MPS, RCCP, MRP, CRP, & ERP
Manufacturing Resource Planning
Core MRP
Aggregate Versus Detailed Forecasts (Review)
Use aggregate forecasts for planning medium-range overall production levels.
o High long-range forecast accuracy
o Detail not needed for planning long-range resource use (labor, inventory, etc.)
Use detailed forecasts for initial detailed short-range Master Production Schedule (MPS)
o Detailed forecasts reasonably accurate for this time frame
o Need product-specific detail for MPS
Master Production Schedule
From The Aggregate Plan To The MPS
Suppose that Export TVs, Inc. has the following production plan for the next six months:
Month
TVS
J
12000
F
12000
M
15000
A
15000
M
15000
If they make three models, the MPS for January might look like:
MPS
1-Jan
8-Jan
15-Jan 22-Jan
31
2000
1000
0
1000
33
1000
1000
0
2000
36
0
1000
3000
0
J
18000
Planning Horizon
The Master Production Schedule
An MPS starts with a forecast and a beginning inventory balance.
Period
Product X
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
10
20
Period
Product Y
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
10
13
12
Inventory is projected forward until a shortage, or net requirement, occurs
Period
Product X
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
20
5
15
10
5
Period
Product Y
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
10
13
12
Production is scheduled to be completed (the MPS is a planned finish time) to cover the
shortfall
Period
Product X
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
20
Period
Product Y
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
5
15
10
5
8
5
3
8
10
13
12
A planned start time the planned order release is determined based on lead time (here
it is one period)
Period
Product X
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
20
5
15
10
5
8
5
3
8
8
Period
Product Y
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
12
10
13
The process continues until the product is scheduled
Period
Product X
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
20
5
15
10
5
8
5
3
8
5
0
6
8
6
14
8
0
8
Period
Product Y
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
10
13
5
15
10
5
8
5
3
8
5
0
6
8
6
14
8
0
12
The other product is scheduled the same way
Period
Product X
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
20
8
Period
Product Y
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
14
12
14
7
5
2
3
10
13
7
20
13
0
5
5
5
10
5
0
20
10
To check the feasibility of the MPS, we need to check the capacity requirements
Period
Product X
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
20
5
15
10
5
8
5
3
8
5
0
6
8
6
14
8
0
14
Period
Product Y
Forecast
Projected Available Balance
Net Requirements
MPS
Planned Order Release
12
7
5
2
3
10
13
7
20
13
0
5
5
5
10
5
0
20
10
Rough-cut Capacity Planning:
A First Check On The MPS
Need to see if MPS is feasible
RCCP finds approximate capacity needs in each workcenter given the MPS
Quick-and-dirty reality check
If capacity overloads, redo MPS
THE "ROUGH-CUT" ROUTING
The Rough-cut" routing for a product lists
o Where it is processed
o Resources needed
Per batch or per setup
Per unit after workcenter is setup
Product
X
Workcenter
W1
W2
CLH/Setup
10
0
DLH/Unit
1.00
0.70
W1
0.75
The routing is applied to the planned order releases to obtain the capacity plan
Product
X
Workcenter
W1
W2
CLH/Setup
10
0
DLH/Unit
1.00
0.70
W1
0.75
Period
Product X-planned Order Release
Product Y-planned Order Release
1
0
0
2
8
20
3
0
0
4
14
10
5
0
0
6
0
0
Workcentre
W1
W2
18
20
38
Period
3 4
0
24
0 12.5
0 36.5
5
0
0
0
6
0
0
0
Part
X
Y
Total
1
0
0
0
5.6
9.8
43.6
46.3
Total
Material Requirements Planning
The Original MRP
In the beginning (pre-1970's)
o There were no computers
o Material planning was done independently for each component
Then there were computers
o And MRP (I) became possible
Then there were faster computers
o And MRP II became possible
Then there were even faster computers
And ERP became possible
MRP, CRP, and ERP
o
o
o
o
o
o
Bills of Materials
The MRP Record
The MRP Explosion
Vertical Linkage of MRP Records
Validating the MPS
Capacity Requirements Planning
Master Schedule
o 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.
o 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.
