C H A P T E R
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203 CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P
that determine an item master for each part, a bill of material, an
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CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P 204
explosion scheme, a leadtime file, an inventory status file, and Lifecycle collaboration
vendor information. DRP is a timephased stockreplenishment Quality management
Environment health & safety
plan for all levels of the distribution network. Its focus is on
(See www.sap.com/solutions.)
retail and wholesale distribution network. On the other hand,
enterprise resource planning (ERP) systems are systems that 19. Moving toward JIT and kanban suggest that the traditional
often integrate MRP and a variety of other accounting systems, weekly “buckets” (or even daily buckets) in an MRP system
human resource management, and communication with vendors may be inadequate. MRP systems may need to move to hourly
and suppliers. buckets for some items. Some MRP systems now deliver to
“positions” in the production process—a “flow” criterion rather
15. In MRP, demand need not be constant. Also, in an MRP than a bucket criteria.
system, the demand for one item depends on the demand for Additionally, if tracking of small lots is necessary (and it may
others—in particular, the end item. (There are exceptions such not be) then not only will such “buckets” be necessary, but ease of
as spare parts and maintenance orders.) inputs via bar codes or other automated means may be necessary.
16. The disadvantages of ERP include:
ETHICAL DILEMMA
Is very expensive to purchase and even more costly to
customize. ERP is going to cost more than expected.
Implementation may require major changes in the What do you do? Certainly, any sense of fairness and decency
company and its processes. suggest that the customer must be told the truth. However,
Is so complex that many companies cannot adjust to it. a sales representative can be expected to try to solve the problem
Involves an ongoing process for implementation, for his customer. This may mean that:
which may never be completed. The first stop is the sales representative’s manager to see
Expertise in ERP is limited, with staffing an ongoing if another customer or pending customer may have dealt
problem. with this problem and solved the problem or may be
17. (a) The Web sites of most of the major ERP vendors will willing to share development costs.
include “successful solutions” using their software. A second option is to ask the manager “Is there any
See Web pages of the major vendors: budget or pending budget for this type of enhancement or
American Software: www.amsoftware.com can we help the customer out by paying for part of the
JD Edwards: www.jdedwards.com enhancement?”
The Baan Company: www.baan.com The bottom line is that not telling the customer the truth and/or
Oracle: www.oracle.com selling the customer something that will not do the job is not
SAP: www.sap.com only unethical, but also probably bad business—certainly bad
IQMS: www.iqms.com business in the long run.
(b) The poor ERP efforts or installations may take a little
more digging, but a look at www.CIO.com and www.
ACTIVE MODEL EXERCISE
Information Week.com should get students started. ACTIVE MODEL 14.1: Order Releases
18. (a) PeopleSoft includes the following in its CRM 1. Suppose that item B must be ordered in multiples of dozens.
offerings (see Which items are affected by this change?
http://www.oracle.com/applications/peoplesoft/ Items D and E
CRM/ent/index.html):
2. Suppose that the minimum order quantity for item C is 200
Supplier Relationship Management Manage supplier units. Which items are affected by this change?
relationships including indirect and direct goods, as Items E, F, G, and D
well as services procurement with:
END-OF-CHAPTER PROBLEMS
Partner relationship management solution
Sales solution 14.1 An exploded bill yields the following:
Service solution Item J: 200 units; Item K: 200 1 = 200 units; Item L: 200 4 =
CRM analytics 800 units; Item M: 200 2 = 400 units.
CRM industry solutions 14.2 The timephased assembly plan for the gift bags is:
Marketing solution
(b) SAP’s Supply Chain Management product includes:
Supply strategy development
Supplier qualification
Supplier selection
Contract negotiation and management
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205 CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P
14.3 (a) Product structure:
(b)
Week Lead
Time
Ite 1 2 3 4 5 6 7 8 (weeks)
m
W Gross req 120
On hand 30
14.4 Gross material requirements plan: Net req 90 3
Order receipt 90
Week Lead Order release 90
Time
X Gross req 60
Ite 1 2 3 4 5 6 7 8 (weeks) On hand 25
m Net req 35 1
S Gross req 100 Order receipt 35
Order 10 2 Order release 35
release 0 Y Gross req 24
T Gross req 10 0
0 On hand 24
Order 100 1 0
release Net req 0 2
U Gross req 20 Order receipt 0
0 Order release
Order 20 2 Z Gross req 36
release 0 0
V Gross req 100 On hand 40
Order 100 2 Net req 32 1
release 0
W Gross req 200 Order receipt 32
Order 20 3 0
release 0 Order release 32
X Gross req 100 0
Order 10 1
release 0
Y Gross req 40
0 14.6 Gross material requirements plan, modified to include the
Order 40 Week Lead
2 20 units of U required for maintenance purposes:
release 0 Time
Ite
Z Gross req 1 2 603 4 5 6 7 8 (weeks)
m 0
Order 600 1
S Gross req 100
release
On hand 20
Net
14.5 req
Net material requirements plan: 80 2
Order receipt 80
Order release 80
T Gross req 80
On hand 20
Net req 60 1
Order receipt 60
Order release 60
U Gross req 160
On hand 40
Net req 120 2
Order receipt 120
Order release 12
0
V Gross req Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.
