POM 16 - MRP

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Upendra Kachru OPERATIONS MANAGEMENT

Material Requirement

Planning

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Material Requirements Planning

Materials requirements planning (MRP) is a means fordetermining the number of parts, components, and

materials needed to produce a product

MRP provides time scheduling information specifying

when each of the materials, parts, and components should

be ordered or produced

Dependent demand drives MRP

MRP is a software system

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MATERIAL PLANNING

Master Production

Schedule (MPS)

Material

Requirements

Planning (MRP)

Inventory

Status

Records

Product

Structure

Records

Purchasing Manufacturing

(what we plan)

(what we have) (what we require)

(what we need)

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Primary Prerequisites

For MRP

1. A Master Production Schedule exists

and can be stated in bill of materials

form;

2. All inventory items are uniquely

identified;

3. A bill of material exists at the time of

planning

4. Inventory records contain data on the

status of every item;5. There is integrity of file data.

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Master Data

Material Master

MRP Group - Group common MRP materials together MRP Type - Planning Method.

Planning Time Fence - Restricts Activities

Lot Sizing - Lot Size determination

Storage Cost Indicators - For Optimum Lot sizing Only

Ordering Costs

Assembly Scrap - For Assembly Scrap Only

Procurement Type - Make or Buy Indicator.

Safety Stock

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Based on a master production

schedule, a materialrequirements planning system:

Creates schedules identifying the

specific parts and materials

required to produce end items

Determines exact unit numbersneeded

Determines the dates when orders

for those materials should be

released, based on lead times

Material

Requirements

Planning System

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Primary MRP Reports

Planned ordersto be released at a future time

Order release noticesto execute the planned orders

Changes in due datesof open orders due to rescheduling

Cancellations or suspensionsof open orders due to

cancellation or suspension of orders on the masterproduction schedule

I nventory status data

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Secondary MRP Reports

Planning reports, for example, forecasting inventoryrequirements over a period of time

Performance reportsused to determine agreement

between actual and programmed usage and costs

Exception reportsused to point out seriousdiscrepancies, such as late or overdue orders

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Scheduling

Procurement type

Lot-size calculation

Net Requirements Calculation

BOM Explosion: Determinethe valid BOM for explosion

Overview : BOM ExplosionBill of Materials

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The bill of materials is a materials list that provides informationuseful to reconstruct the manufacturing process.

It is the master product definition that contains as-designed

information.

The information includes product description:

Materials

Parts

Components

Production sequence

Bill of Materials

A T pical Engineering Bill of Materials

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A Typical Engineering Bill of Materials

Level Part- Revision Quantity Description Make/buy

1 16844-23003 B 1 Adapter Make

16844-23004 J 1 Control Unit Buy

16844-23010 C 3 Moisture

Tester

Make

16844-23023 B 2 Enclosure Buy

16844-23024 B 1 Enclosure Buy

16844-23025 D 2 Machine

Screw

Buy

16844-23033 F 3 Cover Buy

16844-23030 AA 4 Precipitatory

Assy.

Make

16844-23040 E 5 Element Buy

16844-23043 E 6 Housing Buy

16844-23048 D 4 Machine Buy

16844-23049 G 3 Precipitator Buy

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Upendra Kachru OPERATIONS MANAGEMENT 12

The bill of material file provides

complete information on:

Raw materials in stock

Semi finished component parts in

stock

Finished component parts in stock

Sub-assemblies in stock

Component parts in processSub-assemblies in process

BOM File

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Each inventory item is carried as a

separate file

The bill of materials pegs materials i.e.lists components of each assembly and

subassembly linking of individual item

bills which from the product, resulting

in a hierarchical, and pyramid like

structure with different levels.

It Identifies each parent item that

created demand

Bill Of Materials

(BOM) File:

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Typical Product Structure

F G

ZNHA

P

B I XR Q X

Q R SX

D

E

Parent

Level 1

Level 2

Level 3

The bill of material file guides the explosion process.

O S i

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Planned orderPriority

1

2

Usage

Production

Engineering

BOM Selec t ion ID

Production

BOM

Costing

BOMEngineering

BOM

Used if no valid production

BOM exists

BOM Selection

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It is an artificial grouping of items

in bill of materials format, which

expresses the relationship of

multiple product features, variantsand options, where inventory

items are arranged in terms of

product modules each of which

can be planned as a group.

