MRP and ERP - Soganghome.sogang.ac.kr/.../Lists/b6/Attachments/13/chapter14.instructor.pdf · (Chapter 14) D(2) E(1) D(3) F(2) ... As a result of disaggregating process of aggregate

Chapter 14

MRP and ERPMRP and ERP

Pr du t Stru tur TrIndependent Demand(Chapter 12)

Product Structure Tree

A Dependent Demand(Ch )

B(4) C(2)

(Chapter 14)

B(4) C(2)

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

Independent demand is uncertain. Dependent demand is certain.14-2

p p

Planning S u nPlanning SequenceAggregate PlanningAggregate Planning

Disaggregation

Maser Schedule

Maser Production Schedule

MRP Explosion

Material Requirement Schedule (MRP)

14-3

M i i f MRPMotivation for MRP• Suppose that you produce cars, and have demand Suppose that you produce cars, and have demand

of 100 in next month. There are about 20,000 parts and components that go into a car. You have to p gprepare the exact quantities of all of parts but don’t want to procure them too early since then they will i i t h ldi tincur inventory holding costs.

• How can you prepare an inventory procurement schedule for parts and components that deals with

tit d ti i t f t?quantity and timing aspects of procurement?

14-4

Why inventory systems for dependent demand should be differ?

Suppose a simple product structure for a Suppose a simple product structure for a bicyclebicyclebicyclebicycle

Bicycle <Bicycle <---- Independent demandIndependent demandyy pp

Rim (2) <Rim (2) <---- Dependent demandDependent demand

14-5

Because of difference in demand patternsBecause of difference in demand patterns2000 — 2000 —

Because of difference in demand patternsBecause of difference in demand patterns

1500 1500 Order Order

1500 — 1500 —1000 onday 3

1000 onday 8

es ss

1000 — 1000 —

Bicy

cle

Rim

sR

ims

500 — 500 —

0 0 | | | | | | | | | |1 5 10

Day

Reorder point| | | | | | | | | |1 5 10

Day(a) (b)

Day Day

A simple example of the relationship between independent and dependent demand

Product structure tree for a bicycle

Bi lLeadtime

Bicycle 2 days

Rim (2) 1 day

Assume there is no inventory at all, and 14-7

y ,demand for one bicycle on day 4

A simple example of the relationship between independent and dependent demand

Bicycle Assembly

Rim (2)

Day 0 1 2 3 4

14-8

MRP Inputs MRP Processing MRP Outputs

Ch

Master

Changes

Order releases

Planned orderschedule Planned-orderschedules

Primaryt

Bill ofmaterials MRP computer

Exception reports

Planning reports

P f

reports

Secondarymaterialsfile

pprograms Performance-

controlreports

yreports

Inventoryrecords

filInventorytransaction

14-9

file transaction

Master Schedule (MRP input #1)

• States which end items (finished goods) are to be produced when these are are to be produced, when these are needed, and in what quantities

14-10

Bill-of-Materials (MRP input #2)

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

• Typically shown a product tree structure where all components and their where all components and their relationships are listed by levels

14-11

Pr du t Stru tur TrProduct Structure Tree

ALevel 0

B(4) C(2)Level 1 B(4) C(2)Level 1

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


p p

Inventory Records File (MRP input #3)• A computerized file with a complete record of A computerized file with a complete record of

each material (part number) held in inventoryP id d l i f • Provides current status and planning factors used by MRPy– quantity currently on hand (perpetual inventory)– quantities on order and delivery datesq y– customer orders (service parts)– lot size– lead time– safety stock level

14-13

y– scrap rate


14-14


ChairLevel

0

LegAssembly

BackAssembly

0

1SeatAssembly Assembly

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)2

14-15

P d t E l iProduct Explosion(Suppose that 100 chairs are needed and there is no

inventory for any components))

ChairLevel

0 100

inventory for any components))

LegAssembly

BackAssembly

0

1 100 100SeatAssembly Assembly100 100 100

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)2

200 200100 100 300200 300

14-16

Example

ChairLevel

0 Chair

LegA bl

BackA bl

0


Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)2

If 25 chairs are needed and there is no inventory for any y yitems..