60
On hand 30
CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P 206
14.7 Net material requirements plan, modified to include the
20 units of U required for maintenance: Week Lead
Time
Week Lead Ite 1 2 3 4 5 6 7 8 (weeks)
Time m
Ite 1 2 3 4 5 6 7 8 (weeks)
S Gross req 100
m
Order release 100 2
S Gross req 100 T Gross req 100
On hand 20 Order release 100 1
Net req 80 2
Week Lead U Gross req 200 20*
Order receipt 80
Time Order release 200 20 2
Order release 80
Ite 1 2 3 4 5 V Gross req 100
T Gross req 80 6 7 8 (weeks)
m On hand Order release 100 2
20
W Gross req 20
U Net reqreq
Gross 60 20
160 1
Order receipt 60 * 0
Order release 200 3
On hand 40 0
Net req 120 20 2 X Gross req 10
Order 120 20 0
receipt Order release 100 1
Order
*needed for maintenance. 120 20 Y Gross req 400 40
release Order release 400 40 2
V Gross req 60 Z Gross req 600 60
On hand 30 Order release 600 60 1
Net req 30 2
Order 30
receipt
Order 30
Level
14.8 (a)
release 0
W Gross req 12
0
On hand 30
Net req 90 3 1
Order 90
receipt
Order 90
release 2
X Gross req 60
On hand 25
Net req 35 1
3
Order 35
receipt
Order 35
release (b) For 50 brackets, the gross requirements are for 50
Y Gross req 240 40 bases, 100 springs, 250 clamps, 250 handles, 250
On hand 240 0 castings, 100 housings, 200 bearings, and 100 shafts.
Net req 40 2 (c) For 50 brackets net requirements are: 25 bases, 100
Order 40 springs, 125 clamps, 125 handles, 125 castings, 50
receipt housings, 100 bearings, and 50 shafts.
Order 40
release
Z Gross req 360 60
On hand 40 0
Net req 320 60 1
Order 320 60
receipt
Order 320 60
release
* To achieve these results in POM for Windows, add Part U as a new
BOM line, level O, so that the software will recognize an additional
independent demand, not scheduled receipts.
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207 CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P
14.9 (a) Timephased product structure for bracket with start 14.10 (a) Gross material requirements plan:
times: Note: Elements have been listed in the gross material
requirements plan in the order of level, and within a level, from
left to right as viewed in the product structure.
Week
Ite 1 2 3 4 5 6 7 8 9 1 11 12
m 0
X1 Gross 50 20 10
req 0
Order rel 5 20 10
0 0
B1 Gross 5 20 10
req 0 0
Order rel 50 2 100
0
B2 Gross 10 40 20
req 0 0
Order rel 100 4 200
0
A1 Gross 50 2 100
req 0
Order rel 5 20 100
0
C Gross 200 8 400
req 0
Order rel 20 80 400
0
D Gross 100 4 200
req 0
(b) Castings need to start in week 4. Order rel 100 40 200
E Gross 200 50 80 2 400 100
req 0
Order rel 20 50 80 20 400 100
0
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CHAPTER 14 M AT E R I A L R E Q U I R E M E N T S P L A N N I N G ( M R P ) A N D E R P 208
(b)
Level: 0
(c)
Parent: — Quantity:
Item: 20 fan Lead Time: 1 Lot Size:
Week No. 1 2 3 4 5 6 7 8 9 10 11 12
Gross requirement 1,000
Scheduled receipt
On hand 100 100
Net requirement 900
Planned order receipt 900
Planned order release 900
Low Low
Lot Lead
LotOn Lead
SafetyOn SafetyLevel ItemLevel Item Period (week)
Period (week)
Size Time HandTime
Size Stock Allocate
Hand StockCode ID Code
Allocate ID 1 2 31 42 5 3 6 4 75 8 6 7 8
d d
Lot 1 Lot 2 1— 4 — — 1 — B Gross
3 requirement
E Gross requirement 10
A
Low
Lot Lead On Safety Level Item Period (week)
Size Time Hand Stock Allocate Code ID 1 2 3 4 5 6 7 8
d
Lot 1 10 — — 2 H Gross requirement 5F
Low 14.16 (a) Only item G has
Lot Lead On Safety Level Item changed because it hasPeriod no (week)
Size Time Hand Stock Allocate Code ID subassem blies
1 2 3 or4 5 6 7 8
d components.
