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INVENTORY MANAGEMENT:Capacity Planning, Manufacturing Resource Planning

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Production and Operations Management ­MGT613
VU
Lesson 35
MRP II/ ERP
Learning Objectives
Discuss benefits and requirements of MRP.
Explain how an MRP system is useful in Capacity Requirements
Benefits and shortcomings of MRP
MRP II and MRP.
MRP: A Recap
1. Material Requirements Planning (MRP) is a software focusing on production planning and
inventory control system used to manage manufacturing processes.
2. An MRP system is intended to simultaneously meet three objectives:
1. Ensure materials and products are available for production and delivery to customers.
2. Maintain the lowest possible level of inventory.
3. Plan manufacturing activities, delivery schedules and purchasing activities.
MRP Processing
1. Gross requirements
a. Total expected demand.
2. Scheduled receipts
a. Open orders scheduled to arrive.
3. Planned on hand
a. Expected inventory on hand at the beginning of each time period.
4. Net requirements
a. Actual amount needed in each time period.
5. Planned-order receipts
a. Quantity expected to be received at the beginning of the period.
b. Offset by lead time.
6. Planned-order releases
a. Planned amount to order in each time period.
Updating the MRP Systems
1. Regenerative system
a. Updates MRP records periodically.
2. Net-change system
a. Updates MPR records continuously.
MRP in Services
1. Food catering service
2. End item => catered food
3. Dependent demand => ingredients for each recipe, i.e. bill of materials
4. Hotel renovation
5. Activities and materials "exploded" into component parts for cost estimation and scheduling
6.
Benefits of MRP
1. Low levels of in-process inventories
2. Ability to track material requirements
3. Ability to evaluate capacity requirements
4. Means of allocating production time
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Production and Operations Management ­MGT613
VU
Requirements of MRP
1. Computer and necessary software
2. Accurate and up-to-date
3. Master schedules
4. Bills of materials
5. Inventory records
6. Integrity of data
MRP II
1. Expanded MRP with emphasis placed on integration
2. Financial planning
3. Marketing
4. Engineering
5. Purchasing
6. Manufacturing
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.
Develop a tentative
Use MRP to
master production
simulate material
schedule
requirements
Revise tentative
Convert material
master production
requirements to
schedule
resource requirements
No
Can
Is shop
capacity be
No
capacity
changed to meet
adequate?
requirements
Yes
Yes
Firm up a portion
Change
of the MPS
capacity
As an operations manager we should be able to identify the process of Capacity Planning. Infact the
Capacity requirements planning process determines short-range capacity requirements. The necessary
inputs are:
1. Planned order releases for MRP
2. The current shop load
3. Routing information
4. Job times
Outputs include load reports for each work center.
Load reports: Department or work center reports that compare known and expected future capacity
requirements with projected capacity availability.
An organization generates a Master Schedule in terms of what is needed and not in terms of what is
possible or available.
An over view of the capacity planning process includes the following.
1. The Master schedule is first tested for feasibility and possibly adjusted before it becomes
permanent.
2. The proposed schedule is processed using MRP to ascertain the materials requirements the
schedule would generate.
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Production and Operations Management ­MGT613
VU
3. These are then translated into capacity requirements in the form of load reports for each
departments or work centers.
The initial schedule may or may not be feasible given the limits of production or availability of
materials. Also, with the aid of Time fences ( the series of time intervals during which order changes are
allowed or restricted) a feasible schedule may be finalized.
A listing of all raw materials, parts,
subassemblies, and assemblies needed to
produce one unit
P
d
T
f
I evel X
L
X
0
B(2)
C
1
2
D(3)
E
E(2)
F(2)
MRP II
Manufacturing Resource Planning (MRP II) is defined and accepted by professionals as a method for
the effective planning of all resources of a manufacturing company.
Ideally, it should answer operational planning in units, financial planning in rupees, and has a simulation
capability to answer "what-if" questions. and extension of closed-loop MRP.
This is not exclusively a software function, but a merger of people skills, dedication to data base
accuracy, and computer resources. It is a total company management concept for using human resources
more productively.
Accounting and finance departments get accurate costs and predict cash flows. Operations and
Engineering departments audit and feed in accurate data on production methods in detail, such as:
1. Bill of Materials
2. Quality Control based operational and functional data.
Master
Market
Manufacturin
Financ
Production schedule
Deman
Adjust
Marketin
master
schedule
Productio
MR
n
Rough-cut
Capacit
capacity planning
y
Adjust
production
N
Ye
Requirements
N
Ye
Problems
Problems
schedules
166
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Production and Operations Management ­MGT613
VU
ERP
Enterprise resource planning (ERP): often called the rightful next step in an evolution that began with
MPR and evolved into MRPII. Integration of financial, manufacturing, and human resources on a single
computer system.
