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Wootinun Sung-Ong December 2002
1. The historical development of MRP systems up to today’s ERP systems
Nowadays, Enterprise Resource Planning (ERP) systems become a significant tool enhancing the business performance such as production lead-time, supply chain management. In 1972, five managers from IBM left the company to establish a new company, with the ERP vision, called SAP (Systems, Applications and Products) (Cedillo). Today, with 33% share of market, SAP is the leader in ERP software market. Turning to Oracle, it has not been in the market for a long time compared to SAP, but, with its strong database systems, Oracle gains 15% market share. The third supplier is People Soft, which is holding 8% market share. The last player is JD Edwards, which is focusing on customer relation management. (Source: http://www.du.edu/~atanner/ keyplayers.htm) Figure 1 Key players in ERP software market
45 40 35 % of market share 30 25 20 15 10 5 0 SAP Oracle People Soft JD Edwards Others
(Source: adapted from http://www.du.edu/~atanner/ keyplayers.htm)
Wootinun Sung-Ong – December 2002
but enterprise. and financial. 2001). The MRP facilitates the organization calculating the required quantity of particular part. It expands the concept of MRP II so as to include other business function such as human resource. the founder of modern MRP is Oliver Wight. marketing. (2001) Wootinun Sung-Ong – December 2002 2 . the most significant issue for ERP is not resource or planning as its acronym. During 1980s and 1990s. the idea of MRP I was expanded to manufacturing resource planning (MRP II) which include other business issues such as financial and marketing (Slack et al. As a result. with associating with Joseph Orlicky. Figure 2 Materials requirements planning (MRP I) schematic Customer orders Forecasted demand Master production schedule (MPS) Bill of materials (BOM) Materials Requirements Planning (MRP) Inventory records Purchase orders Materials plans Work orders Source: Slack et al. Accordingly. 2001). the concept of MRP has been developed to the Enterprise Resource Planning (ERP). Moreover. As noted by Koch (2002). information can flow through an industry chain. it also integrates the e-commerce and electronic data interchange (EDI) technology enhancing the organisation performance.The development of ERP is based on Materials Requirements Planning (MRP I). As noted by Slack (2001). The original MRP concept was introduced since 1960s. which need in production (Slack et al.
which (1) demand of the end product is independent or (2) an end product orders may be place periodically. As noted by Starr (1996). Logic of MRP The main purpose of Material Requirement Planning (MRP I) is to facilitate the calculation of requirements of materials and timing (Slack. MPS identify the quantity of the particular products that manufacturer is going to produce. Primarily. MPS needs combining two independent demands Wootinun Sung-Ong – December 2002 3 . 2001). To achieve this. the MRP system is suitable for products that do not satisfy the order point policy (OPP) models. Figure 3 Inputs into the master production schedule Known orders Forecast demands Key capacity constraints Sister plant demand Master Production Schedule Inventory levels R&D demand Spares demand Exhibition/ promotion requirement Safety stock requirements Source: Slack et al.2. (2001) Master Production Schedule The Master Production Schedule (MPS) is the significant input that drives the MRP system. To achieve this. inventory data and master production schedule into two main outputs namely planned order releases and reschedule notices (Lunn. it needs to covert three inputs namely bill of material. 1992).
MPS must not exceed the production plan or capacity plan. parts. 1992). 2001). and raw materials that go into a parent assembly showing the quantity of each required to make an assembly” (Starr. Moreover. 1996). and indented BOM (Starr. typically. a bill of material is: “a listing of all of the subassemblies. MPS have to ensure that raw materials are available to meet the demands (Lunn. The details of materials. are presented as a single level while. Figure 4 Different shapes of product structure Type ‘A’-shape ‘T’-shape ‘V’-shape ‘X’-shape Number of products small large large large Number of materials large small small large Advantages economic of scale cost reduction. multi levels. (2001) Wootinun Sung-Ong – December 2002 4 . 1991). intermediates.namely customer orders and forecasted demand as shown in figure 2 (Bedworth. Generally. a time bucket for MPS is one week. 1996). Crucially. Turning to time frame for MPS. the minimum length of planning horizon should be equal to the longest leadtime of item in process. the MPS is also considered from other issues such as key capacity constraints. which clarifies the structure of an independent demand item (Slack et al. Furthermore. 2001). there are three significant types of BOM namely single level. in single-level BOM. customisation Source: Slack et al. 2001). inventory levels and safety stock requirement as shown in figure 3 (Slack et al. Bill of Material Bill of Material (BOM) is another input of MRP system. this information is shown as several levels (Slack et al. In addition. in indented BOM. As defined by the American Production and Inventory Control Society (APICS). customisation customisation economic of scale.
