Operations ManagementOperations ManagementContemporary Concepts and CasesContemporary Concepts and Cases
Chapter SixteenChapter SixteenMaterial Requirements Planning and ERPMaterial Requirements Planning and ERP
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
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Chapter 16 OutlineChapter 16 Outline
Definitions of MRP SystemsDefinitions of MRP Systems
MRP versus Order Point SystemsMRP versus Order Point Systems
MRP ExampleMRP Example
MRP ElementsMRP Elements
Operating an MRP SystemOperating an MRP System
The Successful MRP SystemThe Successful MRP System
Enterprise Resource Planning SystemsEnterprise Resource Planning Systems
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Introduction to MRPIntroduction to MRPUsed to manage dependent demand itemsUsed to manage dependent demand items– Raw materials and purchased partsRaw materials and purchased parts
– Work in process (WIP)Work in process (WIP)
Driven by the master schedule (which is driven by Driven by the master schedule (which is driven by S&OP)S&OP)
End items ‘exploded’ into all requirements for End items ‘exploded’ into all requirements for components using bill of materials (BOM)components using bill of materials (BOM)
Schedule offset based on lead timesSchedule offset based on lead times
Is a push system used when the master schedule is Is a push system used when the master schedule is constantly changingconstantly changing
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Definitions of MRP SystemsDefinitions of MRP Systems
Developed by Joe Orlicky at IBM, 1975Developed by Joe Orlicky at IBM, 1975– IBM 370 was the first computer with the capacity to IBM 370 was the first computer with the capacity to
handle MRP calculationshandle MRP calculations
Types of MRPTypes of MRP– Type I: An inventory control system (MRP)Type I: An inventory control system (MRP)
– Type II: Manufacturing Resource Planning system (MRPII)Type II: Manufacturing Resource Planning system (MRPII)
– Type III: Enterprise Resource Planning (ERP) systemType III: Enterprise Resource Planning (ERP) system
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Definitions of MRP SystemsDefinitions of MRP SystemsThree principal functions of MRP (Orlicky):Three principal functions of MRP (Orlicky):
InventoryInventory– Order the right partOrder the right part– Order in the right quantityOrder in the right quantity– Order at the right timeOrder at the right time
PrioritiesPriorities– Order with the right due dateOrder with the right due date– Keep the due date validKeep the due date valid
CapacityCapacity– A complete loadA complete load– An accurate (valid) loadAn accurate (valid) load– An adequate time span for visibility of future loadAn adequate time span for visibility of future load
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Firm orders from Customers Sister plants Stock replenishment
Engineering Design changes
BOM
Forecast of Demand
Purchase Orders
Vendors
MRP Parts Explosion
Rough-cutcapacity planning
Capacity planning
Shop Orders
Shop-floor control
Master schedule
S & OP
Closed Loop MRP System (Fig. 16.1)
Operations ProductRaw Materials
Inventory Records
Inv. Transactions
Comparison of MRP & Order-Point SystemsComparison of MRP & Order-Point Systems
Attribute 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 rawmaterials
Finished goods and spareparts
Attribute 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 rawmaterials
Finished goods and spareparts
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MRP ElementsMRP Elements
InputsInputs1.1. Master ScheduleMaster Schedule
2.2. Bill of Materials (BOM)Bill of Materials (BOM)
3.3. Inventory RecordsInventory Records
Capacity Planning (feasibility)Capacity Planning (feasibility)
Planned Order Releases (Planned Order Releases (outputsoutputs))– Purchasing (buy)Purchasing (buy)– Shop Floor Control (make)Shop Floor Control (make)
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MRP InputsMRP Inputs
Master scheduleMaster schedule
Product structure file (bill of materials, BOM)Product structure file (bill of materials, BOM)– Parts & subassemblies of productParts & subassemblies of product– Sequence of operationsSequence of operations
Inventory master fileInventory master file– Item master informationItem master information– Balances & ordering informationBalances & ordering information
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MRP Example of BOMMRP Example of BOM
Top
Leg
Long Rail
Short Rail
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BOM (Product Structure)BOM (Product Structure)
Short Rails (2)1 week
