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