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13-1

MRP and ERP

Materials Requirements Planning

13-2

MRP and ERP

Independent and Dependent


Demand
Independent Demand
Dependent Demand

C(2)

B(4)

D(2)

E(1)

D(3)

F(2)

Independent demand is uncertain.


Dependent demand is certain.

13-3

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.

13-4

MRP and ERP

Stable demand

Demand

Demand

Dependent vs Independent Demand

Time
Amount on hand

Amount on hand

Time

Lumpy demand

Safety stock
Time

Time

13-5

MRP and ERP

Material Requirements Planning


Defined
Materials requirements planning (MRP) is a
computerized inventory planning and control system
for determining when (no earlier and no later) and how
many of each of the parts, components, and materials
should be ordered or produced.
It translates master schedule requirements for end
items into time-phased requirements for
subassemblies, components and raw materials.
Dependent demand drives MRP
MRP is a software system

13-6

MRP and ERP

When to Use MRP


Dependent and discrete items
Complex products
Job shop production
Assemble-to-order environments

13-7

MRP and ERP

Aggregate
production
plan

Firm orders
from known
customers

Engineering
design
changes

Forecasts
of demand
from random
customers

Master production
Schedule (MPS)

Bill of
material
file

Primary reports
Planned order schedule for
inventory and production
control (work orders,
purchase orders),
rescheduling notices

Material
planning
(MRP
computer
program)

Inventory
transactions

Inventory
record file

Secondary reports
Exception reports
Planning reports
Reports for performance
control

The McGraw-Hill Companies, Inc.,

13-8

MRP and ERP

MRP System
MRP Inputs

MRP Processing

MRP Outputs
Changes
Order releases

Master
schedule

Planned-order
schedules
Primary
reports

Bill of
materials

Inventory
records

MRP computer
programs

Secondary
reports

Exception reports

Planning reports
Performancecontrol
reports

Inventory
transaction

13-9

MRP and ERP

MRP Inputs 1:
Master Production Schedule
Drives MRP process with a schedule of finished products;
states which end items are to be produced, when these
are needed, and in what quantities
Quantities may consist of a combination of customer
orders & demand forecasts
Quantities represent what needs to be produced, not
what can be produced

13-10 MRP and ERP

Master Production Schedule (MPS)


Time-phased plan specifying how many and when the
firm plans to build each end item
Aggregate
AggregatePlan
Plan
(Product
(ProductGroups)
Groups)
MPS
(Specific End Items)

13-11 MRP and ERP

Master Production Schedule


Shows items to be produced
Derived from aggregate plan
Example:
Item / Week
Clipboard
Lapdesk
Lapboard
Pencil Case

Oct 3 Oct. 10 Oct. 17 Oct.24 Oct. 31


85
95
120
100
100
0
50
0
50
0
75
120
47
20
17
125
125
125
125
125

13-12 MRP and ERP

MRP Inputs 2: Bill-of-Materials


Bill of materials (BOM): One of the three primary inputs of MRP; 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.

13-13 MRP and ERP

Product Structure Tree: Example 1


Level
0
1

Chair
Leg
Assembly

2 Legs (2)

Cross
bar

Seat

Back
Assembly

Side Cross
Back
Rails (2) bar Supports (3)

13-14 MRP and ERP

MRP Inputs 3: Inventory Records File

One of the three primary inputs of MRP


Includes information on the inventory status of each item by time period

Gross requirements
Scheduled receipts
Amount on hand
Lead times
Lot sizes
And more....

13-15 MRP and ERP

MRP Terminology (1 of 3)
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases

13-16 MRP and ERP

MPR Terminology (2 of 3)
Gross requirements

Total expected demand


Scheduled receipts

Open orders scheduled to arrive


Projected on hand

Expected inventory on hand at the beginning


of each time period

13-17 MRP and ERP

MRP Processing Terminology (3 of 3)


Net requirements
Actual amount needed in each time period
Gross requirements available inventory
Planned-order receipts
Quantity expected to be received at the beginning of the
period
Offset by lead time
Planned-order releases
Planned amount to be ordered in each time period

13-18 MRP and ERP

MRP Processing Logic:


Assembly Time Chart
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of
raw material F
Procurement of
part C

Final assembly
and inspection

Procurement of
part H
Fabrication
of part G

Procurement of
raw material I

Subassembly B

10

11

Weeks

13-19 MRP and ERP

Calculation of Gross Requirements


A

S
C

B
Periods

Lead time = 4 for A


Master schedule for A
5 6 7 8 9 10 11
40
50
15

Periods
Gross requirements: B

10

40+10
= 50

Lead time = 6 for S


Master schedule for S
8 9 10 11 12 13
40
20
30

40 50 20

7
15+30
= 45

Master schedule
for S sold directly
1 2
10 10

Therefore, these are


the gross
requirements for B

13-20 MRP and ERP

Basic MRP Processes


1.
2.
3.
4.

