Operations Operations Management Management Material Requirements Material Requirements Planning (MRP) & ERP Planning (MRP) & ERP Chapter 14 Chapter 14 Week #14-2
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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
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