OM slides

1. 15-1
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
Chapter 15
MRP and ERP

2. 15-2
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
• Material requirements planning (MRP):
Computer-based information system for
ordering and scheduling of dependent
demand inventories
MRP

3. 15-3
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
• Dependent demand: Demand for items
that are subassemblies or component
parts to be used in production of
finished goods.
Dependant Demand

4. 15-4
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
Dependent vs Independent Demand
Time
Time Time
Time
Demand
Demand
Stable demand
“Lumpy” demand
Amountonhand
Amountonhand
Safety stock

5. 15-5
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
MRP Inputs MRP Processing MRP Outputs
Master
schedule
Bill of
materials
Inventory
records
MRP computer
programs
Changes
Order releases
Planned-order
schedules
Exception reports
Planning reports
Performance-
control
reports
Inventory
transaction
Primary
reports
Secondary
reports

6. 15-6
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
• Master Production Schedule
• Time-phased plan specifying timing
and quantity of production for each
end item.
• Material Requirement Planning
Process
MPR Inputs

7. 15-7
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & 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.

8. 15-8
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
Planning Horizon
1 2 3 4 5 6 7 8 9 10
Procurement
Fabrication
Subassembly
Assembly
Figure 14-4

9. 15-9
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
Bill-of-Materials
Bill of materials: 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.

10. 15-10
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
Product Structure Tree
Chair
Seat
Legs (2)
Cross
bar
Side
Rails (2)
Cross
bar
Back
Supports (3)
Leg
Assembly
Back
Assembly
Level
0
1
2
3
Figure 15-5

11. 15-11
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
Assembly Time Chart
1 2 3 4 5 6 7 8 9 10 11
Procurement of
raw material D
Procurement of
raw material F
Procurement of
part C
Procurement of
part H
Procurement of
raw material I
Fabrication
of part G
Fabrication
of part E
Subassembly A
Subassembly B
Final assembly
and inspection
Figure 15-8

12. 15-12
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
MRP Processing
• Gross requirements
• Schedule receipts
• Projected on hand
• Net requirements
• Planned-order receipts
• Planned-order releases

13. 15-13
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & 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.

14. 15-14
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
MRP Secondary Reports
• Performance-control reports
• Planning reports
• Exception reports

15. 15-15
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
Other Considerations
• Safety Stock
• Lot sizing
– Lot-for-lot ordering
– Economic order quantity
– Fixed-period ordering
– Part-period model

16. 15-16
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & 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.

17. 15-17
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
MRP Planning
Develop a tentative
master production
schedule
Use MRP to
simulate material
requirements
Convert material
requirements to
resource requirements
Firm up a portion
of the MPS
Is shop
capacity
adequate?
Can
capacity be
changed to meet
requirements
Revise tentative
master production
schedule
Change
capacity
Yes
No
Yes
No

18. 15-18
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
• 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
MRP in Services

19. 15-19
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & 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

20. 15-20
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
Requirements of MRP
• Computer and necessary software
• Accurate and up-to-date
– Master schedules
– Bills of materials
– Inventory records
• Integrity of data

21. 15-21
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
• Expanded MRP with and emphasis
placed on integration
– Financial planning
– Marketing
– Engineering
– Purchasing
– Manufacturing
MRP II

22. 15-22
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
Market
Demand
Production
plan
Problems?
Rough-cut
capacity planning
Yes No YesNo
Finance
Marketing
Manufacturing
Adjust
production plan
Master
production schedule
MRP
Capacity
planning
Problems?
Requirements
schedules
Adjustmasterschedule
MRP II

23. 15-23
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
MRP & ERP
• Enterprise resource planning (ERP): An
expanded effort to integrate
standardized record-keeping that will
permit information sharing throughout
the organization
ERP