Lecture Introduction to operations management - Chapter 16: Material requirements planning and ERP

In this chapter we will discuss: Definitions of MRP systems, MRP versus order point systems, MRP example, MRP elements, operating an MRP system, the successful MRP system, enterprise resource planning systems.

Operations Management Contemporary Concepts and Cases Chapter Sixteen Material Requirements Planning and ERP McGraw­Hill/Irwin Copyright © 2011 by The McGraw­Hill Companies, Inc. All rights reserved Chapter 16 Outline Definitions of MRP Systems MRP versus Order Point Systems MRP Example MRP Elements Operating an MRP System The Successful MRP System Enterprise Resource Planning Systems 16­2 Introduction to MRP Used to manage dependent demand items – Raw materials and purchased parts – Work in process (WIP) Driven by the master schedule (which is driven by  S&OP) End items ‘exploded’ into all requirements for  components using bill of materials (BOM) Schedule offset based on lead times Is a push system used when the master schedule is  constantly changing 16­3 Definitions of MRP Systems Developed by Joe Orlicky at IBM, 1975 – IBM 370 was the first computer with the capacity to  handle MRP calculations Types of MRP – – – Type I:  An inventory control system (MRP) Type II:  Manufacturing Resource Planning system (MRPII) Type III:  Enterprise Resource Planning (ERP) system 16­4 Definitions of MRP Systems Three  principal functions of MRP (Orlicky): Inventory – – – Order the right part Order in the right quantity Order at the right time Priorities – Order with the right due date – Keep the due date valid Capacity – – – A complete load An accurate (valid) load An adequate time span for visibility of future load 16­5 Closed Loop MRP System (Fig 16.1) Firm orders from  Customers  Sister plants  Stock replenishment Engineering Design changes BO M S & OP Forecast of Demand Master schedule Rough-cut capacity planning MRP Parts Explosion Inventory Records Inv Transactions Shop Orders Purchase Orders Capacity planning Vendors Raw Materials Shop-floor control Operations Product 16­6 Comparison of MRP & Order-Point Systems Attribute MRP Order Point Demand Dependent Independent Order philosophy Requirements Replenishment Forecast Based on master schedule Based on past demand Control concept Control all items ABC Objectives Meet manufacturing needs Meet customer needs Lot sizing Discrete EOQ Demand pattern Lumpy but predictable Random Types of inventory Work in process and raw materials Finished goods and spare parts 16­7 MRP Elements Inputs Master Schedule Bill of Materials (BOM) Inventory Records Capacity Planning (feasibility) Planned Order Releases (outputs) – – Purchasing (buy) Shop Floor Control (make) 16­8 MRP Inputs Master schedule Product structure file (bill of materials, BOM) – – Parts & subassemblies of product Sequence of operations Inventory master file – – Item master information Balances & ordering information 16­9 MRP Example of BOM Top Leg Short Rail Long Rail 16­10 Inventory Records Item master segment – Information that is fairly constant (part number, etc.) Inventory status segment – Materials plan for each item Subsidiary data segment – – Outstanding orders Demand history, etc Records must be accurate, i.e., counting required 16­17 Counting Inventory (1) In the past, inventory was counted to learn how  much was on hand Now, inventory is counted to confirm the  computer records Two basic methods of counting inventory – Annual count (all at once) – Cycle counting 16­18 Counting Inventory (2) Annual Count – – – Shut down and have everyone count Hire a counting firm Problems No guarantee of accuracy Lost production or work Boring! – Advantage Everything done at once (as/of date) 16­19 Counting Inventory (3) Cycle Counting – Count continuously throughout year – Use ABC methods to set priorities and  frequency of counting – Count by calendar or ‘trigger’ – Problems Not everything is counted at once May interfere with normal work – Advantages More accurate Less disruptive 16­20 Counting Inventory (4) The Future?  RFIS/RFIT/RFID – – – – – Chip imbedded in items Transmits when polled Everything done from base station “Smart Shelves” know what is on them Problems Cost/market penetration May not read  – Advantages No explicit counting Continuous tracking 16­21 Capacity Planning Purpose is to aid management in checking on the  validity of the master schedule Two ways it can be done – Rough­cut capacity (resource) planning – Shop loading Alternative is finite capacity scheduling 16­22 Purchasing Greatly enhanced by use of MRP Past due orders largely eliminated Order expediting eliminated Can provide vendors with reports of planned  future orders Can use EDI to communicate directly with  vendors 16­23 Shop Floor Control Purposes – – Release orders to the shop floor Manage the orders on their way through the factory Can use Manufacturing Execution System (MES) Set job priorities (dispatching rules) Manage lead times on basis of priority – Both expedite and deexpedite orders Requires valid due dates 16­24 Operating an MRP System Should MRP carry “safety stock”? How much “safety stock” should be  carried? Issue of “safety lead time” Danger of “informal” system driving out  the “formal” system 16­25 Required Elements for a Successful MRP System Implementation planning Adequate computer support Accurate data Management support User knowledge 16­26 Operating a Successful MRP System Accurate inventory records Stable master production schedule Realistic master production schedule Good control of engineering change orders  (impacts BOM) Good interface with capacity planning (CRP) Reports that are useful 16­27 Enterprise Resource Planning (ERP) Systems Extension and integration of all functions  through a common database – Forces standard systems throughout the organization ERP used to coordinate decisions along the  supply chain Expensive and time­consuming to  implement 16­28 Enterprise Resource Planning (ERP) Systems Major large­scale ERP software  vendors – SAP (Systems, Applications & Products) – Oracle See: www.erpfans.com 16­29 Summary Definitions of MRP Systems MRP versus Order Point Systems MRP Example MRP Elements Operating an MRP System The Successful MRP System Enterprise Resource Planning Systems 16­30 End of Chapter Sixteen 16­31 ... Forces standard systems throughout the organization ERP? ?used? ?to? ?coordinate decisions along the  supply chain Expensive? ?and? ?time­consuming? ?to? ? implement 16­28 Enterprise Resource Planning (ERP) Systems Major large­scale? ?ERP? ?software ... Capacity planning Vendors Raw Materials Shop-floor control Operations Product 16­6 Comparison of MRP & Order-Point Systems Attribute MRP Order Point Demand Dependent Independent Order philosophy Requirements. .. IBM 370 was the first computer with the capacity? ?to? ? handle MRP calculations Types of MRP – – – Type I:  An inventory control system (MRP) Type II:  Manufacturing Resource? ?Planning? ?system (MRPII) Type III:  Enterprise Resource? ?Planning? ? (ERP)  system