Week #14-2

Operations Management

Material Requirements Planning (MRP) & ERP Chapter 14

Outline

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GLOBAL COMPANY PROFILE: COLLINS INDUSTRIES

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DEPENDENT INVENTORY MODEL REQUIREMENTS

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Master Production Schedule

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Bills of Materials

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Accurate Inventory records

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Purchase Orders Outstanding

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Lead Times for Each Component

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MRP STRUCTURE

Outline - Continued

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MRP MANAGEMENT

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MRP Dynamics

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MRP and JIT

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LOT-SIZING TECHNIQUES

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EXTENSIONS IN MRP

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Closed-Loop MRP

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Capacity Planning

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Material Requirements Planning II (MRP II)

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MRP IN SERVICES

Outline - Continued

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DISTRIBUTION RESOURCE PLANNING (DRP)

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ENTERPRISE RESOURCE PLANNING (ERP)

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Advantages and Disadvantages of ERP System

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ERP in the Service Sector

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

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

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

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

Inventory Classifications Process stage Number & Value Raw Material WIP Finished Goods A Items B Items C Items Inventory Demand Type Other Independent Dependent Maintenance Operating

Dependent versus Independent Demand

Item Demand Source Material Type Method of Estimating Demand Planning Method Materials With Independent Demand Company Customers Finished Goods Forecast & Booked Customer Orders EOQ & ROP Materials With Dependent Demand Parent Items WIP & Raw Materials Calculated MRP

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 specifications or bills-of-material inventory availability purchase orders outstanding lead times

Production

Capacity Inventory

Inputs to the Production Plan

Marketing

Customer Demand

Finance

Cash Flow

Procurement

Supplier Performance Aggregate Production Plan

Human Resources

Manpower Planning

Management

Return on Investment Capital

Engineering

Design Completion

The Planning Process

Aggregate production plan Change production plan?

Master production schedule Change requirements?

Material requirements plan Change master production schedule?

Change capacity?

Detail capacity plan No Realistic Yes Is capacity plan being met?

Execute capacity plans Is execution meeting the plan?

Execute material plans

Aggregate Production Plan

Months January Aggregate Production Plan (shows the total quantity of amplifiers Weeks Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 240 watt amplifier 150 watt amplifier 75 watt amplifier 1 100 2 1,500 500 3 100 300 4 500 February 5 100 6 1,200 450 7 100 100 8 450

Typical Focus of the Master Production Schedule

Number of end items Make to Order (Process Focus) Assemble to Order or Forecast (Repetitive) Stock to Forecast (Product Focus) Schedule finished product Typical focus of the master production schedule Number of inputs Schedule orders Schedule modules Examples: Print shop Machine shop Fine dining restaurant Motorcycles, autos, TVs, fast-food restaurant Steel, Beer, Bread Light bulbs, Paper

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   Lowest level in structure item occurs Top level is 0; next level is 1 etc.

Product Structure for “Awesome” A

Special Bills-of-Material

 Modular bills  Modules are final components used to make assemble-to stock end items  Planning bills  Used to assign artificial parent  Reduces number of items scheduled  Phantom bills  Used for subassemblies that exist temporarily

Bill-of-Material Product Structure Tree Handle Bars (1) P/N 1001 Bicycle(1) P/N 1000 Frame Assembly (1) P/N 1002 Wheels (2) P/N 1003 Frame (1) P/N 1004

Start production of D 1

Time-Phased Product Structure

2 weeks G 2 1 week 3 D Must have D and E completed here so production can begin on B 1 week D 2 weeks to produce 2 weeks B E 2 weeks E 1 week 1 week A 3 weeks C F 4 5 6 7 8

Material Requirements Planning (MRP)

 Manufacturing computer information system  Determines quantity & timing of dependent demand items

1 2 3 4 5 Gross Requirements 2 20 25 15 Scheduled Receipts Available Net Requirements Planned Order Receipts 5 25 23 30 33 33 8 7 7 Planned Order Releases 7

© 1995 Corel Corp.

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.

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

Structure of the MRP System

BOM Master Production Schedule Lead Times (Item Master File) Inventory Data MRP planning programs (computer and software) MRP by Period Report MRP by date report Planned order report Purchase advice Exception report Exception report Purchasing data

Gross Material Requirements Plan for 50 “Awesome A” Speaker Kits

MRP and The Production Planning Process

Forecast & Firm Orders Aggregate Production Planning Material Requirements Planning Capacity Requirements Planning Master Production Scheduling No, modify CRP, MRP, or MPS Realistic?

Yes Resource Availability Shop Floor Schedules

Master Production Schedule

 Shows items to be produced  End item, customer order, module  Derived from aggregate plan Example

Item/Week Oct 3 Oct 10 Oct 17 Oct 24 Drills Saws 300 300 200 450 310 310 300 330

Derivation of Master Schedule Periods A 5 B Lead time = 4 for A Master schedule for A C 6 40 7 8 50 9 10 11 15 S B C Lead time = 6 for S Master schedule for S 8 9 10 40 11 20 12 13 30 Master schedule for S sold directly 1 2 10 10 3 Periods Gross requirements: B 1 2 3 4 5 6 7 8 10 40+10 = 50 40 50 20 15+30 = 45 Therefore, these are the gross requirements for B

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

MRP and JIT

 MRP - a planning and scheduling technique with fixed lead times  JIT - a way to move material expeditiously  Integrating the two:   Small bucket approach and back flushing Balanced flow approach

Lot-Sizing Techniques

 Lot-for-lot  Economic Order Quantity  Part Period Balancing  Wagner-Whitin Algorithm

MRP Lot-Sizing Problem: Lot-for-Lot Techniques

MRP Lot-Sizing Problem: EOQ Technique

MRP Lot-Sizing Problem: PPB Technique

Extensions of MRP

 Closed loop MRP  Capacity planning - load reports  MRP II - Material Resource Planning  Enterprise Resource Planning

Closed Loop MRP

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

Initial Resource Requirements/Smoothed Resource Requirements

Extensions to MRP Enterprise Resource Planning

MRP II with ties to customers and suppliers

MRP and ERP Information Flows, Integrated with Other Systems

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.

Product Structure, Bill of Materials, Bill of Labor for Veal Picante

Distribution Resource Planning

 DRP requires:     Gross requirements, which are the same as expected demand or sales forecasts Minimum levels of inventory to meet customer service levels Accurate lead times Definition of the distribution structure