today we go through chapter 12 which is on MRP and Erp we look at inputs outputs nature of MRP processing uh benefits and requirements of MRP and then what is the difference between MRP and mrp2 and then finally Erp so starting with MRP materials requirements planning materials is a part of any operations management and uh materials have to be managed so material requirements planning as you can see here it is a computer-based information system because nowadays we have a lot of advances in computer technology and since computers can do repetitive things much faster so MRP uses computer-based information system the calculations which it needs to do are very basic but because of complexity of the products involved uh it makes sense for people to use computer-based systems because there could be lot of human errors if computers are not involved so it is a computer-based information system that translates master schedule requirements for n items into time phase requirements for subassemblies components and raw material so it starts looking at the end product and then breaks it down to the uh smaller ones like if you think of a car as a end product then it's other some assemblies like engine transmission then within engine there could be so many different parts fuel injectors and things like that so MRP basically goes into details of all that it goes basically up to the component level now one has to look at like what is the nature of demand which is which a company is trying to meet so there are basically two types of Demands one is independent demand and other is dependent demand so as the name suggests independent demand is like I can give an example of let's say car so for big Auto Company let's say they need 100,000 cars in a year so they have to make 100,000 cars in a year based on the forecasted demand so that is a independent demand dependent demand is that for every car one makes most of the car you'll see have uh four wheels and each wheel requires a tire so if you look at a tire requirement or somebody wants to predict demand for tires so it is going to be very straightforward you multiply 100,000 by 4 so so the demand throughout the year for the tires is going to be 400,000 that's why independent demand that comes from the market or customers and dependent demand so it is based on the first one so once you know how many end items are needed then dependent demand can be easily calculated you multiply by two four depending on how many you need for finished product so independent demand is UN certain because of the market conditions customer or consumer patterns changing changing patterns so those things and also like economy so all those things create uncertainty if the demand next year is about 100,000 there's no guarantee that after two years it is going to be 100 it could be maybe 50 it could be 200 so there's a lot of uncertainty in but dependent demand is certain so once you know how many finished products are needed then you simply multiply by appropriate number a dependent demand this is the demand for items that are subassemblies or component parts to be used in production of finished goods so when we go into like details of how many components will be needed of every variety so then you have to look at all these things things so once independent demand is known the dependent demand can be determined so by determine it can also mean it can be calculated very easily if you compare dependent versus independent demand you'll see that generally we have stable pattern over a period of time whereas dependent demands they are lumpy so they just come in like like almost in batches because there's lot of certainty involved big company when they place order to a smaller supplier they will give them a big number uh and then suddenly for some period there won't be any demand from the bigger manufacturer and then again the batch of demand comes it also actually can be affected by the seasonality so if uh somebody is in a business of making like two type of equipments one related to maybe winter season and other one maybe summer season so demand to this company can be affected by that also so suddenly they will see a increased demand maybe in summer where as less demand in winter so that makes uh dependent demand pattern more lumpy and also the amount of inventory to to be kept actually we may need a safety stock so that is always a variable when you are dealing with independent demand but with dependent demand you don't have to really think in terms of a safety stock now coming to the overview of MRP so you can look at this overall picture here so MRP computer programs they are at the center and there are three main inputs the first one is master schedule so master schedule we have talked about earlier also what it tells is how much finished product is needed and when it is needed so when customers need those items so that information comes as an input to MRP system from master schedule the second major input is Bill of material so Bill of material basically gives composition of the finished product so let's say if we are talking about a chair as a finished product then Bill of material goes into details of like how many legs and how many other parts will be needed third one is inventory records so that also is a critical input because that tells what is already available so if a customer requires let's say 100 items in a period and you have already maybe 80 items in the inventory then that is a critical information to know now MRP gives uh broadly two types of reports one is primary and the other is secondary so in primary reports you have plan order schedules and in the secondary you could have performance control report Cs and inventory transaction so we'll talk about these in more detail so coming to the inputs so as you know there are three key inputs master schedule bill of material and inventory records so let's