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MRP and ERP

MRP and ERP. Chapter 12. Additional content from Jeff Heyl and L. Beril Toktay. Learning Objectives. After this lecture, students will be able to Describe the inputs, outputs, and nature of MRP processing . Explain bill of materials Explain time-phased product structure

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MRP and ERP

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  1. MRP and ERP Chapter 12 MIS 373: Basic Operations Management Additional content from Jeff Heyland L. BerilToktay

  2. Learning Objectives • After this lecture, students will be able to • Describe the inputs, outputs, and nature of MRP processing. • Explain bill of materials • Explain time-phased product structure • Describe differences between MRP and ERP MIS 373: Basic Operations Management

  3. MRP • Material requirements planning (MRP): • A computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials. • The MRP is designed to answer three questions: • What is needed? • How much is needed? • When is it needed? MIS 373: Basic Operations Management

  4. MRP Overview How much and when finished product is desired Composition of a finished products How much inventory is on hand or on order MIS 373: Basic Operations Management

  5. MRP Inputs • MRP Inputs • Master schedule • How much and when finished product is desired • Bill of Materials (BOM) • Composition of a finished products • Inventory Records • How much inventory is on hand or on order MIS 373: Basic Operations Management

  6. MRP Inputs:Master Schedule • Master schedule: • States: • Which end items are to be produced • When these are needed • In what quantities (customer orders, forecasts, order from warehouses to build up seasonal inventories). MIS 373: Basic Operations Management

  7. MRP Inputs:Master Schedule • Master schedule: • States: • Which end items are to be produced • When these are needed • In what quantities (customer orders, forecasts, order from warehouses to build up seasonal inventories). Item X MIS 373: Basic Operations Management

  8. MRP Inputs:Master Schedule • Master schedule: • States: • Which end items are to be produced • When these are needed • In what quantities (customer orders, forecasts, order from warehouses to build up seasonal inventories). Item X at beginning of week 14 and at beginning of week 18 MIS 373: Basic Operations Management

  9. MRP Inputs:Master Schedule • Master schedule: • States: • Which end items are to be produced • When these are needed • In what quantities (customer orders, forecasts, order from warehouses to build up seasonal inventories). Item X at beginning of week 14 and at beginning of week 18 100 at beginning of week 14 150 at beginning of week 18 MIS 373: Basic Operations Management

  10. Cumulative Lead Time • The master schedule should cover a period that is at least equivalent to the cumulative lead time • Cumulative lead time • The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly. CLT = 9 weeks MIS 373: Basic Operations Management

  11. Cumulative Lead Time • Following the previous example, if CLT=9 • When should we start work for the demand on the week 14? • When should we start work for the demand on the week 18? MIS 373: Basic Operations Management

  12. MRP Inputs: Bill of Materials • Bill of Materials (BOM) • A listing of all of the assemblies, subassemblies, parts, and raw materials needed to produce one unit of a product • Product structure tree • A visual depiction of the requirements in a bill of materials, where all components are listed by levels MIS 373: Basic Operations Management

  13. Assembly Diagram and Product Structure Tree Level 0 = end item parent component Level 1 parent Level 2 component Amount needed for assembly at the next higher level only MIS 373: Basic Operations Management

  14. Low-Level Coding • Low-level coding • Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level at which the component occurs • Example: 1 X requires: 2 B, 1 C, 6 D, 28 E, and 2 F • Level 0 • X X: 1 • Level 1 C: 1 x 1 = 1 • B(2) • C B: 2 x 1 = 2 D: 3 x 2 = 6 E: 2 x 1 = 2 • Level 2 • D(3) • F(2) • E • E(2) F: 2 x 1 = 2 E: 1 x 2 = 2 • Level 3 E: 4 x 6 = 24 • E(4) MIS 373: Basic Operations Management

  15. Low-Level Coding: 1 X • 1 X requires: B: 2 C: 1 D: 6 E: 2+24+2=28 F: 2 • Level 0 • X X: 1 • Level 1 C: 1 x 1 = 1 • B(2) • C B: 2 x 1 = 2 D: 3 x 2 = 6 E: 2 x 1 = 2 • Level 2 • D(3) • F(2) • E • E(2) F: 2 x 1 = 2 E: 1 x 2 = 2 • Level 3 E: 4 x 6 = 24 • E(4) MIS 373: Basic Operations Management

  16. Low-Level Coding: 10 Xwith on hand inventory • Level 0 • X • 1 X requires: B: 2 C: 1 D: 6 E: 28 F: 2 • Level 1 • B(2) • C • Level 2 • D(3) • F(2) • E • E(2) • Level 3 • E(4) • 10 X require: B: 2x10-4=16 C: 1x10-10=0 D: 6x10-8=52 E: 28x10-60=220 F: 2x10-0=20 • On hand inventory B: 4 C: 10 D: 8 E: 60 F: 0 Does not consider item hierarchy! MIS 373: Basic Operations Management

  17. Low-Level Coding: 10 Xwith on hand inventory • Level 0 • X X: 10 • Level 1 • B(2) • C C: 1 x 10 -10=0 B: 2 x 10 - 4 = 16 • Level 2 • D(3) • F(2) • E • E(2) F: 2 x 0 = 0 D: 3 x 16 – 8=40 • Level 3 • E(4) E: 4 x 40 – 60=100 “Low-level coding” E: 2 x 0 = 0 E: 1 x 16 = 16 • 10X require: B: 16 C: 0 D: 40 E: 100+16+0=116 F: 0 • On hand inventory B: 4 C: 10 D: 8 E: 60 F: 0 MIS 373: Basic Operations Management

