An Introduction toMRP & ERP Systems

Debasish N. Mallick, Ph.D.

Carlson School of Management

University of Minnesota

Fall 2002

Agenda

• What is MRP & ERP?

• MRP Structure

• MRP Dynamics

• Lot Sizing Techniques

• MRP II

• ERP

• ERP Implementation

Material Requirement Planning (MRP)

A set of techniques that uses bill of material data, inventory data, and master production schedule to calculate requirement for materials.

Source: APICS Dictionary 9th ed.

MRP Objectives

Get the right materials

to the right place

at the right time.

MRP Structure

• Inputs

• Processing

• Outputs

MRP Inputs

• Master Production Schedule

• Bill of Material

• Inventory Record File

MRP Processing

• Exploding

• Time-Phasing

• Lot Sizing

MRP Outputs

• Primary Reports

• Secondary Reports

Master Production Schedule (MPS)

Master Production Schedule (MPS)

Specifies how many of each item to be produced in what time period

Sometimes schedules major subassemblies and components only

Bill of Material (BOM)

Bill Of Materials (BOM)

A complete description of the materials, parts, and components of a product and the sequence in which the product is created.

Cooperstown Cars Inc. (BOM)

Toy Car

Body (1)Wheel Assly. (2)

Wheel (2)Axle (1)

Inventory Records (Item Master)File

Inventory Records File

Stores information on the status of each item by time period as well as their supply/manufacturing lead time.

Cooperstown Toys Inc. Inventory Record File

Item Description On-hand On-Order Back Order Lead Time Toy Car 1 week Body 4 weeks Wheel Assembly 1 week Axle 2 weeks Wheel 1 week

MRP Processing

"Explodes" the item requirements to the BOM table, level by level, taking into account the stock status of items in the inventory table

Offsets the release date for the net requirement for each item by the lead time

Rationale: For an item to be released for processing, all of itscomponents must be available; the planned order release date for the parent item becomes the same gross requirement for the sub items

Terminology

* Gross Requirements

* Scheduled Receipts

* Projected on Hand

* Net Requirements

* Planned-Order Receipts

* Planned-Order Releases

Lot Sizing

* Lot-for-lot

* EOQ

* Fixed Period

* Part Period

* Wagner-Whitin

Item: Toy Car Lead Time: 1 week

Period 1 2 3 4 5 6 7 8 9 10 Gross Requirements Scheduled Receipts Projected On-Hand Net Requirements Planned Order Receipts Planned Order Releases

Cooperstown Car Inc.

Item: Body Lead Time: 4 week

Period 1 2 3 4 5 6 7 8 9 10 Gross Requirements Scheduled Receipts Projected On-Hand Net Requirements Planned Order Receipts Planned Order Releases

Cooperstown Car Inc.

Item: Wheel Assembly Lead Time: 1 week

Period 1 2 3 4 5 6 7 8 9 10 Gross Requirements Scheduled Receipts Projected On-Hand Net Requirements Planned Order Receipts Planned Order Releases

Cooperstown Car Inc.

Item: Axle Lead Time: 2 week

Period 1 2 3 4 5 6 7 8 9 10 Gross Requirements Scheduled Receipts Projected On-Hand Net Requirements Planned Order Receipts Planned Order Releases

Cooperstown Car Inc.

Item: Wheel Lead Time: 1 week

Period 1 2 3 4 5 6 7 8 9 10 Gross Requirements Scheduled Receipts Projected On-Hand Net Requirements Planned Order Receipts Planned Order Releases

Cooperstown Car Inc.

Primary Outputs

* Planned Orders

* Order Release Notices

* Changes in Due Dates

* Cancellations/Suspensions

* Inventory Status

Secondary Outputs

* Planning Reports

* Performance Reports

* Exception Reports

Benefits Of MRP

* Reduction of forecast errors

* Information for capacity planning

* Information for financial planning

* Ease of updating schedule

Most Valuable Use of MRP

* Assemble to stock

* Assemble to order

* Manufacture to order

* Process

Manufacturing Resource Planning

* An expanded MRP

* Plan and monitor all resources

* Closed-loop system

* Generate financial information

• Simulate the manufacturing system

MRP II

A method for effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning in dollars, and has a capability to answer “what if” questions.It made up a variety of functions, each linked together,

MRP II System Components* Accounts payable/receivable

* Capacity requirement planning

* Data collection

* Financial analysis

* Sales analysis and forecasting

* Inventory management

* Master production schedule

* Material requirement planning

* Order entry and invoicing

* Payroll

* Production control and planning

* Purchasing

Closed-Loop in MRP II

Problems with MRP II

• Integration

• Maintenance

ERP System Components (SAP R/3)

* Financial Accounting

* Human Resources

* Manufacturing and Logistics

* Sales and Distribution

Financial Accounting Module

* Financials

* Controlling

* Asset Management

Human Resources Module

* Payroll

* Benefits Administration

* Applicant Data Administration

* Personnel Development Planning

* Workforce Planning

* Schedule and Shift Planning

* Time Management

* Travel Expense Accounting

Manufacturing And Logistics

* Materials Management

* Plant Maintenance

* Quality Management

* Production Planning and Control

* Project Management System

Sales And Distribution

* Customer Management

* Sales Order Management

* Configuration Management

* Distribution Management

* Export Controls

* Shipping and Transportation Management

* Billing

* Invoicing

* Rebate Processing

Why ERP?

* Desktop Machines

* Client-Server Architecture

* Integrated Database

* Real-Time Interaction

* Consistent User Interface

* Process Orientation

* Common Platform

* One Stop Shopping

How ERP Works?

* Ordering

* Availability

* Production

* Manpower

* Purchasing

* Order Tracking

* Planning

Disadvantages of ERP

* Inward-Facing

* Closed programming standard

* A push-based model of production

* Complex Configuration

* Expensive

Implementation Effort

* Size of the application

* Management Support

* Condition of the existing databases

* Quality of the data

* Amount of training required

Learning never ends…..

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