Table (End Item)1 week
Long Rails (2)1 week
Legs (4)1 week
Top (1)2 weeks
Leg Assembly (1)1 week
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Indented BOMIndented BOMLevel CodeLevel Code ComponentComponent
00 Table (end-item)Table (end-item)
11 Leg assembly (1)Leg assembly (1)
22 Short rails (2)Short rails (2)
22 Long rails (2)Long rails (2)
22 Legs (4)Legs (4)
11 Top(1)Top(1)
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Table 16.4
Materials plan for Levels 0 and 1 in BOM
MATERIALS PLAN
WEEK
*****PART***** 1 2 3 4 5 6
Tables GROSS REQUIREMENTS: 0 0 0 200 150 100
SCHEDULED RECEIPTS 0 0 0 0 0 0
PROJECTED ON HAND 50 50 50 50 0 0
NET REQUIREMENTS 0 0 0 150 150 100
PLAN. ORDER RELEASES 0 0 150 150 100 0
Tops GROSS REQUIREMENTS: 0 0 150 150 100 0
SCHEDULED RECEIPTS 0 50 0 0 0 0
PROJECTED ON HAND 50 50 100 0 0 0
NET REQUIREMENTS 0 0 50 150 100 0
PLAN. ORDER RELEASES 50 150 100 0 0 0
Leg GROSS REQUIREMENTS: 0 0 150 150 100 0
Assembly SCHEDULED RECEIPTS 0 0 0 0 0 0
PROJECTED ON HAND 100 100 100 0 0 0
NET REQUIREMENTS 0 0 50 150 100 0
PLAN. ORDER RELEASES 0 50 150 100 0 0
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Materials PlanMaterials PlanIn Table 16.4, note the following:In Table 16.4, note the following:
Gross requirements in level 0 (Tables) come from the Gross requirements in level 0 (Tables) come from the master schedule.master schedule.Gross requirements in level 1 (and below) come from Gross requirements in level 1 (and below) come from the planned order releases in the level above.the planned order releases in the level above.Planned order releases are offset by the lead times.Planned order releases are offset by the lead times.Planned order releases are Planned order releases are planned!planned! Actual order Actual order releases must take available capacity into account.releases must take available capacity into account.Net requirements are the gross requirements minus Net requirements are the gross requirements minus the projected on-hand.the projected on-hand.
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Master ScheduleMaster Schedule
Quantities derived from S&OP production plan Quantities derived from S&OP production plan (product groups) [input](product groups) [input]
Drives MRP process with a schedule of finished Drives MRP process with a schedule of finished products (actual items by week) [output]products (actual items by week) [output]
Quantities may consist of a combination of Quantities may consist of a combination of customer orders & demand forecastscustomer orders & demand forecasts
Quantities represent what needs to be produced, Quantities represent what needs to be produced, not what can be produced (infinite capacity not what can be produced (infinite capacity planning)planning)
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Bill of Materials (BOM)Bill of Materials (BOM)
Structured list of all parts and materialsStructured list of all parts and materials
Must be 100 percent accurateMust be 100 percent accurate
Should be one BOM per product per companyShould be one BOM per product per company
Requires an effective engineering change Requires an effective engineering change order (ECO) systemorder (ECO) system
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Inventory RecordsInventory RecordsItem master segmentItem master segment– Information that is fairly constant (part number, Information that is fairly constant (part number, etcetc.).)
Inventory status segmentInventory status segment– Materials plan for each itemMaterials plan for each item
Subsidiary data segmentSubsidiary data segment– Outstanding ordersOutstanding orders– Demand history, Demand history, etcetc..
Records must be accurate, Records must be accurate, i.e.,i.e., counting required counting required
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Counting Inventory (1)Counting Inventory (1)
In the past, inventory was counted to learn how In the past, inventory was counted to learn how much was on hand.much was on hand.Now, inventory is counted to confirm the Now, inventory is counted to confirm the computer records.computer records.Two basic methods of counting inventoryTwo basic methods of counting inventory– Annual count (all at once)Annual count (all at once)– Cycle countingCycle counting
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Counting Inventory (2)Counting Inventory (2)
Annual CountAnnual Count– Shut down and have everyone countShut down and have everyone count– Hire a counting firmHire a counting firm– ProblemsProblems
No guarantee of accuracyNo guarantee of accuracyLost production or workLost production or workBoring!Boring!