How many side rails are needed? 5014-17

How many side rails are needed? 50

How many cross bars are needed? 50

Netting ProcessNetting ProcessNow suppose that 100 chairs are still demanded but assume the

Level Item Amount on hand

ppfollowing on-hand amount for each item

Level Item Amount on hand0 Chair 101 Leg Assembly 51 Leg Assembly 5

Seat 7Back Assembly 2y

2 Leg 8Cross Bar 14Side Rail 12Back Support 20

14-18

Netting Process for level 0 Gross RequirementsOn-Hand InventoryNet Requirement

ChairLevel

0 100-10=90

Net Requirement

LegAssembly

BackAssembly

0


Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)2

3

14-19

Netting Process for level 1

ChairLevel

0 100-10=90

LegAssembly

BackAssembly

0

1 90-5=85 90-2=88SeatAssembly Assembly90 5 85

90-7=83

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)2

3

14-20

Netting Process for level 2

ChairLevel

0 100-10=90

LegAssembly

BackAssembly

0

1 90-5=85 90-2=88SeatAssembly Assembly90 5 85

90-7=83

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)2

170-8=162 176-12=164 264-20=2448885

3

176 12 164 264 20 24488

(85+88) 14=15914-21

(85+88)-14=159

Lead Time Aspect of Netting Process

Assume the following lead times for each itemAssume the following lead times for each item

Level Item Lead Time0 Chair 11 Leg Assembly 1

Seat 1B k A bl 2Back Assembly 2

2 Leg 1Cross Bar 1Cross Bar 1Side Rail 1Back Support 2

14-22

Back Support 2

Assembly Time ChartProcurement ofback supports

Procurement

Procurement

Back assembly

Procurementof side rails

Procurementof cross bar

Final assemblyand inspectionProcurement

of seat

LegProcurementof cross bar

of side rails and inspectionof chair

Legassembly

of cross bar

Procurementof front legs

1 2 3 4 50

14-23Place orderwith supplier

Release orderto department

Pr du t Stru tur TrIndependent Demand(Chapter 13)


A Dependent Demand(Ch )

Level 0

B(4) C(2)

(Chapter 14)

Level 1 B(4) C(2)Level 1

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


p p

MRP Processing• Gross requirements• Scheduled receipts• Scheduled receipts• Projected on hand• Net requirements• Planned order receipts• Planned-order receipts• Planned-order releases

14-25

MRP Logic

1 2 3 4 5

Gross requirementsItem

10 15 20 12 5Logic Scheduled receipts

Projected on hand

Net requirementsNet requirements

Planned-order receipts

Planned-order releases

The MPS is converted into the gross requirements for each component for each time period (time bucket) in each component for each time period (time bucket) in the planning horizon using the bill of materials.

14-26

As a result of disaggregating process of aggregate As a result of disaggregating process of aggregate planning, we obtained a master schedule

64 1 2 3 4 5 6 7 8Forecast 30 30 30 30 40 40 40 40Customer Orders (committed) 33 20 10 4 2Projected on-hand inventory 31 1 41 11 41 1 31 61MPS 70 70 70 7070 70 70 70

Production schedule of a specific end item

14-27

p

1 2 3 4 5


10 15 20 12 5Scheduled receipts

Projected on hand

Net requirements

7 9

Net requirements



The scheduled receipts are orders placed before the first time bucket and to be delivered in that period It is time bucket and to be delivered in that period. It is assumed that receipts arrived are available at the beginning of a time periodbeginning of a time period.

14-28

1 2 3 4 5



Projected on hand

Net requirements

7 92316

Net requirements



The initial inventory is added to period 1’s scheduled receipts and placed in period 1 of the projected on handreceipts and placed in period 1 of the projected on handline. In this case, assume that the initial inventory is 16 Add period 1’s scheduled receipt (7) and initial 16. Add period 1 s scheduled receipt (7) and initial inventory (16) to obtain the projected on handamount for period 1 (23)

14-29

amount for period 1 (23).

