Material Requirement Planning

Collins Industries
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
MRP seems to be a good way to manage inventories: IBM’s
MAPICS system is used
Independent and Dependent Demand
Independent Demand

A Dependent Demand

B(4) C(2)

D(2) E(1) D(3) F(2)

Independent demand is uncertain.

Dependent demand is certain.
 Dependent Demand

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.
 Demand Characteristics
Independent demand Dependent demand

100 x 1 =
100 tabletops

100 tables 100 x 4 = 400 table legs

Continuous demand
400 – Discrete demand
400 –
300 –
No. of tables

300 –
No. of tables

200 –
200 –
100 –
100 –

1 2 3 4 5
Week M T W Th F M T W Th F
 Dependent vs Independent Demand

Demand
Demand

“Lumpy” demand
Stable demand

Time Time
Amount on hand

Amount on hand

Safety stock
Time Time
 Material Requirements Planning
Defined
Materials requirements planning (MRP) is a
computerized inventory planning and control system
for determining when (no earlier and no later) and how
many of each of the parts, components, and materials
should be ordered or produced.
It translates master schedule requirements fr end
items into time-phased requirements for
subassemblies, components and raw materials.
Dependent demand drives MRP
MRP is a software system
 When to Use MRP

 Dependent and discrete items

 Complex products
 Job shop production
 Assemble-to-order environments
Material Requirements Planning System
Based on a master production schedule, a material
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
 10

Aggregate Forecasts
Firm orders
production of demand
from known
plan from random
customers
customers

Master production
Engineering Schedule (MPS) Inventory
design
transactions
changes

Material
planning
Bill of (MRP Inventory
material computer record file
file program)
Secondary reports
Primary reports
Exception reports
Planned order schedule for Planning reports
inventory and production Reports for performance
control (work orders, control
purchase orders),
rescheduling notices ©The McGraw-Hill Companies, Inc., 2004
 MRP System
MRP Inputs MRP Processing MRP Outputs

Changes
Order releases
Master
schedule Planned-order
schedules
Primary
reports Exception reports
Bill of Planning reports
materials MRP computer Secondary
Performance-
programs reports control
reports

Inventory
records Inventory
transaction
 MRP Inputs 1:
Master Production Schedule
 Drives MRP process with a schedule of finished products;
states which end items are to be produced, when these
are needed, and in what quantities
 Quantities may consist of a combination of customer
orders & demand forecasts
 Quantities represent what needs to be produced, not what
can be produced
 Master Production Schedule (MPS)
Time-phased plan specifying how many and when the
firm plans to build each end item

Aggregate Plan
(Product Groups)

MPS
(Specific End Items)
 Master Production Schedule

Shows items to be produced

Derived from aggregate plan
Example:
Item / Week Oct 3 Oct. 10 Oct. 17 Oct.24 Oct. 31
Clipboard 85 95 120 100 100
Lapdesk 0 50 0 50 0
Lapboard 75 120 47 20 17
Pencil Case 125 125 125 125 125
 MRP Inputs 2: 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.
 Product Structure Tree: Example 1
Level Chair
0

1 Leg Back
Assembly Seat Assembly

Cross Side Cross Back

2 Legs (2)
bar Rails (2) bar Supports (3)

3
 Product Structure Tree: Example 2

Bicycle(1)
P/N 1000

Handle Bars (1) Frame Assembly (1)

P/N 1001 P/N 1002

Wheels (2) Frame (1)

P/N 1003 P/N 1004
 Product Drawing: Example 3
Clipboard

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Rivets (2)
Finished clipboard Pressboard (1)
 Product Structure Tree ( Example 3)

Clipboard Level 0

Pressboard Clip Ass’y Rivets

(1) (1) (2) Level 1

Top Clip Bottom Clip Pivot Spring

(1) (1) (1) (1) Level 2
MRP Inputs 3: Inventory Records File
One of the three primary inputs of MRP
Includes information on the inventory status of
each item by time period
Gross requirements
Scheduled receipts
Amount on hand
Lead times
Lot sizes
And more....
 MRP Terminology (1 of 3)
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
 MPR Terminology (2 of 3)
Gross requirements
Total expected demand
Scheduled receipts
Open orders scheduled to arrive
Projected on hand
Expected inventory on hand at the beginning
of each time period
 MRP Processing Terminology (3 of 3)
Net requirements
Actual amount needed in each time period
Gross requirements – available inventory
Planned-order receipts
Quantity expected to be received at the beginning of the
period
Offset by lead time
Planned-order releases
Planned amount to be ordered in each time period
 MRP Processing Logic:
Assembly Time Chart
Procurement of
raw material D Fabrication
of part E
Subassembly A
Procurement of Final assembly
raw material F and inspection
Procurement of
part C