ERP Strategy Considerations
1.
High initial cost
2.
High cost to maintain
3.
Future upgrades
4.
Training
Summary
Materials Requirements Planning (MRP) is an information Systems used to handle ordering of
dependent demand items ( components of assembled products)
The planning process begins with customer orders, which are used along with any back orders
to develop a Master Schedule that indicates timing and quantity of finished goods.
The end items are exploded using the bill of materials; Material Requirement Plans are
developed show quantity and timing for ordering or producing components.
The main features of MRP are the time phasing of requirements, calculating component
requirements and planned order releases.
To be successful MRP requires a computer program and accurate master production schedules,
bills of materials and inventory data.
Firms can only implement MRP if they have accurate records
MRP II links business planning, production planning and the MPS. ERP's are more refined as
well as comprehensive versions of MRP.
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Table of Contents:
  1. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT
  2. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Decision Making
  3. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Strategy
  4. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Service Delivery System
  5. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Productivity
  6. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:The Decision Process
  7. INTRODUCTION TO PRODUCTION AND OPERATIONS MANAGEMENT:Demand Management
  8. Roadmap to the Lecture:Fundamental Types of Forecasts, Finer Classification of Forecasts
  9. Time Series Forecasts:Techniques for Averaging, Simple Moving Average Solution
  10. The formula for the moving average is:Exponential Smoothing Model, Common Nonlinear Trends
  11. The formula for the moving average is:Major factors in design strategy
  12. The formula for the moving average is:Standardization, Mass Customization
  13. The formula for the moving average is:DESIGN STRATEGIES
  14. The formula for the moving average is:Measuring Reliability, AVAILABILITY
  15. The formula for the moving average is:Learning Objectives, Capacity Planning
  16. The formula for the moving average is:Efficiency and Utilization, Evaluating Alternatives
  17. The formula for the moving average is:Evaluating Alternatives, Financial Analysis
  18. PROCESS SELECTION:Types of Operation, Intermittent Processing
  19. PROCESS SELECTION:Basic Layout Types, Advantages of Product Layout
  20. PROCESS SELECTION:Cellular Layouts, Facilities Layouts, Importance of Layout Decisions
  21. DESIGN OF WORK SYSTEMS:Job Design, Specialization, Methods Analysis
  22. LOCATION PLANNING AND ANALYSIS:MANAGING GLOBAL OPERATIONS, Regional Factors
  23. MANAGEMENT OF QUALITY:Dimensions of Quality, Examples of Service Quality
  24. SERVICE QUALITY:Moments of Truth, Perceived Service Quality, Service Gap Analysis
  25. TOTAL QUALITY MANAGEMENT:Determinants of Quality, Responsibility for Quality
  26. TQM QUALITY:Six Sigma Team, PROCESS IMPROVEMENT
  27. QUALITY CONTROL & QUALITY ASSURANCE:INSPECTION, Control Chart
  28. ACCEPTANCE SAMPLING:CHOOSING A PLAN, CONSUMER’S AND PRODUCER’S RISK
  29. AGGREGATE PLANNING:Demand and Capacity Options
  30. AGGREGATE PLANNING:Aggregate Planning Relationships, Master Scheduling
  31. INVENTORY MANAGEMENT:Objective of Inventory Control, Inventory Counting Systems
  32. INVENTORY MANAGEMENT:ABC Classification System, Cycle Counting
  33. INVENTORY MANAGEMENT:Economic Production Quantity Assumptions
  34. INVENTORY MANAGEMENT:Independent and Dependent Demand
  35. INVENTORY MANAGEMENT:Capacity Planning, Manufacturing Resource Planning
  36. JUST IN TIME PRODUCTION SYSTEMS:Organizational and Operational Strategies
  37. JUST IN TIME PRODUCTION SYSTEMS:Operational Benefits, Kanban Formula
  38. JUST IN TIME PRODUCTION SYSTEMS:Secondary Goals, Tiered Supplier Network
  39. SUPPLY CHAIN MANAGEMENT:Logistics, Distribution Requirements Planning
  40. SUPPLY CHAIN MANAGEMENT:Supply Chain Benefits and Drawbacks
  41. SCHEDULING:High-Volume Systems, Load Chart, Hungarian Method
  42. SEQUENCING:Assumptions to Priority Rules, Scheduling Service Operations
  43. PROJECT MANAGEMENT:Project Life Cycle, Work Breakdown Structure
  44. PROJECT MANAGEMENT:Computing Algorithm, Project Crashing, Risk Management
  45. Waiting Lines:Queuing Analysis, System Characteristics, Priority Model