13-1 MRP and ERP

Operations Management

William J. Stevenson

8th edition
13-2 MRP and ERP

MRP
13-3 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.
13-4 MRP and ERP

Independent and Dependent Demand

Independent Demand

A Dependent Demand

B(4) C(2)

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

Independent demand is uncertain.

Dependent demand is certain.
13-5 MRP and ERP

Dependent 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.
13-6 MRP and ERP

Dependent vs Independent Demand

Figure 13.1

Demand
Demand

“Lumpy” demand
Stable demand

Time Time
Amount on hand

Amount on hand

Safety stock
Time Time
13-7 MRP and ERP

MRP

 MRP begins with a schedule for finished goods that is

converted into a schedule of requirements for
subassemblies, component parts and raw materials needed
to produce the finished items in the specified time frame
 MRP is designed to answer the following questions
• What is needed ?
• How much is needed?
• When is it needed ?
13-8 MRP and ERP

Figure 13.2
MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
13-9 MRP and ERP

MRP Inputs

 Master Production Schedule

 A Bill of Materials

 An inventory records file

r e
c tu
t ru
S
u ct
rod me s
P ee T i
Tr ead
L
13-10 MRP and ERP

Master Schedule

 Master (production) schedule (MPS): states

which end items are to be produced, when
these are needed, and in what quantities.
• Example: A master schedule for end item
X:

Come from: customer orders, forecasts and orders from

warehouses to build up seasonal inventories
13-11 MRP and ERP

Master Schedule
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.
MRP works backward from the due date using
lead times and other information to determine
when and how much to order.
13-12 MRP and ERP

Planning Horizon
Figure 13.4

Assembly

Subassembly

Fabrication

Procurement

1 2 3 4 5 6 7 8 9 10
13-13 MRP and ERP

Bill-of-Materials

Bill of materials (BOM): 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.
13-14 MRP and ERP

Assembly Diagram & Product Structure Tree

13-15 MRP and ERP

Product Structure Tree

Figure 13.5

Level Chair
0

1 Leg Back
Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

3
13-16 MRP and ERP

Product Structure Tree

13-17 MRP and ERP

Example of Explosion Type

13-18 MRP and ERP

Product Structure

Clipboard

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Rivets (2)
Finished clipboard Pressboard (1)
13-19 MRP and ERP

Product Structure Tree

Clipboard Level 0

Pressboard Clip Ass’y Rivets

(1) (1) (2) Level 1

Top Clip Bottom Clip Pivot Spring

(1) (1) (1) Level 2

(1)
13-20 MRP and ERP

Indented BOM List

LEVEL ITEM UNIT OF MEASURE QUANTITY

0---- Clipboard ea 1
-1--- Clip Assembly ea 1
--2-- Top Clip ea 1
--2-- Bottom Clip ea 1
--2-- Pivot ea 1
--2-- Spring ea 1
-1--- Rivet ea 2
-1--- Press Board ea 1
13-21 MRP and ERP

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 …
13-22 MRP and ERP

Inventory Records File

DESCRIPTION INVENTORY POLICY

Item Pressboard Lead time 1

Item no. 734 Annual demand 5000
Item type Purch Holding cost 1
Product/sales class Comp Ordering/setup cost 50
Value class B Safety stock 0
Buyer/planner RSR Reorder point 39
Vendor/drawing 07142 EOQ 316
Phantom code N Minimum order qty 100
Unit price/cost 1.25 Maximum order qty 500
Pegging Y Multiple order qty
LLC 1 Policy code 3
13-23 MRP and ERP

Inventory Records File (cont.)

