15-1 MRP & ERP

Chapter 15

MRP and ERP

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-2 MRP & ERP

MRP

• Material requirements planning (MRP):

Computer-based information system for
ordering and scheduling of dependent
demand inventories

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-3 MRP & ERP

Dependant Demand
• Dependent demand: Demand for items
that are subassemblies or component
parts to be used in production of
finished goods.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-4 MRP & ERP

Dependent vs Independent Demand

Demand
Demand

“Lumpy” demand
Stable demand

Time Time
Amount on hand

Amount on hand

Safety stock
Time Time
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-5 MRP & ERP

MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-6 MRP & ERP

MPR Inputs
• Master Production Schedule
• Time-phased plan specifying timing and quantity of production for each end
item.
• Material Requirement Planning Process

r e
c tu
ru
t St
u c
rod e s
P ee T im
Tr ea d
L
Operations Management, Seventh Edition, by William J. Stevenson
McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-7 MRP & ERP

Master Schedule
Master schedule: One of three primary inputs in MRP; states
which end items are to be produced, when these are needed,
and in what quantities.
Cumulative lead time: The sum of the lead times that sequential
phases of a process require, from ordering of parts or raw
materials to completion of final assembly.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-8 MRP & ERP

Planning Horizon
Figure 14-4

Assembly

Subassembly

Fabrication

Procurement

1 2 3 4 5 6 7 8 9 10

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-9 MRP & ERP

Bill-of-Materials

Bill of materials: 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.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-10 MRP & ERP

Product Structure Tree

Figure 15-5

Level Chair
0

1 Leg Back
Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-11 MRP & ERP

Assembly Time Chart

Figure 15-8
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-12 MRP & ERP

MRP Processing

• Gross requirements
• Schedule receipts
• Projected on hand
• Net requirements
• Planned-order receipts
• Planned-order releases

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-13 MRP & ERP

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.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-14 MRP & ERP

MRP Secondary Reports

• Performance-control reports
• Planning reports
• Exception reports

Operations Management, Seventh Edition, by William J. Stevenson

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15-15 MRP & ERP

Other Considerations
• Safety Stock
• Lot sizing
– Lot-for-lot ordering
– Economic order quantity
– Fixed-period ordering
– Part-period model

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-16 MRP & ERP

Capacity Planning

Capacity requirements planning: The process of

determining short-range capacity requirements.
Load reports: Department or work center reports that
compare known and expected future capacity
requirements with projected capacity availability.
Time fences: Series of time intervals during which order
changes are allowed or restricted.

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
 15-17 MRP & ERP

MRP Planning

Develop a tentative Use MRP to

master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master production
resource requirements schedule
No
Can
Is shop capacity be
capacity No
changed to meet
adequate? requirements
Yes Yes

Firm up a portion Change

of the MPS capacity

Operations Management, Seventh Edition, by William J. Stevenson

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15-18 MRP & ERP

MRP in 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

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-19 MRP & ERP

Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements
• Ability to evaluate capacity requirements
• Means of allocating production time

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-20 MRP & ERP

Requirements of MRP

• Computer and necessary software

• Accurate and up-to-date
– Master schedules
– Bills of materials
– Inventory records
• Integrity of data

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-21 MRP & ERP

MRP II
• Expanded MRP with and emphasis placed
on integration
– Financial planning
– Marketing
– Engineering
– Purchasing
– Manufacturing

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
 15-22 MRP & ERP

MRP II

Market Master
Finance Manufacturing production schedule
Demand

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut Capacity
capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
15-23 MRP & ERP

ERP
• Enterprise resource planning (ERP): An
expanded effort to integrate
standardized record-keeping that will
permit information sharing throughout
the organization

Operations Management, Seventh Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.