Chapter 14: MRP & ERP

MRP

Items with dependent demand are items in which demand is derived from plans to make certain products (things like raw materials, parts, and assemblies). Example: The parts and materials that go into the making a car. Dependent demand tends to be "lumpy" whereas independent demand is fairly stable. MRP is a computer program that translates finished product requirements into time-phased requirements for each dependent demand items. The Bill of Materials, one of the three primary inputs of MRP, is useful because it is a list of all the assemblies, sub-assemblies, parts, and raw materials that are needed to produce one unit of a finished product.

In addition to MRP, this chapter provides information about ERP, which has an MRP core. ERP, which stands for "Enterprise Resource Planning" provides an expanded effort to integrate standardized record keeping that will permit information sharing among numerous dimensions of a business in order to direct the system more effectively. An ERP system typically has modular hardware and software units and "services" that communicate on a local area network.

An important issue in inventory management is determining a lot size to order or produce in independent and independent demand items. Lot sizing refers to choosing a lot size for ordering or production. For independent demand items managers use economic order sizes and economic production quantities. For dependent demand systems managers can choose larger variety plans to determine the lot sizes. Dependent demand tends to be sporadic or "lumpy". The goal of independent demand and dependent demand systems is to minimize the sum of ordering cost and holding cost.

MRP Input

MRP uses three primary sources for information: master schedule, bill-of-materials file, and an inventory records file. Master schedule relates to product demand and timeline. It states what end items need to be produced, when they are needed and how much are needed. Bill of materials relates to product composition. It lists all of the raw materials, parts, sub-assemblies and assemblies required to manufacture one item. Inventory records relate to inventory. They consist of status information on an item sorted by time period. Status information consists of gross requirements, scheduled receipts and expected amount on hand.

MRP Output

MRP systems have capabilities of providing management with a wide range of outputs. These typically include primary reports and secondary reports. Primary Reports - production and inventory planning and control are part of primary reports. They usually include: Planned orders - a schedule indicating the amount and timing of future orders
Order releases - authorizing the execution of planned orders
Changes to planned orders - revisions of due dates or order quantities/ cancellation of orders.
Secondary Reports - performance control, planning, and exceptions belong to secondary reports
Performance-control reports - measure deviations from plans such as deliveries and stockouts, as well as providing info that can be used to assess cost performance.
Planning reports - predict future inventories, procurement contracts and data for future assessment of material requirements.
Exception reports - recognizes inconsistencies within the report such as errors in overdue or late orders, etc. pg 661

BENEFITS AND REQUIREMENTS OF MRP


Benefits

MRP enables managers to: determine the quantities for a given order size, know when to release orders for each component, and to be alerted when items need attention. Other benefits of MRP include:
1) Low levels of in process inventories
2) The Ability to keep track of material requirements
3) The ability to evaluate capacity requirements generated by a given master schedule
4) A means of allocating production time
5) The ability to easily determine inventory usage by backflushing.
Backflushing is a procedure in which an end item's bill of materials (BOM) is periodically exploded to determine the quantities of the various components that were used to make the item. The people who are typical users of a MRP system in a typical manufacturing company are production managers, purchasing managers, inventory managers, and customer representatives.The benefits of MRP depend primarily on the use of computer to maintain up-to-date information on material requirement.

Requirements

The benefits of MRP primarily depend on the ability to maintain up-to-date and accurate information. In order to implement and operate an effective MRP system, it is necessary to have:
1) a computer and the necessary software programs to handle computations and maintain records
2) Accurate and up-to date master schedules, Bills of materials, Inventory records
3) Integrity of file data.

MRP II


Manufacturing Resources Planning II developed in the 1980s after manufacturers realized MRP had additional needs. MRP II expanded the use of MRP by adding features essential to the use of other functional areas, marketing and finance to enable the use of short-range capacity requirements. Material requirements are essential for the use of MRP II. MRP II systems are good at simulation and help answer "what if" questions i.e., to foresee the consequences of their options and other alternatives. With the new function areas added, the manufacturing company is able to develop a master production schedule. MRP generates the materials needed and schedules the requirements, where managers can obtain a more detailed capacity requirements. Capacity requirements is the process of determining short-range capacity requirements.

MRP Considerations


MRP Inputs: The master schedule should cover a period that is at least equivalent to the cumulative lead time (the sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly.)
Safety Stock: Needed in case there is variability due to bottleneck processes causing shortages, shortages caused by late orders and/or fabrications, or assembly lines are longer than expected.
Safety Time: Used when lead times vary to allow tasks to be completed well ahead of schedule to eliminate the probability of shortage.
Lot-for-Lot (L4L) ordering: The order or run size is set equal to the demand for that period.
Economic Order Quantity (EOQ): Can lead to minimum costs if usage of item is fairly uniform.
Fixed Period Ordering: Provides coverage for some predetermined number of periods.
System Stability: Without stability, changes in order quantity and/or timing can render material requirements plans virtually useless.
System Nervousness: How a system reacts to changes.