1 2 3 4 5



Projected on hand

Net requirements

7 92313Net requirements



-13

Subtract the projected on hand amount for period 1 Subt act t e p ojected o a d a ou t o pe od (23) from period 1’s gross requirement (10) to find the net requirement (-13). q ( )

14-30

1 2 3 4 5



Projected on hand

Net requirements

7 92313

22Net requirements



-13

If the net requirement is negative or zero, that q gamount (13) is added to the period 2’s scheduled receipt (9) to find the period 2’s projected on hand p ( ) p p jamount (22).

14-31

1 2 3 4 5



Projected on hand

Net requirements

7 92313

227Net requirements



-13 -7

Subtract the projected on hand amount for period 2 Subt act t e p ojected o a d a ou t o pe od (22) from period 2’s gross requirement (15) to find the net requirement (-7).q ( )

14-32

1 2 3 4 5



Projected on hand

Net requirements

7 92313

227

7Net requirements



-13 -7

If the net requirement is negative or zero, that If the net requirement is negative or zero, that amount (7) is added to the period 3’s scheduled receipt (0) to find the period 3’s projected on hand ece pt (0) to d t e pe od 3 s p ojected o a d amount (7).

14-33

1 2 3 4 5



Projected on hand

Net requirements

7 92313

227

713Net requirements



-13 -7 13

Subtract the projected on hand amount for period 3 (7) from period 3’s gross requirement (20) to find the (7) from period 3 s gross requirement (20) to find the net requirement (13). If the net requirement is positive an order receipt must be planned to cover positive, an order receipt must be planned to cover that amount.

14-34

1 2 3 4 5



Projected on hand

Net requirements

7 92313

227

713Net requirements



-13 -7 1313

If lot-for-lot lot sizing is being used, the planned order receipt is equal to period 3’s net requirementreceipt is equal to period 3 s net requirement.

14-35

1 2 3 4 5



Projected on hand

Net requirements

7 92313

227

713Net requirements



-13 -7 1313

13

The planned order receipt is then offset (moved

3

The planned order receipt is then offset (moved forward in time) to allow for the lead time. This is the planned order release.planned order release.

14-36

1 2 3 4 5



Projected on hand

Net requirements

7 92313

227

713 12Net requirements



-13 -7 1313

13

1212

12

Repeat the steps for period 4.

3

Repeat the steps for period 4.

14-37

1 2 3 4 5



Projected on hand

Net requirements

7 92313

227

713 12 5Net requirements



-13 -7 1313

13

1212

12

55

5

Repeat the steps for period 5

3 5

Repeat the steps for period 5

14-38

In-Class Exercise (See also a handout)

MRP Logic Based on Bill of Materials

A

B(2) C(3)

Master production schedule: 100 in week 5

Item On hand Lead Time Scheduled ReceiptsA 15 1 0A 15 1 0B 20 2 0C 10 1 15 i k 2

14-39

C 10 1 15 in wk 2

Net Level 0 Items A

1 2 3 4 5

Gross requirementsItem A

B(2) C(3)100Scheduled receipts

Projected on hand 15Net requirements


Planned-order releasesPlanned order releases

14-40

Net Level 0 Items A

1 2 3 4 5


B(2) C(3)100Scheduled receipts

Projected on hand 15 1515 151585Net requirements



85

Planned order releases

14-41

Net Level 0 Items A

B(2) C(3)1 2 3 4 5


100Scheduled receipts




8585


14-42

Net Level 0 Items A

B(2) C(3)1 2 3 4 5


100Scheduled receipts




8585

85Planned-order releases 85

Lead Time = 1 from data

14-43

Net Level 1 ItemsA1 2 3 4 5

G iItem A

100B(2) C(3)

Gross requirements

Scheduled receipts

Projected on hand

100

15 1515 1515Projected on hand

Net requirements


15 1515 15158585

Planned-order releases 851 2 3 4 5Item B 85 x 2

Gross requirements

Scheduled receipts

P j t d h d

170

20Projected on hand

Net requirements


20

14-44

p



G iItem A

100B(2) C(3)