PHYSICAL INVENTORY USAGE/SALES

On hand 100 YTD usage/sales 1100
Location W142 MTD usage/sales 75
On order 100 YTD receipts 1200
Allocated 75 MTD receipts 0
Cycle 3 Last receipt 8/25
Last count 9/5 Last issue 10/5
Difference -2

CODES
Cost acct. 00754
Routing 00326
Engr 07142
13-24 MRP and ERP

Assembly Time Chart

Figure 13.7
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11
13-25 MRP and ERP

Time-phased Bills

Forward scheduling: start at today‘s date and schedule forward to

determine the earliest date the job can be finished. If each item takes one
period to complete, the clipboards can be finished in three periods
Backward scheduling: start at the due date and schedule backwards to
determine when to begin work. If an order for clipboards is due by
period three, we should start production now
13-26 MRP and ERP

MRP Processing Logic

 Based on the master schedule to determine the components
schedules for successively lower-level items throughout
the product structures.
 It calculates schedules for each of the time periods (usually
weekly) in the scheduling time horizon
• Gross requirements
• Schedule receipts
• Projected on hand
• Net requirements
• Planned-order receipts
• Planned-order releases
13-27 MRP and ERP

MRP Processing
 Gross requirements: Total expected demand for
an item or raw material in a time period.
 Scheduled receipts: Open orders scheduled to
arrive from vendors or elsewhere in the pipeline by
the beginning of a period.
 Projected on hand: Expected amount of inventory
that will be on hand at the beginning of each time
period:
Scheduled receipts + inventory carried forward
13-28 MRP and ERP

MRP Processing
 Net requirements: The actual amount that we
need to procure in each time period:
Gross requirements - projected on-hand
 Planned-order receipts: The quantity expected to
be received by the beginning of the period in which
it is shown.
 Planned-order releases: Planned amount to order
in each time period; planned-order receipts offset
by lead time.
13-29 MRP and 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.
13-30 MRP and ERP

Other Considerations

 Safety Stock
 Lot sizing
 Lot-for-lot ordering
 Economic order quantity
 Fixed-period ordering
13-31 MRP and ERP

MRP Table
13-32 MRP and ERP

Format of MRP

Week Number 0 1 2 3 4 5 6 7 8

Item:
Gross requirements

Scheduled receipts

Projected on hand

Net requirements

Planned-order receipts

Planned-order releases
13-33 MRP and ERP

Requirements of MRP

 Computer and necessary software

 Accurate and up-to-date
 Master schedules
 Bills of materials
 Inventory records
 Integrity of data
13-34 MRP and ERP

Example 1

Master Production Schedule

1 2 3 4 5
Clipboard 85 95 120 100 100

Item Master File

CLIPBOARD

On hand 25

On order 175 (Period 1)

(sch receipt)
Lot size L4L
13-35 MRP and ERP

MRP: Example 1 (cont.)

ITEM: CLIPBOARD PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25
Net Requirements
Planned Order Receipts
Planned Order Releases
13-36 MRP and ERP

MRP: Example 1 (cont.)

ITEM: CLIPBOARD PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25 115
Net Requirements 0
Planned Order Receipts
Planned Order Releases

(25 + 175) = 200 units available

(200 - 85) = 115 on hand at the end of Period 1
13-37 MRP and ERP

MRP: Example 1 (cont.)

ITEM: CLIPBOARD PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25 115 20
Net Requirements 0 0
Planned Order Receipts
Planned Order Releases

115 units available

(115 - 95) = 20 on hand at the end of Period 2
13-38 MRP and ERP

MRP: Example 1 (cont.)

ITEM: CLIPBOARD PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25 115 20 0
Net Requirements 0 0 100
Planned Order Receipts 100
Planned Order Releases 100

20 units available
(20 - 120) = -100 — 100 additional Clipboards are required
Order must be placed in Period 2 to be received in Period 3
13-39 MRP and ERP

MRP: Example 1 (cont.)

ITEM: CLIPBOARD PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25 115 20 0 0 0
Net Requirements 0 0 100 100 100
Planned Order Receipts 100 100 100
Planned Order Releases 100 100 100

Following the same logic Gross Requirements in Periods 4

and 5 develop Net Requirements, Planned Order Receipts, and
Planned Order Releases
13-40 MRP and ERP

Example 2
A firm that produces wood shutters has received two orders:
100 shutters—delivery at start of week 4
150 shutters—delivery at start of week 8
Each shutter has four wood sections and two frames. Wood sections
are made by the firm and fabrication takes one week. The frames
are ordered, and lead time is two weeks. Assembly of shutters
requires one week. There is a scheduled receipt of 70 wood
sections in week 1 (i.e. at the beginning of). Determine the size
and timing of planned-order releases necessary to meet delivery
requirements under each of these conditions:
1. Lot-for-lot ordering
2. Lot-size ordering with a lot size of 320 units for frames and 70
units for wood sections.
13-41 MRP and ERP

