Material Planning and ERP) - rjerz.com · Master Production Schedule ... length of time • The MPS is quite often fixed or frozen in the ... • The MPS is a rolling schedule

Material Requirements Planning (MRP and ERP)

Dr. Richard Jerz

1 © 2010 rjerz.com

Learning Objectives

Explain• Material requirements planning• Distribution requirements planning• Enterprise resource planning• How ERP works• Advantages and disadvantages of ERP systems

2 © 2010 rjerz.com

MRP Definition

• Material requirements planning (MRP): Computer‐based information system for ordering and scheduling of dependent demand inventories

5 © 2010 rjerz.com

The Planning Process (1)

6 © 2010 rjerz.com

The Planning Process (2)

7 © 2010 rjerz.com

Master Production Schedule (MPS)

• Specifies what is to be made and when• Must be in accordance with the aggregate production plan

• Aggregate production plan sets the overall level of output in broad terms

• As the process moves from planning to execution, each step must be tested for feasibility

• The MPS is the result of the production planning process

9 © 2010 rjerz.com

Master Production Schedule (MPS)

• MPS is established in terms of specific products

• Schedule must be followed for a reasonable length of time

• The MPS is quite often fixed or frozen in the near term part of the plan

• The MPS is a rolling schedule• The MPS is a statement of what is to be produced, not a forecast of demand

10 © 2010 rjerz.com

MRP Inputs MRP Processing MRP Outputs

Masterschedule

Bill ofmaterials

Inventoryrecords

MRP computerprograms

ChangesOrder releases

Planned-orderschedules

Exception reports

Planning reportsPerformance-controlreports

Inventorytransaction

Primaryreports

Secondaryreports

MRP Overview

Requirements of MRP

• Computer and necessary software• Accurate and up‐to‐date

• Master schedules• Bills of materials• Inventory records

• Integrity of data

Dependent Demand

• The demand for one item is related to the demand for another item

• Given a quantity for the end item, the demand for all parts and components can be calculated

• In general, used whenever a schedule can be established for an item

• MRP is the common technique


Bills of Material

• List of components, ingredients, and materials needed to make product

• Provides product structure• Items above given level are called parents• Items below given level are called children


Bills of Material


Lead Times

• The time required to purchase, produce, or assemble an item• For purchased items – the time between the recognition of a need and the availability of the item for production

• For production – the sum of the order, wait, move, setup, store, and run times


Time‐Phased Product Structure

|| || || || || || || ||

11 22 33 44 55 66 77 88Time in weeksTime in weeks

|| || || || || || || ||

11 22 33 44 55 66 77 88Time in weeksTime in weeks

FF

2 weeks2 weeks

3 weeks3 weeksFF

2 weeks2 weeks

3 weeks3 weeks

2 weeks2 weeks

3 weeks3 weeks

1 week1 week

AA

1 week1 week

AA

2 weeks2 weeks

1 week1 weekDD

EE2 weeks2 weeks

1 week1 weekDD

EE

2 weeks2 weeks

DD

GG

1 week1 week

2 weeks2 weeks

DD

GG

1 week1 week

1 week1 week

2 weeks to 2 weeks to produceproduce

BB

CC

EE1 week1 week

2 weeks to 2 weeks to produceproduce

BB

CC

EE

Start production of DStart production of DStart production of DStart production of D Must have D and E Must have D and E completed here so completed here so

production can production can begin on Bbegin on B

Must have D and E Must have D and E completed here so completed here so

production can production can begin on Bbegin on B


Other Considerations

• Safety Stock• Lot sizing

• Lot‐for‐lot ordering• Economic order quantity• Fixed‐period ordering• Part‐period model

MRP Structure

Output ReportsOutput Reports

MRP by period report

MRP by date report

Planned order report

Purchase advice

Exception reports

Order early or late or not needed

Order quantity too small or too large



MRP by date report


Purchase advice

Exception reports






MRP by date report

MRP by date report



Purchase advicePurchase advice

Exception reports



Exception reports



Data FilesData Files

Purchasing data

BOM

Lead times

(Item master file)

Inventory data


Purchasing data

BOM

Lead times

(Item master file)

Inventory data


Purchasing data

BOM

Lead times

(Item master file)

