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Principles of Operations Management, 5e, and Operations

Management, 7e
2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-1
Operations
Management

Material Requirements Planning
(MRP) & ERP
Chapter 14
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Principles of Operations Management, 5e, and Operations
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-2
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: IBMs MAPICS
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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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
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-4
Inventory
Process
stage
Demand
Type
Number
& Value
Other
Raw Material
WIP
Finished Goods
Independent
Dependent
A Items
B Items
C Items
Maintenance
Operating
Inventory Classifications
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-5
Item
Materials With
Independent Demand
Materials With
Dependent Demand
Demand
Source
Company Customers Parent Items
Material
Type
Finished Goods WIP & Raw Materials
Method of
Estimating
Demand
Forecast & Booked
Customer Orders
Calculated
Planning
Method
EOQ & ROP MRP
Dependent versus Independent
Demand
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-6
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
specifications or bills-of-material
inventory availability
purchase orders outstanding
lead times
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-7
Inputs to the
Production Plan
Aggregate
Production Plan
Marketing
Customer
Demand
Engineering
Design
Completion

Management
Return on
Investment
Capital
Human
Resources
Manpower
Planning
Procurement
Supplier
Performance
Finance
Cash Flow
Production
Capacity
Inventory
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Management, 7e
2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-8
The Planning Process
Change master
production schedule?
Execute material plans
Execute capacity plans
Detail capacity plan
Material requirements plan
Master production
schedule
Aggregate production plan
Change requirements?
Change capacity?
Realistic
No
Yes
Change
production plan?
Is capacity
plan being
met?
Is
execution
meeting
the plan?
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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Aggregate Production Plan

1,200 1,500
Aggregate Production Plan
(shows the total quantity of
amplifiers
100 300
75 watt amplifier
450 450 500 500
150 watt amplifier
100 100 100 100
240 watt amplifier
Master Production Schedule
(Shows the specific type
and quantity of amplifier to
be produced
8
7 6 5 4 3 2 1 Weeks
February January Months
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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Typical Focus of the Master
Production Schedule
Make to Order

(Process Focus)
Assemble to
Order or Forecast
(Repetitive)
Stock to Forecast

(Product Focus)
Schedule finished
product
Steel, Beer,
Bread Light
bulbs, Paper
Print shop
Machine shop
Fine dining restaurant
Examples:
Number of end
items
Number of
inputs
Typical focus of the
master production
schedule
Schedule
orders
Schedule
modules
Motorcycles, autos,
TVs, fast-food
restaurant
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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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.
Bill-of-Material
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-12
Product Structure for Awesome A
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Modular bills
Modules are final components used to make assemble-to-
stock end items
Planning bills
Used to assign artificial parent
Reduces number of items scheduled
Phantom bills
Used for subassemblies that exist temporarily
Special Bills-of-Material
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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Bicycle(1)
P/N 1000
Handle Bars (1)
P/N 1001
Frame Assembly (1)
P/N 1002
Wheels (2)
P/N 1003
Frame (1)
P/N 1004
Bill-of-Material
Product Structure Tree
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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Time-Phased Product Structure
1 2 3 4 5 6 7 8
3 weeks
F
2 weeks
E
A
1 week
1 week
C
G
2 weeks
D
1 week
E
2 weeks
Start production of
D
D
1 week
B
2 weeks to
produce
Must have D and E completed
here so production can begin
on B
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1 2 3 4 5
Gross Requirements
2 20 25 15
Scheduled Receipts
5 30
Available
25 23 33 33 8
Net Requirements
7
Planned Order Receipts
7
Planned Order Releases
7
Manufacturing computer information system
Determines quantity & timing of dependent demand
items
1995
Corel
Corp.
Material Requirements Planning
(MRP)
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Computer system
Mainly discrete products
Accurate bill-of-material
Accurate inventory status
99% inventory accuracy
Stable lead times
1984-1994 T/Maker Co.
MRP Requirements
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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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
MRP Benefits
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-19
Structure of the MRP System
Master Production
Schedule
BOM
Lead Times
(Item Master File)
Inventory Data
Purchasing data
MRP planning
programs
(computer and
software)
MRP by Period Report
MRP by date report
Planned order report
Purchase advice
Exception report
Exception report
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-20
Gross Material Requirements Plan
for 50 Awesome A Speaker Kits
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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Shows items to be produced
End item, customer order, module
Derived from aggregate plan
Master Production Schedule
Item/Week Oct 3 Oct 10 Oct 17 Oct 24
Drills 300 200 310 300
Saws 300 450 310 330
Example
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-22
Derivation of Master Schedule
Therefore, these are
the gross
requirements for B
Periods
10 10
1 2 3
Master schedule
for S sold directly
40 50 15
A
C
B
5 6 7 8 9 10 11
Lead time = 4 for A
Master schedule for A
40 20 30
S
B
C
8 9 10 12 11 13
Lead time = 6 for S
Master schedule for S
10
40+10
= 50 40 50 20
15+30
= 45
1 2 3 4 5 6 7 8
Periods
Gross requirements: B
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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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-of-materials
from the component to the parent item
That a manager can react to changes, doesnt
mean he/she should

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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-24
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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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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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 of MRP
Closed loop MRP
Capacity planning - load reports
MRP II - Material Resource Planning
Enterprise Resource Planning
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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Closed Loop MRP
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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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
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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Initial Resource
Requirements/Smoothed
Resource Requirements
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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Extensions to MRP
Enterprise Resource Planning
MRP II with ties to customers and suppliers
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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MRP and ERP Information Flows,
Integrated with Other Systems
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
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MRP in Services
Can be used when demand for service or service
items is directly related to or derived from demand
for other services
restaurant - rolls required for each meal
hospitals - implements for surgery
etc.
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2004 by Prentice Hall, Inc. Upper Saddle River, N.J. 07458
14-36
Product Structure, Bill of Materials,
Bill of Labor for Veal Picante