Lot 1 5 — — 1 F Gross requirement
(b) If week 1 on the 10M 10A
for Scheduled receipt production plan
Lot Projected on hand 5is now,
5 then 5 an5 5 5 0 0
Net requirement increase in the 5 10
Planned receipt lead time for G 5 10
Planned release means only one 5 10
unit of G will be
Low available for
Lot Lead On Safety Level Item component Period F in (week)
Size Time Hand Stock Allocate Code ID 1week 2 3 5.4 5 6 7 8
d Setups: 5 150 = $750
Therefore, F and
Lot 1 5 — — 2 Holding: (allowing for 12 time periods) 2.50 352 = $880
D Gross requirement consequently 8B 10B
for ScheduledSetup + holding = total cost = $1,630
receipt four units of “A”
Lot Projected on hand 5will 5be delayed
5 5 5 0 0 0
Net requirement one week. 3 10
Theoretical total cost:
Planned receipt (c) As production 3 10
DS
Planned release
planner, several options are3 10 CT = Order cost + Holding cost = +
Q
possible:
Low 330 �150 57 �(12 �2.50)
Tell the = +
Lot Lead On Safety Level Item Period (week) 57 2
customer that
Size Time Hand Stock Allocate Code ID 1 2 3 4 5 6 =7 8 + 855.00 = $1,723.42
868.42
d the four units
(which are
Lot 3 1 — — 2 G Gross requirement probably 5F 10F
for Scheduled receipt
“spares”) are
Lot Projected on hand 1 1 1 1 1 0 0 0
Net requirement
going to be 4 10
Planned receipt delayed one 4 10
Planned release week.
4 10
Ask the
Note: M (in items B and F) means a repair or maintenance item.
14.17 LotforLot Ordering Policy: supplier of G
Low to expedite
Week
Lot Lead On Safety Level Item production or Period (week)
1 2 3 4 5 6 7 8 9 10 11 12
Size Time Hand Stock Allocate Code ID 1 delivery.
2 3 4 5 6 7 8
d Gr req 30 40 30
Reduce the
70 20 10 80 50
Beg inv 40 10 10 0 0 0 0 0 0 0 0 0
Lot 1 10 — — 2 inv H Gross production
10 requirement 5 0 10 0
F F
End 10 0 0 0 0 0 0 0 0
for Ord rcpt Scheduled receipt
30
time for item F
30 70 20 10 80 50
Lot Ord rel Projected30
on hand 10 30or A.
10 70 10 20 10 10 5 10 0 80 0 50
Net requirement 5
CT = Order cost + holding cost = 7 orders $150/order + 20 units $2.50/unit/period = $1,100
Planned receipt 5
Planned release 5
14.18 Economic order quantity:
Low 2 DS 2 �330 �150
Q= = = 57.4, or 57 units
Lot Lead On Safety Level Item H 2.50 �Period
12 (week)
Size Time Hand Stock Allocate Code ID 1 2 3 4 5 6 7 8
where D = period demand, S = setup or order cost, H = holding cost.
