MRP, DRP, and ERP

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MRP, DRP, and ERP

• Henry C. Co
• Technology and Operations Management,
• California Polytechnic and State University
• Read Coyle, et al, Supply Chain Management A
  Logistics Perspective, Ch. 6 and part of Ch. 9

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Information Technology and Supply Chains

• Information, along with materials and money, must
  readily flow across the supply chain to enable
  the planning, execution, and evaluation of key
  functions.
• Each participant in the supply chain needs
  relevant information to make effective forecasts
  and operational decisions.
• Existing supply chain information technologies
  support timely, cost-efficient sharing of
  information between suppliers, manufacturers,
  intermediaries, logistics services providers, and
  customers.

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Figure 6-1 Coyle, et al, Supply Chain
Management A Logistics Perspective
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Materials Requirements Planning

• Deals specifically with supplying materials and
  component parts whose demand depends on the
  demand for a specific end product
• Consists of a set of logically related
  procedures, decision rules, and records designed
  to translate a master production schedule into
  time-phased net inventory requirements and the
  planned coverage of such requirements for each
  component item needed to implement this plan

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Elements of an MRP System

• Master production schedule (MPS)
• Bill of materials file (BOM)from the product
  structure tree
• Inventory status file (ISF)
• MRP program
• Outputs and reports

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Illustration Product Structure Tree
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Illustration Gross Requirements

• The Gross Requirement (GR) is the projected needs
  for an item during each period.
• For an independent-demand items, the GR comes
  from the Master Production Schedule (MPS).
• For a dependent-demand item, the GR is derived
  from its immediate parent(s).
• Suppose the Master Schedule shows that 1 egg
  timer must delivered in week 8 (see slide 11).
• With a lead-time (LT) of 1 week, production of 1
  unit of egg timer is scheduled on week 7.
• The GR of supports is computed based on this and
  product structure tree (see slide 7) We need 3
  supports for each egg timer. Thus, the GR of
  support 3 x 1 3 units, on week 7.

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Illustration Planned Order Receipts

• In our example (see slide 11)
• The GR of support at week 7 3 units.
• The inventory on-hand (see slide 10) of support
  2 units The net requirement on week 7 3 -2 1.
  Thus, we schedule to receive (scheduled receipt)
  1 unit at week 7.
• Since the lead-time for support 1 week, we
  should release the order in week 7-1 6.
  (planned order release of 1 unit in week 6),

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Requirements of MRP

• Computer and necessary software
• Accurate and up-to-date
• Master schedules
• Bills of materials
• Inventory records
• Integrity of data
• Management support and user knowledge and
  acceptance
• 100 component availability

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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.

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Extensions

• Closed Loop MRP
• MRP II Expanded MRP with and emphasis placed on
  integration of Financial planning, Marketing,
  Engineering, Purchasing, and Operations.

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Distribution Requirements Planning (DRP)
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Distribution Requirements Planning

• Purpose is to more accurately forecast demand and
  to explode that information back to develop
  production schedules.
• Firm can minimize inbound inventory in
  conjunction with production schedules.
• Outbound (finished goods) inventory is minimized
• DRP develops a projection for each SKU requiring
  the following
• Forecast of demand for each SKU
• Current inventory level of the SKU (balance on
  hand, BOH)
• Target safety stock
• Recommended replenishment quantity
• Lead time for replenishment

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Enterprise Resources Planning (ERP)

• What Is ERP? Why ERP?
• The Major Players
• ERP Market Outlook

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Enterprise Resource Planning (ERP)

• ERP systems are multimodule application software
  platforms that help organizations manage the
  important parts of their businesses.
• ERP systems branch out to include supplier
  relationship management, customer relationship
  management, and other supply chain components,
  the connections between SCIS and ERP grow
  stronger.
• ERP system provides a mechanism for supply chain
  members to efficiently share information

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ERP Integration of Supply Chain Technology
Capabilities
Figure 6-6 Coyle, et al, Supply Chain
Management A Logistics Perspective
Source SAP AG
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Related Tools

• Supply chain collaboration tools help users
  integrate their information technology systems
  with those of trading partners to streamline and
  automate supply chain processes.
• Data synchronization applications provide a
  platform for manufacturers, distributors, and
  retailers to aggregate and organize item-related
  data.
• See PowerPoint on Collaborative Commerce
• Spreadsheets and database software provides
  managers with handy, portable tools for
  gathering, consolidating, and analyzing supply
  chain data.

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Table 6-1 Coyle, et al, Supply Chain
Management A Logistics Perspective
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Essence of ERP

• Record day-to-day transactions of running a
  business and provide near real-time access to
  information in a consistent manner throughout the
  organization

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Why ERP?

• Supply chain cost reduction
• Purchasing leverage
• Inventory reduction
• Operating cost reduction
• Competition is doing it
• Catalyst for reengineering
• Increased performance
• Service levels
• Responsiveness
• Data updated in real time single set of numbers
• Y2k problem

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Illustration

• Business Week, 3/12/97

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• Sales rep from Intl Sneaker takes an order for
  1000 shoes from a Brazilian retailer.
• From her portable PC, she taps into the R/3 sales
  module back at headquarters, which checks the
  price, including any discounts the retailer is
  eligible for, and looks up the retailers credit
  history.
• Simultaneously, R/3s inventory software checks
  the stock situation notifies the sales rep that
  half the order can be filled immediately from a
  Brazilian warehouse.
• The other sneakers will delivered in 5 days
  direct from ISCs factory in Taiwan.

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• R/3s manufacturing software schedules the
  production of the sneakers at the Taiwan factory,
  meanwhile alerting ISCs warehouse manager in
  Brazil to ship the 500 purple tennis shoes to the
  retailer. An invoice gets printed upin
  Portuguese.
• Thats when R/3s HR module identifies a shortage
  of workers to handle the order alerts the
  personnel manager of the need for temporary
  workers.
• R/3s materials planning module notifies the
  purchasing manager that its time to reorder
  purple dye, rubber, and shoelaces.

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• The customer logs on to ISCs R/3 system through
  the internet sees that 250 of the 500 shoes
  coming from Taiwan have been made dyed. He
  also sees there are 500 orange tennis shoes in
  stock places a follow-up order on the net.
• Based on data from R/3s forecasting financial
  modules, the CEO sees that colored sneakers are
  not only in hot demand but are also highly
  profitable. She decides to add a line of
  fluorescent footwear.

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Data Collection and Synchronization

• Data must be collected and synchronized so that
  it can be used by skilled individuals in the
  planning and execution of supply chain processes.
• Data collection of relevant information is needed
  at every point in the supply chain.
• Data synchronization focuses on the timely and
  accurate updating of item information within and
  across enterprises.
• Functional expertise in each organization will be
  enhanced by access to the synchronized data.
• See PowerPoint on Collaborative Commerce

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Radio-Frequency Identification (RFID)

• RFID is an automatic identification method. RFID
  tags consist of a microchip and a printed antenna
  that can be packaged into many forms, such as a
  label, or imbedded in between the cardboard
  layers in a carton or product packaging.
• Unique product identification information, in the
  form of a universal electronic product code (EPC)
  identifying the manufacturer, product category,
  and individual item, is stored on these 96-bit
  tags.
• RFID technology costs must continue to decline to
  make product tagging economically feasible
  equipment issues such as reader range,
  sensitivity, and durability must improve the
  case for supplier return on investment of RFID
  mandates must be made and consumer privacy
  issues must be resolved.
• See PowerPoint on Collaborative Commerce