MRP, JIT, ERP

Material Resource Planning

• MRP is a production planning and inventory
control system used to manage manufacturing
processes.
• Most MRP systems are software-based, while
it is possible to conduct MRP by hand as well.
 Objectives of MRP
• Ensure materials are available for production
and products are available for delivery to
customers.
• Maintain the lowest possible material and
production levels in store.
• Plan manufacturing activities, delivery
schedules and purchasing activities.
 History of MRP
• Prior to MRP, and before computer dominated
industry, reorder-point/reorder-
quanity(AROP/ROQ)types methods like
EOQ(Economic Order Quantity) had been used in
manufacturing and inventory management. In
1964, as response to the Toyota Manufacturing
Program, Joseph Orlicky developed Materials
Resource Planning(MRP). The first company to use
MRP was Black & Decker in 1964, wiuth Dick Alban
as project leader.
 MRP system includes
• Bill of material – the best practice is to physically
verify the bill of material either at the production site
or by un-assembling the product.
• Cycle count – The best practice is to determine why a
cycle count that increases or decreases inventory has
occurred.
• Scrap reporting – Start with isolating the scrap by
providing scrap bins at the production site and then
record the scrap bins at the production site and then,
record the scrap from the bins on a daily basis.
• Receiving errors- the best practices is to
implement the system of receiving by
ASN(Advanced Shipping Notification)
• Shipping Errors- the container labels are
printed from the shippers. The labels are
affixed to the containers in a staging area or
when they are loaded on the transport.
 JIT
• A philosophy of manufacturing based on
planned elimination of waste and continuous
improvement of productivity.
 History of JIT
• Evolved in Japan after WWII, as a result of their
diminishing market share in the auto industry.
• Toyota Motor Company first to implement fully
functioning and successful JIT system , in 1970’s.
• Japanese Manufacturers looked for a way to gain
the most efficient use of limited resources. They
worked on “optimal cost/quality relationship.
• The philosophy of JIT can be traced to Henry
Ford, but formulized JIT originate in Japan as
the Toyota Production system.
• The focus of JIT is to improve the system of
production by eliminating all forms of waste.
• Eliminate waste
• Achieves streamlined production
• Eliminate disruptions in production …. Caused by
poor quality, schedule changes, late deliveries
• Makes the manufacturing delivery system
flexible by allowing it to handle a variety of
products and changes in the level of outputs
• Reduces setup and delivery
 JIT Functions
• Zero inventory
• Zero lead time
• Zero failure
 The eight types of waste
• Overproduction
• Inappropriate processing
• Waiting
• Transportation
• Motion on blending, stretching, reaching, lifting and
walking
• Excess Inventory in shop floor increase lead times
• Defects
• Underutilization of employees
 Source of Waste
• Overproduction
• Waiting time
• Unnecessary transportation
• Processing waste
• Inefficient work methods
• Product defects
 Strategies for minimizing waste
• Manufacturing in small lots sizes reduces
excess inventory
• Reducing inventory levels allows the problems
to be uncovered… thus creating opportunities
for manufacturing process improvement.
 Principles of JIT Manufacturing
• Total quality management
• Production management
• Supplier management
• Inventory management
• Human resource management
 JIT Manufacturing Building Blocks
• Product design- standard parts, design
simplification, highly capable production
systems, concurrent engineering
• Process design- small lot sizes, setup time
reduction, limited work in process, quality
improvement, production flexibility, little
inventory storage
• Personnel /organisational elements- workers
as assets, cross-trained workers, continuous
improvement, leadership
• Manufacturing planning and control – pull
system, visual system(Kanban), close vendor
relatinships, Reduced transaction processing
(delays in delivery), Preventive maintenance
 Benefits of Small Lots Sizes
• Reduced Inventory
• Less Rework
• Less storage space
• Problems are more apparent
• Increase product flexibility
• Easier to balance operation
Enterprise Resource Planning(ERP)
• ERP provides an integrated view of core
business processes, often in real-time, using
common databases maintained by a database
management system. ERP systems track
business resources- cash, raw materials,
production capacity – and the status of the
business commitments orders, purchase
orders, and payroll.
• ERP is a business management software – usually a
suite of integrated applications – that a company
can use to collect, store, mange and interpret data
from many business activities, including
• Product planning, cost and development
• Manufacturing or service delivery
• Marketing and sales
• Inventory management
• Shipping and payment
 Origin of “ERP”
• In 1990, Garter Group first used the acronym ERP as an
extension of material requirement planning(MRP), later
manufacturing resource planning and computer-integrated
manufacturing. Without replacing these reflects the
evolution of application integration beyond manufacturing.
• Not al ERP packages developed from a manufacturing core.
Vendors variously began with accounting, maintenance, and
human resources, by the mid-1990s ERP systems addressed
all core enterprise functions. Governments and non-profit
organisations also began to use ERP systems.
 Stem Characteristics of ERP
• An integrated system that operates in (or near)
real time without relying on periodic updates
• A common database that supports all
applications
• A consistent look and feel across modules
• Installation of the system with elaborate
application/data integration by Information
Technology (IT) department, provided the
implementation is not done in small steps.
 Advantages of ERP
• The fundamental advantage of ERP is that
integrating myriad business processes saves
time and expenses. Management can make
decisions faster and with fewer errors. Data
becomes visible across the organisation. Tasks
that benefit from this integration include:
• Sales forecasting, which allows inventory
optimization.
• Chronological history of every transaction through
relevant data compilation in every area of operation.
• Order tracking, from acceptance through fulfillment
• Revenue tracking, from invoice through cash receipt
• Matching purchase orders (what was ordered),
inventory receipts(what arrived), and costing (what
the vendor invoiced)
 Disadvantages of ERP Systems
• Customisation is problematic. Compare to the
best0of-bred approach, ERP can be seen as meeting
an organisation’s lowest common denominator
needs, forcing the organisation to find work around
to meet unique demands.
• Overcoming resistance to sharing sensitive
information between departments can divert
management attention.
• Integration of truly independent business can create
unnecessary dependencies.
• Re-engineering business processes to fit the ERP
system may damage competitiveness or divert
focus from other critical activities.
• High ERP switching costs can increase the ERP
vendor’s negotiating power, which can increase
support, maintenance and upgrade expenses.
• Harmonization of ERP systems can be mammoth
task(especially for big companies) and requires a
lot of time, planning and money.