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.
BOM's show how parts are combined to create product
o Representation may be graphical or indented text
B (2)
Low-level Coding
Determines order of MRP calculations
Each BOM level is assigned a number
Products are at level 0
Each part is assigned the number of the lowest level at which it appears in any
BOM
Calculate plans for level 0 first, then level 1, etc. . . .
X
B (2)
LEVEL 0
LEVEL 1
LEVEL 2
Inventory Records
Inventory Records: One of the three primary inputs of MRP; includes information on
the status of each item by time period
Accuracy: is extremely important in that accuracy will determine the success of the
production runs.
Vertical Linkage Of MRP Records
Objective: find material plans [planned order releases] for all parts
Data requirements
MPS
BOMs
Inventory records file
Gross requirements are ultimately derived from MPS
But in calculations, the gross requirements for a part depend only on the planned
order releases of the parent parts
MRP Processing
Gross requirements (demand)
Schedule receipts (open orders)
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
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.
The MRP Record
Objective is to determine future purchasing or production schedule for a component part
Gross Requirements demand for part
Scheduled Receipts planned completion times for batches of parts which have
been already ordered
Period
Gross Requirements
Scheduled Receipts
Projected Available Balance
Net Requirements
Planned Order Receipts
Planned Order Release
1
10
15
3
30
4
10
5
20
6
25
5
0
0
0
Planned Order Receipt planned completion times for batches of parts which
have not yet been ordered
Planned Order Release planned start times for batches of parts which have not
yet been ordered
Period
Gross Requirements
Scheduled Receipts
Projected Available Balance
Net Requirements
Planned Order Receipts
Planned Order Release
5
0
0
0
2
0
30
35
0
0
0
1
10
15
2
0
30
35
0
0
30
3
30
4
10
5
20
6
25
5
0
0
0
25
5
30
0
5
0
0
0
10
20
30
0
3
30
4
10
5
20
6
25
7
5
5
0
0
0
25
5
30
30
5
0
0
0
10
20
30
0
5
0
0
0
2
0
3
30
4
10
5
20
6
25
7
5
35
0
0
30
5
0
0
0
25
5
30
30
5
0
0
0
10
20
30
0
5
0
0
0
5
0
0
0
During Period 1:
10 units are disbursed
Period
Gross Requirements
Scheduled Receipts
Projected Available Balance
Net Requirements
Planned Order Receipts
Planned Order Release
2
0
30
35
0
0
30
The scheduled receipt is completed
Period
Gross Requirements
Scheduled Receipts
Projected Available Balance
Net Requirements
Planned Order Receipts
Planned Order Release
35
The planned order release is released
Period
Gross Requirements
Scheduled Receipts
Projected Available Balance
Net Requirements
Planned Order Receipts
Planned Order Release
35
2
0
3
30
35
0
0
0
5
0
0
0
20
4
10
30
25
5
30
30
5
20
6
25
7
5
5
0
0
0
10
20
30
0
5
0
0
0
5
14
0
5
10
0
MRP Example
Start with MPS for products X and Y
Product X: LT=1
Period
Master Production Schedule
Planned Order Release
Product Y: LT=1
Period
Master Production Schedule
Planned Order Release
3
8
0
14
3
20
0
4
10
Planned order releases for X serve as basis for gross requirements for part B
Product X: LT=1
Period
Master Production Schedule
Planned Order Release
Part B: LT=1; EOQ=25
