ERP(Enterprise Resource Planning)

& MRP

 Session Objectives
At the end of this session the delegate would have understood
ERP ERP example SAP MRP and structure MRP1 & MRPII difference Lot size determination in MRP

ERP
ERP is a complete enterprise wide business solution. It consists of software support modules such as marketing & sales,manufacturing,quality Intergration between modules is stressed without duplication of information This integration is accomplished through a database shared by all the application programs
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Advantages of ERP
Visibility of what is happening in all parts of Business 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 and other Business partners Improvement of Quality of Information
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ERP- Few known Brands

SAP Oracle Baan Peoplesoft

SAP AGS R/3

SAP AG, A German firm, is a world leader in ERP software.
-Designed to operate in a threetier 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

Financial Accounting

Sales & Distribution

R/3 System Functional Components

Human Resources

Manufacturing & Logistics

Financial Accounting
Accounts payable Accounts receivable

Capital Investment
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 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 of sales, is a measure of the firms profitability or margin. ATO, represented by the sales generated per dollar of assets, is a measure of asset efficiency.
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ROA-ROS-ATO

Finance
Important Features Asset Management / Depreciation Calculation Bill Discounting Parametric Tax System Trial Balance/ P & L / Balance Sheet Excise DSA,RG23I,RG23II and VAT Annexure TDS / Service Tax / PLA Back Dated order date Amendments Sales / Purchase / Return Register / Tax form Reminders Activity Based Costing
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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 Implementation Including changes needed to suit Business IT Infrastructure Training of Employees Cost of keeping alive and improvements

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ERP Implementation
Standard ERP package normally does not fit into company practices Many times the way process is done may need a change to suit ERP. This is where challenge of implementation comes Top management must be committed in ERP implementation Selecting ERP keeping long term costs and future changes needed is a important factor
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MRP

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Overview
Resource Requirements Planning Material Requirements Planning (MRP)

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Resource Requirements Planning

Aggregate Planning Master Production Scheduling (MPS) Resource Requirements Planning Material Requirements Planning (MRP) Capacity Requirements Planning (CRP)
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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 materials simultaneously available is = 0.95x0.95x.. i.e. 60% He should expect 4 items to be short for assembly
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 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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Materials Requirements Planning (MRP)

Objectives of MRP
Improve customer service Reduce inventory investment Improve plant operating efficiency

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Inputs Service-Parts Orders and Forecasts Inventory Status File Master Production Schedule

Elements of MRP

Outputs Inventory Transaction Data Order Changes Order Planned Order Schedule

MRP System

Planning Report Performance

Exception Reports
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Bill of Materials File

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MRP Schematic
Firm orders from known customers Engineering design changes Bill of material file Aggregate product plan Master production Schedule (MPS) Forecasts of demand from random customers Inventory transactions Inventory record file

Material planning (MRP computer program)

Primary reports Planned order schedule for inventory and production control

Secondary reports
Exception reports Planning reports Reports for performance control
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The McGraw-Hill Companies, Inc., 2004

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, 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
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Bill of Materials (BOM) File A Complete Product Description

Materials Parts Components Production sequence Modular BOM

Subassemblies Fractional options

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Super BOM

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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Primary MRP Reports

Planned orders to be released at a future time Order release notices to execute the planned orders Changes in due dates of open orders due to rescheduling Cancellations or suspensions of open orders due to cancellation or suspension of orders on the master production schedule Inventory status data
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Secondary MRP Reports

Planning reports, for example, forecasting inventory requirements over a period of time Performance reports used to determine agreement between actual and programmed usage and costs Exception reports used to point out serious discrepancies, such as late or overdue orders
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Inventory cost
Procurement costs 1. Cost of goods 2. Ordering cost a) Admin component b) Handling c) Transportation d) Inspection
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Inventory cost
1. 2. 3. 4. 5. 6. 7. Inventory holding costs Storage and handling Interest on tied up capital Property tax Insurance Spoilage Obsolescence Pilferage
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Inventory cost
1. 2. 3. Shortage costs Additional cost of special order Loss of customer goodwill 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 quantity discounts

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 37

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 first derivative, set it equal to zero and solve for Q)

EOQ = 2 DS / C

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Lot-Sizing in MRP
Lot-size is the quantity ordered/produced at one time 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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Lot-Sizing Methods
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.
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MRP I to MRP II
MRP I simply exploded demand (MPS) into required materials Triggering work order for inhouse parts & procurement notice for sourced items MRP II became Manufacturing Resource Planning which provides a closed-loop business management system Financial management Shop floor control Marketing Engineering Simulation studies
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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, 9th edition, 2002, Gaither and Frazier, SouthWestern/Thomson Learning Operations Management: For competitive advantage, 11th edition 2009 reprint, Chase, et al, TMH Special Indian edition

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