Chapter 12: MRP and ERP

Closed Loop MRP

When MRP II systems began to include feedback loops, they were referred to as 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

Stability in short-term plans is very important

Without stability, changes in order quantity and/or timing can render material requirements plans virtually useless

MRP: Development

-The MRP is based on the product structure tree diagram -Requirements are determined level by level, beginning with the end item and working down the tree

System nervousness

-refers to how a system might react to changes --Sometimes the reaction can be greater than the original change

MRP Inputs: Bill of Materials

A listing of all of the assemblies, subassemblies, parts, and raw materials needed to produce one unit of a product

Order releases

Authorizing the execution of planned orders

MRP Processing

MRP processing takes the end item requirements specified by the master schedule and "explodes" them into time-phased requirements for assemblies, parts, and raw materials offset by lead times

Safety time

Scheduling orders for arrival or completions sufficiently ahead of their need that the probability of shortage is eliminated or significantly reduced

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 integrate standardized that will permit information sharing among different areas of an organization in order to manage the system more effectively -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

MRP Inputs: 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

Capacity Requirements Planning

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

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

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.

Planned orders

A schedule indicating the amount and timing of future orders

MRP Inputs: Inventory Records

Includes information on the status of each item by time period, called time buckets

Food catering service

-End item --> catered food -Dependent demand -->ingredients for each recipe, i.e., bill of materials

ERP strategic implications

-High initial cost -High cost to maintain -Need for future upgrades -Intensive training required

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

The MRP is designed to answer three questions:

1. What is needed? 2. How much is needed? 3. When is it needed?

Product structure tree

A visual depiction of the requirements in a bill of materials, where all components are listed by levels

Fixed Period Ordering

Provides coverage for some predetermined number of periods

Changes

Revisions of the dates or quantities, or the cancellation of orders

MRP Requirements

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

ERP as a strategic planning tool

-Can improve supply chain management -Stronger links between their customers and their supplier -Makes the organization more capable of satisfying changing customer requirements -Offers opportunities for continuous improvement

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

Load reports

Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.

MRP Benefits

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 -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 back flushing -Exploding an end item's BOM to determine the quantities of the components that were used to make the item

MRP in Services

Food catering service Hotel renovation

Low-level coding

Restructuring the bill of material so that multiple occurrences of a component all coincide with the lowest level at which the component occurs

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

MRP: Pegging

The process of identifying the parent items that have generated a given set of material requirements for an item

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.

Hotel renovation

Activities and materials "exploded" into component parts for cost estimation and scheduling