Slide #1.

14 Material Requirements Planning (MRP) and ERP PowerPoint presentation to accompany Heizer and Render Operations Management, 10e Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 1
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Slide #2.

Outline  Global Company Profile: Wheeled Coach  Dependent Demand  Dependent Inventory Model Requirements  Master Production Schedule  Bills of Material  Accurate Inventory Records  Purchase Orders Outstanding  Lead Times for Components © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 2
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Slide #3.

Outline – Continued  MRP Structure  MRP Management  MRP Dynamics  MRP and JIT  Lot-Sizing Techniques © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 3
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Slide #4.

Outline – Continued  Extensions of MRP  Material Requirements Planning II (MRP II)  Closed-Loop MRP  Capacity Planning  MRP In Services  Distribution Resource Planning (DRP) © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 4
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Slide #5.

Outline – Continued  Enterprise Resource Planning (ERP)  Advantages and Disadvantages of ERP Systems  ERP in the Service Sector © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 5
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Slide #6.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 6
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Slide #7.

Learning Objectives When you complete this chapter you should be able to: 5. Describe MRP II 6. Describe closed-loop MRP 7. Describe ERP © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 7
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Slide #8.

Wheeled Coach  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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 8
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Slide #9.

Wheeled Coach  Four Key Tasks  Material plan must meet both the requirements of the master schedule and the capabilities of the production facility  Plan must be executed as designed  Minimize inventory investment  Maintain excellent record integrity © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 9
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Slide #10.

Dependent Demand For any product for which a schedule can be established, dependent demand techniques should be used © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 10
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Slide #11.

Dependent Demand 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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 11
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Slide #12.

Dependent Demand  The demand for one item is related to the demand for another item  Given a quantity for the end item, the demand for all parts and components can be calculated  In general, used whenever a schedule can be established for an item  MRP is the common technique © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 12
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Slide #13.

Dependent Demand 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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 13
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Slide #14.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 14
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Slide #15.

Master Production Schedule (MPS)  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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 15
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Slide #16.

The Planning Process Production Capacity Inventory Marketing Customer demand Procurement Supplier performance Finance Cash flow Human resources Manpower planning Management Return on investment Capital Aggregate production plan Master production schedule © 2011 Pearson Education, Inc. publishing as Prentice Hall Engineering Design completion Change production plan? Figure 14.1 14 - 16
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Slide #17.

The Planning Process Master production schedule Change requirements? Change master production schedule? Material requirements plan Change capacity? Capacity requirements plan No Realistic? Yes Is capacity plan being met? Is execution meeting the plan? Execute capacity plans Execute material plans © 2011 Pearson Education, Inc. publishing as Prentice Hall Figure 14.1 14 - 17
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Slide #18.

Aggregate Production Plan Months Aggregate Production Plan (Shows the total quantity of amplifiers) Weeks 1 January February 1,500 1,200 2 3 4 5 6 7 8 Master Production Schedule (Shows the specific type and quantity of amplifier to be produced 240-watt amplifier 150-watt amplifier 75-watt amplifier 100 100 500 100 500 300 100 450 450 100 Figure 14.2 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 18
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Slide #19.

Master Production Schedule (MPS) Can be expressed in any of the following terms: 1. A customer order in a job shop (maketo-order) company 2. Modules in a repetitive (assemble-toorder or forecast) company 3. An end item in a continuous (stock-toforecast) company © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 19
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Slide #20.

Focus for Different Process Strategies Make to Order (Process Focus) Number of inputs Assemble to Order or Forecast (Repetitive) Stock to Forecast (Product Focus) Schedule orders Typical focus of the master production schedule Schedule modules Number of end items Schedule finished product Examples: Print shop Machine shop Fine-dining restaurant Motorcycles Autos, TVs Fast-food restaurant Steel, Beer, Bread Lightbulbs Paper Figure 14.3 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 20
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Slide #21.

MPS Examples For Nancy’s Specialty Foods Gross Requirements for Crabmeat Quiche Day Amount 6 50 7 8 100 9 47 10 60 11 12 110 13 75 14 and so on Gross Requirements for Spinach Quiche Day Amount 7 8 9 100 200 150 10 11 12 60 13 75 14 15 100 16 and so on Table 14.1 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 21
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Slide #22.

Bills of Material  List of components, ingredients, and materials needed to make product  Provides product structure  Items above given level are called parents  Items below given level are called children © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 22
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Slide #23.

