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MRP, MRP II, and ERP

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Overview

• MRP, Material Requirements Planning– Planning and scheduling technique used

for batch production of assembled items.• MRP II, Manufacturing Resource

Planning• ERP, Enterprise Resource Planning

– The extensive use of software to integrate record keeping and information sharing throughout an organization.

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• Independent demand: Demand of finished goods.

• Dependent demand: Demand for items that are subassemblies or component parts to be used in the production of finished goods.

• The amount of dependent demand is the function of the amount of independent demand.

Independent vs. Dependent Demand

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• Material requirements planning (MRP): Computer-based information system for ordering and scheduling of dependent demand inventories.– What to order– When to order– How much to order

Material Requirement Planning (MRP)

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MRP Inputs MRP Processing MRP Outputs

Masterschedule

Bill ofmaterials

Inventoryrecords

MRP computerprograms

Changes

Order releasesPlanned-orderschedules

Exception reports

Planning reportsPerformance-controlreports

Inventorytransaction

Primaryreports

Secondaryreports

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• Master Production Schedule– which end items are to be produced,– when they are needed, and– in what quantities.

• Sources of quantities: customer orders, forecasts, orders from warehouses, and external demand.

MPR Inputs: Master Schedule

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MPR Inputs: Master Schedule

1 2 3 4 5 6 7 8 9 10

Procurement

Fabrication

Subassembly

Assembly

Figure 14-4

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MRP Inputs: Bill-of-Materials

Bill of materials: 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.

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MRP Inputs: Bill-of-Materials

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MRP Inputs: Bill-of-Materials, Example

Example: Use the information presented in the following figure to do the following:

• Determine the quantities of B, C, D, E, and F needed to assemble one X.

• Determine the quantities of these components that will be required to assemble 10 Xs, taking into account the quantities on hand (i.e., in inventory) of various components.

Component On HandB 4

C 10D 8

E 60

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MRP Inputs: Bill-of-Materials, Example

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MRP Inputs: Bill-of-Materials, Example

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MRP Inputs: Bill-of-Materials, Example

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MRP Inputs: Bill-of-Materials, Summary

• Many products have considerably more components.

• Timing is essential (i.e., when must the components be ordered or made).

• The amounts on hand must be netted out (i.e., subtracted from the apparent requirements) to determine the true requirements.

• Accurate records are a prerequisite.– complex and time-consuming

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MRP Inputs: Inventory Records

• Inventory records refer to standard information on the status of each item by time period.– Gross requirements, scheduled receipts, and

expected amount on hand.– Supplier, lead time, and lot size.– Changes due to stock receipts and withdrawals,

canceled orders, and similar events.• Like the bill of materials, inventory records

must be accurate.

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MRP Processing

• MRP processing takes the end item requirements specified by the master schedule and "explodes" them into time-phased requirements for assemblies, parts, and raw materials using the bill of materials offset by lead times.

• The determination of the net requirements (netting) is the core of MRP processing.

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MRP Processing

1 2 3 4 5 6 7 8 9 10 11

Procurement ofraw material D

Procurement ofraw material F

Procurement ofpart C

Procurement ofpart H

Procurement ofraw material I

Fabricationof part G

Fabricationof part E

Subassembly A

Subassembly B

Final assemblyand inspection

Figure 15-8

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MRP Processing: Terminologies

• Gross requirements

• Schedule receipts

• Projected on hand

• Net requirements

• Planned-order receipts

• Planned-order releases

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MRP Processing: Example

• A firm that produces wood shutters and bookcases has received two orders for shutters: one for 100 shutters and one for 150 shutters.– The 100-unit order is due for delivery at the start of week 4 of the

current schedule, and the 150-unit order is due for delivery at the start of week 8.

– There is a scheduled receipt of 70 wood sections in (i.e., at the beginning of) week 1.

• Each shutter consists of two frames and four slatted wood sections. The wood sections are made by the firm, and fabrication takes one week. The frames are ordered, and lead time is two weeks. Assembly of the shutters requires one week.

• Determine the size and timing of planned-order releases necessary to meet delivery requirements under each of these conditions: – Lot-for-lot ordering (i.e., order size equal to net requirements). – Lot-size ordering with a lot size of 320 units for frames and 70 units

for wood sections.

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MRP Processing: Example

• Master Schedule

• Product Directory Tree

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MRP Processing: Example, Lot-for-Lot Ordering

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MRP Processing: Example, Lot-Size Ordering

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MRP Processing: Pegging

• Pegging is the process of identifying the parent items that have generated a given set of material requirements for an item.

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MRP Processing: Pegging, Example

• For example, consider the two product structure trees shown below.

• Suppose that there is a beginning inventory of 110 units of D on hand, and all items have lead times of one week.

• A cancellation of 50 units of C will require the pegging information in the following figure.

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MRP Processing: Pegging, Example

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MRP Processing: Regenerative vs. Net Change

• A regenerative system is updated periodically. It is essentially a batch-type system.– Stable system.– Long lead time.– Less processing load.

• A net change system is continuously updated. Only the changes are explored through the system, level by level; the entire plan would not be regenerated.– Frequent change.– Up-to-date information for planning and control

purposes.

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MRP Primary Outputs

• Planned orders - schedule indicating the amount and timing of future orders.

• Order releases - Authorization for the execution of planned orders.

• Changes to planned orders - revisions of due dates or order quantities, or cancellations of orders.

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MRP Secondary Outputs

• Performance-control reports– missed deliveries and stockouts, and

information for accessing cost performance.

• Planning reports– purchase commitments and information for

future material requirements.

• Exception reports– late and overdue orders, excessive scrap

rates, reporting errors, and nonexistent parts.

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MRP: Other Considerations• Safety Stock / Safety Time: Maintain smooth

operations. • Lot sizing: Minimize the sum of ordering cost (or

setup cost) and holding cost. – Lot-for-lot ordering– Economic order quantity– Fixed-period ordering– Part-period model

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MRP in Services

• MRP applications in services may involve material goods that form a part of the product-service package, or they may involve mainly service components.

• Examples: Food catering and large-scale renovations such as sports stadium or a major hotel.

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• Food catering service– End item => catered food– Dependent demand => ingredients for

each recipe, i.e. bill of materials• Hotel renovation

– Activities and materials “exploded” into component parts

MRP in Services

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Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements

• Ability to evaluate capacity requirements

• Means of allocating production time

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Requirements of MRP

• Computer and necessary software• Accurate and up-to-date

– Master schedules– Bills of materials– Inventory records

• Integrity of data

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• Expanded MRP with and emphasis placed on integration– Financial planning

– Marketing

– Engineering

– Purchasing

– Manufacturing

MRP II

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MarketDemand

Productionplan

Problems?

Rough-cutcapacity planning

Yes No YesNo

Finance

Marketing

Manufacturing

Adjustproduction plan

Masterproduction schedule

MRP

Capacityplanning

Problems?Requirements

schedules

Adj

ust m

aste

r sch

edul

e

MRP II

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• Enterprise resource planning (ERP): An expanded effort to integrate standardized record-keeping that will permit information sharing throughout the organization

ERP