Gross requirements

Scheduled receipts

Projected on hand

100


Net requirements


15 1515 15158585

Planned-order releases 851 2 3 4 5Item B 85 x 2

Gross requirements

Scheduled receipts

P j t d h d

170

20 20 20 20Projected on hand

Net requirements


20 20 20 20150

14-45

p



G iItem A

100B(2) C(3)

Gross requirements

Scheduled receipts

Projected on hand

100


Net requirements


15 1515 15158585

Planned-order releases 851 2 3 4 5Item B

Gross requirements

Scheduled receipts

P j t d h d

170


Net requirements


20 20 20 20150150

14-46

p

Planned-order releases150


G iItem A

100B(2) C(3)

Gross requirements

Scheduled receipts

Projected on hand

100


Net requirements


15 1515 15158585

Planned-order releases 851 2 3 4 5Item B

Gross requirements

Scheduled receipts

P j t d h d

170


Net requirements


20 20 20 20150150

14-47

p


150Lead Time = 2 from data

Net Level 1 ItemsA1 2 3 4 5Item A

100B(2) C(3)

Gross requirements

Scheduled receipts

Projected on hand

100


Net requirements


15 1515 15158585

Planned-order releases 851 2 3 4 5Item C 85 x 3

Gross requirements

Scheduled receipts

P j t d h d

15255

10Projected on hand

Net requirements


10

14-48

p



100B(2) C(3)

Gross requirements

Scheduled receipts

Projected on hand

100


Net requirements


15 1515 15158585


Gross requirements

Scheduled receipts

P j t d h d

15255

10 25Projected on hand

Net requirements


10 25

14-49

p



100B(2) C(3)

Gross requirements

Scheduled receipts

Projected on hand

100


Net requirements


15 1515 15158585


Gross requirements

Scheduled receipts

P j t d h d

15255


Net requirements


10 25 25 25230230

14-50

p


230Lead Time = 1 from data

Pr du t Stru tur TrProduct Structure Tree

A

B(4) C(2)B(4) C(2)

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

14-51

Example: MRP System

MRP TableItem A Lot size: Lot for Lot

Lead Time 2 weeksPeriod

1 2 3 4 5 6 7

A1 2 3 4 5 6 7

Gross requirement 0 150 0 120 0 150 120Scheduled receipts 0 120 0 0 0 0 0Projected on-hand inventory 37 157 7 7 0 0 0Net requirements -37 -7 -7 113 0 150 120Planned receipts 0 0 0 113 0 150 120Planned order releases 0 113 0 150 120 0 0

B(4)MRP TableItem A Lot size: Lot for Lot


1 2 3 4 5 6 7



1 2 3 4 5 6 7B(4) C(2)1 2 3 4 5 6 7Gross requirement 0 150 0 120 0 150 120Scheduled receipts 0 120 0 0 0 0 0Projected on-hand inventory 37 157 7 7 0 0 0Net requirements -37 -7 -7 113 0 150 120Planned receipts 0 0 0 113 0 150 120Planned order releases 0 113 0 150 120 0 0

1 2 3 4 5 6 7Gross requirement 0 150 0 120 0 150 120Scheduled receipts 0 120 0 0 0 0 0Projected on-hand inventory 37 157 7 7 0 0 0Net requirements -37 -7 -7 113 0 150 120Planned receipts 0 0 0 113 0 150 120Planned order releases 0 113 0 150 120 0 0

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



1 2 3 4 5 6 7Gross requirement 0 150 0 120 0 150 120Scheduled receipts 0 120 0 0 0 0 0



1 2 3 4 5 6 7Gross requirement 0 150 0 120 0 150 120Scheduled receipts 0 120 0 0 0 0 0Projected on hand inventory 37 157 7 7 0 0 0



1 2 3 4 5 6 7Gross requirement 0 150 0 120 0 150 120Scheduled receipts 0 120 0 0 0 0 0

14-52

Projected on-hand inventory 37 157 7 7 0 0 0Net requirements -37 -7 -7 113 0 150 120Planned receipts 0 0 0 113 0 150 120Planned order releases 0 113 0 150 120 0 0