Modular Bill of

Materials

Modular bill kept for each major

subassembly

Simplifies forecasting and planning

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4-Cylinder (.40) Bright red (.10) Leather (.20) Grey (.10) Sports coupe (.20)6-Cylinder (.50) White linen (.10) Tweed (.40) Light blue (.10) Two-door (.20)

8-Cylinder (.10) Sulphur yellow (.10) Plush (.40) Rose (.10) Four-door (.30)

Neon orange (.10) Off-white (.20) Station wagon (.30)

Metallic blue (.10) Cool green (.10)

Emerald green (.10) Black (.20)

Jet black (.20) Brown (.10)

Champagne (.20) B/W checked (.10)

X10Automobile

Engines Exterior color Interior Interior color Body(1 of 3) (1 of 8) (1 of 3) (1 of 8) (1 of 4)

Modular BOM

Combinations = 3 x 8 x 3 x 8 x 4 = 2,304 configurations

Combinations = 3 + 8 + 3 + 8 + 4 = 26 modular bills

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There are two somewhat different

objectives, in modularization.

To disentangle combination of

optimal product features.

To segregate common from unique,

or peculiar parts.

The first is required to facilitate

forecasting.

The second is aimed at minimizing

inventories in components that are

common to option alternatives

Objectives ofModularization

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Net Requirements

Calculation


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Assumptions1. Individual item lead times are known;

2. Every inventory item goes into and outof stock

3. All of the components of an assembly

are needed at the time of release of

assembly orders;

4. There is discrete disbursement and

usage of component materials

5. Process independence of manufactured

items is ensured.

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MRP will compare the requirement and supply to get a

shortage gap. A comparison is made betweenstore/warehouse stock and the appropriate receipts and

issue.

1. Determine Available Store/Warehouse Stock

2. Determine Planned Receipts (afterconsidering existing issues andreceipts)

3. Calculate the Shortage Quantity

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MRP: Net Requirements Calculation

ShortageShortage

SalesSales OrdersOrders

Planned Ind ReqmtsPlanned Ind Reqmts

Dependent ReqmtsDependent Reqmts

ReservationsReservations

Planned Orders

Production Orders

Purchase Requisitions

Purchase orders

Warehouse Stock

Lot Size

SafetySafety

StockStock

CompareCompare

DemandSupply

Matching Demand and Supply

H th Pl i R W k

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How the Planning Run Works

Reorder Point Planning

When Available Stock falls below reorder level, planned orders are

generated in the planning run to order up to reorder level. Safety Stock

requirement is just for information

Available Stock = Plant Stock + Receipts

Forecast Based Planning

System only considers forecast requirements (any other requirements are not

considered). Planned orders are proposed when available stock is less than

forecast requirements.

Available Stock = Plant stock - Safety Stock + Receipts - Forecast Requirements

In the net requirements calculation, a difference is made between

reorder point planning, forecast-based planning, and MRP. In each

procedure, the system calculates available stock differently.

BOM E l i

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/dates

Target

Change status

Component selection

Dependent reqmts

quantities and dates

Usage

Lot size

Explosion date

Items relevant to production

BOM Explosion

Usage quantity

BOM E l i S l ti b O d St t

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Time

BOM 1 BOM 2 BOM 3

Valid from(relevant to

planning from )


planning from )


planning from )

Order 1 Order 2

Order startOrder start

BOM Explosion: Selection by Order Start

Explosion: Using the Order Finish Date

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Time

BOM 1 BOM 2 BOM 3

Valid from

(relevant to

planning from )


planning from )

Valid from

(relevant to

planning from )

Order 1 Order 2

Order finishOrder finish

Explosion: Using the Order Finish Date

Safety Stock

dli S f S k

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Reqmt Receipt

Stock

TimeSafety stock

(not available

for planning)

Available

quantity

for planning

Safety s tock : To be set in mater ialmaster

y

Handling Safety Stock

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Planning Time Fence

Plan is protected from changes within the planning time fence.

End date of time fence determined from planning date.You can configure system as to how you want the orders to react

within the time fence.

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Planning Time Fence

Outside the time fence, system creates order proposal as usual.

When new orders move into the time fence, they may be firmedautomatically depending on how the system is configured.

