Operations Operations ManagementManagement

Material Requirements Planning Material Requirements Planning (MRP) & ERP (MRP) & ERP

Chapter 14Chapter 14

Week #14-2

OutlineOutline

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

MRP STRUCTURE

Outline - ContinuedOutline - 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 - ContinuedOutline - Continued DISTRIBUTION RESOURCE PLANNING (DRP) ENTERPRISE RESOURCE PLANNING (ERP)

Advantages and Disadvantages of ERP System ERP in the Service Sector

Learning ObjectivesLearning 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 - ContinuedLearning 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 IndustriesCollins 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: IBM’s MAPICS

Collins IndustriesCollins 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

Process stage

Demand Type

Number & Value Other

Raw Material WIP

Finished Goods

Independent Dependent

A Items B Items C Items

Maintenance Operating

Inventory ClassificationsInventory Classifications

Item Materials WithIndependent Demand

Materials WithDependent Demand

DemandSource Company Customers Parent Items

MaterialType Finished Goods WIP & Raw Materials

Method ofEstimatingDemand

Forecast & BookedCustomer Orders

Calculated

PlanningMethod EOQ & ROP MRP

Dependent versus Independent Dependent versus Independent DemandDemand

Requirements for Effective Use of Dependent Requirements for Effective Use of Dependent Demand Inventory ModelsDemand Inventory Models

Effective use of dependent demand inventory models requires that the operations manager

know the: master production schedule specifications or bills-of-material inventory availability purchase orders outstanding lead times

Inputs to theInputs to the Production Plan Production Plan

Aggregate Production Plan

MarketingCustomerDemand

EngineeringDesign

Completion

ManagementReturn onInvestment

Capital

HumanResourcesManpowerPlanning

ProcurementSupplier

Performance

FinanceCash Flow

ProductionCapacityInventory

The Planning ProcessThe Planning Process

Change master production schedule?

Execute material plans

Execute capacity plans

Detail capacity plan

Material requirements plan

Master production schedule

Aggregate production plan

Change requirements?

Change capacity?

RealisticNo

Yes

Change production plan?

Is capacity plan being

met?

Is execution meeting the plan?

Aggregate Production PlanAggregate Production Plan

1,2001,500

Aggregate Production Plan (shows the total quantity of amplifiers

10030075 watt amplifier

450450500500150 watt amplifier

100100100100240 watt amplifier

Master Production Schedule (Shows the specific type and quantity of amplifier to be produced

87654321Weeks

FebruaryJanuaryMonths

Typical Focus of the Master Typical Focus of the Master Production ScheduleProduction Schedule

Make to Order

(Process Focus)

Assemble to Order or Forecast

(Repetitive)

Stock to Forecast

(Product Focus)Schedule finished

product

Steel, Beer, Bread Light bulbs, Paper

Print shopMachine shop

Fine dining restaurant

Examples:

Number of end items

Number of inputs

Typical focus of the master production

schedule Schedule orders

Schedule modules

Motorcycles, autos, TVs, fast-food

restaurant

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.

Bill-of-MaterialBill-of-Material

Product Structure for “Awesome” AProduct Structure for “Awesome” A

Modular bills Modules are final components used to make assemble-to-

stock end items

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

Phantom bills Used for subassemblies that exist temporarily

Special Bills-of-MaterialSpecial Bills-of-Material

Bicycle(1)P/N 1000

Handle Bars (1)P/N 1001

Frame Assembly (1)P/N 1002

Wheels (2)P/N 1003

Frame (1)P/N 1004

Bill-of-MaterialBill-of-Material Product Structure Tree Product Structure Tree

Time-Phased Product StructureTime-Phased Product Structure

1 2 3 4 5 6 7 8

3 weeksF

2 weeksE

A

1 week1 week

CG2 weeks

D1 week

E2 weeks

Start production of D

D1 week

B

2 weeks to produce

Must have D and E completed here so production can begin

on B

1 2 3 4 5

Gross Requirements 2 20 25 15

Scheduled Receipts 5 30

Available 25 23 33 33 8

Net Requirements 7

Planned Order Receipts 7

Planned Order Releases 7

1 2 3 4 5

Gross Requirements 2 20 25 15

Scheduled Receipts 5 30

Available 25 23 33 33 8

Net Requirements 7

Planned Order Receipts 7

Planned Order Releases 7

Manufacturing computer information system Determines quantity & timing of dependent demand

items

© 1995 Corel Corp.

