11-1 MRP and ERP

Operations Management

William J. Stevenson

8th edition
11-2 MRP and ERP

MRP

• Material requirements planning (MRP):

Computer-based information system that
translates master schedule requirements for
end items into time-phased requirements for
subassemblies, components, and raw
materials.
11-3 MRP and ERP

Independent and Dependent Demand

Independent Demand

A Dependent Demand

B(4) C(2)

D(2) E(1) D(3) F(2)

Independent demand is uncertain.

Dependent demand is certain.
11-4 MRP and ERP

Dependant Demand

• Dependent demand: Demand for items that

are subassemblies or component parts to be
used in production of finished goods.
• Once the independent demand is known,
the dependent demand can be determined.
11-5 MRP and ERP

Dependent vs Independent Demand

Figure 11.1

Demand
Demand

“Lumpy” demand
Stable demand

Time Time
Amount on hand

Amount on hand

Safety stock
Time Time
11-6 MRP and ERP

Figure 11.2
MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
11-7 MRP and ERP

MPR Inputs

• Master Production Schedule

• Time-phased plan specifying timing and
quantity of production for each end item.
• Material Requirement Planning Process

r e
c tu
t ru
S
u ct
rod e s
P ee T im
Tr ea d
L
11-8 MRP and ERP

Master Schedule

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.
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.
11-9 MRP and ERP

Planning Horizon
Figure 11.4

Assembly

Subassembly

Fabrication

Procurement

1 2 3 4 5 6 7 8 9 10
11-10 MRP and ERP

Bill-of-Materials

Bill of materials (BOM): One of the three primary

inputs of MRP; a listing of all of the raw materials,
parts, subassemblies, and assemblies needed to produce
one unit of a product.
Product structure tree: Visual depiction of the
requirements in a bill of materials, where all
components are listed by levels.
11-11 MRP and ERP

Product Structure Tree

Figure 11.5

Level Chair
0

1 Leg Back
Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

3
11-12 MRP and ERP

Inventory Records

• One of the three primary inputs in MRP

• Includes information on the status of each
item by time period
• Gross requirements
• Scheduled receipts
• Amount on hand
• Lead times
• Lot sizes
• And more …
11-13 MRP and ERP

Assembly Time Chart

Figure 11.7
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11
11-14 MRP and ERP

MRP Processing

• Gross requirements
• Schedule receipts
• Projected on hand
• Net requirements
• Planned-order receipts
• Planned-order releases
11-15 MRP and ERP

MPR Processing
• Gross requirements
• Total expected demand
• Scheduled receipts
• Open orders scheduled to arrive
• Planned on hand
• Expected inventory on hand at the
beginning of each time period
11-16 MRP and ERP

MPR Processing

• Net requirements
• Actual amount needed in each time period
• Planned-order receipts
• Quantity expected to received at the
beginning of the period
• Offset by lead time
• Planned-order releases
• Planned amount to order in each time period
11-17 MRP and ERP

Updating the System

• Regenerative system
• Updates MRP records periodically
• Net-change system
• Updates MPR records continuously
11-18 MRP and ERP

MRP Outputs

• Planned orders - schedule indicating the

amount and timing of future orders.
• Order releases - Authorization for the
execution of planned orders.
• Changes - revisions of due dates or order
quantities, or cancellations of orders.
11-19 MRP and ERP

MRP Secondary Reports

• Performance-control reports
• Planning reports
• Exception reports
11-20 MRP and ERP

Other Considerations
• Safety Stock
• Lot sizing
• Lot-for-lot ordering
• Economic order quantity

• Fixed-period ordering
11-21 MRP and ERP

MRP in Services

• Food catering service

• End item => catered food
• Dependent demand => ingredients for each
recipe, i.e. bill of materials
• Hotel renovation
• Activities and materials “exploded” into
component parts for cost estimation and
scheduling
11-22 MRP and ERP

Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements
• Ability to evaluate capacity requirements
• Means of allocating production time
11-23 MRP and ERP

Requirements of MRP

• Computer and necessary software

• Accurate and up-to-date
• Master schedules
• Bills of materials
• Inventory records
• Integrity of data
11-24 MRP and ERP

MRP II

• Expanded MRP with emphasis placed on

integration
• Financial planning
• Marketing
• Engineering
• Purchasing
• Manufacturing
11-25 MRP and ERP

MRP II
Figure 11.14

Market Master
Finance Manufacturing production schedule
Demand

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut Capacity
capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?
11-26 MRP and ERP

Capacity Planning

Capacity requirements planning: The process of

determining short-range capacity requirements.

Load reports: Department or work center reports

that compare known and expected future capacity
requirements with projected capacity availability.
Time fences: Series of time intervals during which
order changes are allowed or restricted.
11-27 MRP and ERP

Capacity Planning
Figure 11.15

Develop a tentative Use MRP to

master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master production
resource requirements schedule
No
Can
Is shop capacity be
capacity No
changed to meet
adequate? requirements
Yes Yes

Firm up a portion Change

of the MPS capacity
11-28 MRP and ERP

ERP

• Enterprise resource planning (ERP):

• Next step in an evolution that began with
MPR and evolved into MRPII
• Integration of financial, manufacturing, and
human resources on a single computer
system.
11-29 MRP and ERP

ERP Strategy Considerations

• High initial cost

• High cost to maintain

• Future upgrades

• Training