Material Requirements Planning and Enterprise Resource Planning

Dr. Ron Lembke

Historical Perspective

ERP- Enterprise Resource Planning MRP II – Manufacturing Resource Planning mrp – material requirements planning

MRP Crusade (1975)

 Material Requirements Planning  Make sure you have enough parts when you need them  Take future demands, factor in lead times (time phase), compare to on hand, order  Determine order size and timing  Control and plan purchasing vs. OSWO inventory management

Closed-Loop MRP

 Capacity Consideration:  Part routings  Calculate loads on each work station  See if scheduled load exceeds capacity  Lead-time long enough to allow some shuffling to make plan feasible

MRP II -- Manufacturing Resource Planning

 “A method for the effective planning of all resources of a manufacturing company” (APICS def.)  Financial accounting incorporated   Sales  Operations Planning  Simulate capacity requirements of different possible Master Production Schedules 1989, $1.2B MRPII sales in U.S., one third of total software sales

Success?

MRP Crusade Begins

ERP differences

 Material planning  Capacity planning  Product design  Information warehousing  All functions in the entire company operate off of one common set of data  Instantaneous updating, visibility

ERP Sales

 Y2K: Worldwide sales of top 10 vendors  1995 $2.8 B  1996 $4.2 B  1997 $5.8 B $3.2 B SAP 

Fortune

survey: 44% reported spending at least 4 times as much on implementation as on software

ERP Challenges

 Modules assume “best practices:”  Change software to reflect company ($)  Change company to follow software (?)  Accuracy of data  Drives entire system  Ownership of / responsibility for  Ability to follow structure

ERP Novel?

 “Goal-like” novel  Hero learns more about ERP, deciding if it is right for his company  Company rushes through installation  General introduction to ERP systems, what they do, how different from MRP  SAP R/3 screen shots

The Heart of the Matter - mrp

 System for organizing WIP releases  Work in Process – work that has been started, but not yet finished  Consider Lead Time (LT)for each item  Look at BOM to see what parts needed  Bill of Materials – what goes into what  Release so they will arrive just as needed

Bike Production

Frame OCLV Carbon Drivetrain Wheels Seat, Bars Arrive Due 1 Mar 7 14 21 28 4 Apr 11 18

Snow Shovels

 Example – Snow Shovel  Order quantity is 50 units  LT is one week  Simple Bill of Materials - BOM

MRP Table

1 2 3 4 5 Gross Requirements Planned Order Releases 10 40 10 Scheduled receipts (begin) 50 Projected Available Balance (ending) 4 Net Requirements 54 44 44 4 Planned Order Receipts 6

6 units short

MRP Table

1 2 3 4 5 Gross Requirements Scheduled receipts (begin) Projected Available Balance (ending) 4 Net Requirements 54 44 44 4 Planned Order Receipts 50 6 50 Planned Order Releases 10 40 10 50

Order 50 units week earlier

Ending Inventory

1 2 3 4 5 Gross Requirements Scheduled receipts (begin) 50 Projected Available Balance (ending) 4 Net Requirements 54 44 44 4 44 6 Planned Order Receipts 50 Planned Order Releases 10 40 10 50

Ending inventory

Terminology

 Projected Available balance  Not on-hand (that may be greater)    Tells how many will be available Available to Promise – the units aren’t spoken for yet, we can assign them to a customer Planned order releases ≠ scheduled receipts  Only when material has been committed to their production  Move to scheduled receipts as late as possible  Preserves flexibility

1605 Snow Shovel

1605 Snow Shovel 314 scoop assembly 14127 Rivet (4) 048 Scoop-shaft connector 118 Shaft (wood) 13122 Top Handle Assy 062 Nail (4)

314 scoop assembly

314 scoop assembly 2142 Scoop (aluminum) 019 Blade (steel) 14127 Rivet (6)

13122 Top Handle Assembly

13122 Top Handle Assembly 11495 Welded Top handle bracket Assembly 1118 Top handle Coupling (steel) 129 Top Handle Bracket (steel) 082 Nail (2) 457 Top handle (wood)

BOM Explosion

 Process of translating net requirements into components part requirements  Take into account existing inventories  Consider also scheduled receipts

BOM Explosion Example

 Need to make 100 shovels  We are responsible for handle assemblies.

13122 Top Handle Assembly

13122 Top Handle Assembly 11495 Welded Top handle bracket Assembly 1118 Top handle Coupling (steel) 129 Top Handle Bracket (steel) 082 Nail (2) 457 Top handle (wood)

Net Requirements

Part Description Top handle assy Top handle Nail (2 required) Bracket Assy Top bracket Top coupling Inv 25 22 4 27 15 39 Sch Gross Rec Req - 25 50 100 - - 15 Net Req 75

Net Requirements

Part Description Top handle assy Top handle Nail (2 required) Bracket Assy Top bracket Top coupling Inv 25 22 4 27 15 39 25 50 - - 15 Sch Gross Rec Req - 100 75 150 75 Net Req 75 28 96 48

13122 Top Handle Assembly

13122 Top Handle Assembly 11495 Welded Top handle bracket Assembly 1118 Top handle Coupling (steel) 129 Top Handle Bracket (steel) 082 Nail (2) 457 Top handle (wood)

Net Requirements

Part Description Top handle assy Top handle Nail (2 required) Bracket Assy Top bracket Top coupling Sch Inv 25 22 4 27 15 39 Gross Rec Req - 100 25 50 - - 15 75 150 75 48 48 Net Req 75 28 96 48 33 --

Timing of Production

 This tells us how many of each we need  Doesn’t tell when to start  Start as soon as possible?

