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1. Operations Management (MD021) MRP and ERP
2. Agenda Dependent Demand Inventories
Basics of Material Requirements Planning (MRP) Systems
Enterprise Resource Planning (ERP)
3. Dependent Demand Inventory
4. Independent Demand Inventory vs. Dependent Demand Inventory
5. Dependant Demand Inventories Dependent demand
Demand for items that are subassemblies or component parts to be used in production of finished goods.
Once the independent demand is known, the dependent demand can be determined.
Dependent demand items must only be stocked just prior to the time they will be needed in the production process
6. Independent vs. Dependent
7. Basics of MRP Systems
8. 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.
9. Benefits of MRP Low levels of in-process inventories
Ability to track material requirements
Ability to evaluate capacity requirements
Means of allocating production time
10. Requirements of MRP Computer and necessary software
Accurate and up-to-date
Bills of materials
Integrity of data
11. MRP System Components
12. MPR Inputs Master Production Schedule
Time-phased plan specifying timing and quantity of production for each end item.
Material Requirement Planning Process
13. Master Schedule Master Schedule (Master Production Schedule)
One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities.
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.
14. Planning Horizon
15. Bill-of-Materials Bill of Materials (BOM)
One of the three primary inputs of MRP
A listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.
Product Structure Tree
Visual depiction of the requirements in a bill of materials, where all components are listed by levels.
16. Assembly Diagram and Product Structure Tree for Assembling a Chair
17. Bill of Materials A listing of all raw materials, parts, subassemblies, and assemblies needed to produce one unit
Product structure Tree
18. Bill of Materials
19. Inventory Records Data must be kept on the inventory status of each item by time period
Amount on hand
And more …
20. Assembly Time Chart represents time-phased assembly activities
21. Processing MRP Plans Involves Calculating Several Quantities Gross requirements
Projected on hand
22. Processing MRP Plans Involves Calculating Several Quantities Gross requirements
Total expected demand
Open orders scheduled to arrive
Planned on hand
Expected inventory on hand at the beginning of each time period
23. Processing MRP Plans Involves Calculating Several Quantities Net requirements
Actual amount needed in each time period
Quantity expected to received at the beginning of the period
Offset by lead time
Planned amount to order in each time period
24. The Quantities are Organized in a Time Phased MRP Plan
25. MRP Plans are Updating on a Rolling Horizon Regenerative system
Updates MRP records periodically
Updates MPR records continuously
26. Primary MRP Reports Planned orders
schedule indicating the amount and timing of future orders.
Authorization for the execution of planned orders.
revisions of due dates or order quantities, or cancellations of orders.
27. Secondary MRP Reports Performance-control reports
measure deviations from original plans (e.g., deliveries, stockouts)
provide information on cost performance
future material requirements information useful for forecasting future inventory requirements
calls attention to major problems (late and overdue orders, excessive scrap rates, reporting errors)
28. Other Considerations Safety Stock
Ideally, production is perfect, and no safety stock is needed
Realistically, always have random occurrences that leads to carrying safety stocks
Lot sizing – may want to produce certain lot sizes
Economic order quantity
29. MRP II
30. MRP II Expanded the scope of MRP with new emphasis placed on integration
Capacity requirement planning
31. MRP II
32. Capacity Planning in MRP II Capacity requirements planning
The process of determining short-range capacity requirements.
Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.
Series of time intervals during which order changes are allowed or restricted.
33. Capacity Planning in MRP II
34. Enterprise Resource Planning (ERP)
35. ERP Enterprise resource planning (ERP)
Attempts to integrate all departments and functions across a company (e.g., financial, manufacturing, human resources) on a single computer system containing data to facilitate the needs of those different departments.
single, integrated software program
36. ERP Strategy Considerations Requires business process changes
Requires human behavior changes
High initial cost
Risky, long, expensive system implementations
High cost to maintain
Training costs for everyone in organization to use
37. Potential Benefits of ERP After installing ERP …
Processes are standardized
Better visibility into operations’ activities
Thousands of incorrect, inefficient point solutions (i.e., spreadsheets) are eliminated
Consistent data across organization
Consistent access to data
Can better match requirements across all functions
You can later install SCM and CRM applications that can use the ERP system data
38. ERP Implementation Options The Big Bang
Companies cast off all of their legacy systems and implement a single ERP system across the entire company
Out with the old system, in with the new system
Best of breed approach within each function
Install independent ERP components within each functional area; integrate functional ERP systems to the extent necessary
Focus on implementing ERP for only a few key processes
Plan to implement more ERP components in the future
39. MRP/ERP in Service Operations
40. MRP/ERP Applications in Services Food catering service
End item => catered food
Dependent demand => ingredients for each recipe, i.e. bill of materials
Activities and materials “exploded” into component parts for cost estimation and scheduling
41. MRP/ERP Applications in Services Boston College
Uses PeopleSoft ERP for HR planning and materials ordering (MRP)
Food Service – procure expected future food requirements
Lots of other resource requirements with time expectations that can be managed by the MRP component
42. MRP/ERP Applications in Services