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MRP & ERP

Chapter 15

MRP and ERP

15-2

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

• Material requirements planning (MRP): Computer-based information system for ordering and scheduling of dependent demand inventories

MRP

15-3

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MRP & ERP

• Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods.

Dependant Demand

15-4

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MRP & ERP

Dependent vs Independent Demand

Time

Time Time

Time

Dem

and

Dem

and

Stable demand“Lumpy” demand

Am

ou

nt

on

han

d

Am

ou

nt

on

han

d

Safety stock

15-5

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

MRP Inputs MRP Processing MRP Outputs

Masterschedule

Bill ofmaterials

Inventoryrecords

MRP computerprograms

Changes

Order releases

Planned-orderschedules

Exception reports

Planning reports

Performance-controlreports

Inventorytransaction

Primaryreports

Secondaryreports

15-6

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

• Master Production Schedule• Time-phased plan specifying timing and quantity of production for each

end item.• Material Requirement Planning Process

Product Structure

Tree

Lead Times

MPR Inputs

15-7

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MRP & 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.

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.

15-8

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MRP & ERP

Planning Horizon

1 2 3 4 5 6 7 8 9 10

Procurement

Fabrication

Subassembly

Assembly

Figure 14-4

15-9

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

Bill-of-Materials

Bill of materials: One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.

Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.

15-10

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

Product Structure Tree

Chair

Seat

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)

LegAssembly

BackAssembly

Level 0

1

2

3

Figure 15-5

15-11

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

Assembly Time Chart

1 2 3 4 5 6 7 8 9 10 11

Procurement ofraw material D

Procurement ofraw material F

Procurement ofpart C

Procurement ofpart H

Procurement ofraw material I

Fabricationof part G

Fabricationof part E

Subassembly A

Subassembly B

Final assemblyand inspection

Figure 15-8

15-12

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

MRP Processing

• Gross requirements

• Schedule receipts

• Projected on hand

• Net requirements

• Planned-order receipts

• Planned-order releases

15-13

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

MRP Outputs

• Planned orders - schedule indicating the amount and timing of future orders.

• Order releases - Authorization for the execution of planned orders.

• Changes - revisions of due dates or order quantities, or cancellations of orders.

15-14

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MRP & ERP

MRP Secondary Reports

• Performance-control reports

• Planning reports

• Exception reports

15-15

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MRP & ERP

Other Considerations

• Safety Stock• Lot sizing

– Lot-for-lot ordering– Economic order quantity– Fixed-period ordering– Part-period model

15-16

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

Capacity Planning

Capacity requirements planning: The process of determining short-range capacity requirements.

Load reports: Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.

Time fences: Series of time intervals during which order changes are allowed or restricted.

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MRP & ERP

MRP Planning

Develop a tentativemaster production

schedule

Develop a tentativemaster production

schedule

Use MRP tosimulate material

requirements

Use MRP tosimulate material

requirements

Convert materialrequirements to

resource requirements

Firm up a portionof the MPS

Is shopcapacity

adequate?

Cancapacity be

changed to meetrequirements

Revise tentativemaster production

schedule

Changecapacity

Yes

No

Yes

No

15-18

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

• 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

MRP in Services

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MRP & ERP

Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements

• Ability to evaluate capacity requirements

• Means of allocating production time

15-20

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MRP & ERP

Requirements of MRP

• Computer and necessary software

• Accurate and up-to-date

– Master schedules

– Bills of materials

– Inventory records

• Integrity of data

15-21

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MRP & ERP

• Expanded MRP with and emphasis placed on integration

– Financial planning

– Marketing

– Engineering

– Purchasing

– Manufacturing

MRP II

15-22

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MRP & ERP

MarketDemand

Productionplan

Problems?

Rough-cutcapacity planning

Yes No YesNo

Finance

Marketing

Manufacturing

Adjustproduction plan

Masterproduction schedule

MRP

Capacityplanning

Problems?Requirements

schedules

Ad

just

mas

ter

sch

edu

le

MRP II

15-23

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

MRP & ERP

• Enterprise resource planning (ERP): An expanded effort to integrate standardized record-keeping that will permit information sharing throughout the organization

ERP