Period
Gross Requirements
2
8
3
8
0
1
0
2
16
3
0
14
5
14
0
4
28
5
0
6
0
Part Bs record is then completed
Part B: LT=1; EOQ=25
Period
Gross Requirements
Scheduled Receipts
Projected Available Balance
Net Requirements
Planned Order Receipts
Planned Order Releases
19
1
0
2
16
3
0
4
28
5
0
6
0
19
0
0
0
3
0
0
0
3
0
0
0
0
25
25
0
0
0
0
0
0
0
0
0
Part As gross requirements depend on planned order releases for X, Y, and B
Product X: LT=1
Period
Planned Order Release
1
0
2
8
3
0
4
14
5
0
6
0
Product Y: LT=1
Period
Planned Order Release
1
0
2
20
3
0
4
10
5
0
6
0
Part B: LT=1; EOQ=25
Period
Planned Order Release
1
0
2
0
3
25
4
0
5
0
6
0
Part A: LT=1; EOQ=40
Period
Planned Order Release
1
0
2
28
3
25
4
24
5
0
6
0
1
0
40
56
0
0
0
2
28
3
25
4
24
5
0
6
0
28
0
0
0
3
0
0
40
19
21
40
0
19
0
0
0
19
0
0
0
Part As record is then completed
Part A: LT=1; EOQ=40
Period
Gross Requirements
Scheduled Receipts
Projected Available Balance
Net Requirements
Planned Order Receipts
Planned Order Releases
MRP Planning
16
Benefits of MRP
Low levels of in-process inventories
Ability to track material requirements
Ability to evaluate capacity requirements
Means of allocating production time
Requirements of MRP
Computer and necessary software
Accurate and up-to-date
Master schedules
Bills of materials
Inventory records
Integrity of data
MRP II
Expanded MRP with and emphasis placed on integration
Financial planning
Marketing
Engineering
Purchasing
Manufacturing
Capacity Requirements 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.
Capacity Requirements Planning
Should be used as a final check on the MPS
More accurate than RCCP
May be too expensive for routine "what-if" analysis
Determine incremental run times and setup times for each part in each workcenter
Apply incremental run times and setup times from (1) to planned order releases to
determine capacity requirements per period for each workcenter
The Routing
The routing for a product or part lists
Where it is processed
Resources needed
Per batch or per setup
Per unit after workcenter is setup
Product Workcenter Operation # CLH/Setup DLH/Unit
X
W1
10
10
1.0
W2
20
0
0.50
Y
W1
10
5
0.75
B
W2
10
0
0.20
Capacity Requirements Planning
The routing is applied to the planned order releases to obtain the capacity plan
Product Workcenter Operation # CLH/Setup DLH/Unit
X
W1
10
10
1.0
W2
20
0
0.50
Y
W1
10
5
0.75
B
W2
10
0
0.20
Period
Planned Order Release -Product X
Planned Order Release -Product Y
Planned Order Release Part B
W1 Capacity Required Product X
W1 Capacity Required Product Y
W1 Capacity Required
W2 Capacity Required Product X
W2 Capacity Required Part B
W2 Capacity Required
Total Capacity Required
1
0
0
0
0
0
0
0
0
0
0
2 3
8
0
20 0
0 25
18 0
20 0
38 0
4
0
0
5
4
5
42 5
4
14
10
0
24
12.5
36.5
7
0
7
43.5
5
0
0
0
0
0
0
0
0
0
0
6
0
0
0
0
0
0
0
0
0
0
Other Considerations
Safety Stock
Lot sizing
Lot-for-lot ordering
Economic order quantity
Fixed-period ordering
Part-period model
Enterprise Resource Planning
Enterprise resource planning (ERP): An expanded effort to integrate standardized recordkeeping that will permit information sharing throughout the organization
Enterprise resource planning
Kanban
Where did this come from and what is it?
