Prepared and Researched by:

Gerry O. Gatawa

Materials Requirement Planning

MRP

A software based production planning and Inventory Control system used to manage manufacturing process.

A system driven by the master schedule which specifies the “end items” or output of the production function.

All future demands for work-in-process and raw materials are dependent on the master schedule and derived but the MRP system from the master schedule.

Using the MRP, the master schedule is “exploded’ into production purchase orders for raw materials and shop orders for scheduling the factory.

Materials Requirements Planning

Type I. An Inventory Control System

MRP system is an inventory control system which releases manufacturing and purchase orders for the right quantities at the right time to support the master schedule.

This system launches orders to control work-in-process and raw materials inventories through proper timing of order placement.

Materials Requirements Planning

Type II. A Production and Inventory Control System

An information system used to plan and control inventories and capacities in manufacturing companies.

The orders resulting from part explosion are checked to see whether sufficient capacity is available. If there is not enough capacity, either the capacity or the master schedule is changed.

Materials Requirements Planning

Type III. A Manufacturing Resource-Planning System

Used to plan and control all manufacturing resources: Inventory capacity, cash, personnel, facilities, and capital equipment.

The orders resulting from part explosion are checked to see whether sufficient capacity is available. If there is not enough capacity, either the capacity or the master schedule is changed.

Materials Requirements Planning

6

Firm Orders from

Customers or from Finished

Goods Inventory

Aggregate Production

PlanForecast of

Demand

Master Production Schedule

Rough-Cut Capacity Planning

Parts ExplosionEngineering Design Changes

Bill of Materials

Inventory Records

Engineering Design Changes

Purchase Orders

Vendors

Shop Orders

Capacity Planning

Shop-Floor Control

OperationsRAW MATERIALS PRODUCT

MRP Order Point

Demand Dependent Independent

Order Philosophy Requirements Replenishment

Forecast Based on Master Schedule

Based on Past Demand

Control Concept Control all items ABC

Objectives Meet Manufacturing needs

Meet Customer needs

Lot Sizing Discrete EOQ

Demand Pattern Lumpy but predictable

Random

Types of Inventory Work-in-process and raw materials

Finished goods and spare parts

MRP versus Order-Point System

Master Scheduling The purpose is to specify the output of the

operations function.Master Scheduling drives the entire planning

process.By controlling the master schedule, top

management can control customer service, inventory levels, and manufacturing costs.

One of the functions of the master scheduling is to make sure that the final master schedule is not inflated and reflects realistic capacity constraints.

MRP Elements

Bill of Materials (BOM)A structured list of all the materials or parts

needed to produce a particular finished product, assembly, subassembly, manufactured part, or purchased part.

o Inventory Records The item master data segment contains the

part number, which is the unique item identifier, and other information such as lead time, standard cost, and so on.

MRP Elements

Capacity Planning The purpose of capacity planning is to aid management in checking

on the validity of the master schedule. There are two ways:

1. Rough-cut Capacity Planning (also called the resource planning)

--approximate labor hours and machine hours are directly calculated from the master schedule to project future needs without going through the parts-explosion process.

2. Shop Loading

--a full parts explosion is run prior to capacity planning. The resulting shop orders are then loaded against work centers through the use of detailed parts-routing data.

MRP Elements

Purchasing The purchasing function is greatly enhanced by the use of

an MRP system. By developing and executing a valid materials plan,

management can eliminate much order expediting which is usually done by purchasing.

With an MRP system, it is possible to provide suppliers with reports of planned future orders. This gives vendors time to plan capacity before actual orders are placed.

MRP Elements

Shop-Floor Control

The purpose is to release orders to the shop floor and to manage the orders on their was through the factory to make sure that they are completed on time.

It helps management adjust to all day-to-day things which go wrong in manufacturing: absenteeism among workers, machine breakdowns, loss of materials, and so on.

MRP Elements

Management must operate the system in an intelligent and effective way.

Safety Stock When safety stock is carried, it is often added

at the master-schedule level. This ensures that matched sets of components,

not simply as assortment of various parts, are available for final products.

The purpose is to provide flexibility to meet changing customer requirements.

Operating an MRP System

Safety Lead Time If a vendor is unreliable and the situation

cannot be remedied, then the planned lead time can be lengthened by adding safety lead time.

This will add to inventories, however, the vendors delivers the parts earlier than planned.

Operating an MRP System

Safety Capacity This approach has much merit because the

spare capacity can be used to make the right parts when the needs becomes known.

Operating an MRP System

It takes a great deal of effort to make MRP successful and research indicates that five elements are required for success:

Implementation Planning Adequate computer supportAccurate DataManagement SupportUser Knowledge

The Successful MRP System

Implementation Planning It can help out implementation efforts by

advance planning and problem prevention efforts.

Implementation planning should include education of senior management, selection of project manager, appointment of an implementation team representing all parts of the company, preparation of objectives, identification of expected benefits and costs, and a detailed action plan.

