INTRODUCTION TO

MRP & ERP

by
Anupama PS | 185 SM 002
Safwan V | 185 SM 014
Samartha Pai | 185 SM 015
Sreelakshmi S | 185 SM 020
Questions

 Give any 3 benefits of MRP?

 How is MRPII different from MRP?
 Explain how an MRP system is useful in capacity
requirements planning?
 How does ERP fits with e-commerce and supply
chain management?
 How an ERP can fix a Business?
 What are the hidden costs of ERP?
 Dependent vs Independent Demand

Dependent Demand Independent Demand

• Demand for items that • Demand for the
are subassemblies or finished goods.
component parts to be
used in the production
of finished goods.

• Lumpy Demand
• Stable Demand

• Stocked prior to the

• Continual basis
time they are needed
Dependent vs Independent Demand
Material Resource Planning (MRP)

 Computer based information system.

 Translates master schedule requirements for end

items into time phased requirements for sub
assemblies, components and raw materials.

 Answers to the following 3 questions :

1. What is needed?
2. How much is needed?
3. When is it needed?
MRP Overview

Source: Stevenson
Primary Inputs of MRP

 Master Schedule
How much finished product is desired and when

 Bill Of Materials (BOM)

Composition of finished product

 Inventory records file

How much inventory is on hand or on order
MRP Processing

 Converts end item requirements specified by the master schedule

into time phased requirements for assemblies, parts and raw
materials using bill of materials.
 Gross Requirements
Total demand for an item/ raw material during each time period
 Schedule Receipts
Open orders
 Projected on hand
Expected inventory in hand at the beginning of each time period
 Net Requirements
Actual amount needed in each time period
MRP Processing

 Planned order receipts

Quantity expected to be received by the beginning of the period
 Planned order releases
Planned amount to be order in each time period.
MRP Outputs

Primary Reports Secondary Reports

 Planned Orders  Performance control reports
Schedule indicating amount and Evaluation of system
timing of future orders. operations, deviations from plans
and cost information.
 Order Releases
 Planning reports
Authorizing the execution of
planned orders. Data for assessing future
material requirements.
 Changes
 Exception reports
Revision of due dates/order
quantities/cancellation of orders Data with discrepancies
encountered.
Master Schedule

The Master Schedule, also referred to as Master Production

Schedule states which end items are to be produced, when
they are needed, and in what quantities.
Sources of Quantity
 Customer Orders

 Forecasts

 Orders from Warehouses

Example
Bill of materials

 Bill of materials (BOM) is one of the three primary inputs of

MRP.

 A BOM is a list of all components and subassemblies needed

to make a final product or finished good.

 The list contains the description, the quantity, and unit of

measure.

 Product structure tree is a visual depiction of the

requirements in a BOM where all components are listed by
levels of their hierarchy.
Assembly diagram and product structure tree for
chair assembly
 Question
16
Determine the quantities of B, C, D, E, and F needed
to assemble one X.
Answer 17
 18
BOM helps companies to:

 Plan purchase of raw materials

 Estimate material costs
 Gain inventory control
 Track & plan material requirements
 Maintain accurate records
 Ensure supply robustness
 Reduce waste
The Inventory Records
 This is the final input of MRP.
 IR refers to stored information on the status of each item by
time period called time buckets.
 IR consists of
Gross requirements
Scheduled receipts
Expected amount on hand
Lead time
Lot size policy and supplier.
 Erroneous information on requirements or lead times can
have a detrimental impact on MRP and create turmoil when
incorrect quantities are expected delivery times are not met.
Benefits of MRP 20

 Easily determine the quantities of every component for a

given order size
 To know when to release orders for each component
 Low levels of in-process inventories, due to an exact
matching of supply to demand.
 The ability to keep track of material requirements.
 The ability to evaluate capacity requirements generated
by a given master schedule.
 A means of allocating production time.
 The ability to easily determine inventory usage by
backflushing.
Requirements of MRP
In order to implement &operate an effective MRP system, it is
necessary to have
 Computer and necessary software programs for handling
computation and maintaining records.
 Accurate and up to date
Master schedule
Bill Of Material
Inventory reports
 Integrity of file data
Material Resource Planning II (MRP II)

 Evolved from MRP in 1980.

 Expanded scope of material planning.

 Involved other functional areas of the

organizations such as marketing and finance.

 Included capacity requirements planning.