by using this approach. the organization Wootinun Sung-Ong – December 2002 5 . 2001). this file may include the stable data such as part description and the unit of measure (Slack et al. 2001). 1992). 2001). 2001). As a result. this may cause an inaccuracy of the result compared to a reality.Turning to the shape of the product structure. The location file The location file facilitates the MRP system locating the location of any particular part (Slack et al. In other words. they may be only numbers or the combination of numbers and alphabets. the organization may have a poor utilisation of a location (Lunn. This number is unique for each part. 2001) To sum up. the first element of the item master file is a part number. Generally. However. which is assigned to all components (Slack et al. 2001). Finally. in many case. the organization may have to update the transaction file periodically. The transaction file So as to calculate the net requirement of any particular part. bill of material facilitate MRP application checking the components for each item that is going to be produced. 2001): The item master file In order to identify a particular part. the MRP system needs the transaction file. This file. In practice. which contains inventory levels of each part (Slack et al. Inventory Data Inventory data facilitate MRP system identifying inventory status so as to calculate a ‘net’ requirement (Slack et al. it enables MRP to identify that which part and how many of them is required for any particular item (Slack et al. Alternatively. inventories may be stored in a fixed location. 2001). Consequently. calculate inventory levels by referring to all transactions such as receipts into stock. inventory data consist of three files as follows (Slack et al. so they are easy to be found and managed. this file also contains a leadtime for each particular item. Slack point out that there are four shapes of product structure as shown in figure 4 (Slack et al. in practice. In some case. Moreover. logically.
may store their component randomly so as to utilise their space (Slack et al. 2001). the organization may take an advantage from random location by implementing a first-in-first-out method. In this case. 2001). Figure 5 The MRP netting process Level 0 Master production schedule Inventory file Works order for level 0 parts Level 1 Bill of materials Inventory file Works and purchase orders for level 1 parts Level 2 Bill of materials Inventory file Works and purchase orders for level 2 parts Source: Slack et al. (2001) Wootinun Sung-Ong – December 2002 6 . Further. the location file may become significant issue because one particular component may be stored in many places. which ensures that the inventory is picked in order of its time in warehouse (Slack et al.
the MRP perform the calculation by using the logic as shown in figure 5 (Slack et al. the organization. which decided to implement MRP system. in practice. 2002). 1992). usually competes in that particular market in a long term. customization. Generally. For example. the organization has to invest in hardware and software. For instance. Accordingly. For instance. which is a fundamentally requirement of MRP system. 2001). Uncertainty with software Nowadays. there are a number of issues related to disadvantages of MRP systems. Why certain business are highly critical of their MRP systems The MRP system is the excellent idea. in particular.MRP calculation In calculation. Firstly. the organization has to spend the capital in activities such as training. the organization may encounter the intensification of competitive rivalry because these high fixed costs lead to a high exit barriers for all rivals (Ward and Peppard. BOM. Their performance is considerably excellent. there are a number of MRP software packages in the existing market. the organization has the directly costs related to the project implementation. 3. the software package usually not consolidates with the organization infrastructures and strategies. In practice. However. there are some indirectly costs such as increasing of salaries and maintenance. the MRP system uses these three inputs (MPS. Wootinun Sung-Ong – December 2002 7 . and Inventory Data) to establish planned order releases and reschedule notices (Lunn. regards the industry competitive forces. Cost The first significant disadvantage of MRP systems is that it needs a large capital investment. Finally. post depression and replacing people (Cedillo). which cannot foresee at the developing and design state. testing. In practice. the organization may find that the benefits from implementing the MRP system are too small compared to the investment. Moreover. consultants. the organization has to encounter the hidden costs. However. regards implementation of MRP system.