d
Reorder point:
Lot 2 10 — — 3 C Gross requirement 13H, 10B
B
A 1 2 3 4 5 6 7 8
Gross requirement 30
On hand 10 10
Net 20
P.O. receipt 20
P.O. release 20
14.26 Lot for 1 — — — 2 Long Gross requirement 1,28 1,280 256 256
Lot Brace 0
Lead Scheduled receipt
Time Projected on hand
(# of Low- Net requirement 1,28 1,280 256 256
Lot period On Safety Allo- Level Item 0
Size s) Hand Stock cated Code ID Planned order receipt 1,28
Period
1,280(day)
256 256
0
1 2 3 4 5 6 7 8
Planned order release 1,280 1,28 256 256
Lot for 1 — — — 0 Table Gross requirement 640 640 128 128
0
Lot Scheduled receipt
Projected on hand
Lot for 1 — — — 2 Leg Gross requirement 2,56 2,560 512 512
Net requirement 640 640 128 128
Lot 0
Planned order receipt 640 640 128 128
Scheduled receipt
Planned order release 640 640 128 128
Projected on hand
Net requirement 2,56 2,560 512 512
Lot for 1 — — — 1 Top Gross requirement 0 640 640 128 128
Lot Scheduled receipt
Planned order receipt 2,56 2,560 512 512
Projected on hand 0
Net requirement
Planned order release 2,560 2,56 640
512640512128 128
Planned order receipt 0 640 640 128 128
Planned order release 640 640 128 128
14.27 Hrs
Lot for 1 — — Table
Coffee — 1
RequireStain
Lead Gross requirement 80 80 16 16
Lot Master Schedule d (gal.)
Time Scheduled
Day 1 receipt
Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8
Projected on hand
640 640 128 128
gallons Net requirement 80 80 16 16
Table Assembly 2 1 1,280 1,280 256 256
Planned order receipt 80 80 16 16
Top Preparation 2 1 1,280 1,280 256 256
Planned order release 80 80 16 16
Assemble Base 1 1 640 640 128 128
Long Brace (2) 0.25 1 320 320 64 64
Lot for 1 — — — 1 Glue Gross requirement 40 40 8 8
Lot Short Brace (2) 0.25 (gal.) 1 Scheduled receipt
320 320 64 64
Leg (4) 0.25 1 Projected on hand
640 640 100 128 12 100 100
100 100 60 20 12 4
gallons 100 Net requirement 8
Total Hours 0 order
Planned 1,280 3,200 3,456 1,920
receipt 640 256
Planned order release
Item C
Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Total req. 10 7 10 10 5 5 3
On hand 10 10 10 10 10 — — — — — —
Net req. 7 10 10 5 5 3
Ord rec. 7 10 10 5 5 3
Ord rel. 7 10 10 5 5 3
Item D
Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Total req. 8 7 10 5 3
On hand 5 5 5 5 5 — — — —
Net req. 3 7 10 5 3
Ord rec. 3 7 10 5 3
Ord rel. 3 7 10 5 3
introduction of Item corporate
E disposed of at distress prices.
Week 1 2 3 4 wide5 goals
6 and7 performance
8 9 10 11 12 13 14 15 Moreover,
16 MRP does not
Total req. 3
measures for each function;
9 20 10 3
work without accurate
On hand 5 5 5 5 (b) 2 development of labor— — — inventory. As in any
Net req. standards
7 for the assembly,
20 10 3 dependent manufacturing
Ord rec. and packaging operations; (c)
7 20 10 3 process, shortage of a part
Ord rel. 7 development of 20quality 2. A10 properly used
3 MRP may mean that the entire end
standards for all production system will provide the unit, in this case an expensive
and purchased Item items,F to structure needed at Hill’s ambulance, cannot be
Week 1 2 3 4 which
5 6suppliers
7 8 would9 10Automotive;
11 12 unneeded
13
14and 15 assembled,
16 completed, or
adhere; (d) improvements in excess inventory and poor delivered. Accurate inventory
Total req. 10 7 10 5
inventory management bills —
of material will — be has cost implications for both
On hand 5 5 5 5 5 5 —
practices; (e) development of evident, the units in which the
Net req. 5 7 10 as will production 5
Ord rec. a capacity5 7 planning schedules
10 beyond the firm’s
5 inventory is to be installed
Ord rel. procedure (i.e., determination
5 7 10capabilities. Lead times, order
5 (the ambulance) and as an
as to how many units can be release dates, shortages, etc. asset.
