Lecture 10 - Materials requirements planning (continued). The contents of this chapter include all of the following: Determining gross requirements, gross requirements plan, MPR structure, determining gross requirement, net requirement plan, MRP and JIT, Lot sizing techniques.
Lecture 10 Materials Requirements Planning (Continued) Books • Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M. Clive, P.E., CFPIM, Fleming College • Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005, N.Y.: McGrawHill/Irwin • Operations Management, 11/E, Jay Heizer, Texas Lutheran University, Barry Render, Graduate School of Business, Rollins College, Prentice Hall Objectives • • • • • MPR structure Determining Gross Requirement Net requirement plan MRP and JIT Lot sizing techniques MRP Structure Data Files Output Reports BOM MRP by period report Master production schedule MRP by date report Lead times Planned order report (Item master file) Inventory data Purchasing data Material requirement planning programs (computer and software) Purchase advice Exception reports Order early or late or not needed Order quantity too small or too large Determining Gross Requirements Starts with a production schedule for the end item – 50 units of Item A in week ỵ Using the lead time for the item, determine the week in which the order should be released – a week lead time means the order for 50 units should be released in week ỵ This step is often called lead time offset or time phasing ỵ Determining Gross Requirements From the BOM, every Item A requires Item Bs – 100 Item Bs are required in week to satisfy the order release for Item A ỵ The lead time for the Item B is weeks – release an order for 100 units of Item B in week ỵ The timing and quantity for component requirements are determined by the order release of the parent(s) ỵ Determining Gross Requirements The process continues through the entire BOM one level at a time often called explosion ỵ By processing the BOM by level, items with multiple parents are only processed once, saving time and resources and reducing confusion ỵ Low-level coding ensures that each item appears at only one level in the BOM ỵ GrossRequirementsPlan Week equired date Order release date 50 equired date Order release date 100 100 equired date Order release date 150 equired date Order release date 200 equired date Order release date 300 200 600 300 600 300 300 300 300 equired date Order release date equired date Order release date 200 200 150 50 Lead Time week weeks week weeks weeks week weeks Net Requirements Plan Net Requirements Plan Determining Net Requirements Starts with a production schedule for the end item – 50 units of Item A in week ỵ Because there are 10 Item As on hand, only 40 are actually required – (net requirement) = (gross requirement - on- hand inventory) ỵ The planned order receipt for Item A in week is 40 units 40 = 50 - 10 ỵ DistributionResourcePlanning(DRP) Usingdependentdemandtechniquesthrough thesupplychain Expecteddemandorsalesforecastsbecome grossrequirements ỵ Minimumlevelsofinventorytomeetcustomer servicelevels ỵ Accurateleadtimes þ Definition of the distribution structure þ Enterprise Resource Planning (ERP) þ An extension of the MRP system to tie in customers and suppliers Allows automation and integration of many business processes Shares common data bases and business practices Produces information in real time þ Coordinates business from supplier evaluation to customer invoicing Enterprise Resource Planning (ERP) þ ERP modules include Basic MRP þ Finance þ Human resources ỵ Supply chain management (SCM) ỵ Customer relationship management (CRM) ỵ ERPandMRP ERPandMRP CustomerRelationshipManagement Invoicing SalesOrder (orderentry, productconfiguration, salesmanagement) Shipping Distributors, retailers, and end users ERP and MRP Master Production Schedule Inventory Management Bills of Material Work Orders Purchasing and Lead Times Table 13.6 Routings and Lead Times MRP ERP and MRP Supply Chain Management Vendor Communication (schedules, EDI, advanced shipping notice, ecommerce, etc.) Figure 14.11 ERP and MRP Finance/ Accounting Accounts Receivable General Ledger Accounts Payable Payroll Table 13.6 Figure 14.11 Enterprise Resource Planning (ERP) ERP can be highly customized to meet specific business requirements ỵ Enterprise application integration software (EAI) allows ERP systems to be integrated with ỵ Warehouse management ỵ Logistics ỵ Electronic catalogs ỵ Quality management ỵ EnterpriseResourcePlanning(ERP) ỵ ERP systems have the potential to Reduce transaction costs ỵ Increase the speed and accuracy of information ỵ ỵ Facilitates a strategic emphasis on JIT systems and integration Advantages of ERP Systems Provides integration of the supply chain, production, and administration Creates commonality of databases Can incorporate improved best processes Increases communication and collaboration between business units and sites Has an off-the-shelf software database May provide a strategic advantage Disadvantages of ERP Systems Is very expensive to purchase and even more so to customize Implementation may require major changes in the company and its processes Is so complex that many companies cannot adjust to it Involves an ongoing, possibly never completed, process for implementation Expertise is limited with ongoing staffing problems SAP’s ERP Modules Cash to Cash Covers all financial related activity: Accounts receivable Accounts payable Promote to Deliver Covers front-end customer-oriented activities: Marketing Quote and order processing Transportation Documentation and labeling After sales service Warranty and guarantees General ledger Treasury Design to Manufacture Covers internal production activities: Design Shop floor engineering reporting Production Contract/project engineering management Plant Subcontractor maintenance management Recruit to Hire Covers all HR- and payroll-oriented activity: Time and attendance Payroll Travel and expenses Cash management Asset management Procure to Pay Covers sourcing activities: Vendor sourcing Purchase requisitioning Purchase ordering Purchase contracts Inbound logistics Supplier invoicing/ matching Supplier payment/ settlement Supplier performance Dock to Dispatch Covers internal inventory management: Warehousing Forecasting Distribution planning Replenishment planning Physical inventory Material handling ERP in the Service Sector ERP systems have been developed for health care, government, retail stores, hotels, and financial services ỵ Also called efficient consumer response (ECR) systems ỵ Objective is to tie sales to buying, inventory, logistics, and production ỵ EndofLecture10 ... of 65 units in week generates a planned order release of 65 units in week ỵ The on-hand inventory record for Item B is updated to reflect the use of the 15 items in inventory and shows no on-hand... Combine periods 6 9 as this results in the Part Period closest to releases the EPP 10 100 + = 100 Holding cost = $1/week; Setup cost = $100 ; Total cost 300 + 190 = 490 55 EPP =? ?100 units PPB Example 10 35 30 40 10 40 30 30 55 35 50 10 10 60 30 30 Net requirements... and shows no on-hand inventory in week ỵ This is referred to as the Gross-to-Net calculation and is the third basic function of the MRP process ỵ NetRequirementsPlan Thelogicofnetrequirements