look at the first one so master schedule it is one of the three primary inputs in MRP so it states which it end items or finished products are to be produced so it gives answer to a question in the form of which is which here the word which and then when so that's the second W when these are needed and third W is what in what quantities it also looks at the cumulative lead time the sum of the lead times that sequential phases of a process require from ordering of the raw materials or raw materials or parts to completion of the final assembly so it incorporates the whole process of ordering the material till the completion of final assembly so that is a cumulative lead time so there could be so many different processes within that in fact next slide gives that idea here more clearly so this is the planning Horizon for master schedule which includes the complete or cumulative lead time so starting from the procurement so let's say it takes 2 weeks and then fabrication takes 3 weeks subassembly about two and then final assembly about 2 weeks so cumulatively time will be two here three here two and two so 9 weeks is the cumulative lead time now coming to bill of materials so this is one of the three primary inputs of MRP the first one being as discussed master schedule so it is a listing of all of the raw materials parts subassemblies and assemblies needed to produce one unit of a product so please remember bill of material material is basically gives details about just one product so if a company is making let's say 10,000 or 100,000 they can multiply appropriately but Bill of material only provides the details of one unit like one chair will need what all different parts so to apply bill of material concept uh sometimes we use what is called as product structure tree so this is visual depiction of the requirements in the bill of materials where all components are listed by levels so there's a low level coding so restructuring the bill of material so that multiple occurrences of component all coincide with the lowest level at which the component occurs so this is a technique or coding used to make things simple so if you look at a product structure threee as an example on the next slide so this is about a finished chair so this is the finished item and it it breaks up a chair into three major parts so front legs and then the seat and then the back supports and related parts so this is the assembly diagram and if you look at the product structure three here so so shair has been broken into three parts leg assembly seat and back assembly now within leg assembly two legs are needed per chair and one crossbar for back assembly side rails required will be two in number and back supports three in number so using these one can easily calculate if the demand is say 10,000 for for a year then how many back supports will be needed or how many legs will be needed so this is just a brief example so in this chapter actually we don't go into too much of details about each of these Concepts we are talking like Bill of material or Master scheduling actually more detailed coverage is provided in our materials management class uh which is for operations management majes now coming to updating the system now please uh remember that MRP is let me write down is not a static document so it is not a static document in fact it is a live document the reason is orders which we receive from the customers are at different stages at different times times maybe some are complete uh some are near completion uh there could be new orders there could be changes so so many things are going on at the same time so all such information which keeps on changing MRP has to keep everything current so what was like valid maybe two months ago if it is not updated then the system Falls flat actually so there are two methods people use one is a regenerative system which updates MRP records periodically so maybe at end of every day or whatever company follows or it could be net change system so updates records continuously so anytime there is any addition or deletion uh in the system that gets updated immediately now coming to MRP primary reports so in that overview there were two basic categories primary and secondary so this is the first one so in the primary reports we have what is called as planned orders so schedule indicating the amount and timing of future orders so whatever has come from the customers and then there are all order releases authorization for the execution of planned orders planned orders are just orders which has been planned but somebody has to execute them so for example if a purchase order has been planned for maybe third week of a month then when the third week comes somebody has to place that that purchase order to the appropriate supplier so that execution is also needed and then it also has changes revisions of due dates order quantities or cancellation of orders so all that is part of MRP primary reports now in the secondary reports we have things like performance control report as the name suggests this these reports are useful to understand what's going on how much control we have and how we can improve so it measures uh deviations from plans uh could be missed delivery it could be even stock out situation where a customer places an order and but because we don't have that product in the stock we are not able to fulfill the second one is planning reports so this is uh useful for forecasting future inventory needs so how much will be needed so it is used for that and then there is a exception report address is basically things which are let's say late or overdue so those kind of orders are addressed here now MRP Al although like uh you may come across more examples in manufacturing area but it has also been very useful in services so two examples are actually given on this Slide the first one is a food catering service where end item