Japanese word for signal or page 700
Team Exercises
THE ROUGH-CUT PLAN
The routing is applied to the planned order releases to obtain the capacity plan
Product Workcenter CLH/Setup DLH/Unit
X
W1
10
1.0
W2
0
0.70
Y
W1
Period
Product X-planned Order Release
Product Y-planned Order Release
Workcentre
W1
W2
Total
Part
X
Y
Total
X
0.75
1
0
0
2
15
0
3
0
37
Period
3
4
4
46
0
5
0
15
6
0
0
The MRP Record
Complete the following MRP Record and indicate in the record that the next order has
been released but not received.
Economic Order Quantity = ???
Setup Costs: $20
Holding Cost: $0.10
Nothing has been released
Lead time: 3 periods
Period
Gross Requirements
Scheduled Receipts
Projected Available Balance
Net Requirements
Planned Order Receipts
Planned Order Releases
1
66
160
2
58
3
72
4
58
5
60
6
70
MRP Exercise
Product X: LT = 3
Product Y: LT = 3
Part A: LT = 1; EOQ = 40
Part B: LT = 1; EOQ = 25
Master Production Schedule
Period
Product X
Product Y
Part A
Part B
4
10
30
0
0
70
40
Beginning
Balance
6
5
10
CRP Exercise
Using your answers form the MRP Exercise determine the CRP using the figures below.
Part Workcenter Operation # DLH/Setup DLH/Unit
X
W1
10
10
1.00
W2
20
0
0.50
Y
W1
10
5
0.75
B
W2
10
0
0.20
Period
Planned Order Release -Product X
Planned Order Release -Product Y
Planned Order Release Part B
W1 Capacity Required Product X
W1 Capacity Required Product Y
W1 Capacity Required
W2 Capacity Required Product X
W2 Capacity Required Part B
W2 Capacity Required
Total Capacity Required
Further concepts in MRP, ERP and DRP
Overview
Global Company Profile: Wheeled Coach
Dependent Demand
Dependent Inventory Model Requirements
o Master Production Schedule
o Bills of Material
o Accurate Inventory Records
o Purchase Orders Outstanding
o Lead Times for Components
MRP Structure
MRP Management
o MRP Dynamics
o MRP and JIT
Lot-Sizing Techniques
Extensions of MRP
o Material Requirements Planning II (MRP II)
o Closed-Loop MRP
Capacity Planning
MRP In Services
o Distribution Resource Planning (DRP)
Enterprise Resource Planning (ERP)
o Advantages and Disadvantages of ERP Systems
o ERP in the Service Sector
MRP Structure
MRP Management
o MRP Dynamics
o MRP and JIT
Lot-Sizing Techniques
Extensions of MRP
o Material Requirements Planning II (MRP II)
o Closed-Loop MRP
o Capacity Planning
MRP In Services
o Distribution Resource Planning (DRP)
Enterprise Resource Planning (ERP)
o Advantages and Disadvantages of ERP Systems
o ERP in the Service Sector
Learning Objectives
When you complete this chapter you should be able to:
1. Develop a product structure
2. Build a gross requirements plan
3. Build a net requirements plan
4. Determine lot sizes for lot-for-lot, EOQ, and PPB
5. Describe MRP II
6. Describe closed-loop MRP
7. Describe ERP
Wheeled Coach
Largest manufacturer of ambulances in the world
International competitor
12 major ambulance designs
o 18,000 different inventory items
o 6,000 manufactured parts
o 12,000 purchased parts
Four Key Tasks
o Material plan must meet both the requirements of the master schedule and the
capabilities of the production facility
o Plan must be executed as designed
o Minimize inventory investment
o Maintain excellent record integrity
Benefits of MRP
1. Better response to customer orders
2. Faster response to market changes
3. Improved utilization of facilities and labor
4. Reduced inventory levels
Dependent Demand
1. The demand for one item is related to the demand for another item
2. Given a quantity for the end item, the demand for all parts and components can be
calculated
3. In general, used whenever a schedule can be established for an item
4. MRP is the common technique
Effective use of dependent demand inventory models requires the following
1. Master production schedule
2. Specifications or bill of material
3. Inventory availability
4. Purchase orders outstanding
5. Lead times
Master Production Schedule (MPS)
Specifies what is to be made and when
Must be in accordance with the aggregate production plan
Inputs from financial plans, customer demand, engineering, supplier performance
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
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
The Planning Process
Aggregate Production Plan
Master Production Schedule (MPS)
Can be expressed in any of the following terms:
A customer order in a job shop (make-to-order) company
Modules in a repetitive (assemble-to-order or forecast) company