BOM Example Level Product structure for “Awesome” (A) 0 A 1 2 3 Std. 12” Speaker kit w/ B(2) Std. 12” Speaker kit E(2) D(2) C(3) amp-booster F(2) Std. 12” Speaker E(2) Packing box and installation kit of wire, bolts, and screws booster assembly G(1) D(2) Amp-booster 12” Speaker © 2011 Pearson Education, Inc. publishing as Prentice Hall 12” Speaker 14 - 23
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Slide #24.

BOM Example Level Product structure for “Awesome” (A) 0 A 1 2 3 D(2) Part B: 2 x number of As = (2)(50) =Std. 12” Speaker100 kit w/ BPart kit C(3) =amp-booster 150 (2) Std. C:12” 3Speaker x number of As = (3)(50) Part D: 2 x number of Bs + 2 x number of Fs = (2)(100) + (2)(300) = 800 E(2) 2 x number of Bs E(2) F(2) Std. 12” Speaker Part E: booster assembly + 2 x number of Cs = (2)(100) + (2)(150) = 500 Part F: 2 x Packing numberbox ofand Cs = (2)(150) = 300 kitof ofFs wire, G(1) = D(2) Part G: 1installation xbolts, number = (1)(300) 300 and screws Amp-booster 12” Speaker © 2011 Pearson Education, Inc. publishing as Prentice Hall 12” Speaker 14 - 24
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Slide #25.

Bills of Material  Modular Bills  Modules are not final products but components that can be assembled into multiple end items  Can significantly simplify planning and scheduling © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 25
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Slide #26.

Bills of Material  Planning Bills  Also called “pseudo” or super bills  Created to assign an artificial parent to the BOM  Used to group subassemblies to reduce the number of items planned and scheduled  Used to create standard “kits” for production © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 26
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Slide #27.

Bills of Material  Phantom Bills  Describe subassemblies that exist only temporarily  Are part of another assembly and never go into inventory  Low-Level Coding  Item is coded at the lowest level at which it occurs  BOMs are processed one level at a time © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 27
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Slide #28.

Accurate Records  Accurate inventory records are absolutely required for MRP (or any dependent demand system) to operate correctly  Generally MRP systems require more than 99% accuracy  Outstanding purchase orders must accurately reflect quantities and scheduled receipts © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 28
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Slide #29.

Lead Times  The time required to purchase, produce, or assemble an item  For production – the sum of the order, wait, move, setup, store, and run times  For purchased items – the time between the recognition of a need and the availability of the item for production © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 29
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Slide #30.

Time-Phased Product Structure Must have D and E completed here so production can begin on B Start production of D 1 week D 2 weeks to produce B 2 weeks E A 2 weeks 1 week E 1 week 2 weeks G C 3 weeks F 1 week D | | | 1 2 3 | | 4 5 Time in weeks © 2011 Pearson Education, Inc. publishing as Prentice Hall | | | 6 7 8 Figure 14.4 14 - 30
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Slide #31.

MRP Structure Data Files BOM Output Reports Master production schedule MRP by period report MRP by date report Lead times (Item master file) Planned order report Inventory data Purchasing data Material requirement planning programs (computer and software) Purchase advice Exception reports Order early or late or not needed Order quantity too small or too large Figure 14.5 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 31
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Slide #32.

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” © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 32
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Slide #33.

Determining Gross Requirements  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) © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 33
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Slide #34.

Determining Gross Requirements  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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 34
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Slide #35.

Gross Requirements Plan Week 1 A. Required date Order release date B. Required date Order release date C. Required date Order release date E. Required date Order release date F. Required date Order release date G. Required date Order release date G. Required date Order release date 2 3 4 5 6 7 50 100 100 150 200 300 200 300 300 600 300 600 300 300 200 200 150 8 Lead Time 50 1 week 2 weeks 1 week 2 weeks 3 weeks 1 week 2 weeks Table 14.3 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 35
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Slide #36.

Net Requirements Plan © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 36
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Slide #37.

Net Requirements Plan © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 37
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Slide #38.

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 - onhand inventory)  The planned order receipt for Item A in week 8 is 40 units – 40 = 50 - 10 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 38
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Slide #39.

Determining Net Requirements  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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 39
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Slide #40.

