Operations Management Material Requirements Planning MRP ERP Chapter

Operations Management Material Requirements Planning (MRP) & ERP Chapter 14 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -1 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Outline ¨ GLOBAL COMPANY PROFILE: COLLINS INDUSTRIES ¨ DEPENDENT INVENTORY MODEL REQUIREMENTS ¨ Master Production Schedule ¨ Bills of Materials ¨ Accurate Inventory records ¨ Purchase Orders Outstanding ¨ Lead Times for Each Component ¨ MRP STRUCTURE Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -2 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Outline - Continued ¨ MRP MANAGEMENT ¨ MRP Dynamics ¨ MRP and JIT ¨ LOT-SIZING TECHNIQUES ¨ EXTENSIONS IN MRP ¨ Closed-Loop MRP ¨ Capacity Planning ¨ Material Requirements Planning II (MRP II) ¨ MRP IN SERVICES Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -3 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Outline - Continued ¨ DISTRIBUTION RESOURCE PLANNING (DRP) ¨ ENTERPRISE RESOURCE PLANNING (ERP) ¨ Advantages and Disadvantages of ERP System ¨ ERP in the Service Sector Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -4 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Learning Objectives When you complete this chapter, you should be able to : Identify or Define: Planning bills and kits ¨ Phantom bills ¨ Low-level coding ¨ Lot sizing ¨ Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -5 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Learning Objectives Continued When you complete this chapter, you should be able to : Describe or Explain: ¨ ¨ ¨ Material requirements planning Distribution requirements planning Enterprise resource planning How ERP works Advantages and disadvantages of ERP systems Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -6 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Collins Industries ¨ Largest manufacturer of ambulances in the world ¨ International competitor ¨ 12 major ambulance designs ¨ ¨ 18, 000 different inventory items ¨ 6, 000 manufactured parts ¨ 12, 000 purchased parts MRP: IBM’s MAPICS Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -7 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Collins Industries ¨ Collins requires: Material plan must meet both the requirements of the master schedule and the capabilities of the production facility ¨ Plan must be executed as designed ¨ Effective “time-phased” deliveries, consignments, and constant review of purchase methods ¨ Maintenance of record integrity ¨ Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -8 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Requirements for Effective Use of Dependent Demand Inventory Models Effective use of dependent demand inventory models requires that the operations manager know the: ¨ ¨ ¨ master production schedule (what is to be made and when) specifications or bills-of-material (amount of materials and parts required to make the product) inventory availability purchase orders outstanding (what is on order) lead times (time it takes to get various components) Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -9 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Inputs to the Aggregate Production Plan Marketing Customer Demand Production Capacity Inventory Procurement Supplier Performance Aggregate Production Plan Management Return on Investment Capital Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e Finance Cash Flow Human Resources Manpower Planning Engineering Design Completion 14 -10 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

The Planning Process Aggregate production plan Master production schedule Change requirements? Change capacity? Material requirements plan Change production plan? Change master production schedule? Detail capacity plan Is Realistic capacity No plan Yes being Execute capacity met? plans Is executio n meeting the plan? Execute material © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. plans 14 -11 07458 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e

Aggregate Production Plan Months January Aggregate Production Plan (shows the total quantity of amplifiers Weeks Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 240 watt amplifier 150 watt amplifier 75 watt amplifier Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e February 1, 500 1 10 0 2 500 3 10 0 30 0 14 -12 1, 200 4 5 6 100 500 7 8 100 450 100 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Typical Focus of the Master Production Schedule Make to Order (Process Focus) Number of end items Typical focus of the master production schedule Number of inputs Schedule orders Assemble to Order or Forecast Stock to Forecast (Repetitive) (Product Focus) Schedule finished product Schedule modules Motorcycles, Example Print shop Machine shop autos, TVs, fasts: Fine dining restaurantfood restaurant Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -13 Steel, Beer, Bread Light bulbs, Paper © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Bill-of-Material ¨ List of components & quantities needed to make product ¨ Provides product structure (tree) Parents: Items above given level ¨ Children: Items below given level ¨ ¨ Shows low-level coding A part gets the lowest level code in item structure. ¨ Top level is 0; next level is 1 etc. ¨ Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -14 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Product Structure for “Awesome” A Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -15 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Ex: Calculate the Part Requirements For an order size of 50 A items: ¨ #Part B=2(#A)=(2)(50)=100 ¨ #Part C=3(#A)=(3)(50)=150 ¨ #Part E=2(#B)+2(#C)=(2)(100)+2(150)=500 ¨ #Part F=2(#C)=(2)(150)=300 ¨ #Part D=2(#B)+2(#F)=(2)(100)+2(300)=800 ¨ #Part G=1(#F)=300 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -16 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Issues in MRP: Accurate Inventory Records ¨ Good inventory management is an absolute necessity for an MRP system to work, i. e. , one needs to know what is in stock. ¨ If the firm has not yet received at least 99% record accuracy, then MRP will not work. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -17 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Issues in MRP: Purchase Orders Outstanding ¨ When purchase orders are executed, records of those orders and their scheduled delivery dates must be available to production personnel. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -18 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Issues in MRP: Lead Times ¨ The time required to acquire an item is the lead time ¨ Lead time of a manufactured item consists of move, setup, assembly or run times. ¨ Lead time of a purchased item includes the time between order release and its retreival. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -19 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Time-Phased Product Structure for Awesome Speakers Must have D and E completed here so production can begin on B 1 Start production of D week D 2 weeks to produce B 2 weeks E 2 weeks A E 1 week G 1 week C 3 weeks F 1 week D 1 2 3 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 4 5 14 -20 6 7 8 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Material Requirements Planning (MRP) ¨ Manufacturing computer information system ¨ Determines quantity & timing of dependent demand items © 1995 Corel Corp. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -21 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