Procurement of
part H
Subassembly B

Procurement of Fabrication
raw material I of part G

1 2 3 4 5 6 7 8 9 10 11

Weeks
 Calculation of Gross Requirements

A S

B C B C Master schedule
Lead time = 4 for A Lead time = 6 for S for S sold directly
Master schedule for A Master schedule for S
Periods 5 6 7 8 9 10 11 8 9 10 11 12 13 1 2 3
40 50 15 40 20 30 10 10

Periods 1 2 3 4 5 6 7 8
Therefore, these are
Gross requirements: B 10 40+10
= 50 40 50 20 15+30
= 45
the gross
requirements for B
 Basic MRP Processes
1. Exploding the bill of material
2. Netting out inventory
3. Lot sizing
4. Time-phasing requirements
 The MRP Matrix
ITEM NAME OR NO. LLC - LOW LEVEL CODE PERIOD
LOT SIZE QTY MADE IN LY - LEAD TIME 1 2 3 4 5
Gross Requirements Derived from MPS or
planned order releases of the
parent
Scheduled Receipts On order and scheduled to be
received
Projected on Hand Beg Inv Anticipated quantity on hand
at the end of the period
Net Requirements Gross requirements net of
inventory and scheduled
receipts
Planned Order When orders need to be
Receipts received
Planned Order When orders need to be
Releases placed to be received on time
 MRP Processing:
Example 1-School Mate Products
Master Production Schedule
1 2 3 4 5

Clipboard 85 95 120 100 100

Lapdesk 0 60 0 60 0

Item Master File (ınventory record file

CLIPBOARD LAPDESK PRESSBOARD
On hand 25 20 150
On order 175 (Period 1) 0 0
(sch receipt)
LLC 0 0 1
Lot size L4L Mult 50 Min 100
Lead time 1 1 1
 School Mate Products
Product Structure Record

Clipboard Level 0

Pressboard Clip Ass’y Rivets

(1) (1) (2) Level 1

Lapdesk Level 0

Pressboard Trim Beanbag Glue

(2) (3’) (1) (4 oz) Level 1
 School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25
Net Requirements
Planned Order Receipts
Planned Order Releases
 School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25 115
Net Requirements 0
Planned Order Receipts
Planned Order Releases

(25 + 175) = 200 units available

(200 - 85) = 115 on hand at the end of Period 1
 School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25 115 20
Net Requirements 0 0
Planned Order Receipts
Planned Order Releases

115 units available

(115 - 85) = 20 on hand at the end of Period 2
 School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25 115 20 0
Net Requirements 0 0 100
Planned Order Receipts 100
Planned Order Releases 100

20 units available
(20 - 120) = -100 — 100 additional Clipboards are required
Order must be placed in Period 2 to be received in Period 3
 School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175
Projected on Hand 25 115 20 0 0 0
Net Requirements 0 0 100 100 100
Planned Order Receipts 100 100 100
Planned Order Releases 100 100 100

Following the same logic Gross Requirements in Periods 4

and 5 develop Net Requirements, Planned Order Receipts, and
Planned Order Releases
 School Mate Products
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5

Gross Requirements 0 60 0 60 0
Scheduled Receipts
Projected on Hand 20
Net Requirements
Planned Order Receipts
Planned Order Releases
 School Mate Products
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5

Gross Requirements 0 60 0 60 0
Scheduled Receipts
Projected on Hand 20 20 10 10 0 0
Net Requirements 0 40 50
Planned Order Receipts 50 50
Planned Order Releases 50 50