Determining Net Requirements  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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 40
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Slide #41.

Gross Requirements Schedule Figure 14.6 S A B B C Lead time = 4 for A Master schedule for A Periods 5 6 7 40 Periods Gross requirements: B 8 9 10 11 50 15 Lead time = 6 for S Master schedule for S 8 2 3 4 5 10 40+10 40 50 20 © 2011 Pearson Education, Inc. publishing as Prentice Hall 9 10 11 12 13 40 1 =50 C 6 20 7 15+30 =45 30 Master schedule for B sold directly 1 2 3 10 10 8 Therefore, these are the gross requirements for B 14 - 41
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Slide #42.

Net Requirements Plan The logic of net requirements Gross + Allocations requirements Total requirements – On + Scheduled hand receipts = Net requirements Available inventory © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 42
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Slide #43.

MRP Planning Sheet Figure 14.7 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 43
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Slide #44.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 44
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Slide #45.

MRP Management  MRP is a dynamic system  Facilitates replanning when changes occur  Regenerating  Net change  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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 45
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Slide #46.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 46
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Slide #47.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 47
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Slide #48.

Small Bucket Approach 1. MRP “buckets” are reduced to daily or hourly 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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 48
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Slide #49.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 49
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Slide #50.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 50
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Slide #51.

Lot-Sizing Techniques  Lot-for-lot techniques order just what is required for production based on net requirements  May not always be feasible  If setup costs are high, lot-for-lot can be expensive  Economic order quantity (EOQ)  EOQ expects a known constant demand and MRP systems often deal with unknown and variable demand © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 51
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Slide #52.

Lot-Sizing Techniques  Part Period Balancing (PPB) looks at future orders to determine most economic lot size  The Wagner-Whitin algorithm is a complex dynamic programming technique  Assumes a finite time horizon  Effective, but computationally burdensome © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 52
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Slide #53.

Lot-for-Lot Example Gross requirements 1 2 3 4 5 6 7 8 9 10 35 30 40 0 10 40 30 0 30 55 35 0 0 0 0 0 0 0 0 0 0 30 40 0 10 40 30 0 30 55 30 40 10 40 30 30 55 40 30 Scheduled receipts Projected on hand Net requirements 35 Planned order receipts Planned order releases 30 40 10 30 55 Holding cost = $1/week; Setup cost = $100; Lead time = 1 week © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 53
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Slide #54.

Lot-for-Lot Example No on-hand inventory is carried through the system Total holding cost 1 = $0 2 3 4 5 6 7 8 9 10 Gross There are requirements 30 for 40 this 0 10 30 0 30 seven 35 setups item40in this plan Total ordering cost = 7 x $100 = $700 Scheduled 55 receipts Projected on hand Net requirements 35 35 0 0 0 0 0 0 0 0 0 0 30 40 0 10 40 30 0 30 55 30 40 10 40 30 30 55 40 30 Planned order receipts Planned order releases 30 40 10 30 55 Holding cost = $1/week; Setup cost = $100; Lead time = 1 week © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 54
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Slide #55.

EOQ Lot Size Example Gross requirements 1 2 3 4 5 6 7 8 9 10 35 30 40 0 10 40 30 0 30 55 35 0 43 3 3 66 26 69 69 39 0 30 0 0 7 0 4 0 0 16 Scheduled receipts Projected on hand Net requirements 35 Planned order receipts Planned order releases 73 73 73 73 73 73 73 73 Holding cost = $1/week; Setup cost = $100; Lead time = 1 week © 2011 Pearson Education, Inc.weekly publishing as gross Prentice Hallrequirements = 27; EOQ = 73 units Average 14 - 55
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Slide #56.

EOQ Lot Size Example Annual demand = 1,404 Total cost = setup cost + holding cost 1 2 3 4 5 6 7 8 9 10 Total cost = (1,404/73) x $100 + (73/2) x ($1 x 52 weeks) Gross 35 30 40 0 10 40 30 0 30 55 Total cost = $3,798 requirements Cost for 10 weeks = $3,798 x (10 weeks/52 weeks) = Scheduled $730 receipts Projected on hand Net requirements 35 35 0 0 0 0 0 0 0 0 0 0 30 0 0 7 0 4 0 0 16 Planned order receipts Planned order releases 73 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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 56
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Slide #57.

PPB Example Gross requirements 1 2 3 4 5 6 7 8 9 10 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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 57
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Slide #58.