Firming Types for MRP Planned Materials :

Firming TypesOrders Moving IntoTimeFence

New OrderProposals Creation

New OrderStatus

Type 1 Firmed Outside Time Fence Not Firmed

Type 2 Firmed No Orders Created NA

Type 3 Not Firmed Outside Time Fence Not Firmed

Type 4 Not Firmed No Orders Created NA

L t Si C l l ti d S h d li:

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Scheduling

Procurement type

Lot- size calculation

Lot Size Calculations and Scheduling

Overview of Lot- Sizing ProceduresD fi iti i

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Static

procedures

Static

procedures

Lot- for-lot order quantity

EOQ

Fixed lot size

Period

procedures

Other

procedures

Optimal Lot sizing

Lot-Lot- sizing proceduressizing procedures

Entered in

Material master

Definition in

Customizing

Determining the Lot Size

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Lot Sizing in MRP Programs

Lot-for-lot (L4L) Economic order quantity (EOQ)

Least total cost (LTC)

Least unit cost (LUC)

Which one to use? The one that is least costly!

Optimum Lot- Sizing Procedures

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Many deliveries /

High order costs

Minimal stockkeeping/

Minimal storage costs

Few deliveries /

Low order costs

More extensive stockkeeping/Higher storage costs

Optimum Lot Sizing Procedures

Procurement Types

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External procurementStockStock transfertransfer

Procurement TypesProcurement Types

In-In- househouse

productionproduction

SubcontractingSubcontracting VendorProductionProduction inin

ownown plantplantProductionProduction inin

anotheranother plantplant

Reservation inReservation in

anotheranother plantplantComponentsComponentsComponents

Procurement typesSpecial procurement types

yp

Backward Scheduling

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Planned orderPlanned order

Availability

date

Opening

date

Order start

date

Order finish

date

Tim

Goods receipt

processing timeIn-house production time

Opening period

Schedul ing margin

key (MRP 2)

Lot - s ize dependen t : MRP 2

Lo t- s ize i ndependen t : wo rk schedu li ngMRP 2

Scheduling

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Scheduling

The following times are taken into account :

Processing time required by purchasing department (workdays)

Planned delivery time of the material (calendar days)

Goods receipt processing time (workdays)

These times will be used to determine the release date of the

planned order or purchase requisition.

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MRP Example

A(2) B(1)

D(5)C(2)

X

C(3)

Item On-Hand Lead Time (Weeks)

X 50 2

A 75 3

B 25 1

C 10 2

D 20 2

Requirements include 95 units (80 firm orders and 15 forecast) of X in

week 10

Day: 1 2 3 4 5 6 7 8 9 10X Gross requirements 95

LT=2 Scheduled receipts

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A(2)

X

p

Proj. avail. balance 50 50 50 50 50 50 50 50 50 50

On- Net requirements 45

hand Planned order receipt 45

50 Planner order release 45

A Gross requirements 90


Proj. avail. balance 75 75 75 75 75 75 75 75On- Net requirements 15



B Gross requirements 45


Proj. avail. balance 25 25 25 25 25 25 25 25



25 Planner order release 20C Gross requirements 45 40


Proj. avail. balance 10 10 10 10 10

On- Net requirements 35 40

hand Planned order receipt 35 40

10 Planner order release 35 40

D Gross requirements 100


Proj. avail. balance 20 20 20 20 20 20 20On- Net requirements 80



It takes 2

As foreach X



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p


























B(1)A(2)

X

It takes 1

B foreach X



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A(2) B(1)

X

C(3)


























It takes 3

Cs for

each A



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A(2) B(1)

C(2)

X

C(3)


























It takes 2

Cs for

each B



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A(2) B(1)

D(5)

C(2)

X

C(3)


























It takes 5 Ds

for each B

MRP Cl d L S t

18-4

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MRP - Closed Loop System

Production Planning

Master Production Scheduling

Material Requirements Planning

Capacity Requirements Planning

Realistic?No

Feedback

Execute:

Capacity PlansMaterial Plans

Yes

Feedback

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MRP Scheduling Terminology

Gross Requirements

Scheduled receipts

Projected available balance

Net requirements

Planned order receipt

Planned order release

Forward Scheduling

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AvailabilitydateOrder startdate Order finishdate

Time

Goods receipt

processing timeIn-house production time

Today

Planned orderPlanned order

Au tomatic, i f order start date is in th e

past dur ing backward schedul ing

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What is ERP?

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What is ERP? Enterprise Resource Planning

It attempts to integrate all data and processes of an organization intoa unified system. A typical ERP system will use multiplecomponents of computer software and hardware to achieve theintegration. A key ingredient of most ERP systems is the use of aunified database to store data for the various system modules.