Inventory data

Masterproduction schedule



Material requirement

planning programs

(computer and software)


planning programs



planning programs



Gross Requirements Schedule

A

BB CC

5 6 7 8 9 10 11

40 50 15

Lead time = 4 for ALead time = 4 for AMaster schedule for AMaster schedule for A

A

BB CC

A

BB CC

5 6 7 8 9 10 11

40 50 15

5 6 7 8 9 10 11

40 50 15

Lead time = 4 for ALead time = 4 for AMaster schedule for AMaster schedule for A

S

BB CC

12 138 9 10 11

20 3040

Lead time = 6 for SLead time = 6 for SMaster schedule for SMaster schedule for S

S

BB CC

S

BB CC

12 138 9 10 11

20 3040

12 138 9 10 11

20 3040

Lead time = 6 for SLead time = 6 for SMaster schedule for SMaster schedule for S

1 2 3

10 10

Master scheduleMaster schedulefor for B

sold directlysold directly

1 2 3

10 10

1 2 3

10 10





PeriodsPeriodsPeriodsPeriods

Therefore, these Therefore, these are the gross are the gross requirements for Brequirements for B

Therefore, these Therefore, these are the gross are the gross requirements for Brequirements for B

Gross requirements: BGross requirements: B 1010 4040 5050 202040+10 15+30=50 =45

11 22 33 44 55 66 77 88PeriodsPeriods

Gross requirements: BGross requirements: B 1010 4040 5050 202040+10 15+30=50 =45

11 22 33 44 55 66 77 88

Gross requirements: BGross requirements: B 1010 4040 5050 202040+10 15+30=50 =45Gross requirements: BGross requirements: B 1010 4040 5050 202040+10 15+30=50 =45

11 22 33 44 55 66 77 8811 22 33 44 55 66 77 88PeriodsPeriodsPeriodsPeriods


Net Requirements Plan

The logic of net requirementsThe logic of net requirements

available inventoryavailable inventory

net net requirementsrequirements

on on handhand

scheduled scheduled receiptsreceipts++–– ==

available inventoryavailable inventory

net net requirementsrequirements

on on handhand

scheduled scheduled receiptsreceipts++–– == net net

requirementsrequirementson on

handhandscheduled scheduled receiptsreceipts++–– ==

total requirementstotal requirements

gross gross requirementsrequirements allocationsallocations++

total requirementstotal requirements

gross gross requirementsrequirements allocationsallocations++gross gross requirementsrequirements allocationsallocations++


MRP Planning Sheet


MRP Outputs

• Planned orders ‐ schedule indicating the amount and timing of future orders.

• Order releases ‐ Authorization for the execution of planned orders.

• Changes ‐ revisions of due dates or order quantities, or cancellations of orders.


Importance of Accurate Records

• Accurate inventory records are absolutely required for MRP (or any dependent demand system) to operate correctly

• Generally MRP systems require 99% accuracy• Outstanding purchase orders must accurately reflect quantities and schedule receipts


Benefits of MRP

• Better response to customer orders• Faster response to market changes• Improved utilization of facilities and labor• Reduced inventory levels


MRP and JIT

• MRP is a planning system that does not do detailed scheduling

• MRP requires fixed lead times which might actually vary with batch size

• JIT excels at rapidly moving small batches of material through the system


Material Requirements Planning II

• Once an MRP system is in place, inventory data can be augmented by other useful information• Labor hours• Material costs• Capital costs• Virtually any resource

• System is generally called MRP II or Material Resource Planning


Enterprise Resource Planning (ERP)

• An extension of the MRP system to tie in customers and suppliers• Allows automation and integration of many business processes

• Shares common data bases and business practices

• Produces information in real time• Coordinates business from supplier evaluation to customer invoicing


ERP

• ERP modules include• Basic MRP• Finance• Human resources• Supply chain management (SCM)• Customer relationship management (CRM)


ERP and MRP


Advantages of ERP Systems

• Provides integration of the supply‐chain, production, and administration

• Creates commonality of databases• Can incorporate improved best processes• Increases communication and collaboration between business units and sites

• Has an off‐the‐shelf software database• May provide a strategic advantage


Disadvantages of ERP Systems

• Is very expensive to purchase and even more so to customize

• Implementation may require major changes in the company and its processes

• Is so complex that many companies cannot adjust to it

• Involves an ongoing, possibly never ending, process for implementation

• Expertise is limited with ongoing staffing problems


Documents

Material Planning and ERP) - rjerz.com · Master Production Schedule ... length of time • The MPS is quite often fixed or frozen in the ... • The MPS is a rolling schedule