Material Requirements Planning

and Enterprise Resource Planning

Dr. Ron Lembke

Historical Perspective

ERP- Enterprise
Resource Planning

MRP II – Manufacturing
Resource Planning
mrp – material
requirements
planning
MRP Crusade (1975)

 Material Requirements Planning

 Make sure you have enough parts when
you need them
 Take future demands, factor in lead times
(time phase), compare to on hand, order
 Determine order size and timing

 Control and plan purchasing vs. OSWO

inventory management
Closed-Loop MRP

 Capacity Consideration:
 Part routings
 Calculate loads on each work station

 See if scheduled load exceeds capacity

 Lead-time long enough to allow some

shuffling to make plan feasible
MRP II -- Manufacturing
Resource Planning
 “A method for the effective planning of all
resources of a manufacturing company” (APICS
def.)
 Financial accounting incorporated
 Sales
 Operations Planning
 Simulate capacity requirements of different possible
Master Production Schedules
 1989, $1.2B MRPII sales in U.S., one third of total software sales
 MRP Crusade
Success? Begins
ERP differences

 Material planning
 Capacity planning
 Product design
 Information warehousing
 All functions in the entire company operate
off of one common set of data
 Instantaneous updating, visibility
ERP Sales

 Y2K: Worldwide sales of top 10 vendors

 1995 $2.8 B
 1996 $4.2 B

 1997 $5.8 B $3.2 B SAP

 Fortune survey: 44% reported spending
at least 4 times as much on
implementation as on software
ERP Challenges

 Modules assume “best practices:”

 Change software to reflect company ($)
 Change company to follow software (?)

 Accuracy of data
 Drives entire system
 Ownership of / responsibility for

 Ability to follow structure

ERP Novel?
 “Goal-like” novel
 Hero learns more about ERP,
deciding if it is right for his
company
 Company rushes through
installation
 General introduction to ERP
systems, what they do, how
different from MRP
 SAP R/3 screen shots
The Heart of the Matter - mrp

 System for organizing WIP releases

 Work in Process – work that has been started, but
not yet finished
 Consider Lead Time (LT)for each item
 Look at BOM to see what parts needed
 Bill of Materials – what goes into what
 Release so they will arrive just as needed
Bike Production

Frame
OCLV Carbon

Drivetrain
Wheels
Assemble
Parts
Seat, Bars Arrive Due

1 7 14 21 28 4 11 18
Mar Apr
Snow Shovels

 Example – Snow Shovel

 Order quantity is 50 units
 LT is one week
 Simple Bill of Materials - BOM
MRP Table

1 2 3 4 5
Gross Requirements 10 40 10
Scheduled receipts (begin) 50
Projected Available
Balance (ending) 4 54 44 44 4
Net Requirements 6
Planned Order Receipts
Planned Order Releases

6 units short
MRP Table

1 2 3 4 5
Gross Requirements 10 40 10
Scheduled receipts (begin) 50
Projected Available
Balance (ending) 4 54 44 44 4
Net Requirements 6
Planned Order Receipts 50
Planned Order Releases 50

Order 50 units week earlier

Ending Inventory

1 2 3 4 5
Gross Requirements 10 40 10
Scheduled receipts (begin) 50
Projected Available
Balance (ending) 4 54 44 44 4 44
Net Requirements 6
Planned Order Receipts 50
Planned Order Releases 50

Ending inventory
Terminology

 Projected Available balance

 Not on-hand (that may be greater)
 Tells how many will be available
 Available to Promise – the units aren’t spoken for
yet, we can assign them to a customer
 Planned order releases ≠ scheduled receipts
 Only when material has been committed to their
production
 Move to scheduled receipts as late as possible
 Preserves flexibility
1605 Snow Shovel

1605
Snow Shovel

13122 062 Nail (4)

048 Top Handle
14127 Scoop-shaft
314 scoop assembly Assy
Rivet (4) connector

118 Shaft (wood)

314 scoop assembly

314 scoop assembly

019 Blade (steel)

14127 Rivet (6)

2142 Scoop (aluminum)

13122 Top Handle Assembly
13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118 129 Top Handle 082 Nail (2)
Top handle Bracket (steel)
Coupling (steel)
BOM Explosion

 Process of translating net requirements

into components part requirements
 Take into account existing inventories
 Consider also scheduled receipts
BOM Explosion Example

 Need to make 100 shovels

 We are responsible for handle
assemblies.
13122 Top Handle Assembly
13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118 129 Top Handle 082 Nail (2)
Top handle Bracket (steel)
Coupling (steel)
Net Requirements

Sch Gross Net

Part Description Inv Rec Req Req
Top handle assy 25 -- 100 75
Top handle 22 25
Nail (2 required) 4 50
Bracket Assy 27 --
Top bracket 15 --
Top coupling 39 15
Net Requirements
Sch Gross Net
Part Description Inv Rec Req Req
Top handle assy 25 -- 100 75
Top handle 22 25 75 28
Nail (2 required) 4 50 150 96
Bracket Assy 27 -- 75 48
Top bracket 15 --
Top coupling 39 15
13122 Top Handle Assembly
13122 Top Handle Assembly

11495 Welded
Top handle bracket
Assembly

457 Top handle

(wood)
1118 129 Top Handle 082 Nail (2)
Top handle Bracket (steel)
Coupling (steel)
Net Requirements
Sch Gross Net
Part Description Inv Rec Req Req
Top handle assy 25 -- 100 75
Top handle 22 25 75 28
Nail (2 required) 4 50 150 96
Bracket Assy 27 -- 75 48
Top bracket 15 -- 48 33
Top coupling 39 15 48 --
Timing of Production

 This tells us how many of each we need

 Doesn’t tell when to start
 Start as soon as possible?

