Ch. 12 MRP & ERP Systems

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?

Bill of Materials (BOM)

A listing of all of the raw materials, parts, subassemblies, and assemblies 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

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

Capacity Requirements Planning

Capacity requirements planning (CRP) The process of determining short-range capacity requirements. Inputs to capacity requirement planning Planned-order releases for the MPR Current shop loading Routing information Job time Key outputs Load reports for each work center

Dependent Demand

Demand for items that are subassemblies or component parts to be used in the production of finished goods. Dependent demand tends to be sporadic or "lumpy" Large quantities are used at specific points in time with little or no usage at other times

Benefits of MRP

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

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 Represents an expanded effort to integration financial, manufacturing, and human resources on a single computer system ERP systems are composed of a collection of integrated modules

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

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 final assembly.

MRP Outputs: Primary

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

Fixed Period Ordering

Provides coverage for some predetermined number of periods

MRP Outputs: Secondary

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

Time fences

Series of time intervals during which order changes are allowed or restricted The nearest fence is most restrictive The farthest fence is least restrictive

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

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 that the probability of shortage is eliminated or significantly reduced

Requirements for effective MRP

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

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