Chapter 14: Materials Requirement Planning (MRP) and ERP

Define enterprise resource planning (ERP).

An information system for identifying and planning the enterprise-wide resources needed to take, make, ship, and account for customers orders.

What are the four approaches for integrating MRP and JIT?

1. Finite capacity scheduling 2. Small buckets 3. Balanced flow 4. Supermarkets

What are the disadvantages of ERP?

1. Is very expensive to purchase and even more costly to customize. 2. Implementation may require major chances in the company and its processes. 3. Is so complex that many companies cannot adjust to it. 4. Involves an ongoing process for implementation, which may never be completed. 5. Expertise in ERP is limited, with staffing an ongoing problem

Identify five specific requirements of an MRP system.

1. Master production schedule. 2. Specifications or bill of material. 3. Inventory availability. 4. Purchase orders outstanding. 5. Lead times.

What are the typical benefits of ERP?

1. Provides integration of the production, supply chain, and administrative functions. 2. Increases collaboration between functions and locations. 3. Often has a common database. 4. Can add effectiveness and efficiency to the organization.

Define materials requirements planning (MRP).

A dependent demand technique that uses a bill-of-material, inventory, expected receipts, and a master production schedule to determine material requirements.

Define bill of material (BOM).

A listing of components, their description, and the quantity of each required to make one unit of a product. Items above any level in a BOM are called parents; items below any level are called components, or children. The top level in a BOM is the 0 level.

Define lot-for-lot.

A lot-sizing technique that generates exactly what is required to meet the plan.

Define periodic order quantity (POQ).

A lot-sizing technique that issues orders on a predetermined time interval with an order quantity equal to all of the interval's requirements.

Define time fences.

A means for allowing a segment of the master schedule to be designated as "not to be rescheduled".

Define low-level coding.

A number that identifies items at the lowest level at which they occur.

Define load report.

A report for showing the resource requirements in a work center for all work currently assigned there as well as all planned and expected orders. Tactics for smoothing the load and minimizing the impact of changed lead time include: overlapping, operations splitting, and order splitting, or lot splitting.

Define gross material requirements plan.

A schedule that shows the total demand for an item (prior to subtraction of on-hand inventory and scheduled receipts) and (1) when it must be ordered from suppliers, or (2) when production must be started to meet its demand by a particular date.

Define phantom bills of material.

Bills of material for components, usually sub-assemblies, that exist only temporarily; they are never inventoried.

Define modular bills.

Bills of material organized by major sub-assemblies or by product options.

When is demand for items dependent?

Demand for items is dependent when the relationship between the items can be determined. For any product, all components of that product are dependent demand items.

Define system nervousness.

Frequent changes in an MRP system.

As an approach to inventory management, how does MRP differ from the approach taken in Chapter 12, dealing with economic order quantities (EOQ)?

In MRP, demand need not to be constant. Also, in an MRP system, the demand for one item depends on the demand for others - in particular, the end item. (There are exceptions, such as spare parts and maintenance orders.)

What impact does ignoring carrying cost in the allocation of stock in a DRP system have on lot sizes?

In a DRP system, inventory residing within the system is moved within the system rather than entering or leaving the system. Therefore, although effort should be made to reduce total inventory to minimize overall carrying cost, carrying cost per say does not have a significant effect on appropriate lot size.

Define pegging.

In material requirements planning systems, tracing upward the bill of material from the component to the parent item.

Define lead time.

In purchasing systems, the time between recognition of the need for an order and receiving it; in production systems, it is the order, wait, move, queue, setup, and run times for each component.

What are the distinctions between MRP, DRP, and ERP?

MRP is a set of software programs designed to schedule material requirements. These programs include an integrated set of programs that determine an item master for each part, a bill of material, an explosion scheme, a lead-time file, an inventory status file, and vendor information. DRP is a time-phased stock-replenishment plan for all levels of the distribution network. On the other hand, enterprise resource planning (ERP) systems are systems that often integrate MRP and a variety of other accounting systems, human resource management, and communication with vendors and suppliers.

MRP is more than an inventory system; what additional capabilities does MRP possess?

MRP is usually a part of the overall production planning process. Its most important capability is including the timing/scheduling factor in inventory planning. MRP 2, of course, addresses the timing/scheduling of other resources in addition to inventory.

Define planning bills (or kits).

Material groupings created in order to assign an artificial parent to a bill of material; also called "pseudo" bills.

Once a material requirements plan (MRP) has been established, what other managerial applications might be found for the technique?

Once the MRP system is in place, it provides information to assist decision makers in other functional areas such as the amounts of labor required, cash needs, purchase requirements, and timing.

What is the difference between a gross requirements plan and a net requirements plan?

The difference between a gross requirements plan and a net requirement plan is that a net plan adjusts for on-hand inventory and scheduled receipts at each level.

How does MRP 2 differ from MRP?

The difference between material requirements planning (MRP) and material resource planning two (MRP 2) is that MRP 2 includes or integrates functions within the firm in addition to the management of dependent demand inventories. Examples of these additional functions include: Order entry, invoicing, billing, purchasing, production scheduling, capacity planning, and warehouse management.

Master schedules are expressed in three different ways depending on whether the process is continuous, a job shop, or repetitive. What are these ways?

The master schedule is expressed in terms of: 1. End items in a continuous (make-to-stock) company. 2. Customer orders in a job shop (make-to-order) company. 3. Modules in a repetitive (assemble-to-stock) company.

Define lot-sizing decision.

The process of, or techniques used in, determining lot size.

Define planned order receipt.

The quantity planned to be received at a future date.

Define net material requirements plan.

The result of adjusting gross requirements for inventory on hand and scheduled receipts.

Define planned order release.

The scheduled date for an order to be released.

What the similarities between MRP and DRP?

The similarities between material requirements planning (MRP) and distribution resource planning (DRP) are that the procedures and logic are analogous.

Which is the best lot-sizing policy for manufacturing organizations?

There is no one "ideal" lot sizing technique that should be used by all manufacturing organizations. Lot-for-lot is the goal to be sought. However, where setup costs are significant and demand is not particularly lumpy, EOQ is a simple method and may provide satisfactory results. Too much concern with lot sizing yields spurious results because of MRP dynamics.

Define buckets.

Time units in a material requirements planning system.

What functions of the firm affect an MRP system? How?

Virtually all functions of the firm impact an MRP system. For instance, purchasing performance affects delivery, changes in capacity (i.e., labor maintenance, breakdowns) impact throughput, sales impact the master schedule as do financial issues such as capital expenditure for capacity, engineering performance such as meeting schedules and preference (or flexibility) for particular approaches to design/processing.

Explain time-phased product structure.

When a bill of material is turned on its side and modified by adding lead times for each component.

Define materials requirements planning two (MRP 2).

A system that allows, with MRP in place, inventory data to be augmented by other resource variables; in this case, MRP becomes material resource planning.

Define closed-loop MRP system.

A system that provides feedback to the capacity plan, master production schedule, and production plan so planning can be kept valid at all times.

Define distribution resources planning (DRP).

A time-phased stock-replenishment plan for all levels of a distribution network.

Define master production schedule (MPS).

A timetable that specifies what is to be made and when. The statement of what is to be produced, not a forecast of demand.