produced during what time will also be specified. 2. Excess inventory exists
Item G
periods); (f) implementation
Week 1 2 3 4 5 6 7 8 9 10Accuracy
11 and 12 discipline
13 will 15 because
14 16 of minimum order
of a master production be required. requirements, BOM errors,
Total req. 5
schedule 7 (which might 10 5
The instructor may then customerchange orders,
On hand 1 1 1 1 1
encompass — a relatively short — —
Net req. 4 7 to the typical 10
want to discuss the problems
5
purchasing and
horizon due
Ord rec. 4 7 10one would encounter 5 in receiving errors, etc. A plan
short production cycle); and, implementing some of the for Wheeled Coach to deal
Ord rel. 4 7 10 5
ultimately, proper use of an changes discussed above. As with excess inventory is first
MRP system. When this is a beginning, one might to see what can be returned to
completed, everyone Item H be
will consider that the individual the vendor for near full
Week 1 2 3 4 5 by
judged 6 corporatebased
7 8 9 10 11 12 13 14 15 16
departments appear to be credit; second, see what can
Total req. performance
5 7 measures, using 10operating in a 5 relatively be substituted on subsequent
On hand 10 10 10 10 common
10 5 information, in —informal manner— and as units for the items called out
Net req. working 2 toward common 10 5
separate entities. The student on the bills of material; and
Ord rec. goals. 2 10 5
might be asked to consider third, work at some sort of
Ord rel. 2 10 5
how the persons employed sale or scrap or supply to
within this organization will other auto dealers or truckers
CASE STUDY react to the changes suggested who may have need for the
above, which, uniformly, items.
HILL’S result in increased demands 3. Wheeled Coach will find
AUTOMOTIVE, INC. on employees and increased it difficult to dispose of
integration among excess inventory. It is hard to
In this case, each department
departments. substitute excess components
argues that it is doing its job
well—“the problem is with in units (and their related bills
them.” The result is confusion VIDEO CASE of material) as units are being
and poor results for the STUDY assembled. It takes innovation
company as a whole. Many of on the part of the engineering
the problems relate to the MRP AT WHEELED shop and inventory personnel
classic MRP issues of (a) lack COACH to make this work and keep
of master schedule; (b) lack of A 7minute video, filmed the bills of material, through
capacity planning; and (c) specifically for this text, is engineering changes notices,
few, if any, accurate lead available from Prentice Hall accurate. For those items that
times, all resulting in poor and is designed to are changed but are not
scheduling and chaos in the supplement the written case. critical, management
assembly area. There seems instituted an effectivity date.
1. Accurate inventory is an That is a date that the change
also to be a question as to
important issue at Wheeled would be effective to the date
whether the various
Coach because of the in the production schedule
departments are working
dynamic changes that occur that allowed all of the
toward common goals and
in ambulances. Items that are components in stock to be
whether appropriate measures
purchased but not used used. Some material can be
of performance are in place.
promptly often end up as returned to the supplier, but
The specific issues in a plan
excess inventory and must be most suppliers are not
would include (a)
interested in taking old ADDITIONAL CASE get the system running,
merchandise back, so that is a $8 million paid to IBM for
difficult option. Finally,
STUDY* consulting and the remainder
selling the items themselves IKON’S ATTEMPT AT of the $25 million paid in
proved a reasonable last ERP consulting fees since the
resort. However, even this is system was turned on.)
1. IKON needs
expensive. It requires 4. The project was canceled
comprehensive marketing
cataloging, publicity, letter because of the expense,
information on potential
writing, phone calls, and combined with functionality
customers, existing
followup. It is a real gaps and the amount of
customers, and their copier
marketing challenge, and internal business procedures
installations, and then a
Wheeled Coach does this by IKON would have to change.
service history on each
having occasional sales of
machine sold and its owner
excess inventory on
or leaseholder. Additionally,
Saturdays. All of these
it needs the usual accounting
options are being used, and
information on payables,
all do reduce inventory
receivables, assets, and
ultimately.
liabilities as well as good
inventory information on
copiers, parts, and supplies.
2. The advantages of ERP
software are that it is usually
sold as an integrated system
that ties HR, accounting,
manufacturing, and suppliers
together. Consequently, in
theory, it provides for a high
degree of timely, accurate
information. Most of these
systems deliver much less
than the theory suggests.
The disadvantage of any
standard software product is
that it may not (or will not)
fit a given (in this case
IKON’s) business. IKON’s
problem was complicated
because many ERP systems * This case study appears on our Companion Web site,
are an outgrowth of www.pearsonhighered.com/heizer.
manufacturing systems. This
manufacturing base often
means they are weak in the
marketing, customer tracking,
service, and repair features
critical to IKON’s
competitive advantage. A
wide variety of special
programs have been written
for customer sales and
service tracking, but for SAP,
like other vendors in the
field, that was not an initial
priority.
3. The bet was that the pilot
installation would work at
reasonable cost and, not
incidentally, do the job. This
did not turn out to be the case.
(It cost over $14 million to