An end item in a continuous (stock-to-forecast) company
Focus for Different Process Strategies
MPS Example
For Nancys Specialty Foods
Bills of Material
List of components, ingredients, and materials needed to make product
Provides product structure
o Items above given level are called parents
o Items below given level are called children
Bills of Material Example
Bills of Material
Modular Bills
o Modules are not final products but components that can be assembled into
multiple end items
o Can significantly simplify planning and scheduling
Planning Bills (Pseudo Bills)
o Created to assign an artificial parent to the BOM
o Used to group subassemblies to reduce the number of items planned and
scheduled
o Used to create standard kits for production
Phantom Bills
o Describe subassemblies that exist only temporarily
o Are part of another assembly and never go into inventory
Low-Level Coding
o Item is coded at the lowest level at which it occurs
o BOMs are processed one level at a time
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 scheduled receipts
Lead Times
The time required to purchase, produce, or assemble an item
o For production the sum of the order, wait, move, setup, store, and run times
o For purchased items the time between the recognition of a need and the
availability of the item for production
Time-Phased Product Structure
MRP Structure
Determining Gross Requirements
Starts with a production schedule for the end item 50 units of Item A in week 8
Using the lead time for the item, determine the week in which the order should be
released a 1 week lead time means the order for 50 units should be released in week 7
This step is often called lead time offset or time phasing
From the BOM, every Item A requires 2 Item Bs 100 Item Bs are required in week 7 to
satisfy the order release for Item A
The lead time for the Item B is 2 weeks release an order for 100 units of Item B in week
5
The timing and quantity for component requirements are determined by the order release
of the parent(s)
The process continues through the entire BOM one level at a time often called
explosion
By processing the BOM by level, items with multiple parents are only processed once,
saving time and resources and reducing confusion
Low-level coding ensures that each item appears at only one level in the BOM
Gross Requirements Plan
Net Requirements Plants
Determining Net Requirements
Starts with a production schedule for the end item 50 units of Item A in week 8
Because there are 10 Item As on hand, only 40 are actually required (net requirement) =
(gross requirement - on- hand inventory)
The planned order receipt for Item A in week 8 is 40 units 40 = 50 - 10
Following the lead time offset procedure, the planned order release for Item A is now 40
units in week 7
The gross requirement for Item B is now 80 units in week 7
There are 15 units of Item B on hand, so the net requirement is 65 units in week 7
A planned order receipt of 65 units in week 7 generates a planned order release of 65
units in week 5
A planned order receipt of 65 units in week 7 generates a planned order release of 65
units in week 5
The on-hand inventory record for Item B is updated to reflect the use of the 15 items in
inventory and shows no on-hand inventory in week 8
This is referred to as the Gross-to-Net calculation and is the third basic function of the
MRP process
Net Requirements Plan
The logic of net requirements
Gross Requirements Schedule
MRP Planning Sheet
Safety Stock
BOMs, inventory records, purchase and production quantities may not be perfect
Consideration of safety stock may be prudent
Should be minimized and ultimately eliminated
Typically built into projected on-hand inventory
MRP Management
MRP is a dynamic system
Facilitates replanning when changes occur
System nervousness can result from too many changes
Time fences put limits on replanning
Pegging links each item to its parent allowing effective analysis of changes
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
Finite Capacity Scheduling
MRP systems do not consider capacity during normal planning cycles
Finite capacity scheduling (FCS) recognizes actual capacity limits
By merging MRP and FCS, a finite schedule is created with feasible capacities which
facilitates rapid material movement
Small Bucket Approach
1. MRP buckets are reduced to daily or hourly
o The most common planning period (time bucket) for MRP systems is weekly