Example 2
a. Develop an MPS.
Week 1 2 3 4 5 6 7 8
Quantity 100 150

b. Develop a product
structure tree.
Shutter

Frames (2) Wood sections (4)

13-42 MRP and ERP

Example 2

Week 1 2 3 4 5 6 7 8
Quantity
ITEM:

Gross
requirements
Scheduled
receipts
Projected on
hand
Net
requirements
Planned order
receipts
Planned order
releases
13-43 MRP and ERP

Example 3
A product structure tree for end item E is shown
below. The manager wants to know the material
requirements for part R that will be needed to
complete 120 units of E by the start of week 5.
Lead times for items are one week for level 0 and
level 1 items and two weeks for level 2 items.
There is a schedule receipt of 60 units of M at the
end of week 1 and 100 units of R at the start of
week 1. Lot-for-lot ordering is used.
13-44 MRP and ERP

Example 3

M (3) I (2)

R (2) P N (4) V
13-45 MRP and ERP

Example 4

Item On-Hand Lead Time (Weeks)

X X 50 2
A 75 3
B 25 1
A(2) B(1) C 10 2
D 20 2

C(3) C(2) D(5)

Requirements
Requirementsinclude
include95
95units
units(80
(80firm
firmorders
ordersand
and15
15forecast)
forecast)of
ofXX
in
inweek
week10
10
13-46 MRP and ERP
Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
ItIttakes
takes
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
22A’s
A’sfor
for On-
hand
Net requirements
Planned order receipt
20
20
each
eachXX 25
C
Planner order release
Gross requirements 45
20
40
LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 10
On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
13-47 MRP and ERP
Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
LT=1 Scheduled receipts
ItIttakes
takes Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
11BBforfor hand Planned order receipt 20

each
eachXX
25
C
Planner order release
Gross requirements 45
20
40
LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 10
On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
13-48 MRP and ERP
Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20

ItIttakes
takes33
C
LT=2
Gross requirements
Scheduled receipts
45 40

C’s
C’sforfor On-
Proj. avail. balance
Net requirements
10 10 10 10 10
35 40
each
eachAA
hand
10
Planned order receipt
Planner order release 35
35
40
40

D Gross requirements 100

LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
13-49 MRP and ERP
Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) C(2) B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20

ItIttakes
takes22
C
LT=2
Gross requirements
Scheduled receipts
45 40

C’s
C’sforfor On-
Proj. avail. balance
Net requirements
10 10 10 10 10
35 40
each
eachBB
hand
10
Planned order receipt
Planner order release 35
35
40
40

D Gross requirements 100

LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
13-50 MRP and ERP
Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) C(2) D(5) B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20

ItIttakes
takes55
C
LT=2
Gross requirements
Scheduled receipts
45 40

D’s
D’sforfor On-
Proj. avail. balance
Net requirements
10 10 10 10 10
35 40
each
eachBB
hand
10
Planned order receipt
Planner order release 35
35
40
40

D Gross requirements 100

LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
13-51 MRP and ERP

MRP II

 Expanded MRP with emphasis placed on

integration
 Financial planning
 Marketing
 Engineering
 Purchasing
 Manufacturing
13-52 MRP and ERP

MRP II
Figure 13.14

Market Master
Finance Manufacturing production schedule
Demand

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut Capacity
capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?
13-53 MRP and 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.
13-54 MRP and ERP

Capacity Planning
Figure 13.15

Develop a tentative Use MRP to

master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master production
resource requirements schedule
No
Can
Is shop capacity be
capacity No
changed to meet
adequate? requirements
Yes Yes

Firm up a portion Change

of the MPS capacity
13-55 MRP and ERP

ERP

 Enterprise resource planning (ERP):

 Next step in an evolution that began with
MRP and evolved into MRPII
 Integration of financial, manufacturing, and
human resources on a single computer
system.
13-56 MRP and ERP

ERP Strategy Considerations

 High initial cost

 High cost to maintain

 Future upgrades

 Training