 Dependent events (oh no, not that!)

13122 Top Handle Assy

Order policy: Lot-for-lot

13122 Top handle

LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending) 25 25 5 5
Net Req 5
Planned Order Receipt 5
Planned Order Release 5
13122 Top Handle Assy-2

Order policy: Lot-for-lot

13122 Top handle

LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending) 25 25 5 5 0 0 0 0 0 0 0
Net Req 5 20 5 35 10
Pl Order Rec 5 20 5 35 10
Pl Order Rel 5 20 5 35 10
457 Top Handle
13122 Top handle
LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending) 25 25 5 5 0 0 0 0 0 0 0
Net Req 5 20 5 35 10
Pl Order Rec 5 20 5 35 10
Pl Order Rel 5 20 5 35 10
One handle for
Each assembly
LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 5 20 5 35 10
Sch receipts 25
Proj. Avail Bal
(ending) 22 22
Net Req
Pl Order Rec
Pl Order Rel
457 Top Handle

Order policy: Lot-for-lot

LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 5 20 5 35 10
Sch receipts 25
Proj. Avail Bal
(ending) 22 22 17
Net Req
Pl Order Rec
Pl Order Rel
457 Top Handle

Order policy: Lot-for-lot

LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 5 20 5 35 10
Sch receipts 25
Proj. Avail Bal
(ending) 22 22 17 42 22 17 17 0 0 0 0
Net Req 18 10
Pl Order Rec 18 10
Pl Order Rel 18 10
082 Nail (2 required)
13122 Top handle
LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending) 25 25 5 5 0 0 0 0 0 0 0
Net Req 5 20 5 35 10
Pl Order Rec 5 20 5 35 10
Pl Order Rel 5 20 5 35 10
Two nails for
Each assembly LT = 1
Lot Size = 50 1 2 3 4 5 6 7 8 9 10
Gross Req 10 40 10 70 20
Sch receipts 50
Proj. Avail Bal
(ending) 4 54
Net Req
Pl Order Rec
Pl Order Rel
082 Nail (2 required)

LT = 1
Lot Size = 50 1 2 3 4 5 6 7 8 9 10
Gross Req 10 40 10 70 20
Sch receipts 50
Proj. Avail Bal
(ending) 4 54 44 44 4 44 44 24 4 4 4
Net Req 6 26
Pl Order Rec 50 50
Pl Order Rel 50 50
11495 Bracket Assembly
13122 Top handle
LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 20 10 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending) 25 25 5 5 0 0 0 0 0 0 0
Net Req 5 20 5 35 10
Pl Order Rec 5 20 5 35 10
Pl Order Rel 5 20 5 35 10
One bracket for
Each assembly
LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 5 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending) 27
Net Req
Pl Order Rec
Pl Order Rel
11495 Bracket Assembly

Order policy: Lot-for-lot

LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 5 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending) 27 27 22 22 2 0 0 0 0 0 0
Net Req 3 35 10
Pl Order Rec 3 35 10
Pl Order Rel 3 35 10
129 Top Bracket

LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 5 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending) 27 22 22 2
Net Req 3 35 10
Pl Order Rec 3 35 10
Pl Order Rel 3 35 10

LT = 1 1 2 3 4 5 6 7 8 9 10
Gross Req 3 35 10
Sch receipts
Proj. Avail Bal
(ending) 15
Net Req
Pl Order Rec
Pl Order Rel
129 Top handle bracket

Order policy: Lot-for-lot

LT = 1 1 2 3 4 5 6 7 8 9 10
Gross Req 3 35 10
Sch receipts
Proj. Avail Bal
(ending) 15 15 15 12 12
Net Req 23 10
Pl Order Rec 23 10
Pl Order Rel 23 10
1118 Top handle coupling
LT = 2 1 2 3 4 5 6 7 8 9 10
Gross Req 5 20 5 35 10
Sch receipts
Proj. Avail Bal
(ending) 27 22 22 2
Net Req 3 35 10
Pl Order Rec 3 35 10
Pl Order Rel 3 35 10

LT = 3
Safety Stock = 20 1 2 3 4 5 6 7 8 9 10
Gross Req 3 35 10
Sch receipts
Proj. Avail Bal
(ending) 39
Net Req
Pl Order Rec
Pl Order Rel
1118 Top handle coupling

Order policy: Lot-for-lot

LT = 3
Safety Stock = 20 1 2 3 4 5 6 7 8 9 10
Gross Req 3 35 10
Sch receipts 15
Proj. Avail Bal
(ending) 39 39 54 51 51 16
Net Req 4
Pl Order Rec 4
Pl Order Rel 4
1118 Top handle coupling

LT = 3
Safety Stock = 20 1 2 3 4 5 6 7 8 9 10
Gross Req 3 35 10
Sch receipts 15
Proj. Avail Bal
(ending) 39 39 54 51 51 20 20 20 20 20 20
Net Req 4 10
Pl Order Rec 4 10
Pl Order Rel 4 10
Other considerations
 Safety stock if uncertainty in demand or supply
quantity
 Don’t let available go down to 0
 Safety LT if uncertainty in arrival time
 Place order earlier than necessary
 Order quantities
 EOQ – Economic Order Quantity, Fixed Size
 If that’s not enough, order what you need, OR order
two or more of the Fixed Size
 Lot-For-Lot, Periodic Order quantity, others
Summary

 Demand for final products

 Compute needs for it and
 Dependent Demand for components

 Look at all parts of the Bill of Materials

 Complete the Table for each
 Bottom row (Pl Order Releases) becomes
top row (Gross Requirements) of input
components (also called children)
 Multiplied by # needed for each parent