Closed-Loop MRP

 When MRP was introduced, it did not have the capability

to assess the feasibility of a proposed.
 No way of knowing before executing a proposed plan if it
could be achieved, or after executing the plan if it had
been achieved.
 A new plan had to be developed each week.
 When MRP II systems began to include feedback loops,
they were referred to as closed-loop MRP.
 Closed-loop MRP systems evaluate a proposed material
plan relative to available capacity.
 The evaluation is referred to as capacity requirements
planning.
Source: Stevenson
Capacity Requirement Planning

 Process of determining short range capacity

requirements.
 When overloads and under loads are projected, remedies
such as alternative routing, changing or elimination of lot
sizing and safety stock requirement can be taken.
 Moving production forward or backward is not possible
because of the preceding task.
 A MRP system cant differentiate between a feasible and
non-feasible MPS.
 To compensate under/over utilization
rescheduling/overtime may be needed.
MRP vs MRP II

 Manufacturing Resource Planning, or MRP II, goes

several steps beyond MRP.
 While MRP stopped at the receiving dock, MRPII
incorporates the value stream all the way through
the manufacturing facility to the shipping dock
where the product is packaged and sent to the
end customer.
 That value stream includes production planning,
machine capacity scheduling, demand
forecasting and analysis modules, and quality
tracking tools.
 MRP II also has tools for tracking employee
attendance, labor contribution and productivity.
Enterprise Resource Planning (ERP)

 Next step in an evolution that began with MRP

and evolved into MRP II.

 ERP – Integrates all the department and functions

across a company into a single computer system
that can serve needs of all the departments.

 Departments can easily share information and

communicate with each other.
The ABC’s of ERP
 Enterprise Resource Planning (ERP) : intends to
integrate all departments and functions across a
company onto a single computer system.
Ex: Customer order handling–Eliminate standalone
systems for departments
and tedious paper based journey of order placement
procedure.

 Software of different departments are linked together.

 Finance or HR modules are commonly used.
The ABC’s of ERP
How ERP improves Business Performance
 ERP takes a customer order and provides a software road map
for automating the different steps.
 Customer service representative using an ERP system, can have
all the information necessary to complete the order.
 People from different departments can see the same
information and can update it and find out where the order is
at any point of time.
 Customer service representatives are better equipped.
 They get the access to customer's credit rating , inventory levels
etc.
 Similarly other departments will also have access to useful
information.
 Results in better accountability and communication.
How long will an ERP project take?
 ERP vendors tell you about a three or six month
average implementation time.

 Real transformational ERP efforts usually run between

one and three years, on average.

 To do ERP right, the ways you do business will need to

change and the ways people do their jobs will need to
change too.
How EPR can fix a Business?
There are three major reasons in companies to undertake
ERP :

 Integrate financial Information.

 Standardize and speed up manufacturing processes.

 Standardize HR information.
Will ERP fit with the Business or not?
 It is critical for companies to figure out if their ways of
doing business will fit within a standard ERP package.

 There are two things they can do:

 They can change the business process to accommodate
the software.
 Modify the software to fit the process.
Cost of ERP
 Additional costs of budgeting for software, consulting,
process rework, integration testing must be factored in.
 Ownership Cost (Eg. Hardware, Software, Services etc.)
 Maintenance Cost (Eg. Upgradation, Optimization
etc.)
 A survey of 100 companies says that Total Cost of
Ownership(TCO) in a range of $25 million.
(the highest was $300 million and lowest was $400,000)
Hidden Costs of ERP

1. Training
 Most elusive budget item.
 Training expenses are high because workers almost
invariably have to learn a new set of processes.

2. Integration and Testing

 Testing the links between ERP packages and other
corporate software links that have to be built on a case-
by-case basis is another often underestimated cost.
 Testing and maintaining the system is also expensive.
Hidden Costs of ERP
3. Data conversion
 Cost to move corporate information, such as customer
and supplier records from old systems to new ERP homes.

4. Data analysis
 Cost of data ware house.

5. Consultants ad infinitum
 When users fail to plan for disengagement, consulting fees
run wild.
 To avoid this, companies should identify objectives for
which consulting partners must aim when training internal
staff.
Hidden Costs of ERP
6. Replacing your best and brightest
 ERP success depends on staffing the project with the best
and brightest.
 company must be prepared to replace many of those
people when the project is over.

7. Implementation teams can never stop

 Just writing reports to pull information out of the new ERP
system will keep the project team busy for a year at least.

8. Waiting for ROI

 Most of the systems don't reveal their value until after
companies have had them running for some time.
Hidden Costs of ERP

9. Post-ERP depression
 ERP systems often wreak havoc in the companies that
install them.
 In a recent survey of 64 Fortune 500 companies, one in
four admitted that they suffered a drop in performance
when their ERP systems went live.
Services of ERP
 In Organization
 Production planning and scheduling
 Inventory management
 Product costing and distribution.
 In Service Industry
 Postal services
 Retail
 Banking
 Health care
 Logistics services and Real estate management.
Steps to Organize an EPR

 Have a clear ERP strategy.

 Assemble the project team.
 Prepare comprehensive procurement documents.
 Conduct structured demonstrations.
 Perform reference checks.
 Support after live.
 Take care when finalizing the commercial agreement.
ERP in Ecommerce
 Amazon, Flipkart and other e-commerce giants.
 They uses advance ERP systems, where planning and
managing supply chain and tracking and serving
customers is the daily routine work of their customer
service employees.
Thank You!