This chapter goes into detail about the advantages and nature of MRP processing, as well as describing the applications of MRP in different industries. The chapter then describes the evolution of MRP to MRPII, which expanded the scale of materials planning. MRPII gave managers the ability to ask “what if” questions, and provided them with a more precise decision making tool. In addition to MRP, enterprise resource planning (ERP) or the “third generation,” is also described. ERP gave companies the ability to incorporate all departments and functions company-wide on a single system. The benefits of ERP are substantial; however, it must be noted that high training, maintenance, and initial start up costs are too high.


QUESTIONS:

1. The choosing of a lot size for ordering or __ is considered lot sizing. p.g. 662
a. production
b. delivery
c. cost
d. inventory
e. None of the above

ANSWER: a. production


2. The model that leads to minimum costs,when the usage is fairly uniform is: p.g. 662
a. economic order quantity model
b. fixed-period ordering
c. lot-for-lot ordering
d. independent demand
e. dependent demand

ANSWER: a. Economic order quantity model


3. The primary goal of management is to minimize cost of ? p.g. 662
a. production
b. delivery
c. good
d. inventory
e. All of the Above

ANSWER: d. inventory


4. What is the simplest method of lot sizing? p.g. 662
a. Lot for lot ordering
b. economic order quantity model
c. fixed-period ordering
d. independent demand
e. dependent demand

ANSWER: a. lot for lot ordering

5. Which type of ordering provides coverage for some predetermined number of periods? p.g. 662
a. lot for lot ordering
b. economic order quantity model
c. fixed period ordering
d. independent demand
e. dependent demand

ANSWER: c. fixed period ordering


6. MPR is designed to answer all of the questions except: p.g. 649
a. How much is needed?
b. What is the time constraint?
c. When is it needed?
d. What is needed?
e. None of the above

ANSWER: b. what is the time constraint?


7. A Master Schedule contains which of the following?:
A. Which end items are to be produced
B. When end items will be needed
C. What quality of end items will be needed
D. All of the above
E. A and B only

Answer: E (pg 650) quantity, not quality.


8. Restructuring the bill of materials, so that multiple occurrences of a component will coincide with the lowest level at which the component occurs is known as:
A. one-level coding
B. component minimizing
C. low-level coding
D. MRP minimization
E. None of the above

Answer: C (pg 653)


9. All of the following are Primary Reports except:
A. Planning Reports
B. Planned Orders
C. Changes
D. Order Releases
E. None of the above

Answer: A (pg 661)


10. What is the expanded approach to production resource planning that involves other areas of a firm in the planning process and enables capacity requirements planning?
A. ERP
B. MRP II
C. DRP II
D. MRP Extended
E. None of the above

Answer: B (pg 664)


11. ERP software provides:
A. A system to capture and make data available in real time
B. A capability to assess the feasibility of a proposed plan
C. A set of tools for planning and monitoring business processes to achieve goals of the organization
D. A and C
E. None of the above

Answer: D (pg 669)


12. Which of the following is NOT included in the billing of materials?
A. raw materials
B. labor hours
C. parts
D. subassemblies
E. assemblies processes

Answer: B, 638


13. What is a product structure tree?
A. visual depiction of the requirements in a bill of materials where all components are listed by levels
B. visual depiction of the requirements in a master schedule where all products are listed by demand.
C. visual depiction of the requirements in inventory records where all components are listed by status.
D. all of the above
E. none of the above

Answer: A, 638


14. Which of the following is NOT a primary source of information for MRP?
A. master schedule
B. inventory records
C. bill of materials
D. planned orders
E. all of the above are not primary sources of information for MRP

Answer: D, 637


15. The sum of the lead times required by sequential phases of a process is known as:
A. LTSP
B. critical path
C. cumulative lead time
D. master schedule
E. horizon plan

Answer: C, 638


16. What is an advantage of a regenerative system?
A. reflecting changes as they occur
B. less processing costs
C. up-to-date information for planning purposes
D. none of the above
E. B and C

Answer: B, 663


17. What are classified as the main reports used by management?

A. Planning Reports
B. Performance-Control Reports
C. Exception Reports
D. Primary Reports
E. Secondary Reports

Answer: D p.661


18. Primary Reports include which of the following?

A. Planned Orders
B. Order releases
C. Changes to planned orders
D. All the above
E. Only A and C

Answer: D p.661


19. Secondary Reports include which of the following?

A. Performance-control reports
B. Planning Reports
C. Exception Reports
D. All the above
E. Only A & B

Answer: D p.661


20. What major function is involved with Planning Reports?

A. Evaluating system operations
B. Calling attention to major discrepancies in orders
C. Forecasting Future Inventory Requirement Decisions
D. All of the Above
E. None of the Above