Exploding the bill of material


Netting out inventory
Lot sizing
Time-phasing requirements

13-21 MRP and ERP

The MRP Matrix


ITEM NAME OR NO.
LLC - LOW LEVEL CODE
LOT SIZE QTY MADE IN
LY - LEAD TIME

Gross Requirements
Scheduled Receipts
Projected on Hand
Net Requirements
Planned Order
Receipts
Planned Order
Releases

Beg Inv

PERIOD
2
3
4

Derived from MPS or


planned order releases of the
parent
On order and scheduled to
be received
Anticipated quantity on hand
at the end of the period
Gross requirements net of
inventory and scheduled
receipts
When orders need to be
received
When orders need to be
placed to be received on time

13-22 MRP and ERP

MRP Processing:
Example 1-School Mate Products
Master Production Schedule

Clipboard
Lapdesk

85
0

95
60

120
0

100
60

100
0

Item Master File (nventory record file


On hand
On order
(sch receipt)
LLC
Lot size
Lead time

CLIPBOARD
25
175 (Period 1)

LAPDESK
20
0

PRESSBOARD
150
0

0
L4L
1

0
Mult 50
1

1
Min 100
1

13-23 MRP and ERP

School Mate Products


Product Structure Record
Level 0

Clipboard

Pressboard
(1)

Clip Assy
(1)

Rivets
(2)

Level 1

Level 0

Lapdesk

Pressboard
(2)

Trim
(3)

Beanbag
(1)

Glue
(4 oz)

Level 1

13-24 MRP and ERP

School Mate Products


ITEM: CLIPBOARD

LLC: 0

LOT SIZE: L4L

Gross Requirements

85

95

Scheduled Receipts

175

Projected on Hand
Net Requirements
Planned Order Receipts
Planned Order Releases

LT: 1

PERIOD

25

120

100

100

13-25 MRP and ERP

School Mate Products


ITEM: CLIPBOARD

LLC: 0

LOT SIZE: L4L

Gross Requirements

85

95

Scheduled Receipts

175

Projected on Hand
Net Requirements

LT: 1

PERIOD

25

120

100

100

115
0

Planned Order Receipts


Planned Order Releases

(25 + 175) = 200 units available


(200 - 85) = 115 on hand at the end of Period 1

13-26 MRP and ERP

School Mate Products


ITEM: CLIPBOARD

LLC: 0

LOT SIZE: L4L

Gross Requirements

85

95

Scheduled Receipts

175

Projected on Hand
Net Requirements

LT: 1

PERIOD

25

115

20

120

100

100

Planned Order Receipts


Planned Order Releases

115 units available


(115 - 95) = 20 on hand at the end of Period 2

13-27 MRP and ERP

School Mate Products


ITEM: CLIPBOARD

LLC: 0

LOT SIZE: L4L

Gross Requirements

85

Scheduled Receipts

175

Projected on Hand
Net Requirements

LT: 1

PERIOD

25

95

120

100

100

115

20

100

Planned Order Receipts


Planned Order Releases

100
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

13-28 MRP and ERP

School Mate Products


ITEM: CLIPBOARD

LLC: 0

LOT SIZE: L4L

Gross Requirements

85

Scheduled Receipts

175

Projected on Hand
Net Requirements

LT: 1

PERIOD

25

95

120

100

100

115

20

100

100

100

100

100

100

100

100

Planned Order Receipts


Planned Order Releases

100

Following the same logic Gross Requirements in Periods 4


and 5 develop Net Requirements, Planned Order Receipts, and
Planned Order Releases

13-29 MRP and ERP

School Mate Products


ITEM: LAPDESK

LLC: 0

LOT SIZE: MULT 50

LT: 1

Gross Requirements

Net Requirements
Planned Order Receipts
Planned Order Releases

2
0

Scheduled Receipts
Projected on Hand

PERIOD

20

60

4
0

60

5
0

13-30 MRP and ERP

School Mate Products


ITEM: LAPDESK

LLC: 0

LOT SIZE: MULT 50

LT: 1

Gross Requirements

PERIOD
1

60

60

20

10

10

40

50

50

50

Scheduled Receipts
Projected on Hand
Net Requirements

20

Planned Order Receipts


Planned Order Releases

50

50

Following the same logic, the Lapdesk MRP matrix is


completed as shown

13-31 MRP and ERP

School Mate Products


ITEM: CLIPBOARD
LOT SIZE: L4L

LLC: 0
LT: 1

Planned Order Releases


ITEM: LAPDESK
LOT SIZE: MULT 50

LLC: 0
LT: 1

Planned Order Releases


ITEM: PRESSBOARD LLC: 1
LOT SIZE: MIN 100
LT: 1
Gross Requirements
Scheduled Receipts
Projected on Hand
150
Net Requirements
Planned Order Receipts
Planned Order Releases