is the catered food and dependent demand you have the ingredients for each recipe which is basically captured by Bill of material uh second example is a hotel renovation activities and materials exploded into component parts so exploded means broken down into component parts for cost estimation and scheduling so you can see that MRP is also useful in services not only in manufacturing so there are many benefits of MRP one is it reduces in process inventory so the need to keep more inventory is when we don't have the right information at the right time like which components are needed and then placing the order so that it reaches in time keeping in mind the cumulative lead times so if everything is working nicely then obviously it will lead to less and less in process inventory ability to track material requirements ability to evaluate capacity requirements so that is another benefit means of allocating production time so because we have the details in MRP about each and every part needed so a production time can be allocated for each and every part in activity ability to easily determine inventory usage by back flushing back flushing is looing and end items bill of material to determine the quantities of components that were used to make the item so in a way those things can be calculated now let's uh look at uh to have a successful MRP system what requirements one has so obviously computer and necessary software is needed to implement MRP because uh keeping like file records is going to be very tedious and time consuming and also prone to error so computer and necessary software is going to be required accurate and upto-date M Master schedules bill of materials and inventory records so even if you have the most powerful computer systems and soft softwares but if uh let's say inventory records are not up to date then it is going to create a lot of problems what could happen is there could be too too many or too few parts ordered if the records are not correct and there could be failure to be on schedule if all these information is not available so Integrity of data is very very critical so that was actually brief uh introduction to MRP now let's uh look at mrp2 MRP p 2 actually stands for manufacturing resource planning so this MRP actually does not replace or improve MRP so it is basically uh mrp2 basically expands the MRP you can see expanded MRP with emphasis placed on integration with financial planning marketing engineering purchasing and Manufacturing so that's the idea of expanding it so you can see here MRP actually is at the heart of the whole process here Finance marketing market demand manufacturing all that they call collaborate and develop what is called as a production plan and then there's a rough cut capacity planning and if there are problems then it goes under number of iterations and if there's no problem then it it moves on to master production schedule and that sends the input to MRP and then it goes to capacity planning and if there are problems then again there's iteration within this Loop otherwise it goes to requirement schedule so you can see mrp2 which is manufacturing resource planning it's it is much more expanded than MRP now coming to capacity requirements planning so as we had seen in the previous uh slide uh mrp2 assist managers in planning capacity requirements so capacity requirement planning as we had seen earlier is the process of determining short range capacity requirements so there are load reports where department or work center reports that compare known and expected future capacity requirements with projected capacity requirements so we try to balance them and we also talked about uh time fences when we went through the chapter on capacity planning so if you look at this flowchart here so it starts with develop a tentative Market production schedule use MRP to sim ulate material requirements then convert material requirements to Resource requirements which is the load report and then ask a question is shop capacity adequate so if the answer is no then we go to can capacity be changed to meet requirements like by doing overtime or subcontracting and things like that but if the answer is again no then it goes back to revising tentative Master production schedule and then going back to the loop but if the answer is yes then form up a portion of MPS Master production schedule and if the capacity can be changed then change the capacity like do some support Contracting or uh overtime and things like that so actually you can see mrp2 also provides a good way for doing what if kind of analysis for the manages so they may see what if we go for overtime or what if we go for subcontracting or some other changes what could be the result so coming to the third Topic in this chapter which is Erp which is enterprise resource planning so this is actually the next step in the evolution that began with MRP and then developed into mrp2 so mrp2 was expanded version of MRP and Erp is basically as the name suggests it is enterprise-wide resource planning so integration of financial manufacturing and human resources on single computer system so there are very well-known Erp softwares so Erp software provides a system to capture and make data available in real time to decision makers and other users in the company it also provides tools for planning and monitoring of various business processes there's a reading assignment for this chapter the ABCs of Erp so once you go through that you'll see that it provides much more detail about Erp so actually Erp initially was developed for manufacturing but people have also found applications in service areas so service applications some examples are given here in Professional Services Postal Services retail banking health care higher education engineering logistic services and real estate so there are so many different areas in which Erp is being used nowadays