Material Requirements Planning Material Requirements Planning (MRP)(MRP)

Computer system Mainly discrete products Accurate bill-of-material Accurate inventory status

99% inventory accuracy Stable lead times

© 1984-1994 T/Maker Co.

MRP RequirementsMRP Requirements

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

MRP BenefitsMRP Benefits

Structure of the MRP SystemStructure of the MRP SystemMaster Production

ScheduleBOM

Lead Times

(Item Master File)

Inventory Data

Purchasing data

MRP planning programs

(computer and software)

MRP by Period Report

MRP by date report

Planned order report

Purchase advice

Exception report

Exception report

Gross Material Requirements Plan Gross Material Requirements Plan for 50 “Awesome A” Speaker Kitsfor 50 “Awesome A” Speaker Kits

Forecast &Firm Orders

MaterialRequirements

Planning

AggregateProductionPlanning

ResourceAvailability

MasterProductionScheduling

ShopFloor

Schedules

CapacityRequirements

PlanningRealistic?

No, modify CRP, MRP, or MPSNo, modify CRP, MRP, or MPS

YesYes

MRP and The Production Planning MRP and The Production Planning ProcessProcess

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

Derived from aggregate plan

Master Production ScheduleMaster Production Schedule

Item/Week Oct 3 Oct 10 Oct 17 Oct 24

Drills 300 200 310 300

Saws 300 450 310 330

Example

Derivation of Master ScheduleDerivation of Master Schedule

Therefore, these are the gross

requirements for B

Periods

10 101 2 3

Master schedule for S sold directly

40 50 15

A

CB

5 6 7 8 9 10 11

Lead time = 4 for AMaster schedule for A

40 20 30

S

B C

8 9 10 1211 13

Lead time = 6 for SMaster schedule for S

10 40+10 = 50 40 50 20 15+30

= 45

1 2 3 4 5 6 7 8Periods

Gross requirements: B

MRP DynamicsMRP 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-of-materials from the component to the parent item

That a manager can react to changes, doesn’t mean he/she should

MRP and JITMRP and JIT

MRP - a planning and scheduling technique with fixed lead times

JIT - a way to move material expeditiously Integrating the two:

Small bucket approach and back flushing Balanced flow approach

Lot-Sizing TechniquesLot-Sizing Techniques

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

MRP Lot-Sizing Problem: Lot-for-Lot MRP Lot-Sizing Problem: Lot-for-Lot TechniquesTechniques

MRP Lot-Sizing Problem: EOQ MRP Lot-Sizing Problem: EOQ TechniqueTechnique

MRP Lot-Sizing Problem: PPB MRP Lot-Sizing Problem: PPB TechniqueTechnique

Extensions of MRPExtensions of MRP

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

Closed Loop MRPClosed Loop MRP

Extensions of MRPExtensions of MRPCapacity PlanningCapacity 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 running part of it ahead of the schedule

Initial Resource Initial Resource Requirements/Smoothed Requirements/Smoothed Resource RequirementsResource Requirements

Extensions to MRPExtensions to MRPEnterprise Resource PlanningEnterprise Resource Planning

MRP II with ties to customers and suppliers

MRP and ERP Information Flows, MRP and ERP Information Flows, Integrated with Other SystemsIntegrated with Other Systems

MRP in ServicesMRP 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.

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

Distribution Resource PlanningDistribution 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