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MRP and ERP

Operations Management
uuuu

William J. Stevenson

8th edition

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MRP and ERP

CHAPTER

13

MRP and ERP

McGraw-Hill/Irwin

Operations Management, Eighth Edition, by William J. Stevenson

Copyright 2005 by The McGraw-Hill Companies, Inc. All rights

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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.

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MRP and ERP

Independent and Dependent Demand

Independent Demand

Dependent Demand

C(2)

B(4)

D(2)

E(1)

D(3)

F(2)

Independent demand is uncertain.

Dependent demand is certain.

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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.

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MRP and ERP

Dependent vs Independent Demand

Stable demand

Demand

Demand

Figure 13.1

Time
Amount on hand

Amount on hand

Time

Lumpy demand

Safety stock
Time

Time

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MRP and ERP

Figure 13.2
MRP Inputs

MRP Processing

MRP Outputs
Changes
Order releases

Master
schedule

Planned-order
schedules
Primary
reports

Bill of
materials

Inventory
records

MRP computer
programs

Secondary
reports

Exception reports

Planning reports
Performancecontrol
reports

Inventory
transaction

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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

c
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od
r
P e
e
r
T

u
r
t
S

e
r
u
ct

a
e
L

s
e
m
i
dT

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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.

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Planning Horizon

Figure 13.4

Assembly
Subassembly

Fabrication
Procurement

10

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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.

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Product Structure Tree

Figure 13.5
Level
0
1

Chair
Leg
Assembly

2 Legs (2)

Cross
bar

Seat

Back
Assembly

Side Cross
Back
Rails (2) bar Supports (3)

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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

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Assembly Time Chart

Figure 13.7
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of
raw material F
Procurement of
part C

Final assembly
and inspection

Procurement of
part H
Fabrication
of part G

Procurement of
raw material I

Subassembly B

10

11

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MRP Processing

Gross requirements

Schedule receipts

Projected on hand

Net requirements

Planned-order receipts

Planned-order releases

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MPR Processing

Gross requirements

Scheduled receipts

Total expected demand

Open orders scheduled to arrive

Planned on hand

Expected inventory on hand at the

beginning of each time period

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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

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Updating the System

Regenerative system

Updates MRP records periodically

Net-change system

Updates MPR records continuously

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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.

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MRP Secondary Reports

Performance-control reports

Planning reports

Exception reports

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Other Considerations
Safety Stock
Lot sizing

Lot-for-lot ordering
Economic order quantity
Fixed-period ordering

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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

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Benefits of MRP

Low levels of in-process inventories

Ability to track material requirements

Ability to evaluate capacity requirements

Means of allocating production time

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Requirements of MRP

Computer and necessary software

Accurate and up-to-date

Master schedules

Bills of materials

Inventory records

Integrity of data

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MRP II

Expanded MRP with emphasis placed on

integration

Financial planning

Marketing

Engineering

Purchasing

Manufacturing

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MRP II

Figure 13.14
Manufacturing

Master
production schedule

Marketing
Production
plan

MRP

Rough-cut
capacity planning

Capacity
planning

Adjust
production plan
Yes

Problems?

No

Requirements
schedules

No

Problems?

Adjust master schedule

Market
Demand

Finance

Yes

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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.

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Capacity Planning

Figure 13.15
Develop a tentative
master production
schedule

Use MRP to
simulate material
requirements
Convert material
requirements to
resource requirements

Revise tentative
master production
schedule
No

Is shop
capacity
adequate?
Yes
Firm up a portion
of the MPS

No

Can
capacity be
changed to meet
requirements

Yes
Change
capacity

13-29 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.

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ERP Strategy Considerations

High initial cost
High cost to maintain
Future upgrades
Training