Material Requirements Planning & ERP

Outline
 GLOBAL COMPANY PROFILE: COLLINS INDUSTRIES  DEPENDENT INVENTORY MODEL REQUIREMENTS
     Master Production Schedule Bills of Materials Accurate Inventory records Purchase Orders Outstanding Lead Times for Each Component

Outline - Continued
 MRP MANAGEMENT
 MRP Dynamics  MRP and JIT

 LOT-SIZING TECHNIQUES  EXTENSIONS IN MRP

 Closed-Loop MRP  Capacity Planning  Material Requirements Planning II (MRP II)

 MRP IN SERVICES

Outline - Continued
 DISTRIBUTION RESOURCE PLANNING (DRP)  ENTERPRISE RESOURCE PLANNING (ERP)
 Advantages and Disadvantages of ERP System  ERP in the Service Sector

Learning Objectives
When you complete this chapter, you should be able to : Identify or Define:
    Planning bills and kits Phantom bills Low-level coding Lot sizing

Learning Objectives Continued

When you complete this chapter, you should be able to : Describe or Explain:
     Material requirements planning Distribution requirements planning Enterprise resource planning How ERP works Advantages and disadvantages of ERP systems

Collins Industries
 Largest manufacturer of ambulances in the world  International competitor  12 major ambulance designs
 18,000 different inventory items
  6,000 manufactured parts 12,000 purchased parts

MRP: IBMs MAPICS

Collins Industries
 Collins requires:
 Material plan must meet both the requirements of the master schedule and the capabilities of the production facility Plan must be executed as designed Effective time-phased deliveries, consignments, and constant review of purchase methods Maintenance of record integrity

  

Inventory Classifications
Inventory

Process stage

Number & Value

Demand Type

Other

Raw Material WIP Finished Goods

A Items B Items C Items

Independent Dependent

Maintenance Operating

Dependent versus Independent Demand

Item Demand Source Material Type Method of Estimating Demand Planning Method Materials With Independent Demand Company Customers Finished Goods Forecast & Booked Customer Orders EOQ & ROP Materials With Dependent Demand Parent Items WIP & Raw Materials Calculated

MRP
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Requirements for Effective Use of Dependent Demand Inventory Models Effective use of dependent demand inventory models requires that the operations manager know the:
j master

production schedule j specifications or bills-of-material j inventory availability j purchase orders outstanding j lead times
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Inputs to the Production Plan

Production Capacity Inventory Procurement Supplier Performance Marketing Customer Demand Finance Cash Flow

Aggregate Production Plan

Human Resources Manpower Planning

Management Return on Investment Capital

Engineering Design Completion

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The Planning Process Aggregate production

plan Master production schedule
Change requirements? Change capacity? Change production plan? Change master production schedule?

Material requirements plan Detail capacity plan

Realistic Yes Is capacity plan being met?

No

Is execution meeting the plan?

Execute capacity plans Execute material plans

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Aggregate Production Plan

Months Aggregate Production Plan (shows the total quantity of amplifiers Weeks Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 1 January February 1,500 2 3 4 5 1,200 6 7

240 watt amplifier 150 watt amplifier 75 watt amplifier

10 0

100 500 300 500

100 450

100 450 100

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Typical Focus of the Master Production Schedule

Make to Order (Process Focus) Number of end items Typical focus of the master production schedule Number of inputs Assemble to Order or Forecast (Repetitive) Stock to Forecast (Product Focus) Schedule finished product

Schedule orders

Schedule modules

Examples:

Motorcycles, autos, Print shop Machine shop TVs, fast-food Fine dining restaurant restaurant

Steel, Beer, Bread Light bulbs, Paper

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Bill-of-Material
 List of components & quantities needed to make product  Provides product structure (tree)
 Parents: Items above given level  Children: Items below given level

 Shows low-level coding

 Lowest level in structure item occurs  Top level is 0; next level is 1 etc.
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Product Structure for Awesome A

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Special Bills-of-Material
 Modular bills
 Modules are final components used to make assemble-tostock end items

 Planning bills
 Used to assign artificial parent  Reduces number of items scheduled

 Phantom bills
 Used for subassemblies that exist temporarily

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Bill-of-Material Product Structure Tree

Bicycle(1) P/N 1000 Handle Bars (1) P/N 1001 Frame Assembly (1) P/N 1002 Frame (1) P/N 1004

Wheels (2) P/N 1003

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Time-Phased Product Structure

Start production of D
Must have D and E completed here so production can begin on B

1 week 2 weeks

D 2 weeks to
produce

B E
2 weeks

A E F
1 week 1 week

2 weeks

G
1 week

3 weeks

D 1 2 3 4 5 6 7 8
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Material Requirements Planning (MRP)

 Manufacturing computer information system  Determines quantity & timing of dependent demand items
1 2 5 2 3
Gross Requirements Scheduled Receipts Available Net Requirements Planned Order Receipts Planned Order Releases

4 25 33

5 15 8 7 7

20 23

30 33

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1995 Corel Corp.