PPB Example Trial Lot Size (cumulative net requirements) Periods Combined 2 2, 3 2, 3, 4 Gross requirements 2, 3, 4, 5 2, 3, 4, 5, 6 Scheduled 30 70 1 70 35 80 120 receipts Combine periods Projected on 35 hand 6 Net requirements 6, 7 6, 7, 8 order Planned receipts 6, 7, 8, 9 Planned order Combine releases 10 Part Periods 0 2 40 =3 40 x41 5 6 40 30 40 0 10 40 70 = 40 x 1 + 10 x 3 230 = 40 x 1 + 10 x 3 + 40 x 4 Setup Costs Holding Total 7 8 9 10 30 0 30 55 100 + 70 = 170 2 - 5 as this results in the Part Period closest to the EPP 40 70 70 100 0 30 = 30 x 1 30 = 30 x 1 + 0 x 2 120 = 30 x 1 + 30 x 3 100 + 120 = 220 periods 6 - 9 as this results in the Part Period closest to the EPP 0 100 + 0 = 100 Holding cost = $1/week; $100;+ 190 = 490 Total cost Setup cost = 300 55 EPP = 100 units © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 58
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Slide #59.

PPB Example Gross requirements 1 2 3 4 5 6 7 8 9 10 35 30 40 0 10 40 30 0 30 55 35 0 50 10 10 0 60 30 30 0 0 30 0 0 0 40 0 0 0 55 Scheduled receipts Projected on hand Net requirements 35 Planned order receipts Planned order releases 80 80 100 100 55 55 Holding cost = $1/week; Setup cost = $100; Lead time = 1 week EPP = 100 units © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 59
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Slide #60.

Lot-Sizing Summary For these three examples Lot-for-lot EOQ PPB $700 $730 $490 a d e d l e i y e av h d l u o w n i it h W r e 55 n 4 g $ a f W o t s o c al t o t a h t i w plan © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 60
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Slide #61.

Lot-Sizing Summary  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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 61
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Slide #62.

Lot-Sizing Summary  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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 62
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Slide #63.

Extensions of MRP  MRP II  Closed-Loop MRP  MRP system provides input to the capacity plan, MPS, and production planning process  Capacity Planning  MRP system generates a load report which details capacity requirements  This is used to drive the capacity planning process  Changes pass back through the MRP system for rescheduling © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 63
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Slide #64.

Material Requirements Planning II  Requirement data can be enriched by other resources  Generally called MRP II or Material Resource Planning  Outputs include  Scrap  Packaging waste  Carbon emissions  Data used by purchasing, production scheduling, capacity planning, inventory © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 64
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Slide #65.

Material Resource Planning Weeks LT Computer 5 6 7 8 1 100 Labor Hrs: .2 each 20 Machine Hrs: .2 each 20 Scrap: 1 ounce fiberglass each 6.25 Payables: $0 each PC Board (1 each) $0 2 100 Labor Hrs: .15 each 15 Machine Hrs: .1 each 10 Scrap: .5 ounces copper each 3.125 Payables: raw material at $5 each Processor (5 each) lb $500 4 500 Labor Hrs: .2 each 100 Machine Hrs: .2 each 100 Scrap: .01 ounces of acid waste each 0.3125 Payables: processors at $10 each $5,000 © 2011 Pearson Education, Inc. publishing as Prentice Hall lbs lb Table 14.4 14 - 65
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Slide #66.

Closed-Loop MRP System Aggregate Production Plan OK? NO OK? NO Priority Management Capacity Management Develop Master Production Schedule Evaluate Resource Availability (Rough Cut) OK? YES Prepare Materials Requirements Pan Planning Determine Capacity Availability OK? YES Detailed Production Activity Control (Shop Scheduling/Dispatching) Implement Input/Output Control Execution (in repetitive systems JIT techniques are used) Figure 14.8 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 66
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Slide #67.

Capacity Planning  Feedback from the MRP system  Load reports show resource requirements for work centers  Work can be moved between work centers to smooth the load or bring it within capacity © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 67
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Slide #68.

Smoothing Tactics 1. Overlapping  Sends part of the work to following operations before the entire lot is complete  Reduces lead time 2. Operations splitting  Sends the lot to two different machines for the same operation  Shorter throughput time but increased setup costs 3. Order or lot splitting  Breaking up the order into smaller lots and running part earlier (or later) in the schedule © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 68
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Slide #69.

