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MRP

From Materials RequirementTo Manufacturing Resource

Planning

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Traditional Replenishment Systems

SSCustomer

Component A

Component B SS

SS

Assembly

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Problems with Traditional Replenishment Systems

Demand is Dependent, not StochasticDemand not Smooth (Batching)Geared Towards Instantaneous ReplenishmentInventories for Assembly are treated in Isolation

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Bill of Materials

Level 2

Level 1

Level 0T

W (1) Y (2)

V (3)U (2)

X (2) W (2)

Demand for T = 100

200

400200 600 600

300

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Overview of MRP

1 2 3 4 5 6 7Req.Ord.Req.Ord.Req.Ord.Req.Ord.Req.Ord.Req.Ord.

T

U

V

W

X

Y

1

2

2

3

1

1

LTWEEKS

100100

200

300

200

300

400

600

800

600

800

400

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MRP Inputs & Outputs Inputs Outputs

Production PlanPurchasing Plan

What ?When ?How Much ?

Master ScheduleForecastsOrders

InventoryBOMLead TimesYields

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MRP NervousnessInformation Updates ⇒ Rescheduling ActionsDampening Methods

MPS FreezeOrder FreezeSafety StockSafety TimeSafety CapacityExpediting

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Uncertainty & Safety Cushions

Safety StockItems with direct external DemandItems with highly variable YieldItems produced at a BottleneckItems with a myriad of different Parents

Safety TimePrimarily Raw Materials

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CRP Capacity Requirements Planning

Product Load ProfileCapacity Requirements of End Items

While Schedule not feasible1. MRP2. Capacity Loading3. Capacity ReconciliationIf no feasible Solution

Modify Master Schedule

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Capacity Reconciliation

Sub ContractEnd PartsComponents

Transfer CapacityMachinesPersonnel

Use alternate Routings

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DRP: Distribution Requirements Planning

Level 1

Level 0

Wholesaler

Retailer 1 Retailer 2

Supply Chain

T

T1 T2

BOM

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MRP Shortcomings…Lead Times

LT = f(Part), f(shop) or f(schedule)?Inflate LT ?

Lot SizesOptimization difficultEOQ, LFL, Heuristics?

Safety StocksIn isolation?

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…MRP Shortcomings…

Improvement IncentivesSignificant Effort to Gather and Input DataReluctance to Change InputsInitialization with Inflated ValuesKeep Inflated Values to avoid ProblemsExcessive Trust in Computer Data

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Application TrapsContinuous Processes

Simple BOMs“Factory like one Machine”Setup Costs drive Schedule

Job ShopsLT ≠ f(part) Simple BOMsShifting BNs

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ERP

Enterprise Resource PlanningAn Overview

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What is ERP?

Client Server SoftwareIntegrates Majority of Business ProcessesProcesses Majority of TransactionsEnterprise wide Database

Each data point is stored once

Real Time Data Access

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ERP Modules

ERP

Manu-facturing

HR

Logistics

Fin & Acc’t

Marketing

Sales

After Sales

Support

Purchasing

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Stake Holders

ERP VendorsConsultantsHardware ProvidersDatabasesOperating SystemsComplementary Tool Providers

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BOPSE

Baan ~5%Oracle ~ 10%People Soft ~5%SAP ~30%J.D. Edwards ~7%

Others (30%)

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ERP Factoids

>60% of Multinationals use SAP’s R/3SAP’s revenue:

1995: 90% from large companies1997: 70% from large companies

Average Implementation Costs:$15 M, or ~$53K per user

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ERP Factoids

Market Growth1993: $ 319 M 2000: $ 2400 M

ERP Investments during 90s: ~$ 300BMETA Group Study of 63 companies:

Average quantifiable net gain:Negative $ 1.5M

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Wrap Up

Clean Sheet vs. Technology EnabledBig Bang vs. Phased IntroductionBest of Breed vs. Single Vendor Managing Complex Procedures vs. Procedure Petrifaction

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Wrap Up

Best Practices vs. Continuous ImprovementOperations as Strategy?Importance of “Buy-In”The Role of Consultants