Following the same logic, the Lapdesk MRP matrix is

completed as shown
 School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5
Planned Order Releases 100 100 100
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Planned Order Releases 50 50
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Gross Requirements
Scheduled Receipts
Projected on Hand 150
Net Requirements
Planned Order Receipts
Planned Order Releases
 School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5
Planned Order Releases 100 100 100
ITEM: LAPDESK LLC: 0 x1 PERIOD x1 x1
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Planned Order Releases 50 50
ITEM: PRESSBOARD LLC: 0 x2 x2 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Gross Requirements 100 100 200 100 0
Scheduled Receipts
Projected on Hand 150
Net Requirements
Planned Order Receipts
Planned Order Releases
 School Mate Products
ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5
Planned Order Releases 100 100 100
ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Planned Order Releases 50 50
ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Gross Requirements 100 100 200 100 0
Scheduled Receipts
Projected on Hand 150 50 50 0 0 0
Net Requirements 50 150 100
Planned Order Receipts 100 150 100
Planned Order Releases 100 150 100
 School Mate Products

Planned Order Report

PERIOD
ITEM 1 2 3 4 5

Clipboard 100 100 100

Lapdesk 50 50
Pressboard 100 150 100
 MRP Processing:
Example 2
Item On-Hand Lead Time (Weeks)
X X 50 2
A 75 3
B 25 1
A(2) B(1) C 10 2
D 20 2

C(3) C(2) D(5)

Requirements include 95 units (80 firm orders and 15 forecast) of X

in week 10
 Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
It takes LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
2 A’s for On-
hand
Net requirements
Planned order receipt
20
20
each X 25 Planner order release 20
C Gross requirements 45 40
LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 10
On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
B Gross requirements 45
LT=1 Scheduled receipts
It takes Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
1 B for hand Planned order receipt 20
25 Planner order release 20
each X C Gross requirements 45 40
LT=2 Scheduled receipts
Proj. avail. balance 10 10 10 10 10
On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
It takes 3 C
LT=2
Gross requirements
Scheduled receipts
45 40

C’s for On-

Proj. avail. balance
Net requirements
10 10 10 10 10
35 40
each A hand
10
Planned order receipt
Planner order release 35
35
40
40

D Gross requirements 100

LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) C(2) B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
It takes 2 C
LT=2
Gross requirements
Scheduled receipts
45 40

C’s for On-

Proj. avail. balance
Net requirements
10 10 10 10 10
35 40
each B hand
10
Planned order receipt
Planner order release 35
35
40
40

D Gross requirements 100

LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
X LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
A(2) B(1) LT=3 Scheduled receipts
Proj. avail. balance 75 75 75 75 75 75 75 75
On- Net requirements 15
hand Planned order receipt 15
75 Planner order release 15
C(3) C(2) D(5) B Gross requirements 45
LT=1 Scheduled receipts
Proj. avail. balance 25 25 25 25 25 25 25 25
On- Net requirements 20
hand Planned order receipt 20
25 Planner order release 20
It takes 5 C
LT=2
Gross requirements
Scheduled receipts
45 40

D’s for each On-

Proj. avail. balance
Net requirements
10 10 10 10 10
35 40
B hand
10
Planned order receipt
Planner order release 35
35
40
40

D Gross requirements 100

LT=2 Scheduled receipts
Proj. avail. balance 20 20 20 20 20 20 20
On- Net requirements 80
hand Planned order receipt 80
20 Planner order release 80
 MRP Outputs
 Planned orders (schedule indicating the amount and
timing of orders)
Work orders
Purchase orders
 Order releases (authorization for the execution of
planned orders)
 Changes to previous plans or existing schedules
(revision of due dates or order quantities, or
cancellations of orders)
Action notices
Rescheduling notices
 Updating the MRP System
Regenerative system
Updates MRP records periodically
Net-change system
Updates MPR records continuously
 MRP Secondary Reports
Performance-control reports
Planning reports
Exception reports
 MRP Dynamics
Supports “replanning”
“Time fence” - allows a segment of the master
schedule to be designated as “not to be
rescheduled”
“Pegging” - tracing upward in the bill-of-materials
from the component to the parent item
That a manager can react to changes, doesn’t mean
he/ he should
 Other Considerations
Safety Stock
Lot sizing
Lot-for-lot ordering (L4L)
Economic order quantity
Part Period Balancing
Wagner-Whitin algorithm
& others
Which one to use? The one that is least costly!
 MRP in Services
Can be used when demand for service or service
items is directly related to or derived from demand
for other 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
 Benefits of MRP
Reduced inventories without reduced customer service
Ability to track material requirements
Ability to evaluate capacity requirements
Means of allocating production time
Increased customer satisfaction due to meeting delivery
schedules
Faster response to market changes
Improved labor and equipment utilization.
Better inventory planning and scheduling
 Requirements of MRP
Computer system and necessary software
Mainly discrete products
Stable lead times
Accurate and up-to-date
Master schedules
Bills of materials
Inventory status records
Integrity of data
Extensions of MRP
 Extensions of MRP

