ERP & MRP
Transcript of ERP & MRP
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ERP(Enterprise Resource Planning)& MRP
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Session Objectives
At the end of this session the delegate would
have understood
ERP
ERP exampleSAP MRP and structure
MRP1 & MRPII difference
Lot size determination in MRP
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ERP
ERP is a complete enterprise wide business
solution. It consists of software support
modules such as marketing &
sales,manufacturing,quality Intergrationbetween modules is stressed without
duplication of information
This integration is accomplished through adatabase shared by all the application
programs
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Advantages of ERP
Visibility of what is happening in all parts ofBusiness
Better control of operations which helps in
continuous improvements The discipline of process based changes
Capability to integrate total supplychain
Better interaction with customer,Supplier andother Business partners
Improvement of Quality of Information
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ERP- Few known Brands
SAP
Oracle
Baan Peoplesoft
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SAP AGS R/3
SAP AG, A German firm, is a world leader in ERP
software.
-Designed to
operate in a three-tier client/server
configuration
-Applications are
fully integrated so
that data are
shared between all
applications
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R/3 System Major Functional Components
R/3 System
Functional
ComponentsSales & Distribution Human Resources
Manufacturing
& Logistics
Financial
Accounting
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Financial Accounting
Accounts payable
Accounts receivable
Capital Investment
.
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ROA-ROS-ATO The first measure, return on assets (ROA), is
frequently used by researchers as a measure of
firm performance. The effects of profitability
and efficiency represented by ROA.
ROS, represented as income per dollar ofsales, is a measure of the firms profitability or
margin.
ATO, represented by the sales generated perdollar of assets, is a measure of asset
efficiency.
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Important Features
Asset Management / Depreciation Calculation
Bill Discounting
Parametric Tax System
Trial Balance/ P & L / Balance Sheet ExciseDSA,RG23I,RG23II and VAT Annexure
TDS / Service Tax / PLA
Back Dated order date Amendments
Sales / Purchase / Return Register / Tax form
Reminders
Activity Based Costing
Finance
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Human Resources
Payroll
Benefits administration
Applicant data administration
Personnel development planning
Workforce planning
Schedule & shift planning
Time management
Travel expense accounting
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Manufacturing & Logistics
Materials management
Plant maintenance
Quality management
Production planning & control
Project management system
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Sales and Distribution
Prospect & customer management
Sales order management
Configuration management
Distribution
Export controls
Shipping and transportation management Billing, invoicing, and rebate processing
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ERP Implementation-Costs
Software
Personnel for ImplementationIncluding
changes needed to suit Business
IT Infrastructure
Training of Employees
Cost of keeping alive and improvements
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MRP
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Overview
Resource Requirements Planning
Material Requirements Planning (MRP)
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Resource Requirements Planning
Master Production
Scheduling (MPS)
Material Requirements
Planning (MRP)
Capacity Requirements
Planning (CRP)
AggregatePlanning
Resource
Requirements
Planning
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Material Requirements Planning
(MRP)
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MRP
Assume a product has 10 items
Procurement manager assuming 5% stock
out, plans 95% of each item (service level)
Probability that all 10 materialssimultaneously available is = 0.95x0.95x..