Projected on-hand inventory 37 157 7 7 0 0 0Net requirements -37 -7 -7 113 0 150 120Planned receipts 0 0 0 113 0 150 120Planned order releases 0 113 0 150 120 0 0

pProjected on-hand inventory 37 157 7 7 0 0 0Net requirements -37 -7 -7 113 0 150 120Planned receipts 0 0 0 113 0 150 120Planned order releases 0 113 0 150 120 0 0

MRP Dynamics• Modes of operation

– regenerative - batch mode– net change - on-line, real time mode

• System nervousness - frequent changes of y q ginputs to a net change in MRP system

• Pegging - tracing upward in the BOM (Bill of Pegging tracing upward in the BOM (Bill of material) from the component to all of the parent itemsparent items

14-53

MRP nervousnessIt

Before

1 2 3 4 5

Gross requirements

Scheduled receipts

Item10 15 20 12 57 9Before

demand change

p

Projected on hand

Net requirements

23-13

22-7

713 12 5

12

16

change Planned-order receipts

Planned-order releases 13 12 5

13 12 5

1 2 3 4 5


10 23 20 12 5

After demand change

Scheduled receipts

Projected on hand

N i

7 92313

221

16gNet requirements



-13 11

1

14-54

Planned order releases 1

Other Considerations

• Safety Stock• L t i i• Lot sizing

– Lot-for-lot ordering– Economic order quantity– Fixed-period orderingFixed period ordering– Part-period model

14-55

MRP Outputs

• Planned orders - schedule indicating the amount and timing of future orders.amount and timing of future orders.

• Order releases - authorization for the i f l d dexecution of planned orders.

• Changes - revisions of due dates or gorder quantities, or cancellations of ordersorders.

14-56

Benefits of MRP

• Low levels of in-process inventories• Abilit t t k t i l i t• Ability to track material requirements• Ability to evaluate capacity requirementsy p y q• Means of allocating production time

14-57

Desirable Characteristics for MRPImplementationImplementation

• An effective computer system/Accurate An effective computer system/Accurate computerized bills of material (BOM) and inventory status filesinventory status files

• Manufactures discrete products that are processed through many production stepsthrough many production steps

• Processes requiring long processing ti /R l ti l li bl d t bl l d titimes/Relatively reliable and stable lead times

• Master schedule frozen for a period of time sufficient to procure materials without expediting and confusion

14-58• Top management support and commitment

MRP II

• Expanded MRP with an emphasis placed on integrating

– Financial planningp g– Marketing– Engineering– Purchasing– Manufacturing

14-59

Revenue, Account Concepts in MRPII

E d It

Revenue, Account receivable/cash inflow

End Item

Week 1 2 3 4 51 2 3 4 5

Gross requirement 150 0 0 120 0 Scheduled receipts 230 0 0 0 0 Projected on hand inventory 37 117 117 117 227 227Projected on-hand inventory 37 117 117 117 227 227Planned receipts 230 Planned order releases 230 230

Inventory holding costAccount Account

payable/cash outflow Ordering costs/Cash

“Cash flow projection”

14-60

h outflow Ordering costs/Cash outflow

p j

ERP (Enterprise Resource Planning)

• ERP represents an expanded effort to integrate standardized record-keeping that will permit information sharing among different areas of an organization in order to manage the whole

t ff ti lsystem more effectively.

• Refer to “The ABCs of ERP” in your textbook.

14-61

Ch 14 Chapter 14 MRP & ERP

• Discussion questions– 1, 2, 3, 8, 13

• Solved problemSo ed p ob e– 1, 2

A i d bl• Assigned problems- 1, 2 (Also review Example 2 in your Textbook)

14-62

O !!!WOW!!!

14-63

Documents

MRP and ERP - Soganghome.sogang.ac.kr/.../Lists/b6/Attachments/13/chapter14.instructor.pdf · (Chapter 14) D(2) E(1) D(3) F(2) ... As a result of disaggregating process of aggregate