– AdvantageAdvantageEverything done at once (as/of date)Everything done at once (as/of date)
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Counting Inventory (3)Counting Inventory (3)Cycle CountingCycle Counting– Count continuously throughout yearCount continuously throughout year– Use ABC methods to set priorities and Use ABC methods to set priorities and
frequency of countingfrequency of counting– Count by calendar or ‘trigger’Count by calendar or ‘trigger’– ProblemsProblems
Not everything is counted at onceNot everything is counted at onceMay interfere with normal workMay interfere with normal work
– AdvantagesAdvantagesMore accurateMore accurateLess disruptiveLess disruptive
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Counting Inventory (4)Counting Inventory (4)
The Future? RFIS/RFIT/RFIDThe Future? RFIS/RFIT/RFID– Chip imbedded in itemsChip imbedded in items
– Transmits when polledTransmits when polled
– Everything done from base stationEverything done from base station
– ““Smart Shelves” know what is on themSmart Shelves” know what is on them
– ProblemsProblemsCost/market penetrationCost/market penetration
May not read May not read
– AdvantagesAdvantagesNo explicit countingNo explicit counting
Continuous trackingContinuous tracking
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Capacity PlanningCapacity Planning
Purpose is to aid management in checking on the Purpose is to aid management in checking on the validity of the master schedulevalidity of the master schedule
Two ways it can be doneTwo ways it can be done– Rough-cut capacity (resource) planningRough-cut capacity (resource) planning– Shop loadingShop loading
Alternative is finite capacity schedulingAlternative is finite capacity scheduling
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PurchasingPurchasing
Greatly enhanced by use of MRPGreatly enhanced by use of MRP
Past due orders largely eliminatedPast due orders largely eliminated
Order expediting eliminatedOrder expediting eliminated
Can provide vendors with reports of planned Can provide vendors with reports of planned future ordersfuture orders
Can use EDI to communicate directly with Can use EDI to communicate directly with vendorsvendors
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Shop Floor ControlShop Floor Control
PurposesPurposes– Release orders to the shop floorRelease orders to the shop floor– Manage the orders on their way through the factoryManage the orders on their way through the factory
Can use Manufacturing Execution System (MES)Can use Manufacturing Execution System (MES)
Set job priorities (dispatching rules)Set job priorities (dispatching rules)
Manage lead times on basis of priorityManage lead times on basis of priority– Both expedite and deexpedite ordersBoth expedite and deexpedite orders
Requires valid due datesRequires valid due dates
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Operating an MRP SystemOperating an MRP System
Should MRP carry “safety stock”?Should MRP carry “safety stock”?
How much “safety stock” should be How much “safety stock” should be carried?carried?
Issue of “safety lead time”Issue of “safety lead time”
Danger of “informal” system driving out Danger of “informal” system driving out the “formal” systemthe “formal” system
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Required Elements for a Required Elements for a Successful MRP SystemSuccessful MRP System
1.1. Implementation planningImplementation planning
2.2. Adequate computer supportAdequate computer support
3.3. Accurate dataAccurate data
4.4. Management supportManagement support
5.5. User knowledgeUser knowledge
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Operating a Successful Operating a Successful MRP SystemMRP System
Accurate inventory recordsAccurate inventory records
Stable master production scheduleStable master production schedule
Realistic master production scheduleRealistic master production schedule
Good control of engineering change orders Good control of engineering change orders (impacts BOM)(impacts BOM)
Good interface with capacity planning (CRP)Good interface with capacity planning (CRP)
Reports that are usefulReports that are useful
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Enterprise Resource Planning Enterprise Resource Planning (ERP) Systems(ERP) Systems
Extension and integration of all functions Extension and integration of all functions through a common databasethrough a common database– Forces standard systems throughout the organizationForces standard systems throughout the organization
ERP used to coordinate decisions along the ERP used to coordinate decisions along the supply chainsupply chain
Expensive and time-consuming to Expensive and time-consuming to implement.implement.
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Enterprise Resource Planning Enterprise Resource Planning (ERP) Systems(ERP) Systems
Major large-scale ERP software Major large-scale ERP software vendorsvendors– SAP (Systems, Applications & Products)SAP (Systems, Applications & Products)
– OracleOracle
See: See: www.erpfans.com
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SummarySummary
Definitions of MRP SystemsDefinitions of MRP Systems
MRP versus Order Point SystemsMRP versus Order Point Systems
MRP ExampleMRP Example
MRP ElementsMRP Elements
Operating an MRP SystemOperating an MRP System
The Successful MRP SystemThe Successful MRP System
Enterprise Resource Planning SystemsEnterprise Resource Planning Systems
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End of Chapter Sixteen