Order Splitting  Develop a capacity plan for a work cell at Wiz Products  There are 12 hours available each day  Each order requires 1 hour Day 1 2 3 4 5 Orders 10 14 13 10 14 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 69
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Slide #70.

Order Splitting Day Units Ordered Capacity Required (hours) Capacity Available (hours) Utilization: Over/ (Under) (hours) 1 10 10 12 (2) 2 14 14 12 2 Split order: move 2 units to day 1 12 3 13 13 12 1 Split order: move one unit to day 6 or request overtime 13 4 10 10 12 (2) 5 14 14 12 2 Production Planner’s Action New Production Schedule 12 12 Split order: move 2 units to day 4 12 61 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 70
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Slide #71.

Order Splitting 14 – Available capacity Standard labor-Hours Standard labor-Hours Capacity exceeded on days 2, 3, and 5 12 – 10 – 8– 6– 4– 14 – 12 – 10 – 8– 6– 4– 2– 2– 0– 0– 1 2 3 Days (a) 4 5 2 orders moved to day 1 from day 2 (a day early) 1 order forced to overtime or to day 6 2 orders moved to day 4 (a day early) 1 2 3 Days (b) 4 5 Figure 14.9 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 71
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Slide #72.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 72
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Slide #73.

MRP in Services (a) PRODUCT STRUCTURE TREE Veal picante #10001 Helper one; Work Center #2 Cooked linguini #20002 Uncooked linguini #30004 Spinach #20004 Chef; Work Center #1 Prepared veal and sauce #20003 Sauce #30006 Asst. Chef; Work Center #3 Veal #30005 Figure 14.10 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 73
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Slide #74.

MRP in Services (b) BILL OF MATERIALS Part Number Description Quantity Unit of Measure Unit cost 10001 Veal picante 1 Serving — 20002 Cooked linguini 1 Serving — 20003 Prepared veal and sauce 1 Serving — 20004 Spinach 0.1 Bag 30004 Uncooked linguini 0.5 Pound — 30005 Veal 1 Serving 2.15 30006 Sauce 1 Serving 0.80 © 2011 Pearson Education, Inc. publishing as Prentice Hall 0.94 14 - 74
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Slide #75.

MRP in Services (c) BILL OF LABOR FOR VEAL PICANTE Labor Hours Work Center Operation Labor Type Setup Time Run Time 1 Assemble dish Chef .0069 .0041 2 Cook linguini Helper one .0005 .0022 3 Cook veal and sauce Assistant Chef .0125 .0500 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 75
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Slide #76.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 76
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Slide #77.

Enterprise Resource Planning (ERP)  An extension of the MRP system to tie in customers and suppliers  Allows automation and integration of many business processes  Shares common data bases and business practices  Produces information in real time  Coordinates business from supplier evaluation to customer invoicing © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 77
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Slide #78.

Enterprise Resource Planning (ERP)  ERP modules include  Basic MRP  Finance  Human resources  Supply chain management (SCM)  Customer relationship management (CRM) © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 78
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Slide #79.

ERP and MRP Figure 14.11 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 79
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Slide #80.

ERP and MRP Customer Relationship Management Invoicing Sales Order (order entry, product configuration, sales management) Shipping Distributors, retailers, and end users Figure 14.11 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 80
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Slide #81.

ERP and MRP Master Production Schedule Inventory Management Bills of Material MRP Work Orders Purchasing and Lead Times Table 13.6 Routings and Lead Times Figure 14.11 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 81
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Slide #82.

ERP and MRP Supply Chain Management Vendor Communication (schedules, EDI, advanced shipping notice, e-commerce, etc.) Figure 14.11 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 82
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Slide #83.

Finance/ Accounting ERP and MRP Accounts Receivable General Ledger Accounts Payable Payroll Table 13.6 Figure 14.11 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 83
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Slide #84.

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  Warehouse management  Logistics  Electronic catalogs  Quality management © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 84
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Slide #85.

Enterprise Resource Planning (ERP)  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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 85
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Slide #86.

SAP’s ERP Modules © 2011 Pearson Education, Inc. publishing as Prentice Hall Figure 14.12 14 - 86
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Slide #87.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 87
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Slide #88.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 88
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Slide #89.

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 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 89
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Slide #90.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 90
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