2. Planned receipts are used internally to sequence production
3. Inventory is moved through the plant on a JIT basis
4. Completed products are moved to finished goods inventory which reduces required
quantities for subsequent planned orders
5. Back flushing based on the BOM is used to deduct inventory that was used in production
Balanced Flow
Used in repetitive operations
MRP plans are executed using JIT techniques based on pull principles
Flows are carefully balanced with small lot sizes
Supermarket
Items used by many products are held in a common area often called a supermarket
Items are withdrawn as needed
Inventory is maintained using JIT systems and procedures
Common items are not planned by the MRP system
Lot-Sizing Techniques
Lot-for-lot techniques order just what is required for production based on net
requirements
o May not always be feasible
o If setup costs are high, lot-for-lot can be expensive
Economic order quantity (EOQ)
o EOQ expects a known constant demand and MRP systems often deal with
unknown and variable demand
Part Period Balancing (PPB) looks at future orders to determine most economic lot size
The Wagner-Whitin algorithm is a complex dynamic programming technique
o Assumes a finite time horizon
o Effective, but computationally burdensome
Lot-for-Lot Example
1
Gross requirements
35
Scheduled receipts
Projected on hand
35 35
Net requirements
0
Planned order receipts
Planned order releases
30
2 3 4
30 40 0
5 6 7 8
10 40 30 0
9 10
30 55
0 0 0
30 40 0
30 40
40
10
0
10
10
40
0 0
30 55
30 55
55
Holding cost = $1/week; Setup cost = $100;
0 0 0
40 30 0
40 30
30
30
Lead time = 1 week
No on-hand inventory is carried through the system
Total holding cost = $0
There are seven setups for this item in this plan
Total setup cost = 7 x $100 = $700
EOQ Lot Size Example
1
Gross requirements
35
Scheduled receipts
Projected on hand
35 35
Net requirements
0
Planned order receipts
Planned order releases
73
2 3 4
30 40 0
5 6 7 8
10 40 30 0
0 43 3 3 66 26 69 69 39
30 0 0 7 0 4 0 0 16
73
73
73
73
73
73
73
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
Average weekly gross requirements = 27; EOQ = 73 units
Annual demand = 1,404
9 10
30 55
Total cost = setup cost + holding cost
Total cost = (1,404/73) x $100 + (73/2) x ($1 x 52 weeks)
Total cost = $3,798
Cost for 10 weeks = $3,798 x (10 weeks/52 weeks) = $730
PPB Example
1 2 3 4 5 6 7 8 9 10
Gross requirements
35 30 40 0 10 40 30 0 30 55
Scheduled receipts
Projected on hand
35
Net requirements
Planned order receipts
Planned order releases
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
EPP = 100 units
PPB Example
1
Gross requirements
35
Scheduled receipts
Projected on hand
35 35
Net requirements
0
Planned order receipts
Planned order releases
80
2 3 4
30 40 0
5
10
6
40
7 8
30 0
9 10
30 55
0 50 10 10 0
60 30 30 0
30 0 0 0
40 0 0 0 55
80
100
55
100
55
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
EPP = 100 units
Lot-Sizing Summary
For these three examples
Wagner-Whitin would have yielded a plan with a total cost of $455
In theory, lot sizes should be recomputed whenever there is a lot size or order quantity
change
In practice, this results in system nervousness and instability
Lot-for-lot should be used when low-cost JIT can be achieved
Lot sizes can be modified to allow for scrap, process constraints, and purchase lots
Use lot-sizing with care as it can cause considerable distortion of requirements at lower
levels of the BOM
When setup costs are significant and demand is reasonably smooth, PPB, Wagner-Whitin, or
EOQ should give reasonable results
Extensions of MRP
Closed-Loop MRP
o MRP system provides input to the capacity plan, MPS, and production planning
process
Capacity Planning
o MRP system generates a load report which details capacity requirements
o This is used to drive the capacity planning process
o Changes pass back through the MRP system for rescheduling
Material Requirements Planning II
Once an MRP system is in place, inventory data can be augmented by other useful
information
o Labor hours
o Material costs
o Capital costs
o Virtually any resource
System is generally called MRP II or Material Resource Planning
Closed-Loop MRP System
Resource Requirements Profile
It is also possible to split lots 6 and 11 and move them earlier in the schedule. This would avoid
any potential problems with late orders but would increase inventory holding cost.
