled receipts
• Open orders scheduled to arrive
• Planned on hand
• Expected
E t d inventory
i t on hand
h d att the
th
beginning of each time period
13-17 MRP and ERP

MPR Processing

• Net requirements
• Actual amount needed in each time period
• Planned order receipts
Planned-order
• Quantity expected to received at the
b i i off the
beginning h period
i d
• Offset byy lead time
• Planned-order releases
• Planned amount to order in each time period
13-18 MRP and ERP

Updating the System

• Regenerative system
• Updates MRP records periodically
• Net-change system
• Updates MPR records continuously
13-19 MRP and ERP

MRP Outputs

• Planned orders - schedule indicating the

amount andd timing
i i off future
f orders.
d
• Order releases - Authorization for the
execution of planned orders.
• Changes - revisions
Ch ii off due
d dates
d t or order
d
quantities, or cancellations of orders.
13-20 MRP and ERP

MRP Secondary Reports

• Performance-control reports
• Planning reports
• E
Exception
ti reports
t
13-21 MRP and ERP

Other Considerations

• Safety Stock
• Lot sizing
• Lot-for-lot ordering
• Economic order quantity
• Fixed-period
ed pe od ordering
o de g
13-22 MRP and ERP

MRP in Services

• Food catering service

• 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
13-23 MRP and ERP

Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements
• Abilit to
Ability t evaluate
l t capacity
it requirements
i t
• Means of allocating
g pproduction time
13-24 MRP and ERP

Requirements of MRP

• Computer and necessary software

• Accurate and up-to-date
• Master schedules
• Bills of materials

• Inventory records

• Integrity of data
13-25 MRP and ERP

MRP II

• Expanded MRP with emphasis placed

on integration
• Financial planning
• Marketing
• Engineering
• Purchasing
• Manufacturing
13-26 MRP and ERP

MRP II
Fi
Figure 13 14
13.14

Market Master
Finance Manufacturing production schedule
Demand

ster schedule
Marketing
Production
plan MRP

Adjust mas
Rough-cut
Rough- Capacity
capacity planning planning
Adjust

A
production plan
Yes No Requirements No Yes
Problems? schedules Problems?
13-27 MRP and ERP

Capacity Planning

Capacity requirements planning: The process

off determining
d i i short-range
h capacity
i
requirements.

Load reports: Department or work center

reports that compare known and expected
future capacity requirements with projected
capacity
p y availability.y
Time fences: Series of time intervals during
which order changes are allowed or restricted.
restricted
13-28 MRP and ERP

Capacity Planning
Fi
Figure 13 15
13.15

Develop a tentative Use MRP to

master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master production
resource requirements schedule
No
Can
Is shop capacity be
capacity No
changed to meet
adequate? requirements
Yes Yes

Firm up a portion Change

off the
th MPS capacity
it
13-29 MRP and ERP

ERP

• 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.
13-30 MRP and ERP

ERP Strategy Considerations

• High initial cost

• High cost to maintain

• Future upgrades

• Training