 Dependent events (oh no, not that!)

13122 Top Handle Assy

Order policy: Lot-for-lot

13122 Top handle LT = 2 Gross Req 1 2 20 Sch receipts Proj. Avail Bal (ending) Net Req Planned Order Receipt Planned Order Release 25 25 5 5 3 5 4 10 5 6 7 20 5 5 5 8 9 10 35 10

13122 Top Handle Assy-2

Order policy: Lot-for-lot

13122 Top handle LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 2 20 25 25 5 5 3 4 10 5 0 5 5 6 7 20 5 0 0 0 20 5 8 0 9 0 10 35 10 0 35 10 5 20 5 20 5 35 10 35 10

457 Top Handle

One handle for Each assembly

13122 Top handle LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 2 20 25 25 5 5 3 4 10 5 6 7 20 5 8 9 35 10 10 5 0 5 0 0 0 20 5 0 0 0 35 10 5 20 5 20 5 35 10 35 10 LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 22 22 2 5 3 25 4 5 20 5 6 7 8 35 10 9 10

457 Top Handle

LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 2 5

Order policy: Lot-for-lot

3 25 22 22 17 4 20 5 5 6 7 8 35 10 9 10

457 Top Handle

LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 2 5

Order policy: Lot-for-lot

3 4 5 20 5 6 7 8 35 10 25 22 22 17 42 22 17 17 0 0 18 10 18 10 18 10 9 0 10 0

082 Nail (2 required)

Two nails for Each assembly

13122 Top handle LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 25 25 2 20 5 5 3 4 10 5 6 7 20 5 8 9 10 35 10 5 0 5 0 5 20 5 0 0 20 5 20 5 0 35 10 0 0 35 10 35 10 LT = 1 Lot Size = 50 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 2 10 3 50 4 54 4 5 40 10 6 7 8 70 20 9 10

082 Nail (2 required)

LT = 1 Lot Size = 50 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 2 10 3 4 5 40 10 6 7 8 70 20 9 10 50 4 54 44 44 4 44 6 44 24 26 50 50 50 50 4 4 4

11495 Bracket Assembly

One bracket for Each assembly

13122 Top handle LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 2 20 25 25 5 5 3 4 10 5 6 7 20 5 8 9 35 10 10 5 0 5 0 0 0 20 5 0 0 0 35 10 5 20 5 20 5 35 10 35 10 LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 27 1 2 5 3 4 5 20 5 6 7 8 35 10 9 10

11495 Bracket Assembly

LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel

Order policy: Lot-for-lot

1 2 5 3 27 27 22 22 3 4 5 20 5 2 6 7 8 35 10 0 3 0 0 0 35 10 3 35 10 35 10 9 0 10 0

129 Top Bracket

LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel LT = 1 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 27 1 2 5 3 22 22 3 2 4 20 5 5 6 7 8 35 10 3 35 10 3 35 10 35 10 9 10 15 1 2 3 3 4 5 6 35 10 7 8 9 10

129 Top handle bracket

Order policy: Lot-for-lot

LT = 1 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 2 3 3 4 5 6 7 35 10 15 15 15 12 12 23 10 23 10 23 10 8 9 10

1118 Top handle coupling

LT = 2 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 27 1 2 5 22 22 3 3 4 20 2 5 5 6 7 8 35 10 3 35 10 3 35 10 35 10 9 10 LT = 3 Safety Stock = 20 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 39 1 2 3 3 4 5 6 35 10 7 8 9 10

1118 Top handle coupling

Order policy: Lot-for-lot

LT = 3 Safety Stock = 20 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 2 15 3 3 4 5 6 35 10 7 39 39 54 51 51 16 4 4 4 8 9 10

1118 Top handle coupling

LT = 3 Safety Stock = 20 Gross Req Sch receipts Proj. Avail Bal (ending) Net Req Pl Order Rec Pl Order Rel 1 2 3 3 4 5 6 7 35 10 8 9 10 15 39 39 54 51 51 20 20 4 10 20 20 20 20 4 10 4 10

Other considerations

 Safety stock if uncertainty in demand or supply quantity  Don’t let available go down to 0  Safety LT if uncertainty in arrival time  Place order earlier than necessary  Order quantities   EOQ – Economic Order Quantity, Fixed Size If that’s not enough, order what you need, OR order two or more of the Fixed Size  Lot-For-Lot, Periodic Order quantity, others

Summary

 Demand for final products  Compute needs for it and  Dependent Demand for components  Look at all parts of the Bill of Materials  Complete the Table for each  Bottom row (Pl Order Releases) becomes top row (Gross Requirements) of input components (also called children)  Multiplied by # needed for each parent