i.e. 60%
He should expect 4 items to be short for
assembly
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Materials Requirements Planning
(MRP) Computer based system Explodes Master Schedule (MPS) into
required amounts of raw materials and
subassemblies to support MPS
Nets against current orders and inventories to
develop production and purchased material
ordering schedules
Used for dependent items
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Objectives of MRP
Improve customer service
Reduce inventory investment
Improve plant operating efficiency
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Order Changes
Order
Planning
Report
Elements of MRP
MRP
System
Planned OrderSchedule
InventoryTransaction Data
Bill ofMaterials File
MasterProduction
Schedule
InventoryStatus File
Service-PartsOrders andForecasts
PerformanceException
Reports
Inputs Outputs
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The McGraw-Hill Companies, Inc., 2004
Firm ordersfrom known
customers
Forecasts
of demand
from random
customers
Aggregateproduct
plan
Bill of
material
file
Engineering
design
changes
Inventory
record file
Inventory
transactions
Master production
Schedule (MPS)
Primary reports Secondary reportsPlanned order schedule for
inventory and production
control
Exception reports
Planning reports
Reports for performance
control
Material
planning
(MRP
computer
program)
MRP Schematic
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MRP Computer Program
Begins with number of end items needed
Add service parts not included in MPS
Explode MPS into gross requirements by consulting
bill of materials file Modify gross requirements to get net requirements:
Net Requirements = Gross Requirements
+ Allocated Inventory
+ Safety Stock
- Inventory On Hand
Offset orders to allow for lead time
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Outputs of MRP
Planned order schedule - quantity of material
to be ordered in each time period
Changes to planned orders - modifications to
previous planned orders
Secondary outputs:
Exception reports
Performance reports
Planning reports
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Material Requirements Planning System
Based on a master production schedule, amaterial requirements planning system:
Creates schedules identifying the specific
parts and materials required to produce
end items
Determines exact unit numbers needed
Determines the dates when orders for
those materials should be released, based
on lead times
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Bill of Materials (BOM) File
A Complete Product Description
Materials
Parts
Components
Production sequence
Modular BOM
Subassemblies Super BOM
Fractional options
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Inventory Records File
Each inventory item carried as a separate file
Status according to time buckets
Pegging
Identify each parent item that created demand
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Secondary MRP Reports
Planning reports, for example,forecasting inventory requirements overa period of time
Performance reportsused to determineagreement between actual andprogrammed usage and costs
Exception reportsused to point out
serious discrepancies, such as late oroverdue orders
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Inventory cost
Procurement costs
1. Cost of goods
2. Ordering cost
a) Admin component
b) Handling
c) Transportationd) Inspection
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Inventory cost
Inventory holding costs
1. Storage and handling
2. Interest on tied up capital
3. Property tax
4. Insurance
5. Spoilage
6. Obsolescence
7. Pilferage
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Inventory cost
Shortage costs
1. Additional cost of special order
2. Loss of customer goodwill
3. Lost sales
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Inventory Costs
Costs associated with ordering too much
(represented by carrying costs)
Costs associated with ordering too little
(represented by ordering costs)
These costs are opposing costs, i.e., as one
increases the other decreases
. . . more
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Model I: Basic EOQ
Assumptions (continued)
Stockout, customer responsiveness, and other
costs are inconsequential
acquisition cost is fixed, i.e., no quantitydiscounts
Annual carrying cost = (average inventory
level) x (carrying cost) = (Q/2)C Annual ordering cost = (average number of
orders per year) x (ordering cost) = (D/Q)S
. . . more
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Model I: Basic EOQ
Total annual stocking cost (TSC) = annual carrying
cost + annual ordering cost = (Q/2)C + (D/Q)S
The order quantity where the TSC is at a minimum
(EOQ) can be found using calculus (take the firstderivative, set it equal to zero and solve for Q)
CDS/2=EOQ
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Lot-Sizing in MRP
Lot-size is the quantity ordered/produced at onetime
Large lots are preferred because:
Changeovers cost less and better capacity use
Annual cost of purchase orders less
Price breaks and transportation breaks can be utilized
Small lots are preferred because:
Lower inventory carrying cost
Reduced risk of obsolescence
Shorter cycle time to produce customer order
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Economic Order Quantity (EOQ)
does not consider quantity discounts
does not always provide the most economical
approach with lumpy demand Lot-for-Lot (LFL)
accommodates lumpy demand
Period Order Quantity (POQ)The best method, resulting in least cost,
depends on cost and demand patterns.
Lot-Sizing Methods
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MRP and JIT
MRP can be used in everything from custom
job shops to assembly-line production
JIT is more suited for repetitive
Manufacturing
The combination of MRP and JIT creates a
hybrid manufacturing system and also called
Flow manufacturing
In JIT separate pull drawing from preceding
stage happens
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Summary
Overview of ERP given
Structure of MRP explained
Lot size determination in MRP demonstrated
MRP1 & MRPII difference highlighted
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References
Operations Management, 9thedition, 2002,
Gaither and Frazier, South-
Western/Thomson Learning Operations Management: For competitive
advantage, 11thedition2009 reprint,
Chase, et al, TMHSpecial Indian edition