Operations

Management
Material Requirements Planning
(MRP) & ERP
Chapter 5
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Learning Objectives - Continued

When you complete this chapter, you should be
able to :
Describe or Explain:

Material requirements planning

Enterprise resource planning
How ERP works

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Inventory Classifications
Inventory

Process
stage

Raw Material
WIP
Finished Goods

Number
& Value

Demand
Type

A Items
B Items
C Items

Independent
Dependent

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Other

Maintenance
Operating

2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458

Dependent versus Independent

Demand
Item
Demand
Source
Material
Type
Method of
Estimating
Demand
Planning
Method

Materials With
Independent Demand

Materials With
Dependent Demand

Company Customers

Parent Items

Finished Goods

WIP & Raw Materials

Forecast & Booked

Customer Orders
EOQ & ROP

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Calculated

MRP
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Aggregate Production Plan

Months
Aggregate Production Plan
(shows the total quantity of
amplifiers
Weeks

January

February

1,500
1

1,200
4

Master Production Schedule

(Shows the specific type
and quantity of amplifier to
be produced

240 watt amplifier

150 watt amplifier
75 watt amplifier
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100

100
500

500
300

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100

100
450

450
100

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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

Lowest level in structure item occurs

Top level is 0; next level is 1 etc.

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Product Structure for Awesome A

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Special Bills-of-Material
Modular bills

Modules are final components used to make assemble-tostock end items

Planning bills

Used to assign artificial parent

Reduces number of items scheduled

Phantom bills

Used for subassemblies that exist temporarily

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Bill-of-Material
Product Structure Tree
Bicycle(1)
P/N 1000
Handle Bars (1)
P/N 1001

Frame Assembly (1)

P/N 1002

Wheels (2)
P/N 1003

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Frame (1)
P/N 1004

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Time-Phased Product Structure

Must have D and E completed
here so production can begin
on B

Start production of
D

1 week

2 weeks to
produce

2 weeks

2 weeks
2 weeks

1 week

1 week

3 weeks

1 week

D
1

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Material Requirements Planning

(MRP)
Manufacturing computer information system
Determines quantity & timing of dependent demand
1
2
3
4
5
items
Gross Requirements
Requirements
Scheduled Receipts
Receipts
Available
Available

2
5

20

25

23

Net Requirements

30
33

25

15

33

8
7
7

Planned Order Receipts

Planned Order Releases

1995
Corel
Corp.

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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.

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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
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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

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MRP planning
programs
(computer and
software)

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Exception report

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Gross Material Requirements Plan

for 50 Awesome A Speaker Kits

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MRP and JIT

MRP - a planning and scheduling technique with
fixed lead times
JIT - a way to move material expeditiously
Integrating the two:

Small bucket approach and back flushing

Balanced flow approach

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Lot-Sizing Techniques
Lot-for-lot
Economic Order Quantity
Part Period Balancing
Wagner-Whitin Algorithm

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MRP Lot-Sizing Problem: Lot-for-Lot

Techniques

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MRP Lot-Sizing Problem: EOQ

Technique

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MRP Lot-Sizing Problem: PPB

Technique

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Extensions to MRP
Enterprise Resource Planning
MRP II with ties to customers and suppliers

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MRP and ERP Information Flows,

Integrated with Other Systems

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