Transcript Chapter 1, Heizer/Render, 5th edition

Operations
Management
Material Requirements Planning
(MRP) & ERP
Chapter 14
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Outline
 GLOBAL COMPANY PROFILE: COLLINS
INDUSTRIES
 DEPENDENT INVENTORY MODEL
REQUIREMENTS
Master Production Schedule
 Bills of Materials
 Accurate Inventory records
 Purchase Orders Outstanding
 Lead Times for Each Component

 MRP STRUCTURE
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Outline - Continued
 MRP MANAGEMENT
MRP Dynamics
 MRP and JIT

 LOT-SIZING TECHNIQUES
 EXTENSIONS IN MRP
Closed-Loop MRP
 Capacity Planning
 Material Requirements Planning II (MRP II)

 MRP IN SERVICES
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Outline - Continued
 DISTRIBUTION RESOURCE PLANNING (DRP)
 ENTERPRISE RESOURCE PLANNING (ERP)
Advantages and Disadvantages of ERP System
 ERP in the Service Sector

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Learning Objectives
When you complete this chapter, you should be
able to :
Identify or Define:
Planning bills and kits
 Phantom bills
 Low-level coding
 Lot sizing

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Learning Objectives - Continued
When you complete this chapter, you should be
able to :
Describe or Explain:
Material requirements planning
 Distribution requirements planning
 Enterprise resource planning
 How ERP works
 Advantages and disadvantages of ERP systems

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Collins Industries
 Largest manufacturer of ambulances in the world
 International competitor
 12 major ambulance designs


18,000 different inventory items

6,000 manufactured parts

12,000 purchased parts
MRP: IBM’s MAPICS
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Collins Industries
 Collins requires:
Material plan must meet both the requirements of the master
schedule and the capabilities of the production facility
 Plan must be executed as designed
 Effective “time-phased” deliveries, consignments, and
constant review of purchase methods
 Maintenance of record integrity

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Requirements for Effective Use of Dependent
Demand Inventory Models
Effective use of dependent demand inventory models
requires that the operations manager know the:





master production schedule (what is to be made and when)
specifications or bills-of-material (amount of materials and parts
required to make the product)
inventory availability
purchase orders outstanding (what is on order)
lead times (time it takes to get various components)
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Inputs to the
Aggregate Production Plan
Marketing
Customer
Demand
Production
Capacity
Finance
Cash Flow
Inventory
Procurement
Supplier
Performance
Human
Resources
Manpower
Planning
Aggregate
Production Plan
Management
Return on
Investment
Capital
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Engineering
Design
Completion
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The Planning Process
Aggregate production plan
Change
production plan?
Master production
schedule
Change requirements?
Material requirements plan
Change capacity?
Change master
production schedule?
Detail capacity plan
No
Realistic
Yes
Is capacity
plan being
met?
Execute capacity plans
Is
execution
meeting
the plan?
Execute material plans
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Aggregate Production Plan
Months
January
Aggregate Production Plan
(shows the total quantity of
amplifiers
Weeks
February
1,500
1
2
3
1,200
4
5
6
7
8
Master Production Schedule
(Shows the specific type
and quantity of amplifier to
be produced
240 watt amplifier
150 watt amplifier
75 watt amplifier
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100
100
500
500
300
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100
100
450
450
100
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Typical Focus of the Master
Production Schedule
Make to Order
Assemble to
Order or Forecast
Stock to Forecast
(Process Focus)
(Repetitive)
(Product Focus)
Schedule finished
product
Number of end
items
Typical focus of the
master production
schedule
Number of
inputs
Schedule
orders
Schedule
modules
Motorcycles, autos,
Print shop
Machine shop
TVs, fast-food
Fine dining restaurant
restaurant
Examples:
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Steel, Beer,
Bread Light
bulbs, Paper
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Bill-of-Material
 List of components & quantities needed to make
product
 Provides product structure (tree)
Parents: Items above given level
 Children: Items below given level

 Shows low-level coding
A part gets the lowest level code in item structure.
 Top level is 0; next level is 1 etc.

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Product Structure for “Awesome” A
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Ex: Calculate the Part Requirements
For an order size of 50 A items:
 #Part B=2(#A)=(2)(50)=100
 #Part C=3(#A)=(3)(50)=150
 #Part E=2(#B)+2(#C)=(2)(100)+2(150)=500
 #Part F=2(#C)=(2)(150)=300
 #Part D=2(#B)+2(#F)=(2)(100)+2(300)=800
 #Part G=1(#F)=300
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Issues in MRP:
Accurate Inventory Records
 Good inventory management is an absolute
necessity for an MRP system to work, i.e., one
needs to know what is in stock.
 If the firm has not yet received at least 99%
record accuracy, then MRP will not work.
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Issues in MRP:
Purchase Orders Outstanding
 When purchase orders are executed, records of
those orders and their scheduled delivery dates
must be available to production personnel.
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Issues in MRP:
Lead Times
 The time required to acquire an item is the lead
time
 Lead time of a manufactured item consists of
move, setup, assembly or run times.
 Lead time of a purchased item includes the time
between order release and its retreival.
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Time-Phased Product Structure
for Awesome Speakers
Must have D and E completed
here so production can begin
on B
Start production of
D
1 week
D 2 weeks to
produce
B
2 weeks
E
A
2 weeks
2 weeks
E
1 week
1 week
G
3 weeks
F
1 week
C
D
1
2
3
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Material Requirements Planning
(MRP)
 Manufacturing computer information system
 Determines quantity & timing of dependent demand
items
1
2
3
4
5
Gross Requirements
2
Scheduled Receipts
5
Available
25
20
25
15
33
8
30
23
33
Net Requirements
7
Planned Order Receipts
7
Planned Order Releases
7
© 1995
Corel
Corp.
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MRP Requirements
 Computer system
 Mainly discrete products
 Accurate bill-of-material
 Accurate inventory status