Answer: C p.661


21. Which report contains production and inventory planning and control?

A. Primary Report
B. Secondary Report
C. Planning Report
D. Exception Report
E. Performance-Control Report

Answer: A p.661


22. What is the most expensive of the following processes?

A. MRP
B. MRPII
C. ERP
D. They all cost the same
E. A & B only

Answer: C p.661


23. What recognizes inconsistencies within the report such as errors in overdue or late orders, etc?

A. Performance-control reports
B. Planning reports
C. Planned orders
D. Exception Reports
E. B & C only

Answer: D p.661

Answer: D (Page 663)

24. Which of the following is not a benefit of an MRP system?
A. The ability to keep track of material requirements
B. A means of allocating production time
C. The ability to easily determine inventory usage by backflushing
D. High Levels of in process inventory
E. All of the above are benefits of an MRP system


25. is a procedure in which an end item's bill of material is periodically exploded to determine the quantities of the various components that were used to make the items.
A. Backloading
B. Backflushing
C. Backwashing
D. Backflowing
E. None of the above

Answer: B (Page 663)


26. The benefit of an MRP system depends on the ability to have large amounts of unorganized information readily accessible.
A. True
B. False

Answer: False (Page 663)


27. Which of the following is one of the requirements for an MRP system?
A. A computer
B. Accurate and up to date information
C. Integrity of data
D. None of the Above

E. All of the Above

Answer: E (Page 664)


28. Which of the following is/are (a) factor(s) that causes problems in an MRP system?
A. assumption of constant lead times
B. products being produced differently from the bill of materials
C. failure to alter a bill of materials when customizing a product
D. Inaccurate forecast
E. All of the above

Answer: E (Page 664)


29. In addition to manufacturing resources needed for the master production plan, what else is the financial department in charge of?
A. Amount of resources
B. Timing
C.Work Time
D. A & B
E. B & C

Answer: D. (Page 638)


30. MRP II has restrictions and times where they can make changes to the orders/production. What is this called?

A. Time Series
B. Time Fences
C. Time Based System
D. Time Based Strategy
E. None of the above

Answer: B. (Page 666)

31. Manufacturing Company generates the Master Schedule according to

A.What is possible
B. What is Demanded
C. What is Given
D. What is Needed
E. None of the above

Answer: D (Page 637)


32.What is the percentage of capacity requirement for the machine, if 150 units of Product A are scheduled, when the machines standard time is 1.9 hours and labor standard time of 2.3 hours?
A. 72.4%
B. 82.6%
C.12.10%
D.10.6%
E. None of the above

Answer B. (Page 656)


33. MRP is essential in establishing requirements for capacity, but it also has a downfall. What is it?

A. Cannot aggregate demand from all sources
B. Cannot plan for amount of requirements and timing
C. Cannot distinguish between a feasible Master Schedule and a nonfeasible schedule.
D Cannot make changes to the Master Schedule once it is in process.
E. None of the above

Answer: C (Page 654)


34 . _ is the sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly.
a. Overall lead time
b. Safety time
c. Cumulative lead time
d. Completion time
e. Slack

Answer: C.(p.g 650)


35. Which ordering method would you use if the use of the item is fairly uniform?
a. Economic order quantity model
b. L4L
c. Fixed Period Ordering
d. BOM
e. Automated Ordering

Answer: A..(p.g. 662)

b. False

question must have 5 choices

36. System sensitivity is how a system reacts to changes.
a. True

Answer: B.(need number page of answer)

Answer: B.(need number page of answer)

37. The concept of safety time is often used when…
a. There is variability due to bottleneck processes causing shortages
b. Used when lead times vary
c. Shortages caused by late orders and/or fabrications
d. Assembly lines are longer than expected
e. All of the above

38. The master schedule should cover a period that is at least equivalent to the…
a. CRP
b. Closed loop MRP
c. Time buckets
d. Cumulative lead time
e. Cumulative lead time subtracted by time buckets

Answer: D.(p.g. 650)


39. What is considered the “third generation of manufacturing software.”
a. Y2K
b. MRP
c. MRPII
d. ERP
e. None of the above

Answer: D (P.668)


40. Which of the following is NOT a feature of MRP?
a. Planned-order releases
b. Calculating component requirements
c. Master scheduling
d. Time-phasing of requirements
e. All choices are a feature of MRP

Answer: C (P.654)


41. Which of the following is true of ERP?
a. Low start up cost
b. Requires intensive employee training
c. Low maintenance cost
d. Non time consuming
e. All choice are false

Answer: B (P.670)


42. Which of the following is NOT true of MRP?
a. Requires a computer and the necessary software programs to handle computations and maintain records
b. Requires at least one hundred working computers
c. Requires accurate and up to date inventory records
d. Requires accurate and up to date master schedules and records
e. Integrity of file data

Answer: B (P.650)


43. What is ERP?
a. Entry Resource Pricing systems
b. The second generation manufacturing program
c. enterprise Resource Planning
d. Enterprise Report Planning
e. All the Above

Answer: C (P.668)