 Closed loop MRP

 Capacity planning - load reports
 MRP II - Manufacturing Resources Planning
 Enterprise Resources Planning
 MRP and The Production Planning
Process
Aggregate
Forecast & Resource
Production
Firm Orders Planning Availability

Material Master
Requirements Production
Planning Scheduling

No, modify MPS

Capacity Shop
Requirements Realistic? Floor
Planning Yes Schedules
Closed Loop MRP
 Capacity Planning
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.
 Capacity Requirements Planning
(CRP)

 Computerized system that projects load from

material plan
 Creates load profile
 Identifies underloads and overloads
 Capacity

Usually expressed as standard machine

hours or labor hours

Capacity = (no. machines or workers)

x (no. shifts) x (utilization)
x (efficiency)
 Capacity Terms
 Load reports
Department or work center reports that compare known
and expected future capacity requirements with projected
capacity availability.
 Load profile
Compares released and planned orders with work center
capacity
 Capacity
Productive capability; includes utilization and efficiency
 Utilization
% of available working time spent working
 More Capacity Terms
 Efficiency
Refers to how well a machine or worker porforms
compared to a standard output level
 Load
The standard hours of work assigned to a facility
 Load percent
The ratio of load to capacity
Load % = (load/capacity)x100%
Capacity Requirements Planning
MRP planned
order
releases

Capacity Open
Routing
requirements orders
file
planning file

Load profile for

each machine center
 Capacity Planning
Develop a tentative Use MRP to
master production simulate material
schedule requirements

Convert material Revise tentative

requirements to master production
resource requirements schedule
No
Can
Is shop capacity be
capacity No
changed to meet
adequate? requirements
Yes Yes

Firm up a portion Change

of the MPS capacity
 Determining Loads and Capacities

2 copiers, 2 operators
5 days/wk, 8 hr/day
1/2 hr meals, 1/2 hr maintenance per day
The machines are new, so efficiency is estimated at 100%
Utilization = 7/8 = 87.5%
Daily capacity = 2 machines x 2 shifts
x 8 hours/shift x 100% efficiency
x 87.5% utilization
= 28 hours or 1,680 minutes
 Determining Loads
and Capacities
JOB NO. OF SETUP RUN TIME
NO. COPIES TIME (MIN) (MIN/UNIT) TOTAL TIME
10 500 5.2 0.08 5.2 + (500 x 0.08) = 45.2
20 1,000 10.6 0.10 10.6 + (1,000 x 0.10) = 110.6
30 5,000 3.4 0.12 3.4 + (5,000 x 0.12) = 603.4
40 10,000 11.2 0.14 11.2 + (10,000 x 0.14) = 1,411.2
50 2,000 15.3 0.10 15.3 + (2,000 x 0.10) = 215.3
2385.7 min
Load percent = 2,385.7 / 1,680 = 1.42 x 100% = 142%
Add another shift:
Daily capacity = 2 machines x 3 shifts x 8 hours/shift
x 100% efficiency x 87.5% utilization
= 42 hours or 2,520 minutes
Revised load percent = 2,385.7 / 2,520 = 0.9467 x 100% = 94.67%
 Initial Load Profile
120 –
110 –
100 –
Hours of capacity

90 –
80 –
70 –
60 –
50 –
40 – Normal
capacity
30 –
20 –
10 –
0–
1 2 3 4 5 6
Time (weeks)
 Remedies for Underloads

1. Acquire more work

2. Pull work ahead that is scheduled for later time
periods
3. Reduce normal capacity
 Remedies for Overloads
 Eliminate unnecessary requirements
 Reroute jobs to alternative machines or work centers
 Change lot-sizing or safety stock requirements
 Split lots between two or more machines
 Send pieces to the second operation before the entire lot has
completed the first operation
 Increase normal capacity
 Subcontract
 Increase the efficiency of the operation
 Push work back to later time periods
 Revise master schedule
 Adjusted Load Profile
120 –
110 –
100 –
Hours of capacity