99% inventory accuracy
 Stable lead times
© 1984-1994 T/Maker Co.
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MRP Benefits
 Increased customer satisfaction due to meeting
delivery schedules
 Faster response to market changes
 Improved labor & equipment utilization
 Better inventory planning & scheduling
 Reduced inventory levels without reduced customer
service
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Structure of the MRP System
BOM
Master Production
Schedule
MRP by Period Report
MRP by date report
Lead Times
Planned order report
(Item Master File)
Purchase advice
Exception report
Inventory Data
Purchasing data
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MRP planning
programs
(computer and
software)
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Exception report
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Time-Phased Product Structure
for Awesome Speakers
Must have D and E completed
here so production can begin
on B
Start production of
D
1 week
D 2 weeks to
produce
B
2 weeks
E
A
2 weeks
2 weeks
E
1 week
1 week
G
3 weeks
F
1 week
C
D
1
2
3
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Gross Material Requirements Plan
for 50 “Awesome A” Speaker Kits
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Net Material Requirements Plan
Item
A
B
C
D
E
F
G
Onhand
10
15
20
10
10
5
0
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Net Requirements Plan
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Net Requirements Plan
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Derivation of Master Schedule
A
S
C
B
10 11
15
8
B
Lead time = 4 for A
Master schedule for A
Periods
5
6 7
40
Periods
Gross requirements: B
8
50
9
1
2
10
40+10
= 50
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C
Lead time = 6 for S
Master schedule for S
4
5
40 50 20
14-30
9 10 11 12 13
40
20
30
6
7
8
15+30
= 45
Master schedule
for S sold directly
1 2
10 10
3
Therefore, these are
the gross
requirements for B
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MRP Dynamics
 Supports “replanning”

Problem with system “nervousness”
 “Time fence” - allows a segment of the master
schedule to be designated as “not to be
rescheduled”
 “Pegging” - tracing upward in the bill-of-materials
from the component to the parent item
 That a manager can react to changes, doesn’t
mean he/she should
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MRP and JIT
 MRP - a planning technique but not a detailed scheduling
technique, so there may be capacity problems!


Does not machine schedule
Plan with fixed lead times
 JIT - a way to move material expeditiously
 Integrating the two:




Finite capacity scheduling with time buckets (say weekly)
Small bucket approach and back flushing
Balanced flow approach: pulling material in small lot sizes
Supermarket: An inventory area that holds common items
replenished by Kanban systems
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Lot-Sizing Techniques
 Lot-for-lot
 Economic Order Quantity
 Part Period Balancing
 Wagner-Whitin Algorithm
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MRP Lot-Sizing Problem: Lot-for-Lot
Techniques
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MRP Lot-Sizing Problem: EOQ
Technique
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Extensions of MRP
 Closed loop MRP
 Capacity planning - load reports
 MRP II - Material Resource Planning
 Enterprise Resource Planning
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Closed Loop MRP
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Extensions of MRP
Capacity Planning
 Tactics for smoothing the load and minimizing the
impact of changed lead time include:
Overlapping - reduces the lead time, entails sending pieces
to the second operation before the entire lot has completed
the first operation
 Operations splitting - sends the lot to two different machines
for the same operation
 Lot splitting - breaking up the order and running part of it
ahead of the schedule

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Initial Resource
Requirements/Smoothed
Resource Requirements
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Extensions to MRP
Material Requirements Planning II
 MRP plan is measured in quantities or units.
 MRPII allows the inventory data to be
augmented by other resources like labor hours,
m/c hours, accounts payable.
 MRP II should be integrated to other systems
like MRP, purchasing, production scheduling,
capacity planning, warehouse management, etc.
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Extensions to MRP
Enterprise Resource Planning
 MRP II is enhanced by the additional ties to customers
and suppliers to achieve ERP systems.
 ERP is a software system to



Automate and integrate many of their business processes
Share common data base and business practices
Produce information in real time
 Objective is to coordinate a firm’s whole business
 Basic modules: MRP, Finance, HR, SCM, CRM
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MRP and ERP Information Flows,
Integrated with Other Systems
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Advantages of ERP Systems
1. Provides integration of the supply chain, production,
and administration
2. Creates commonality of databases
3. Can incorporate improved best processes
4. Increases communication and collaboration between
business units and sites
5. Has an off-the-shelf software database
6. May provide a strategic advantage
Disadvantages of ERP Systems
1. Is very expensive to purchase and even more so to
customize
2. Implementation may require major changes in the
company and its processes
3. Is so complex that many companies cannot adjust to it
4. Involves an ongoing, possibly never completed,
process for implementation
5. Expertise is limited with ongoing staffing problems
MRP in Services
 Can be used when demand for service or service
items is directly related to or derived from demand
for other services
restaurant - rolls required for each meal
 hospitals - implements for surgery
 etc.

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Product Structure, Bill of Materials,
Bill of Labor for Veal Picante
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