Smoothing Tactics
1. Overlapping
o Sends part of the work to following operations before the entire lot is complete
o Reduces lead time
2. Operations splitting
o Sends the lot to two different machines for the same operation
o Shorter throughput time but increased setup costs
3. Order or lot splitting
o Breaking up the order into smaller lots and running part ahead of schedule
MRP in Services
Some services or service items are directly linked to demand for other services
These can be treated as dependent demand services or items
Restaurants
Hospitals
Hotels
Smoothing Tactics
(a) Product Structure Tree
MRP in Services
(b) Bill of Materials
Part
Number
10001
20002
20003
20004
30004
30005
30006
Description
Quantity
1
1
1
Unit of
Measure
Serving
Serving
Serving
Unit
cost
Veal picante
Cooked linguini
Prepared veal and
sauce
Spinach
Uncooked linguini
Veal
Sauce
0.1
0.5
1
1
Bag
Pound
Serving
Serving
0.94
2.15
0.80
(c) Bill of Labor for Veal Picante
Work Center Operation
1
2
3
Labor Type
Labor
Hours
Setup Time Run Time
Assemble dish
Chef
.0069
.0041
Cook linguini
Helper one
.0005
.0022
Cook veal & sauce Assistant Chef
.0125
.0500
Distribution Resource Planning(DRP)
Using dependent demand techniques through the supply chain
Expected demand or sales forecasts become gross requirements
Minimum levels of inventory to meet customer service levels
Accurate lead times
Definition of the distribution structure
Enterprise Resource Planning (ERP)
An extension of the MRP system to tie in customers and suppliers
1. Allows automation and integration of many business processes
2. Shares common data bases and business practices
3. Produces information in real time
Coordinates business from supplier evaluation to customer invoicing
ERP modules include
1. Basic MRP
2. Finance
3. Human resources
4. Supply chain management (SCM)
5. Customer relationship management (CRM)
ERP and MRP
Enterprise Resource Planning (ERP)
ERP can be highly customized to meet specific business requirements
Enterprise application integration software (EAI) allows ERP systems to be integrated
with
o Warehouse management
o Logistics
o Electronic catalogs
o Quality management
ERP systems have the potential to
Reduce transaction costs
Increase the speed and accuracy of information
Facilitates a strategic emphasis on JIT systems and integration
Advantages of ERP Systems
1. Provides integration of the supply chain, production, and administration
2. Creates commonality of databases
3. Can incorporate improved best processes
4. Increases communication and collaboration between business units and sites
5. Has an off-the-shelf software database
6. May provide a strategic advantage
Disadvantages of ERP Systems
1. Is very expensive to purchase and even more so to customize
2. Implementation may require major changes in the company and its processes
3. Is so complex that many companies cannot adjust to it
4. Involves an ongoing, possibly never completed, process for implementation
5. Expertise is limited with ongoing staffing problems
SAPs ERP Modules
ERP in the Service Sector
ERP systems have been developed for health care, government, retail stores, hotels, and
financial services
Also called efficient consumer response (ECR) systems
Objective is to tie sales to buying, inventory, logistics, and production
