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SEU_MGT530_Module13_PPT_Ch121.pptxMRP and ERP
Chapter 12
Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education
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You should be able to:
LO 12.1 Describe the conditions under which MRP is most appropriate
LO 12.2 Describe the inputs, outputs, and nature of MRP processing
LO 12.3 Explain how requirements in a master production schedule are translated into material requirements for lower-level items
LO 12.4 Discuss the benefits and requirements of MRP
LO 12.5 Describe some of the difficulties users have encountered with MRP
LO 12.6 Describe MRP II and its benefits
LO 12.7 Explain how an MRP system is useful in capacity requirements planning
LO 12.8 Describe ERP, what it provides, and its hidden costs
Chapter 12: Learning Objectives
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Dependent vs. Independent Demand
LO 12.1
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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?
LO 12.2
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Overview of MRP
LO 12.2
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Master schedule:
One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities
Managers like to plan far enough into the future so they have reasonable estimates of upcoming demands
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 the final assembly
MRP Inputs: Master Schedule
LO 12.2
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Cumulative Lead Time
LO 12.2
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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
LO 12.2
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Assembly Diagram and Product Structure Tree
LO 12.2
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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
Low-Level Coding
LO 12.2
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X
B(2)
D(3)
E
C
E(2)
Level 0
Level 1
Level 2
F(2)
Level 3
E(4)
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 Inputs: Inventory Records
LO 12.2
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Assembly Time Chart
LO 12.2
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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: Primary
LO 12.2
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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
MRP Outputs: Secondary
LO 12.2
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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 offset by lead times
MRP Processing
LO 12.3
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MRP Record
Gross requirements
Total expected demand
Scheduled receipts
Open orders scheduled to arrive
Projected Available
Expected inventory on hand at the beginning of each time period
| Week Number | 1 | 2 | 3 | 4 | 5 | 6 |
| Gross Requirements | ||||||
| Scheduled Receipts | ||||||
| Projected on hand | ||||||
| Net requirements | ||||||
| Planned-order-receipt | ||||||
| Planned-order release |
LO 12.2
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MRP Record (cont.)
| Week Number | 1 | 2 | 3 | 4 | 5 | 6 |
| Gross Requirements | ||||||
| Scheduled Receipts | ||||||
| Projected on hand | ||||||
| Net requirements | ||||||
| Planned-order-receipt | ||||||
| Planned-order release |
Net requirements
Actual amount needed in each time period
Planned-order receipts
Quantity expected to received at the beginning of the period offset by lead time
Planned-order releases
Planned amount to order in each time period
LO 12.2
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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
LO 12.3
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Example MRP
LO 12.3
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Shutter
Frames (2)
Wood sections (4)
Example MRP (cont.)
LO 12.3
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Pegging
The process of identifying the parent items that have generated a given set of material requirements for an item
Using the MRP
LO 12.3
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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
Updating the System
LO 12.3
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Updating the System (cont.)
Two basic systems
Regenerative system
Approach that updates MRP records periodically
Essentially a batch system that compiles all changes that occur within the time interval and periodically updates the system
A revised production plan is developed in the same way the original plan was developed
Net-change system
Approach that updates MRP records continuously
The production plan is modified to reflect changes as they occur
Only the changes are exploded through the system
LO 12.3
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Other MRP Considerations: Safety Stock
Safety Stock
Theoretically, MRP systems should not require safety stock
Variability may necessitate the strategic use of safety stock
A bottleneck process or one with varying scrap rates may cause shortages in downstream operations
Shortages may occur if orders are late or fabrication or assembly times are longer than expected
When lead times are variable, the concept of safety time is often used
Safety time
Scheduling orders for arrival or completions sufficiently ahead of their need so that the probability of shortage is eliminated or significantly reduced
LO 12.3
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Other MRP Considerations: Lot Sizing Rules
Lot-for-Lot (L4L) ordering
The order or run size is set equal to the demand for that period
Minimizes investment in inventory
It results in variable order quantities
A new setup is required for each run
Economic Order Quantity (EOQ)
Can lead to minimum costs if usage of item is fairly uniform
This may be the case for some lower-level items that are common to different ‘parents’