PERIOD
3

100

100

100

PERIOD
3

50

50

PERIOD
3

13-32 MRP and ERP

School Mate Products


ITEM: CLIPBOARD
LOT SIZE: L4L

LLC: 0
LT: 1

Planned Order Releases


ITEM: LAPDESK
LOT SIZE: MULT 50

LLC: 0
LT: 1

Planned Order Releases


ITEM: PRESSBOARD LLC: 0
LOT SIZE: MIN 100
LT: 1
Gross Requirements
Scheduled Receipts
Projected on Hand
150
Net Requirements
Planned Order Receipts
Planned Order Releases

x1

PERIOD
3

100

100

100

PERIOD
3

x1

x1

50

x2

100

50

x2
2

PERIOD
3

100

200

100

13-33 MRP and ERP

School Mate Products


ITEM: CLIPBOARD
LOT SIZE: L4L

LLC: 0
LT: 1

Planned Order Releases


ITEM: LAPDESK
LOT SIZE: MULT 50

LLC: 0
LT: 1

Planned Order Releases


ITEM: PRESSBOARD LLC: 0
LOT SIZE: MIN 100
LT: 1
Gross Requirements
Scheduled Receipts
Projected on Hand
150
Net Requirements
Planned Order Receipts
Planned Order Releases

PERIOD
3

100

100

100

PERIOD
3

50

50

PERIOD
3

100

100

200

100

50

50
50
100
150

0
150
150
100

0
100
100

100

13-34 MRP and ERP

School Mate Products


Planned Order Report
PERIOD
ITEM
Clipboard
Lapdesk
Pressboard

50
100

100

100
50
100

100

150

13-35 MRP and ERP

MRP Processing:
Example 2
Item
X
A
B
C
D

X
A(2)
C(3)

B(1)
C(2)

On-Hand Lead Time (Weeks)


50
2
75
3
25
1
10
2
20
2

D(5)

Requirements
Requirementsinclude
include95
95units
units(80
(80firm
firmorders
ordersand
and15
15forecast)
forecast)of
ofXX
in
inweek
week10
10

13-36 MRP and ERP


Day:

A(2)

ItIttakes
takes
22As
Asfor
for
each
eachXX

X
LT=2
Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20

Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release

10
95

50 50

50

50

50

50

50

50

50

50
45
45

45
90
75 75

75

75

75

75

75

75
15
15

15
45
25 25

25

25

25

25

20
40

45
10 10

10

10

35

25

10
35
35
40

40
40
100

20 20

20

20

20

80

20

20
80
80

25
20
20

13-37 MRP and ERP


Day:
X
LT=2

A(2)

B(1)

ItIttakes
takes
11BBfor
for
each
eachXX

Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20

Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release

10
95

50 50

50

50

50

50

50

50

50

50
45
45

45
90
75 75

75

75

75

75

75

75
15
15

15
45
25 25

25

25

25

25

20
40

45
10 10

10

10

35

25

10
35
35
40

40
40
100

20 20

20

20

20

80

20

20
80
80

25
20
20

13-38 MRP and ERP


Day:
X
LT=2

A(2)

C(3)

ItIttakes
takes33
Cs
Csfor
for
each
eachAA

B(1)

Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20

Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release

10
95

50 50

50

50

50

50

50

50

50

50
45
45

45
90
75 75

75

75

75

75

75

75
15
15

15
45
25 25

25

25

25

25

20
40

45
10 10

10

10

35

25

10
35
35
40

40
40
100

20 20

20

20

20

80

20

20
80
80

25
20
20

13-39 MRP and ERP


Day:
X
LT=2

A(2)

C(3)

B(1)

C(2)

ItIttakes
takes22
Cs
Csfor
for
each
eachBB

Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20

Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release

10
95

50 50

50

50

50

50

50

50

50

50
45
45

45
90
75 75

75

75

75

75

75

75
15
15

15
45
25 25

25

25

25

25

20
40

45
10 10

10

10

35

25

10
35
35
40

40
40
100

20 20

20

20

20

80

20

20
80
80

25
20
20

13-40 MRP and ERP


Day:
X
LT=2

A(2)

C(3)

B(1)

C(2)

D(5)

ItIttakes
takes55
Ds
Dsfor
foreach
each
BB

Onhand
50
A
LT=3
Onhand
75
B
LT=1
Onhand
25
C
LT=2
Onhand
10
D
LT=2
Onhand
20

Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release
Gross requirements
Scheduled receipts
Proj. avail. balance
Net requirements
Planned order receipt
Planner order release

