CHAPTER 13

MRP and ERP

MRP

Independent and Dependent Demand

Independent Demand (end item) A Dependent Demand (component parts) C(2)

B(4)

D(2)

E(1)

D(3)

F(2)

Independent demand is uncertain. Dependent demand is certain.

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 11

Comparison (Figure 13.1)

Independent demand
Demand Demand

Dependent demand

Lumpy demand

Stable demand

Time Amount on hand Amount on hand

Time

Safety stock
Time

Time

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.

Before MRP
Two difficulties of ordering and scheduling:
1. Enormous task of setting up schedules, keeping track of large numbers of parts and components, and coping with schedule and order changes.
2. Lack of differentiation between independent demand and dependent demand. Too often, techniques designed for independent-demand items were used to handle assembled items, which resulted in excessive inventories.

Consequently, inventory planning and scheduling presented major problems for manufacturers.

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 ?

Overview of MRP

MRP -- Input

MRP Inputs 1. A master production schedule

2. A Bill of Materials
3. An inventory records file

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:

Come from: customer orders, forecasts and orders from warehouses to build up seasonal inventories

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.

Planning Horizon
The master schedule separates the planning horizon into a series of time periods and cover the cumulative lead time.

Assembly
Subassembly

Fabrication
Procurement

6 7 5 Time period (weeks)

10

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.

Assembly Diagram & Product Structure Tree

Example 1: Page 579 (644*)

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.

Solution to Example 1 a). X X :1

B : 2 1 2 B(2) D : 3 2 6 D(3) E : 4 6 24
E(4)

C : 11 1

E :1 2 2

E : 2 1 2 F : 2 1 2

E(2)

F(2)

Thus, one X will require

B: 2 C: 1 D:6 F: 2 E: 28 (Note that E occurs in three places, with 2+2+24)

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 On hand B 4 C 10 D 8 E 60

Solution to Example 1 (Cont.)

b).

X X : 10
4 B(2) 16

Component On hand B 4 C 10 D 8 E 60

B : 2 10 20

C :110 10

10 C 0

D : 316 48

8 D(3) 40

E :116 16

E(2)

E:0

F(2)

F :0

E(4)

Thus, given the amounts of onhand inventory, 10 Xs will require

E : 4 40 160
60 100

B: 16 D: 40

C: 0 F: 0

E: 116 (=16+100)

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

MRP -- Process

Assembly Time Chart

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

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

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.

Format of MRP

Week Number

Item:
Gross requirements
Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases

Example 3Page 586-587 (652-653*)

Consider the two product structure trees shown below: A C

D(2)

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. Theres a beg. inv. of 110 units of D on hand and all items have lead times of one week.

Solution to Example 3-- MPR for Item A

Week Number Quantity of A Quantity of C Item: A LT=1 week

4 80

50

Gross requirements Scheduled receipts

80

Projected on hand
Net requirements Planned-order receipts

80 80 80

Planned-order releases

times 1

Solution to Example 3-- MRP for Item C

Week Number Quantity of A Quantity of C Item: C LT=1 week

4 80

5 50

Gross requirements Scheduled receipts

50

Projected on hand
Net requirements Planned-order receipts

50 50 50

Planned-order releases

times 2

Solution to Example 3-- MRP for Item D

80 Item A times 1 D LT=1 week 50 Item C times 2

3 80

4 100 30 70

Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases

110 110 110

110 0 70

70

Updating the System A material requirements plan is dynamic

Two basic updating systems:

1. 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.

2. Net-change system: Approach that updates MRP records continuously.

Best suited to systems that have frequent changes.

MRP -- Outpu

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 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.

Benefits of MRP Low levels of in-process inventories.

The ability to keep track of material requirements.

The ability to evaluate capacity requirements generated by a given master schedule. A means of allocating production time.

Requirements of MRP A computer and the necessary software programs to handle computations and maintain records. Accurate and up-to-date

a. Master schedules
b. Bills of materials c. Inventory records.

Integrity of file data.

MRP II

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

Manufacturing

An Overview of MRP II
Figure 13.14
Market Demand
Master production schedule

Finance
Marketing

Manufacturing

Production plan

MRP

Rough-cut capacity planning

Capacity planning

Adjust production plan Yes Problems? No

Requirements schedules

No Problems?

Yes

Adjust master schedule

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.

Typically, has an MRP core. http://www.2020software.com/default.asp

Unforeseen Costs of MRP

Training: The workers have to be trained to learn and become proficient with a new system and its processes.

Integration and testing: Integrating the computer systems associated with different areas of the firm and testing the links between various corporate areas and systems. Data conversion and data analysis
Consultant fees Solving implementation problems on an ongoing basis Dealing with disappointing short-term results Competition for high quality workers especially in the IT field .

Recap
Independent/dependent demand MRP
Three inputs

Primary/secondary output

Planned orders

Order release Changes

Performance-control reports Planning reports Exception reports

MPS, Cumulative lead time BOM, Product structure tree Inventory record Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases

Process

Updating MRP Regenerative system Net-change system MRP II ERP