Less appropriate for ‘lumpy demand’ items because inventory remnants often result
Fixed Period Ordering
Provides coverage for some predetermined number of periods
LO 12.3
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Enables managers to easily
Determine the quantities of each component for a given order size
To know when to release orders for each component
To be alerted when items need attention
Additional benefits
Low levels of in-process inventories
The ability to track material requirements
The ability to evaluate capacity requirements
A means of allocating production time
The ability to easily determine inventory usage via backflushing
Exploding an end item’s BOM to determine the quantities of the components that were used to make the item
MRP Benefits
LO 12.4
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To implement an effective MRP system requires:
A computer and the necessary software to handle computations and maintain records
Accurate and up-to-date
Master schedules
Bills of materials
Inventory records
Integrity of data files
MRP Requirements
LO 12.4
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Consequence of inaccurate data
Missing parts
Ordering incorrect numbers of items
Inability to stay on schedule
Other problems
Assumptions of constant lead times
Products being produced differently from the BOM
Failure to alter a BOM when customizing a product
Inaccurate forecasts
MRP Difficulties
LO 12.5
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MRP II
Manufacturing resources planning (MRP II)
Expanded approach to production resource planning, involving other areas of the firm in the planning process and enabling capacity requirements planning
Most MRP II systems have the capability of performing simulation to answer a variety of “what if” questions so they can gain a better appreciation of available options and their consequences
LO 12.6
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MRP II: Overview
LO 12.6
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Closed Loop MRP
When MRP II systems began to include feedback loops, they were referred to as Closed Loop MRP
Closed Loop MRP
Systems evaluate a proposed material plan relative to available capacity
If a proposed plan is not feasible, it must be revised
This evaluation is referred to as capacity requirements planning
LO 12.6
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Capacity requirements planning (CRP)
The process of determining short-range capacity requirements.
Inputs to capacity requirement planning
Planned-order releases for the MRP
Current shop loading
Routing information
Job time
Key outputs
Load reports for each work center
Capacity Requirements Planning
LO 12.7
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Using MRP to Assist in CRP
LO 12.7
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Load Reports
Load reports
Department or work center reports that compare known and expected future capacity requirements with projected capacity availability
LO 12.7
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Enterprise Resource Planning
Enterprise resource planning (ERP)
ERP was the next step in an evolution that began with MRP and evolved into MRPII
ERP, like MRP II, typically has an MRP core
ERP provides a system to capture and make data available in real time to decision makers and other users throughout an organization
ERP systems are composed of a collection of integrated modules
LO 12.8
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Overview of ERP Software Modules
| Module | Brief Description |
| Accounting/Finance | A central component of most ERP systems. It provides a range of financial reports, including general ledger, accounts payable, accounts receivable, payroll, income statements, ad balance sheets |
| Marketing | Supports lead generation, target marketing, direct mail, and sales |
| Human Resources | Maintains a complete data base of employee information such as date of hire, salary, contact information, performance evaluations, and other pertinent information |
| Purchasing | Facilitates vendor selection, price negotiation, making purchasing decisions, and bill payment |
| Production Planning | Integrates information on forecasts, orders, production capacity, on-hand inventory quantities, bills of material, work in process, schedules, and production lead times |
| Inventory Management | Identifies inventory requirements, inventory availability, replenishment rules, and inventory tracking |
| Distribution | Contains information on third-party shippers, shipping and delivery schedules, delivery tracking |
| Sales | Information on orders, invoices, order tracking, and shipping |
| Supply Chain Management | Facilitates supplier and customer management, supply chain visibility, and event management |
LO 12.8
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The ‘big bang’
Companies cast off all of their legacy systems at once and implement a single ERP system across the entire company
The most ambitious and difficult implementation approach
Franchising strategy
Independent ERP systems are installed in each business unit of the enterprise while linking common processes across the enterprise
Suits large or diverse companies that do not share many common processes across business units
Slam dunk
ERP dictates the process design where the focus is on a few key processes
More appropriate for smaller companies expecting to grow into ERP
ERP Project Organization
LO 12.8
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ERP Considerations
How can ERP improve a company’s business performance?
How long will an ERP implementation project take?
How will ERP affect current business processes?
What is the ERP total cost of ownership?
What are the hidden costs of ERP ownership?
LO 12.8
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