E ol tion of ERP

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Evolution of ERP

1960s: software packages with inventory control

1970s: MRP systems

Production schedule with materials management

1980s: MRPII systems

Adds financial accounting system

1990s: MRPII Integrated systems for manufacturing execution

Late 1990s: ERP

Integrated manufacturing with supply chain

2000s: ERP II

ERP Definition

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ERP - Definition

ERP is a process of managing all resources and their use in the entire

enterprise in a coordinated manner

ERP is a set of integrated business applications, or modules which carry out

common business functions such as general ledger, accounting, or order

management

Put simply, ERP systems tie together varied processes using data

from across the company. For instance, a typical ERP system

manages functions and activities as different as the bills of materials,

order entry, purchasing, accounts payable, human resources, and

inventory control, to name just a few of the modules.

Problems of Legacy Systems

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Problems of Legacy Systems Automates existing processes

Normally not driven by organization strategy and business vision. Develop one application at a time. No integration between applicationsjust

transaction passing.

Decentralized applications.

Are relatively inflexible to accommodate changes in the business environment.

Written in language / platform prevalent at the time of development. Up gradation to latest technology is difficult

Usually not well documented.

Maintenance is a problemlargely because of poor documentation and staffattrition.

What makes ERP different

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What makes ERP different

Supports business through optimizing, maintaining,and tracking business functions

Integrated modules

Common definitions

Common database

Update one module, automatically updates others ERP systems reflect a specific way of doing business

Must look at your value chains, rather than functions

Process View of Business

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Sales

F

unction

Ac

counting

F

unction

Pu

rchasing

F

unction

Production

F

unction

Logistics

F

unction

Material Order Process

Customer Order Process

The basic ERP Model is based on a process view of the organization. Each of the tasks

may cross functional boundaries

ERP Structure

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The foundation of ERP systems is popularly called the Stool. The stool is made up of three

basic elements Market Sales and Distribution, the Product Materials Management and

Production and the Financial Accounting and Control.

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Financials

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Financials

Financial and management accounting

Internal Controlling and Audit

Financial Supply Chain Management

General Ledger

Financial Reporting Costing

Budgeting

Accounts Payable

Accounts receivables

Human Capital Management

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Human Capital Management

Recruiting

Applicant data administration Compensation

Assessment

Development and Training

Personnel development planning

Payroll Benefits administration

Workforce planning

Schedule & shift planning

Time management Travel expense accounting

Marketing & Sales Management

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Marketing & Sales Management

Lead tracking

Sales forecasting

Order management

Customer management

Customer service

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Example of How ERP Works

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Example of How ERP Works

Step 1 : Brazilian retailer orders, via the Internet, 1,000 shoes

from International Shoe Co. A sales rep takes the order, routes it

to ERPs ordering module, ERP checks the retailer credit, price,etc. The order is approved.

Step 2 : Simultaneously ERPs inventory module checks the

stocks and notifies the rep that half the order can be filled

immediately from stock. The other half will be manufacturedand delivered in 5 days directly from the factory in Taiwan.

ERP delivers a single database that contains all data for the software

modules across an entire company. People in different departments all seethe same information and can update it. For example:

Example of How ERP Work

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Step 3 : ERPs manufacturing module schedules the production in

Taiwan and instructs the warehouse (in China) to ship the shoes to

Brazil and print up an invoice (in Portuguese).

Step 4 : ERPs human resources module calculates labor

requirements. Due to a shortage, the personnel manager in Taiwan

is instructed to get temporary workers. Step 5 : ERPs material planning module notifies the purchasing

manager about a shortage of purple dye. A purchase order is

automatically issued.


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Step 6 : The customer logs on via the extranet to thecompanys sneakers division. He can see that 500 shoes were

shipped from the regional warehouse. This is done with ERP

tracing capabilities.

Step 7 : Based on data from ERPs forecasting and financial

modules, the CEO can determine both demand and

profitability per product. The financial module also converts

all foreign money to $U.S., whenever needed

Benefits of ERP

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Benefits of ERP

Desire to standardize and improve processes

To improve the level of systems integration

To improve information quality

Common set of data

Help in integrating applications for decision making and

planning

Allow departments to talk to each other

Easy to integrate by using processed built into ERP software

A way to force BPR (reengineering)

Difficulty in implementation

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y p

Very difficult

Extremely costly and time intensive

Typical: over $10,000,000 and over a year to implement

Company may implement only certain modules of entire

ERP system

You will need an outside consultant

Common Pitfalls

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Do not adequately benchmark current state

Did not plan for major transformation

Did not have executive sponsorship

Did not adequately map out goals and objectives

Highly customized systems to look like old MRP systems

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C l i c k t o e d i t c o m p a n y s l o g a n .

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POM 16 - MRP

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