  18. MRP Processing • MRP processing takes the end item requirements specified by the master schedule and “explodes” them into time-phasedrequirements for assemblies, parts, and raw materials offset by lead times Part E fabrication lead-time Sub assembly lead-time Material F delivery lead-time Final assembly lead-time MIS 373: Basic Operations Management

  19. Example: Time-Phased Product Structure • An example BOM The respective lead time A B(2) C(1) D(3) E(3) D(1) Question: When do we start producing/ordering each part? MIS 373: Basic Operations Management

  20. Example: Time-Phased Product Structure • Let’s assume that we need 50 units of A… • Based on the BOM, we will need • Level 1: 100 units of B • Level 2: 300 units of D • Level 1: 50 units of C • Level 2: 50 units of D • Level 2: 150 units of E • Putting together: • 100 B, 50 C, 350D, 150 E Assembly A B(2) C(1) Purchase D(3) E(3) D(1) MIS 373: Basic Operations Management

  21. Example: Time-Phased Product Structure • Let’s assume that we need 50 units of A… Delivery date for final product 5 days MIS 373: Basic Operations Management

  22. Example: Time-Phased Product Structure • 50 units of A Start assembly for 50 units of A A B(2) C(1) D(3) E(3) D(1) 5 days MIS 373: Basic Operations Management

  23. Example: Time-Phased Product Structure • 50 units of A Start assembly for 100 units of B A B(2) C(1) D(3) E(3) D(1) 5 days MIS 373: Basic Operations Management

  24. Example: Time-Phased Product Structure • 50 units of A Start assembly for 50 units of C A B(2) C(1) D(3) E(3) D(1) 5 days MIS 373: Basic Operations Management

  25. Example: Time-Phased Product Structure • 50 units of A Order 300 units of D for B’s process A B(2) C(1) D(3) E(3) D(1) 5 days MIS 373: Basic Operations Management

  26. Example: Time-Phased Product Structure • 50 units of A Order 50 units of D for C’s assembly A B(2) C(1) D(3) E(3) D(1) 5 days MIS 373: Basic Operations Management

  27. Example: Time-Phased Product Structure • 50 units of A Order 150 units of E for C’s assembly A B(2) C(1) D(3) E(3) D(1) 5 days MIS 373: Basic Operations Management

  28. MRP Outputs: Primary • Primary Outputs • Planned orders • A schedule indicating the amount and timing of future orders • Order releases • Authorizing the execution of planned orders • Changes • Revisions of the dates or quantities, or the cancellation of orders MIS 373: Basic Operations Management

  29. MRP Outputs: Secondary • Secondary Outputs • Performance-control reports • Evaluation of system operation, including deviations from plans and cost information • e.g., missed deliveries and stockouts • Planning reports • Data useful for assessing future material requirements • e.g., purchase commitments • Exception reports • Data on any major discrepancies encountered • E.g., late and overdue orders, excessive scrap rates, requirements for nonexistent parts MIS 373: Basic Operations Management

  30. Enterprise Resource Planning (ERP) • Enterprise Resource Planning (ERP) • ERP was the next step in an evolution that began with MRP • ERP typically has an MRP core • Many organizations use a functional structure. Information tends to flow freely within each function but less so between functions. • ERP represents an expanded effort to integrate standardized record keeping that will permit information sharing among different areas of an organization in order to manage the system more effectively • A system to capture and make data available in real-time to decision makers throughout the organization. • ERP systems are composed of a collection of integrated modules MIS 373: Basic Operations Management

  31. ERP Software Modules MIS 373: Basic Operations Management

  32. Focused Reading • Enterprise Resource Planning (ERP) • Enterprise resource planning (ERP)—A brief history • 13 Common ERP Mistakes and How to Avoid Making Them • ERP and Business Process Re-engineering • ERP: The Business Process Re-engineering Dilemma • To BPR, or not to BPR, that is the question • Cloud ERP • What Is Cloud ERP, and How Is It Different from Traditional Solutions? • Benefits of Cloud ERP Software • Instruction: • A group should have 4 persons, each with a different article • Take a few minutes to read the article you have; take notes • Share the key ideas from your reading to your team members

  33. ERP History • MRP: focus on cost reporting, materials, manufacturing • tapes • IBM • 1960~1970 • MRPII: scheduling, procurement • 1980s • ERP • SAP, Peoplesoft, • 1990 • Client-server architecture

  34. ERP Common Mistakes • Poor plan • Need time to plan and to revise • Revise process • Not hiring correct people • Experience third party • IT consultants • Referencing • Restrictions, lack of capability • No sufficient training • Underestimation: accurate data, time, resources, training, • Maintenance strategy

  35. ERP & Business Process Re-engineering • Take place before ERP system selection • Output of BPR  ERP • To be process vs. as is process • Difference ways to do business globally • Process standardization after acquisition • Legacy systems • Make sure the process lead to higher values

  36. Cloud ERP • Cloud ERP vs. traditional ERP • Traditional: • Cloud: • Outsource operation, easy to setup, monthly/annually fee • Minimal initial cost • Automate operation • cons • Less control, data security, service outage

  37. Key Points • The usage of components in production of assembled items depends on how many of each component are needed per item, and how many items are to be produced. Hence the term dependent demand. • MRP is a tool used for dependent-demand components, to assist in making the two basic decisions in inventory management: how much of each component to order, and when to order it. • ERP is a software-based enterprise-wide system that allows access to production, sales, accounting, warehouse, and supply chain information. MIS 373: Basic Operations Management

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