increase a number of bugs. the core module of the software may be not appropriate. Moreover. they can help and enhance the MRP system Wootinun Sung-Ong – December 2002 8 .the software provider usually supplies a customization for the particular customer. the company may encounter inflexibility problem because of outsourcing. However. when the MRP system has been implemented. as MRP require high investment and need a long period of time. they may decide to outsource this task to the software provider. as noted by Grindley (1995). the entire organization may have to rely on the central database system to enhance an information flow. For example. from traditional operation that each department evaluates their own information. one of the critical success factors for MRP implementation is to ensure that education and training is employed to the organization (SM Thacker & Associates). Accordingly. the MRP system is a long-term strategy (Starr. Additionally. there is no doubt that the business environment change frequently. the outsourcing solution may lead to a failing to translate business or operation strategies because of poor coordination. Time Obviously. Finally. Therefore. modifying the MRP software may slowdown the project. the organization may find that they still need some periods of times so as to configure and improve the implemented MRP system. As employees know what they are doing. Furthermore. In practice. if the company have not researched and investigate the MRP solution before purchasing. 2002). with the MRP system. Nevertheless. hence the MRP system should be able to adapt to these changes. and increase difficulties for upgrading software (Koch. the organization may encounter financial problems such as negative cash flow and poor liquidity. it would make a significant change to an existing operation system (Cedillo). In some case. Training Generally. An average time for implementation process is approximately 12-18 months (Cedillo). these may lead to an increasing of the directly costs as mentioned above. many companies realize that adjusting the MRP system is not a simple and straightforward task. Additionally. 1996).
Neff (1992). Inc. Irwin. Only technical people or software provider cannot raise its performance. Bettini. Available from: http://www. In contrast.cio. St Ives plc Koch. et al. 80% of total implementation costs are spent on hardware and software. T. The reason is that MRP system cannot generate a high performance if it lack of people involvement. the organization may encounter an inaccuracy of the result. B. Moreover. generates other 80% profits.du. the most significant issue for successfully implementing MRP system is not the choice of software but the involvement of people. [online]. United of America: Richard D. the MRP system needs an acceptance from staff in organization since it needs an excellent flow of information. References Bedworth. Also. C (7/2/02) The ABCs of ERP. [online]. United States: McGraw-Hill Inc. while generating only 20% of profits. Computer-integrated design and manufacturing. Involvement and Acceptance As noted by Bettini (1996). Enterprise Resource Planning. England: Clays Ltd. He also point out that.com/research/erp/edit/erpbasics. Wootinun Sung-Ong – December 2002 9 .ollie.performance. it should involve the business strategy. MRP: Integrating Material Requirement and Modern Business. sometimes it is difficult to change the way people perform a task especially when people have done some particular tasks for a long time.edu/~atanner/index. if the MRP system is driven by poor skill users.D.pdf [Accessed: 11 December 2002] Cedillo. which is used for preparing organization. Available from: http://www. Moreover. Available from: http://www. As the MRP system is a long-term resource. the remaining 20% of investment.com/articles/psequation. (1991). [online]. and S. D. In contrast.htm [Accessed: 10 December 2002] Gates. The People/Software Equation. However. typically. (1999). P.html [Accessed: 12/12/02] Lunn. Business @ The Speed of Thought. O. (1996). it needs a top management commitment. these activities may require a high investment and a period of time.
Wootinun Sung-Ong – December 2002 10 . Available from: http://www. S. Sussex: John Wiley & Sons Ltd.uk/MRP2. Enterprise Resource Planning. United state: Boyd & Fraser. Martin (1996). Operation Management.Slack.smthacker.. Operation Management: A Systems Approach. SM Thacker & Associates. N. and J. Johnston (2001).htm [Accessed: 11 December 2002] Starr. (3rd Edition). J. K. Chambers and R.co. Peppard (2002). Ward. (3rd Edition). Strategic Planning for Information Systems. [online]. Essex: Peason Education Limited.
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