Operations management heizer 6e ch14

Operations
Management
Chapter 14 –
Material Requirements
Planning (MRP) and ERP
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e
© 2006
Prentice
Hall, Inc. Hall, Inc.
©
2006
Prentice

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Outline
 Global Company Profile: Collins
Industries
 Dependent Inventory Model
Requirements
 Master Production Schedule
 Bills of Material
 Accurate Inventory Records
 Purchase Orders Outstanding
 Lead Times for Each Component
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Outline – Continued
 MRP Structure
 MRP Management
 MRP Dynamics
 MRP and JIT

 Lot-Sizing Techniques

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Outline – Continued
 Extensions Of MRP
 Closed-Loop MRP
 Capacity Planning
 Material Requirements Planning II
(MRP II)

 MRP In Services
 Distribution Resource Planning
(DRP)
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Outline – Continued
 Enterprise Resource Planning (ERP)
 Advantages and Disadvantages of
ERP Systems
 ERP in the Service Sector

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Learning Objectives
When you complete this chapter, you
should be able to:
Identify or Define:
 Planning bills and kits
 Phantom bills
 Low-level coding
 Lot sizing

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Learning Objectives
When you complete this chapter, you
should be able to:
Describe or Explain:

 Material requirements planning
 Distribution requirements planning
 Enterprise resource planning
 How ERP works
 Advantages and disadvantages of
ERP systems
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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
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Collins Industries
 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
 Effective “time-phased” deliveries,
consignments, and constant review
of purchase methods
 Maintain excellent record integrity
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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
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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
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Dependent Demand
Effective use of dependent demand
inventory models requires the
following
1.
2.
3.
4.
5.
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Master production schedule
Specifications or bill of material
Inventory availability
Purchase orders outstanding
Lead times
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Master Production Schedule
(MPS)
Specifies what is to be made and when

Must be in accordance with the aggregate
production plan
 Aggregate production plan sets the
overall level of output in broad terms
 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



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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
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Master Production Schedule
(MPS)
Can be expressed in any of the
following terms:
 A customer order in a job shop (maketo-order) company
 Modules in a repetitive (assemble-tostock) company
 An end item in a continuous (make-tostock) company
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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

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The Planning Process
Production
Capacity
Inventory

Marketing
Customer
demand

Procurement
Supplier
performance

Management
Return on
investment
Capital

Finance
Cash flow

Human resources
Manpower
planning

Aggregate
production
plan

Master production
schedule

Engineering
Design
completion

Change
production
plan?

Figure 14.1
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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

Figure 14.1
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Focus for Different
Process Strategies
Make to Order
(Process Focus)

Number of
end items

(Product Focus)

Schedule modules

Schedule orders

Number of
inputs
Examples:

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Stock to Forecast

Schedule finished
product

Typical focus of the
master production
schedule

Figure 14.3

Assemble to Order
or Forecast
(Repetitive)

Print shop
Machine shop
Fine-dining restaurant

Motorcycles
Autos, TVs
Fast-food restaurant

Steel, Beer, Bread
Lightbulbs
Paper
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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

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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
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BOM Example
Level

Product structure for “Awesome” (A)

0

A

1

2

3

Std. 12” Speaker kit w/
C(3) amp-booster

B(2) Std. 12” Speaker kit

E(2)

D(2)

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
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12” Speaker
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BOM Example
Level

Product structure for “Awesome” (A)

0

A

1

2

3

D(2)

Part B: 2 x number of As =
(2)(50) =
100
Std. 12” Speaker300
kit w/
C:

3
x
number
of
As
=
(3)(50)
=
BPart
Std.
12”
Speaker
kit
C
(2)
(3)
amp-booster
Part D: 2 x number of Bs
+ 2 x number of Fs = (2)(100) + (2)(300) = 800
Part E:
E(2) 2 x number of Bs
E(2)
F(2) Std. 12” Speaker
booster
+ 2 x number of Cs = (2)(100) + (2)(150)
= assembly
500
Part F: 2 x number of Cs =
(2)(150) =
300

Packing box and
Part G: 1installation
x numberkitofofFs
=
(1)(300)
300
wire,
G(1) =
D(2)
bolts, and screws

Amp-booster
12” Speaker
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12” Speaker
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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

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Bills of Material
 Planning 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

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