MRP Requirements ¨ Computer system ¨ Mainly discrete products ¨ Accurate bill-of-material ¨ Accurate inventory status ¨ 99% inventory accuracy ¨ Stable lead times © 1984 -1994 T/Maker Co. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -22 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

MRP Benefits ¨ Increased customer satisfaction due to meeting delivery schedules ¨ Faster response to market changes ¨ Improved labor & equipment utilization ¨ Better inventory planning & scheduling ¨ Reduced inventory levels without reduced customer service Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -23 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Structure of the MRP System BOM Master Production Schedule MRP by Period Report MRP by date report Lead Times Planned order report (Item Master File) Purchase advice Exception report Inventory Data Purchasing data Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e MRP planning programs (computer and software) 14 -24 Exception report © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Time-Phased Product Structure for Awesome Speakers Must have D and E completed here so production can begin on B 1 Start production of D week D 2 weeks to produce B 2 weeks E 2 weeks A E 1 week G 1 week C 3 weeks F 1 week D 1 2 3 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 4 5 14 -25 6 7 8 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Gross Material Requirements Plan for 50 “Awesome A” Speaker Kits Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -26 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Net Material Requirements Plan Item A B C D E F G Onhand 10 15 20 10 10 5 0 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -27 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Net Requirements Plan Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -28 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Net Requirements Plan Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -29 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Derivation of Master Schedule A S C B Lead time = 4 for A Master schedule for A Periods 5 Lead time = 6 for S Master schedule for S 6 7 8 9 10 11 40 50 15 Periods Gross requirements: B 1 8 10 2 40+10 = 50 Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e C B 9 10 11 12 13 40 20 30 8 3 4 5 40 50 20 14 -30 6 15+30 = 45 7 Master schedule for S sold directly 1 2 3 10 10 Therefore, these are the gross requirements for B © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

MRP Dynamics ¨ Supports “replanning” ¨ Problem with system “nervousness” ¨ “Time fence” - allows a segment of the master schedule to be designated as “not to be rescheduled” ¨ “Pegging” - tracing upward in the bill-ofmaterials from the component to the parent item ¨ That a manager can react to changes, doesn’t mean he/she should Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -31 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

MRP and JIT ¨ MRP - a planning technique but not a detailed scheduling technique, so there may be capacity problems! Does not machine schedule ¨ Plan with fixed lead times ¨ ¨ JIT - a way to move material expeditiously ¨ Integrating the two: Finite capacity scheduling with time buckets (say weekly) ¨ Small bucket approach and back flushing ¨ Balanced flow approach: pulling material in small lot sizes ¨ Supermarket: An inventory area that holds common © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. Transparencyitems Masters to accompany replenished by Kanban systems 14 -32 ¨ Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 07458

Lot-Sizing Techniques ¨ Lot-for-lot ¨ Economic Order Quantity ¨ Part Period Balancing ¨ Wagner-Whitin Algorithm Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -33 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

MRP Lot-Sizing Problem: Lotfor-Lot Techniques Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -34 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

MRP Lot-Sizing Problem: EOQ Technique Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -35 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Extensions of MRP ¨ Closed loop MRP ¨ Capacity planning - load reports ¨ MRP II - Material Resource Planning ¨ Enterprise Resource Planning Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -36 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Closed Loop MRP Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -37 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Extensions of MRP Capacity Planning ¨ Tactics for smoothing the load and minimizing the impact of changed lead time include: ¨ Overlapping - reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation ¨ Operations splitting - sends the lot to two different machines for the same operation ¨ Lot splitting - breaking up the order and running part of it ahead of the schedule Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -38 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Initial Resource Requirements/Smoothed Resource Requirements Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -39 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Extensions to MRP Material Requirements Planning II ¨ MRP plan is measured in quantities or units. ¨ MRPII allows the inventory data to be augmented by other resources like labor hours, m/c hours, accounts payable. ¨ MRP II should be integrated to other systems like MRP, purchasing, production scheduling, capacity planning, warehouse management, etc. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -40 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Extensions to MRP Enterprise Resource Planning ¨ MRP II is enhanced by the additional ties to customers and suppliers to achieve ERP systems. ¨ ERP is a software system to Automate and integrate many of their business processes ¨ Share common data base and business practices ¨ Produce information in real time ¨ ¨ Objective is to coordinate a firm’s whole business ¨ Basic modules: MRP, Finance, HR, SCM, 14 -41 CRM Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

MRP and ERP Information Flows, Integrated with Other Systems Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -42 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Advantages of ERP Systems 1. Provides integration of the supply chain, production, and administration 2. Creates commonality of databases 3. Can incorporate improved best processes 4. Increases communication and collaboration between business units and sites 5. Has an off-the-shelf software database 6. May provide a strategic advantage

Disadvantages of ERP Systems 1. Is very expensive to purchase and even more so to customize 2. Implementation may require major changes in the company and its processes 3. Is so complex that many companies cannot adjust to it 4. Involves an ongoing, possibly never completed, process for implementation 5. Expertise is limited with ongoing staffing problems

MRP in Services ¨ Can be used when demand for service items is directly related to or derived from demand for other services ¨ restaurant - rolls required for each meal ¨ hospitals - implements for surgery ¨ etc. Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -45 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458

Product Structure, Bill of Materials, Bill of Labor for Veal Picante Transparency Masters to accompany Heizer/Render – Principles of Operations Management, 5 e, and Operations Management, 7 e 14 -46 © 2004 by Prentice Hall, Inc. Upper Saddle River, N. J. 07458