90 –
80 –
70 – Work
an
60 – extra Push back
Pull ahead
50 – shift
Overtime Push back Normal
40 –
capacity
30 –
20 –
10 –
0–
1 2 3 4 5 6
Time (weeks)
 Relaxing MRP Assumptions

 Material is not always the constraining resource

 Lead times can vary
 Not every transaction needs to be recorded
 JIT can be used with MRP
 The shop floor may require a more sophisticated
scheduling system
Manufacturing Resources Planning- MRP II
Expanded MRP with emphasis placed on integration of:
Financial planning
Marketing
Engineering
Purchasing
Manufacturing
Human resources
 Manufacturing Resources Planning
(MRP II)
Goal: Plan and monitor all resources of a
manufacturing firm (closed loop):
manufacturing
marketing
finance
engineering
Simulate the manufacturing system
 MRP II

Market Master
Finance Manufacturing production schedule
Demand

Adjust master schedule

Marketing
Production
plan MRP

Rough-cut Capacity req.

capacity planning planning
Adjust
production plan
Yes No Requirements No Yes
Problems? schedules Problems?
MRP II
 Aggregate Customer
Forecast
production orders
plan

Manufacturing Resource No
Feasible?

Planning Yes

(MRP II) Master production

schedule

Material requirements
planning

Capacity requirements
planning

No
Feasible?
Feedback
Yes

Purchase Work
orders orders

Inventory Shop floor

control

Manufacture
 Aggregate Customer
Forecast
production orders
plan

Manufacturing No

Resource Planning
Feasible?

Aggregate Customer
Forecast
production orders Yes

(MRP II) plan Master production

schedule

Material requirements
planning

Capacity requirements
No planning
Feasible?
No
Feasible?
Feedback

Yes Yes

Purchase Work
orders orders
Master
production
Shop floor
schedule Inventory
control

Manufacture
 Aggregate Customer
Forecast
production orders
plan

Manufacturing No

Resource Planning
Feasible?
Master production
schedule
Yes

(MRP II)
Material requirements
Master production
schedule

Material requirements
planning planning

Capacity requirements
planning

Capacity requirements
planning No
Feasible?
Feedback
Yes

No Purchase Work
orders orders
Feasible?
Inventory Shop floor
control

Yes Manufacture
 Aggregate Customer
Forecast
production orders
plan

Manufacturing No

Resource Planning
Feasible?

Yes

(MRP II)
Purchase Work
Master production
schedule

orders orders Material requirements

planning

Capacity requirements
planning

Shop floor
Inventory No
control Feasible?
Feedback
Yes

Purchase Work
orders orders

Manufacture
Inventory Shop floor
control

Manufacture
 Aggregate Customer
Forecast
production orders
plan

Manufacturing No

Resource Planning
Feasible?

Yes

(MRP II) Master production

schedule

Material requirements
planning

Capacity requirements
planning

No
Feasible?
Feedback
Yes

Purchase Work
orders orders

Inventory Shop floor

control

Manufacture
 Enterprise Resource Planning (ERP)
 The next step in the evolution that began with MRP
and evolved into MRP II

 ERP system is a computer system that integrates

application programs in accounting, sales,
manufacturing, human resources and other
functions in the firm.
 ERP provides a system to capture and make data
available in real time do decision makers and other
users in the organization
 ERP

MRP II with ties to customers and suppliers

(connects with supply-chain and customer
management applications)

Integrates financial, manufacturing and human

resources on a single computer system.

Provides tools for planning and monitoring various

business processes
 Enterprise Resource Planning (ERP)

 Attempts to integrate all departments and functions

across a company onto a single computer system that
can serve all those different departments’ particular needs
 Organizes and manages a company’s business
processes by sharing information across functional areas
 Standardized record-keeping permit information sharing
and communication throughout the organization
 Enterprise Resource Planning - ERP

Such an integration is accomplished through a

database shared by all the application programs
 ERP
ERP allows companies to:
1. Automate and integrate many of their business
processes
2. Share a common database and business
practices throughout the enterprise
3. Produce information in real time

ERP systems also include:

1. Supply Chain Management software and
2. Customer Relationship Management software
ERP Modules
 ERP’s Central Database
Finance &
Accounting

Sales Production &

& ERP Data Materials
Marketing Repository Management

Human
Resources
 ERP Strategy Considerations
High initial cost
High cost to maintain
Future upgrades
Training