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MRP and ERP. Chapter 12. Learning Objectives. Describe the inputs, outputs, and nature of MRP processing. Explain bill of materials Explain time-phased product structure Describe differences between MRP and ERP. MRP. Material requirements planning (MRP):

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mrp and erp

MRP and ERP

Chapter 12

learning objectives
Learning Objectives
  • Describe the inputs, outputs, and nature of MRP processing.
  • Explain bill of materials
  • Explain time-phased product structure
  • Describe differences between MRP and ERP
slide3
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?
overview of mrp
Overview of MRP

How much and when finished product is desired

Composition of a finished products

How much inventory is on hand or on order

mrp inputs master schedule
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

cumulative lead time
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

cumulative lead time1
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?
mrp inputs bill of materials
MRP Inputs:Bill of Materials
  • Bill of Materials (BOM)
    • A hierarchical listing of all of the assemblies, subassemblies, parts, and raw materials needed to produce one unit of a product
    • Each finished product has its own BOM
    • Product structure tree
      • A visual depiction of the requirements in a bill of materials, where all components are listed by levels
assembly diagram and product structure tree
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

low level coding
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)
low level coding 1 x
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)
low level coding 10 x with on hand inventory
Low-Level Coding: 10 Xwith on hand inventory
  • Level 0
  • 1 X requires:

B: 2

C: 1

D: 6

E: 28

F: 2

  • X
  • 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!

low level coding 10 x with on hand inventory1
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

mrp processing
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

mrp inputs inventory records
MRP Inputs:Inventory Records
  • Inventory records
    • Includes information on the status of each item by time period (called time buckets)
      • Information about
        • Gross requirements
        • Scheduled receipts
        • Expected amount on hand
      • Other details for each item such as
        • Supplier
        • Lead time
        • Lot size policy
        • Changes due to stock receipts and withdrawals
        • Canceled orders and similar events
mrp record
MRP Record
  • Gross requirements
    • Total expected demand (during each period) without regard to the amount on hand.
  • Scheduled receipts
    • Open orders scheduled to arrive (at the beginning of a period)
  • Projected on hand
    • Expected inventory on hand (at the beginning of each time period)
  • Net requirements
    • Actual amount needed in each time period
  • Planned-order receipts
    • Quantity expected to received (at the beginning of the period)
      • Under Lot-for-lot will equal net requirements
  • Planned-order releases
    • Planned amount to order in each time period.
    • Equal planned-order receipts offset by lead time.

12-16

mrp processing1
MRPProcessing
  • Gross requirementsare generated by exploding the bill of materials
  • The core of MRP processing is determining net requirements (netting) -> materials that are actually needed to meet demand

Net requirements

Gross requirements

Available inventory

=

-

Available inventory

Projected on-hand

Scheduled receipts

=

+

Projected on hand inventory + Scheduled receipts

Net requirements

Gross requirements

=

-

mrp development
MRP: Development
  • The MRP is based on the product structure tree diagram
  • Requirements are determined level by level, beginning with the end item and working down the tree
      • The timing and quantity of each “parent” becomes the basis for determining the timing and quantity of the “children” items directly below it.
      • The “children” items then become the “parent” items for the next level, and so on
example mrp
Example MRP
  • Orders:
    • 100 units for delivery at (the start of) week 4
    • 150 units at (the start of) week 8.
  • Assembly:
    • Wood sections made by the firm. Fabrication takes 1 week.
    • Frames are ordered. Lead time is 2 weeks.
    • Shutter assembly requires 1 week.
  • Schedule receipts:
    • 70 wood sections at (the beginning of) week 1.
  • Determine the size and timing of planned-order releases (under Lot-for-Lot ordering)
mrp lot for lot ordering1
MRPLot-For-Lot Ordering
  • Shutter
  • [LT=1 week]
  • Frames (2)
  • [LT=2 weeks]
  • Wood sections (4)
  • [LT= 1 weeks]
  • Widget (1)
  • [LT=1 weeks]
  • Widget (3)
  • [LT=1 weeks]

330*3

200*1

600*3

300*1

updating the system
Updating the System
  • An MRP is not a static document
    • As time passes
      • Some orders get completed
      • Other orders are nearing completion
      • New orders will have been entered
      • Existing orders will have been altered
        • Quantity changes
        • Delays
        • Missed deliveries
    • Rolling Horizon
mrp outputs primary
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
mrp outputs secondary
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
enterprise resource planning erp
Enterprise Resource Planning (ERP)
    • Many organizations use a functional structure. Information tends to flow freely within each function but less so between functions.
  • Enterprise Resource Planning (ERP)
    • ERP was the next step in an evolution that began with MRP
    • ERP typically has an MRP core
    • ERP represents an expanded effort to integrate standardized record keeping that will permit information sharing among different areas of an organizationin 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
focused reading mis major required
Focused Reading (MIS Major Required)
  • 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
erp history
ERP History
  • MRP: focus on cost reporting, materials, manufacturing
    • tapes
    • IBM
    • 1960~1970
  • MRPII: scheduling, procurement
    • 1980s
  • ERP
    • SAP, Peoplesoft,
    • 1990
    • Client-server architecture
erp common mistakes
ERP Common Mistakes
  • Poor Planning
  • Not properly vetting ERP vendors
  • Not understanding or using key features
  • Understanding the time and resources required
  • Not having the right people on the team from the start
  • Not setting priorities
  • Not investing in training and change management
  • Underestimating the importance of accurate data
  • Taking the kitchen sink approach
  • Not decommissioning legacy applications
  • Not having an active load testing environment
  • Ignoring third-party support alternatives
  • Not having a maintenance strategy
erp business process re engineering
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
cloud erp
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