The Successful MRP System

Adequate Computer System

Probably one of the easiest elements of MRP element.

Many companies uses software packages on the market rather than writing their own programs.

The Successful MRP System

Accurate Data

Inventory records must be accurate to support the MRP System.

The best way to improve and maintain the accuracy of inventory records is to install a system of cycle counting.

Keeping MRP data accurate for system integrity is one of the most important tasks in operating an MRP system.

The Successful MRP System

Management Support

The importance of management support to the successful MRP system can hardly be overemphasized.

Management support requires more than lip service and passive support. “ Managers participation” or “leadership “ would be better.

Top managers must be actively involved in installing and operating the MRP system.

The Successful MRP System

User Knowledge

All company employees must understand how they will be affected and grasp their new roles and responsibilities.

As the system begins to be used, all supervisors, middle managers, top managers need to understand MRP, including managers inside and outside of manufacturing.

The Successful MRP System

Master Production Schedule

Outlines the production plan for all end items; it expresses how much of each item is planned and when it is wanted.

It is established for end times, which constitute different units in different environments. In a make-to-order environment, the end item is usually the customer-ordered unit; in make-to-stock, it is final assembly unit; and in assemble to order, it is usually selected intermediate assemblies and fabricated parts.

The MPS generally is stated in terms of time-phased requirements and can comprise several one-week planning periods, or time buckets.

The MRP Inputs

Product Structure Records (also known as Bill of Materials

Contain information on all materials, components, or subassemblies required to produce each end item (or master schedule item).

It is also used to derive quantities of dependent components required to build end item.

The MRP Inputs

Inventory Status Records

Contain the on-hand and on-order status of each end item.

The MRP Inputs

The MRP InputsForecasts Customer orders

Engineering ChangesInventory TransactionsMASTER PRODUCTION SCHEDULE (MPS)(Indicates products to produce and when they

are needed)

PRODUCT STRUCTURE RECORDS(Contains bills of materials and shows

how products is produced)INVENTORY STATUS RECORD

(Contains on-hand balances, open orders, lot sizes, lead times, and safety stocks)

MATERIAL REQUIREMENTS PLANNING(Explodes BOM per MPS requirements, nets out inventory levels, offsets lead times, and issues reports on1. What to order and how many,2. When to order,3. What orders to expedite, deexpedite, or cancel.)

MRP System

A bill of materials (BOM) is a list of the items, ingredients, or materials needed to produce an end item or product.

It lists all of the subassemblies, parts, and raw materials that go into a parent assembly, showing the quantity of each required to make an assembly.

It shows how much of what material is needed and in what order to manufacture a product.

The Bill of Materials

Suppose 100 units of product A must be available in period 8. if no stock is on hand or on order, determine when to release orders for each component shown and the size of each order.

Product A is made from components B and C; C is made from components D and E.

The Bill of Materials (Example)

A

CB

D E

The Bill of Materials (Example)

It is simply computed as follows;

Component B: (1)(number of A’s) = 1 (100) = 100,Component C: (2)(number of A’s) = 2 (100) = 200,Component D: (1)(number of C’s) = 1 (200) = 200,Component E: (2)(number of C’s) = 2 (200) = 400.

The Bill of Materials (Example)

ALT=4

C (2)LT = 2

B (1)LT = 3

D (1)LT = 1

E (2)LT = 1

Level 0

Level 1

Level 2

30

The MRP Plan for 100 Units of Product A in Period 8

Lead Time 1 2 3 4 5 6 7 8

4 A Gross Requirement 100Planned Order Releases 100

3 B Gross Requirement 100Planned Order Releases 100

2 C Gross Requirement 200Planned Order Releases 20

0

1 D Gross Requirement 200

Planned Order Releases

1 E Gross Requirement 400

Planned Order Releases 400

X 2

X 2

To simplify the MRP explosion process (also known as bill of materials explosion) each item is assigned a low level code.

Low level codes are used to determine when an item is eligible for netting and exploding. By convention, all end items are coded a level 0.

Example:

Low Level Coding

W

CB

D E

A

X

KF

D E

A

G

YR

M N

V

Prepared and Researched by:

Gerry O. Gatawa

Enterprise resource Planning

MRP

Evolution to ERP

MRP - Material Requirements Planningwhat material needed?when & how purchased?how managed?maximize efficiency of physical, financial assets

MRP 1960'smaster production schedulematerial requirements planningcapacity requirements planning

MRPII 1970'ssales & operations planningsimulation forecasting

ERP 1990'ssales and distribution material managementplant maintenancequality managementfinancial accountingcontrollinginvestment managementhuman resource management...

What is ERP?It attempts to integrate all departments and functions

across a company onto a single computer system that can serve all those different departments’ particular needs.

This is a tall order, building a single software program that serves the needs of people in finance as well as it does the people in human resources and in the warehouse.

