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Chapter 14 – MRP to ERP

Independent vs. dependent demand, MRP inputs and

processing, Closed-loop MRP, MRP II, ERP

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Traditional I/C Problems Reorder point (when to order)

Assumes known, linear demand (sawtooth) Assumes rough knowledge of lead time Uses safety stock (or safety time) as buffer Each item planned independently

EOQ (how much to order) Focuses on mechanics of formula Assumes linear (constant) usage Always results in inventory

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MRP Material Requirements Planning (MRP)

“Father” of MRP: Joseph Orlicky (???? - ????)

Dependent vs. independent demand concept Other requirements

Manufacturing Bill of Materials (BOM) Accurate, well-managed Master Production

Schedule (MPS) to drive MRP Computer software to “explode” BOMs Computer hardware speed and data capacity

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Key MRP Inputs Master Production Schedule (MPS)

Well managed “Build Plan” Bill of Materials (or “recipes”)

Parent/child relationships Single level vs. multi-level Structured for manufacturing

On hand inventory (available to use) Material on order (from “supplier”)

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Key MRP Inputs Planning factors

Lead time Lot sizing algorithm or rule Optional adjustments

Safety stock Safety time Yield Shrinkage etc.

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MRP Processing Answers both questions

When to order How much to order

Proceeds one level at a time (level-by-level)

“Nets” and plans action only when lowest level in any BOM is reached

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Lot Sizing Algorithms Lot for lot

Seeks to balance supply and demand Fixed order quantity

May have minimums, maximums, multiples Economic Order Quantity (EOQ)

Variations are Least Unit Cost, Least Total Cost, Part Period Balancing

Period Order Quantity Fixed Period Requirements Wagner-Whitin

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MRP Summary - 1 Big “number-cruncher” Follows rules using built-in logic and

tables Predicts shortages Gross requirements derived from

planned order releases of parent items Processes level-by-level Nets requirements and plans for an item

at lowest level of use in any BOM

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MRP Summary - 2 First suggests pull-ins, push-outs,

cancellations

Then creates planned orders (not released) Provides action and/or exception messages

High-speed computers now mean process in minutes rather than hours

Planner needs to evaluate results before acting

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Problems with MRP Computer model

Decisions may be based on inaccurate data Inventory-building features have crept

in Safety stock Safety time EOQ

Represents a “push” system

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Resource Planning Systems

MRP Closed loop MRP MRP II ERP SCM Next emphasis > E-commerce

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Closed Loop MRP and MRP II

Oliver Wight (???? – 1983) “Sold” concepts to American management

Closed Loop MRP Feedback any changes in due dates and

quantities Must have accurate due dates

Manufacturing Resource Planning (MRP II) Integrate Long Range, Intermediate Range,

Short Range, and Real-time planning

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ERP and SCM Enterprise Resource Planning (ERP)

Coined by Gartner Group Extends integrated planning to Customer

Service, Forecasting, Quality, Human Resources, Accounting, Project Management

Supply Chain Management (SCM) Extends planning to other organizations Tightly couples suppliers and customers

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ERP Software Vendors - 2001

Enterprise Resource Planning (ERP)

SAP Oracle Baan PeopleSoft J.D. Edwards

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ERP Software Vendors - 2005

Enterprise Resource Planning (ERP)

SAPOracle

PeopleSoft J.D. Edwards

Baan (financial and legal problems followed by acquisition)

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ERP Software Vendors - 2008

Enterprise Resource Planning (ERP)

SAPOracle Infor Global Solutions (SSA ERP - formerly Baan) The Sage Group