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MRP Requirements
    Computer system Mainly discrete products Accurate bill-of-material Accurate inventory status
 99% inventory accuracy

 Stable lead times

1984-1994 T/Maker Co.

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MRP Benefits
 Increased customer satisfaction due to meeting delivery schedules  Faster response to market changes  Improved labor & equipment utilization  Better inventory planning & scheduling  Reduced inventory levels without reduced customer service
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Structure of the MRP System

BOM Master Production Schedule
MRP by Period Report MRP by date report

Lead Times (Item Master File)

Planned order report Purchase advice Exception report

Inventory Data MRP planning programs (computer and software)

Exception report

Purchasing data

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Gross Material Requirements Plan for 50 Awesome A Speaker Kits

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MRP and The Production Planning Process

Forecast & Firm Orders Material Requirements Planning Aggregate Production Planning Master Production Scheduling No, modify CRP, MRP, or MPS Capacity Requirements Planning Realistic? Yes Shop Floor Schedules
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Resource Availability

MRP Systems - Input and Output

Bill of Materials Master Production Schedule Material Requirements Planning System Planned Order & Other Reports Inventory Status

Item Master

Purchasing Data

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Master Production Schedule

 Shows items to be produced
 End item, customer order, module

 Derived from aggregate plan Example

Item/Week Drills Saws Oct 3 300 300 Oct 10 200 450 Oct 17 310 310 Oct 24 300 330

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Derivation of Master Schedule

A B
Periods 5 6 7 40 8 50 9

S C
10 11 15

Lead time = 4 for A Master schedule for A

B
8

C
9 10 11 12 13 40 20 30

Lead time = 6 for S Master schedule for S

Master schedule for S sold directly 1 2 10 10 3

Periods
Gross requirements: B

2
40+10 = 50

7
15+30 = 45

10

40 50 20

Therefore, these are the gross requirements for B

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MRP Dynamics
 Supports replanning
 Problem with system nervousness

 Time fence - allows a segment of the master schedule to be designated as not to be rescheduled  Pegging - tracing upward in the bill-ofmaterials from the component to the parent item  That a manager can react to changes, 30 doesnt mean he/she should

MRP and JIT

j MRP - a planning and scheduling technique with fixed lead times j JIT - a way to move material expeditiously  Integrating the two:
  Small bucket approach and back flushing Balanced flow approach

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Lot-Sizing Techniques
    Lot-for-lot Economic Order Quantity Part Period Balancing Wagner-Whitin Algorithm

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MRP Lot-Sizing Problem: Lotfor-Lot Techniques

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MRP Lot-Sizing Problem: EOQ Technique

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MRP Lot-Sizing Problem: PPB Technique

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Extensions of MRP
    Closed loop MRP Capacity planning - load reports MRP II - Material Resource Planning Enterprise Resource Planning

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Closed Loop MRP

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Extensions of MRP Capacity Planning

 Tactics for smoothing the load and minimizing the impact of changed lead time include:
 Overlapping - reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation  Operations splitting - sends the lot to two different machines for the same operation  Lot splitting - breaking up the order and 38 running part of it ahead of the schedule

Initial Resource Requirements/Smoothed Resource Requirements

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Extensions to MRP Enterprise Resource Planning

MRP II with ties to customers and suppliers

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MRP and ERP Information Flows, Integrated with Other Systems

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MRP in Services
 Can be used when demand for service or service items is directly related to or derived from demand for other services
 restaurant - rolls required for each meal  hospitals - implements for surgery  etc.

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Product Structure, Bill of Materials, Bill of Labor for Veal Picante

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Distribution Resource Planning

 DRP requires:
    Gross requirements, which are the same as expected demand or sales forecasts Minimum levels of inventory to meet customer service levels Accurate lead times Definition of the distribution structure

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