Operations Management MD021

1. Operations Management(MD021) MRP and ERP

2. Agenda Dependent Demand Inventories Basics of Material Requirements Planning (MRP) Systems MRP II Enterprise Resource Planning (ERP)

3. Dependent Demand Inventory

4. Independent Demand Inventory vs. Dependent Demand Inventory

5. Dependant Demand Inventories Dependent demand Demand for items that are subassemblies or component parts to be used in production of finished goods. Once the independent demand is known, the dependent demand can be determined. Dependent demand items must only be stocked just prior to the time they will be needed in the production process

6. Independent vs. Dependent

7. Basics of MRP Systems

8. MRP Material Requirements Planning (MRP) A computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.

9. Benefits of MRP Low levels of in-process inventories Ability to track material requirements Ability to evaluate capacity requirements Means of allocating production time

10. Requirements of MRP Computer and necessary software Accurate and up-to-date Master schedules Bills of materials Inventory records Integrity of data

11. MRP System Components

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

13. Master Schedule Master Schedule (Master Production 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.

14. Planning Horizon

15. Bill-of-Materials Bill of Materials (BOM) 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.

16. Assembly Diagram and Product Structure Tree for Assembling a Chair

17. Bill of Materials A listing of all raw materials, parts, subassemblies, and assemblies needed to produce one unit Product structure Tree

18. Bill of Materials

19. Inventory Records Data must be kept on the inventory status of each item by time period Gross requirements Scheduled receipts Amount on hand Lead times Lot sizes And more …

20. Assembly Time Chart represents time-phased assembly activities

21. Processing MRP Plans Involves Calculating Several Quantities Gross requirements Schedule receipts Projected on hand Net requirements Planned-order receipts Planned-order releases

22. Processing MRP Plans Involves Calculating Several Quantities Gross requirements Total expected demand Scheduled receipts Open orders scheduled to arrive Planned on hand Expected inventory on hand at the beginning of each time period

23. Processing MRP Plans Involves Calculating Several Quantities Net requirements Actual amount needed in each time period Planned-order receipts Quantity expected to received at the beginning of the period Offset by lead time Planned-order releases Planned amount to order in each time period

24. The Quantities are Organized in a Time Phased MRP Plan

25. MRP Plans are Updating on a Rolling Horizon Regenerative system Updates MRP records periodically Net-change system Updates MPR records continuously

26. Primary MRP Reports 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.

27. Secondary MRP Reports Performance-control reports measure deviations from original plans (e.g., deliveries, stockouts) provide information on cost performance Planning reports future material requirements information useful for forecasting future inventory requirements Exception reports calls attention to major problems (late and overdue orders, excessive scrap rates, reporting errors)

28. Other Considerations Safety Stock Ideally, production is perfect, and no safety stock is needed Realistically, always have random occurrences that leads to carrying safety stocks Lot sizing – may want to produce certain lot sizes Lot-for-lot ordering Economic order quantity Fixed-period ordering

29. MRP II

30. MRP II Expanded the scope of MRP with new emphasis placed on integration Capacity requirement planning Financial planning Marketing Engineering Purchasing Manufacturing

31. MRP II

32. Capacity Planning in MRP II 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.

33. Capacity Planning in MRP II

34. Enterprise Resource Planning (ERP)

35. ERP Enterprise resource planning (ERP) Attempts to integrate all departments and functions across a company (e.g., financial, manufacturing, human resources) on a single computer system containing data to facilitate the needs of those different departments. single, integrated software program single database

36. ERP Strategy Considerations Requires business process changes Requires human behavior changes High initial cost Risky, long, expensive system implementations High cost to maintain Future upgrades Training costs for everyone in organization to use

37. Potential Benefits of ERP After installing ERP … Processes are standardized Better visibility into operations’ activities Thousands of incorrect, inefficient point solutions (i.e., spreadsheets) are eliminated Consistent data across organization Consistent access to data Can better match requirements across all functions You can later install SCM and CRM applications that can use the ERP system data

38. ERP Implementation Options The Big Bang Companies cast off all of their legacy systems and implement a single ERP system across the entire company Out with the old system, in with the new system Franchising Strategy Best of breed approach within each function Install independent ERP components within each functional area; integrate functional ERP systems to the extent necessary Slam-Dunk Focus on implementing ERP for only a few key processes Plan to implement more ERP components in the future

39. MRP/ERP in Service Operations

40. MRP/ERP Applications 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 for cost estimation and scheduling

41. MRP/ERP Applications in Services Boston College Uses PeopleSoft ERP for HR planning and materials ordering (MRP) Food Service – procure expected future food requirements Lots of other resource requirements with time expectations that can be managed by the MRP component

42. MRP/ERP Applications in Services