10
95

50 50

50

50

50

50

50

50

50

50
45
45

45
90
75 75

75

75

75

75

75

75
15
15

15
45
25 25

25

25

25

25

20
40

45
10 10

10

10

35

25

10
35
35
40

40
40
100

20 20

20

20

20

80

20

20
80
80

25
20
20

13-41 MRP and ERP

MRP Outputs
Planned orders (schedule indicating the amount and
timing of orders)
Work orders
Purchase orders
Order releases (authorization for the execution of
planned orders)
Changes to previous plans or existing schedules
(revision of due dates or order quantities, or
cancellations of orders)
Action notices
Rescheduling notices

13-42 MRP and ERP

Updating the MRP System


Regenerative system

Updates MRP records periodically


Net-change system

Updates MPR records continuously

13-43 MRP and ERP

MRP Secondary Reports


Performance-control reports
Planning reports
Exception reports

13-44 MRP and ERP

Other Considerations
Safety Stock
Lot sizing

Lot-for-lot ordering (L4L)


Economic order quantity
Part Period Balancing
Wagner-Whitin algorithm
& others

Which one to use? The one that is least costly!

13-45 MRP and ERP

MRP in Services
Can be used when demand for service or service items
is directly related to or derived from demand for other
services
Food catering service
End item => catered food
Dependent demand => ingredients for each recipe,
i.e. bill of materials
Hotel renovation
Activities and materials exploded into component
parts for cost estimation and scheduling

13-46 MRP and ERP

Benefits of MRP

Reduced inventories without reduced customer service


Ability to track material requirements
Ability to evaluate capacity requirements
Means of allocating production time
Increased customer satisfaction due to meeting
delivery schedules
Faster response to market changes
Improved labor and equipment utilization.
Better inventory planning and scheduling

13-47 MRP and ERP

Requirements of MRP
Computer system and necessary software
Mainly discrete products
Stable lead times
Accurate and up-to-date
Master schedules
Bills of materials
Inventory status records
Integrity of data

13-48 MRP and ERP

Extensions of MRP

13-49 MRP and ERP

Extensions of MRP
Closed loop MRP
Capacity planning - load reports
MRP II - Manufacturing Resources Planning
Enterprise Resources Planning

13-50 MRP and ERP

MRP and The Production Planning


Process
Forecast &
Firm Orders

Aggregate
Production
Planning

Material
Requirements
Planning

Master
Production
Scheduling

Resource
Availability

No, modify MPS


Capacity
Requirements
Planning

Realistic?

Yes

Shop
Floor
Schedules

13-51 MRP and ERP

Closed Loop MRP

13-52 MRP and ERP

Manufacturing Resources Planning- MRP


II
Expanded MRP with emphasis placed on integration of:
Financial planning
Marketing
Engineering
Purchasing
Manufacturing
Human resources

13-53 MRP and ERP

Manufacturing Resources Planning


(MRP II)
Goal: Plan and monitor all resources of a
manufacturing firm (closed loop):
manufacturing
marketing
finance
engineering
Simulate the manufacturing system

13-54 MRP and ERP

MRP II
Manufacturing

Master
production schedule

Marketing
Production
plan

MRP

Rough-cut
capacity planning

Capacity req.
planning

Adjust
production plan
Yes

Problems?

No

Requirements
schedules

No

Problems?

Adjust master schedule

Market
Demand

Finance

Yes

13-55 MRP and ERP

Enterprise Resource Planning (ERP)


The next step in the evolution that began with MRP
and evolved into MRP II
ERP system is a computer system that integrates
application programs in accounting, sales,
manufacturing, human resources and other
functions in the firm.
ERP provides a system to capture and make data
available in real time do decision makers and other
users in the organization

13-56 MRP and ERP

ERP
MRP II with ties to customers and suppliers
(connects with supply-chain and customer
management applications)
Integrates financial, manufacturing and human
resources on a single computer system.
Provides tools for planning and monitoring various
business processes

13-57 MRP and ERP

Enterprise Resource Planning (ERP)


Attempts to integrate all departments and functions
across a company onto a single computer system that
can serve all those different departments particular needs
Organizes and manages a companys business
processes by sharing information across functional areas
Standardized record-keeping permit information sharing
and communication throughout the organization

13-58 MRP and ERP

Enterprise Resource Planning - ERP


Such an integration is accomplished through a
database shared by all the application programs

13-59 MRP and ERP

ERP
ERP allows companies to:
1.
Automate and integrate many of their business processes
2.
Share a common database and business practices throughout the enterprise
3.
Produce information in real time
ERP systems also include:
4.
Supply Chain Management software and
5.
Customer Relationship Management software

13-60 MRP and ERP

ERP Modules

13-61 MRP and ERP

ERPs Central Database


Finance &
Accounting

Sales
&
Marketing

ERP Data
Repository

Human
Resources

Production &
Materials
Management

13-62 MRP and ERP

ERP Strategy Considerations


High initial cost
High cost to maintain
Future upgrades
Training