Multi tier client / server architecture

Multiple database, application servers

Technology Infrastructure 4.0 at http://emedia.sap.com/usa/default.asp

• Presentation

• Internet / intranet

• Application

• Database

Layers:

R/3 BasisDatabase

R/3 Applications

Logistics HR

Accounting

R/3

Industry Solutions

Internet / Intranet

Business to Business

Consumer

Employee

Business Information (Data) Warehouse

Logistics Advanced Planner & Optimizer

Strategic

Enterprise

Management

Knowledge

Warehouse

Automotive, ...Utilities,...

Customer

Relationship

Management

SAP AG

mySAP

Business to Business Procurement

Corporate Finance Management

Environment,

Health &

Safety

Integration Also Means...Linking Transactions, Analysis and

Planning

Analyze

Plan

Transaction

Transaction

Transaction

Act

Operational

Process (OLTP)

Management Process(OLAP)

How can ERP Improve company's Business Performance?

Leads to improved performance, better decision making, competitive advantage

Lays foundation for electronic commerceReplaces a multiplicity of different systems and

databasesone integrated system

Example: Order ProcessingSalesperson generates a quote for computer equipment

overseasSystem immediately creates product configuration, price,

delivery date, shipping method,...Customer accepts quote over Internet

System automatically:Schedules shippingReserves materialOrders parts from suppliersSchedules assemblyChecks customer credit limitUpdates sales & production forecastsCreates MRP & bill-of-material lists

Updates salesperson's payrollcommissiontravel account

Calculates product cost & profitabilityUpdates accounting, financial records

System automatically:

ERP ImplementationNeed business exec in charge, not ITMake a business case

long term benefitsinventory reduction, customer service,….

Costssoftwarehardwarepeople (by far the most expensive)

ERP ImplementationPeople - for system configuration

internal, consultantsManagers

can require time commitment for several yearsContinual support from senior execsChange management

almost all personnel will be affected

ERP RequiresStrong executive support to implementProcess approach rather than “silos”Change in business procedures (BPR)Change in organizational structure, culture, strategyTechnology change

ERP Example

SAP R/3Market leading ERP productExtensive functionalityUsed by mid to large companiesCan be run over internet/intranet

Logistics

Accounting

Human Resources

Sell

Internet Selling Internet Selling

Buy

Internet BuyingInternet Buying Search

Select

Register

Offer

Receive Collect

!Operational Systems

(Financials & Logistics)Operational Systems

(Financials & Logistics)

Transact

Othersystems

Buyer Seller

Example: Buying and Selling

FinancialsFinancial Accounting

general ledger, accounts receivable, payable,...Controlling

costing, profitability, planning,…Treasury

Cash, funds management,…Capital Investments

Human Resources

Administration

Payroll accounting

Shift management

Employee attendance

Trip costs

Training

Recruitment

Personal management

Why ERP Fails?

1. Embarking on the journey without solid, approved business case including mechanisms to update the business case continuously and ensure the savings are baked into operational budgets. Since an ERP project is going to take a minimum of 12 months and as much as 36 months to employ, and often costs between $5 million and $50million out-of-pocket costs, stamina is essential.

Why ERP Fails?

2. Treating this as a technical project vs. a change that balances people, process, and technology; not using the power of the new, integrated information.

The new technology brings integration and, generally, makes information available instantly.

For example, when raw materials arrives at a company’s receiving dock and is scanned into the system, anyone can access that information and use it.

Why ERP Fails?

3. Trying to create a solution incompatible with the company’s culture.

4. Selecting a strong systems integrator and then heeding its advice.

Example: Spend considerable time examining the members of the actual team that will be working with you everyday.

Why ERP Fails?

5. Starting without an effective and dedicated senior governance council, including a single executive sponsor.

6. Failing to staff the team with “A” players from business technical sides of the organization, including program management.

Why ERP Fails?

7. Starting too late to address all things data (architecture, standards, management, cleansing and so on.)

8. Failing to balance the needs and power of integration with seeking quick business hits.

Why ERP Fails?

9. Not planning for—and minimizing the interim performance dip after start up.

10. Believing the journey is complete at “go live.”

Problem: The following structure tree indicates the components needed to assemble

one unit product W. Determine the quantities of each component needed to assemble 100 units of W.

W

B (2)A

D (2)E (2)

C (4)

EF

D

D (3) G (2)

Problem: The computation is easy…..

W

B (2)A

D (2)E (2)

C (4)

EF

D

D (3) G (2)

1 X 100=1002X 100=200 4X 100=400

2 X 100=120 1 X 100=100

2 X 200=400 1 X 200=200

3 X 400=200

2 X 400=800

1X 800=800

Problem: The computation is easy…..

Summary:Level Item Quantity0………………………W 1001………………………A 100 B 200 C 4002……………………… E 500 F 200 G 8003……………………… D 2,200

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CASE: