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MRP AND ERP
Chapter 12
MIS 373: Basic Operations Management
Additional content from Jeff Heyl and L. Beril Toktay
LEARNING OBJECTIVES
• After this lecture, students will be able to
1.
2.
3.
4.
Describe the inputs, outputs, and nature of MRP processing.
Explain bill of materials
Explain time-phased product structure
Describe differences between MRP and ERP
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MRP
• Material requirements planning (MRP):
• A computer-based information system that translates
master schedule requirements for end items into timephased requirements for subassemblies, components,
and raw materials.
• The MRP is designed to answer three questions:
1. What is needed?
2. How much is needed?
3. When is it needed?
MIS 373: Basic Operations Management
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MRP OVERVIEW
How much and
when finished
product is desired
Composition of a
finished products
How much
inventory is on
hand or on order
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MRP INPUTS
• MRP Inputs
• Master schedule
• How much and when finished product is desired
• Bill of Materials (BOM)
• Composition of a finished products
• Inventory Records
• How much inventory is on hand or on order
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MRP INPUTS:
MASTER SCHEDULE
• Master schedule:
• States:
• Which end items are to be produced
• When these are needed
• In what quantities (customer orders,
forecasts, order from warehouses to
build up seasonal inventories).
Weekly Quantity
Item X
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Quantity
MIS 373: Basic Operations Management
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13
14
100
15
16
17
18
150
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MRP INPUTS:
MASTER SCHEDULE
• Master schedule:
• States:
• Which end items are to be produced
Item X
• When these are needed
• In what quantities (customer orders,
forecasts, order from warehouses to
build up seasonal inventories).
Weekly Quantity
Item X
11
Quantity
MIS 373: Basic Operations Management
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13
14
100
15
16
17
18
150
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MRP INPUTS:
MASTER SCHEDULE
• Master schedule:
• States:
• Which end items are to be produced
Item X
• When these are needed
at beginning of week 14 and
at beginning of week 18
• In what quantities (customer orders,
forecasts, order from warehouses to
build up seasonal inventories).
Weekly Quantity
Item X
11
Quantity
MIS 373: Basic Operations Management
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13
14
100
15
16
17
18
150
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MRP INPUTS:
MASTER SCHEDULE
• Master schedule:
• States:
• Which end items are to be produced
Item X
• When these are needed
at beginning of week 14 and
at beginning of week 18
• In what quantities (customer orders,
forecasts, order from warehouses to
build up seasonal inventories).
100 at beginning of week 14
150 at beginning of week 18
Weekly Quantity
Item X
11
Quantity
MIS 373: Basic Operations Management
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13
14
100
15
16
17
18
150
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CUMULATIVE LEAD TIME
 The master schedule should cover a period that is at least
equivalent to the cumulative lead time
– 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.
CLT = 9 weeks
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CUMULATIVE LEAD TIME
• Following the previous example, if CLT=9
• When should we start work for the demand on the week 14?
• When should we start work for the demand on the week 18?
Weekly Quantity
Item X
11
Quantity
MIS 373: Basic Operations Management
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13
14
100
15
16
17
18
150
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MRP INPUTS:
BILL OF MATERIALS
• Bill of Materials (BOM)
• A listing of all of the assemblies, subassemblies, parts,
and raw materials needed to produce one unit of a
product
• Product structure tree
• A visual depiction of the requirements in a bill of materials, where
all components are listed by levels
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ASSEMBLY DIAGRAM AND
PRODUCT STRUCTURE TREE
parent
component
parent
Level 0 = end item
component
Level 1
Level 2
Amount needed for assembly
at the next higher level only
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LOW-LEVEL CODING
• Low-level coding
• Restructuring the bill of materials so that multiple occurrences of a
component all coincide with the lowest level at which the component
occurs
• Example: 1 X requires: 2 B, 1 C, 6 D, 28 E, and 2 F
X: 1
Level 0
B: 2 x 1 = 2
Level 1
D: 3 x 2 = 6
E: 1 x 2 = 2
Level 2
D(3)
E: 4 x 6 = 24
Level 3
E(4)
MIS 373: Basic Operations Management
X
B(2)
C
E
E(2)
C: 1 x 1 = 1
F(2)
E: 2 x 1 = 2
F: 2 x 1 = 2
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LOW-LEVEL CODING: 1 X
X: 1
Level 0
X
B: 2 x 1 = 2
Level 1
D: 3 x 2 = 6
E: 1 x 2 = 2
Level 2
D(3)
E: 4 x 6 = 24
Level 3
E(4)
B(2)
C
E
E(2)
C: 1 x 1 = 1
F(2)
E: 2 x 1 = 2
F: 2 x 1 = 2
• 1 X requires:
MIS 373: Basic Operations Management
B: 2
C: 1
D: 6
E: 2+24+2=28
F: 2
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LOW-LEVEL CODING: 10 X
WITH ON HAND INVENTORY
Level 0
X
Level 1
• 1 X requires:
B: 2
C: 1
D: 6
E: 28
F: 2
B(2)
Level 2
D(3)
Level 3
E(4)
C
E
10 X require:
B: 2x10-4=16
C: 1x10-10=0
D: 6x10-8=52
E: 28x10-60=220
F: 2x10-0=20
MIS 373: Basic Operations Management
E(2)
F(2)
Does not
consider item
hierarchy!
•
On hand
inventory
B: 4
C: 10
D: 8
E: 60
F: 0
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LOW-LEVEL CODING: 10 X
WITH ON HAND INVENTORY
X: 10
Level 0
B: 2 x 10 - 4 = 16
Level 1
D: 3 x 16 – 8=40
Level 2
D(3)
E: 4 x 40 – 60=100
Level 3
E(4)
• 10X require:
B: 16
C: 0
D: 40
E: 100+16+0=116
F: 0
MIS 373: Basic Operations Management
X
B(2)
C
E
E: 1 x 16 = 16
E(2)
C: 1 x 10 -10=0
F(2)
F: 2 x 0 = 0
“Low-level coding”
E: 2 x 0 = 0
•
On hand
inventory
B: 4
C: 10
D: 8
E: 60
F: 0
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MRP PROCESSING
• MRP processing takes
the end item
requirements specified
by the master
schedule and
“explodes” them into
time-phased
requirements for
assemblies, parts, and
raw materials offset by
lead times
MIS 373: Basic Operations Management
Part E
fabrication
lead-time
Material F
delivery
lead-time
Sub
assembly
lead-time
Final
assembly
lead-time
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EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• An example BOM
The respective lead time
A
B(2)
D(3)
E(3)
C(1)
D(1)
Parts /
Product
Process
Lead Time
A
10
B
15
C
10
D
15
E
10
Question:
When do we start
producing/ordering each part?
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EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• Let’s assume that we need 50 units of A…
• Based on the BOM, we will need
• Level 1: 100 units of B
A
• Level 2: 300 units of D
Assembly
• Level 1: 50 units of C
B(2)
• Level 2: 50 units of D
• Level 2: 150 units of E
D(3)
• Putting together:
E(3)
C(1)
D(1)
Purchase
• 100 B, 50 C, 350D, 150 E
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EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• Let’s assume that we need 50 units of A…
Delivery
date for final
product
Parts-Products
A
B
C
D
E
MIS 373: Basic Operations Management
5 days
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EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A
Start
assembly for
50 units of A
A
B(2)
C(1)
Parts-Products
D(3)
A
B
C
D
E
5 days
MIS 373: Basic Operations Management
E(3)
D(1)
Parts /
Product
Process
Lead Time
A
10
B
15
C
10
D
15
E
10
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EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A
Start
assembly for
100 units of B
A
B(2)
C(1)
Parts-Products
D(3)
A
B
C
D
E
5 days
MIS 373: Basic Operations Management
E(3)
D(1)
Parts /
Product
Process
Lead Time
A
10
B
15
C
10
D
15
E
10
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EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A
Start
assembly for
50 units of C
A
B(2)
C(1)
Parts-Products
D(3)
A
B
C
D
E
5 days
MIS 373: Basic Operations Management
E(3)
D(1)
Parts /
Product
Process
Lead Time
A
10
B
15
C
10
D
15
E
10
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EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A
Order 300
units of D for
B’s process
A
B(2)
C(1)
Parts-Products
D(3)
A
B
C
D
E
5 days
MIS 373: Basic Operations Management
E(3)
D(1)
Parts /
Product
Process
Lead Time
A
10
B
15
C
10
D
15
E
10
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EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A
Order 50
units of D for
C’s assembly
A
B(2)
C(1)
Parts-Products
D(3)
A
B
C
D
E
5 days
MIS 373: Basic Operations Management
E(3)
D(1)
Parts /
Product
Process
Lead Time
A
10
B
15
C
10
D
15
E
10
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EXAMPLE:
TIME-PHASED PRODUCT STRUCTURE
• 50 units of A
Order 150
units of E for
C’s assembly
A
B(2)
C(1)
Parts-Products
D(3)
A
B
C
D
E
5 days
MIS 373: Basic Operations Management
E(3)
D(1)
Parts /
Product
Process
Lead Time
A
10
B
15
C
10
D
15
E
10
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MRP OUTPUTS: PRIMARY
• Primary Outputs
• Planned orders
• A schedule indicating the amount and timing of future
orders
• Order releases
• Authorizing the execution of planned orders
• Changes
• Revisions of the dates or quantities, or the cancellation
of orders
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MRP OUTPUTS: SECONDARY
 Secondary Outputs
 Performance-control reports
 Evaluation of system operation, including deviations from plans and cost
information
• e.g., missed deliveries and stockouts
 Planning reports
 Data useful for assessing future material requirements
• e.g., purchase commitments
 Exception reports
 Data on any major discrepancies encountered
• E.g., late and overdue orders, excessive scrap rates, requirements for
nonexistent parts
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ENTERPRISE RESOURCE
PLANNING (ERP)
• Enterprise Resource Planning (ERP)
• ERP was the next step in an evolution that began with MRP
• ERP typically has an MRP core
• Many organizations use a functional structure. Information tends to
flow freely within each function but less so between functions.
• ERP represents an expanded effort to integrate standardized record
keeping that will permit information sharing among different areas of
an organization in order to manage the system more effectively
• A system to capture and make data available in real-time to decision
makers throughout the organization.
• ERP systems are composed of a collection of integrated modules
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ERP SOFTWARE MODULES
Module
Brief Description
Accounting/Finance
A central component of most ERP systems. It provides a range of financial reports,
including general ledger, accounts payable, accounts receivable, payroll, income
statements, ad balance sheets
Marketing
Supports lead generation, target marketing, direct mail, and sales
Human Resources
Maintains a complete data base of employee information such as date of hire, salary,
contact information, performance evaluations, and other pertinent information
Purchasing
Facilitates vendor selection, price negotiation, making purchasing decisions, and bill
payment
Production Planning
Integrates information on forecasts, orders, production capacity, on-hand inventory
quantities, bills of material, work in process, schedules, and production lead times
Inventory Management
Identifies inventory requirements, inventory availability, replenishment rules, and
inventory tracking
Distribution
Contains information on third-party shippers, shipping and delivery schedules, delivery
tracking
Sales
Information on orders, invoices, order tracking, and shipping
Supply Chain
Facilitates supplier and customer management, supply chain visibility, and event
Management
management
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FOCUSED READING
• Enterprise Resource Planning (ERP)
1.
2.
3.
Enterprise resource planning (ERP)—A brief history
13 Common ERP Mistakes and How to Avoid Making Them
ERP and Business Process Re-engineering
• ERP: The Business Process Re-engineering Dilemma
• To BPR, or not to BPR, that is the question
4.
Cloud ERP
• What Is Cloud ERP, and How Is It Different from Traditional Solutions?
• Benefits of Cloud ERP Software
• Instruction:
• A group should have 4 persons, each with a different article
• Take a few minutes to read the article you have; take notes
• Share the key ideas from your reading to your team members
ERP HISTORY
• MRP: focus on cost reporting, materials, manufacturing
• tapes
• IBM
• 1960~1970
• MRPII: scheduling, procurement
• 1980s
• ERP
• SAP, Peoplesoft,
• 1990
• Client-server architecture
ERP COMMON MISTAKES
• Poor plan
• Need time to plan and to revise
• Revise process
• Not hiring correct people
•
•
•
•
•
•
Experience third party
IT consultants
Referencing
Restrictions, lack of capability
No sufficient training
Underestimation: accurate data, time, resources, training,
• Maintenance strategy
ERP & BUSINESS PROCESS
RE-ENGINEERING
• Take place before ERP system selection
• Output of BPR  ERP
• To be process vs. as is process
•
•
•
•
Difference ways to do business globally
Process standardization after acquisition
Legacy systems
Make sure the process lead to higher values
CLOUD ERP
• Cloud ERP vs. traditional ERP
• Traditional:
• Cloud:
• Outsource operation, easy to setup, monthly/annually fee
• Minimal initial cost
• Automate operation
• cons
• Less control, data security, service outage
KEY POINTS
• The usage of components in production of assembled items
depends on how many of each component are needed per
item, and how many items are to be produced. Hence the
term dependent demand.
• MRP is a tool used for dependent-demand components, to
assist in making the two basic decisions in inventory
management: how much of each component to order, and
when to order it.
• ERP is a software-based enterprise-wide system that allows
access to production, sales, accounting, warehouse, and
supply chain information.
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