This document discusses enterprise resource planning (ERP) systems and material requirements planning (MRP). It provides information on: 1) What ERP systems do, including integrating functional areas through a single database to automatically update information across applications. 2) The key components of MRP, including translating a master production schedule into material requirements through exploding bills of materials. 3) How MRP works by determining gross material requirements from the master production schedule, planned order releases, and other demand sources.

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Resource Planning
15

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Resource Planning
 At the heart of any organization
 Starts with sales and operations plans and
plans the input requirements
 A process relative to the firm’s competitive
priorities and an important part of
managing supply chains

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Enterprise Resource Planning
 What an ERP system does
 Integrating the firm’s functional areas
 Used by many different types of organizations
 How ERP systems are designed
 Single comprehensive database
 Managers to monitor all of the company’s products at all
locations and at all times
 Information is automatically updated in the all
applications when transactions occur
 Streamlines the data flows throughout the organization
 Requires a careful analysis of major processes
 Significant changes in ERP systems - interoperability

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Back-Office Processes Front-Office Processes
Human
Resources
• Benefits
• Payroll
Data Analysis
• Product costing
• Job costs
Sales and Marketing
• Sales orders
• Pricing system
Customer Service
• Field service
• Quality
Supply-Chain
Management
• Forecasting
• Purchasing
• Distribution
Accounting and Finance
• Accounts payable
and receivable
• General ledgers
• Asset management
Manufacturing
• Material
requirements
planning
• Scheduling
ERP System
Enterprise Resource Planning
Figure 15.1 – ERP Application Modules

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 MRP is a computerized information system to
manage dependent demand inventory and
schedule orders
 Translates the master production schedule into
requirements for all subassemblies, components,
and raw materials through the MRP explosion
Materials Requirements Planning
 Dependent demand
 Quantity required varies with the production plans of
other items
 Component
 Parent

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Inventory
transactions
Inventory
records
Bills of
materials
Engineering
and process
designs
Other
sources
of demand
Authorized
master production
schedule
Material
requirements
plan
MRP
explosion
MRP Inputs
Figure 15.2 – Material Requirements Plan Inputs

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 A record of all components of an item
 Shows the parent-component relationship
 The usage quantities are derived from
engineering and process design
Bill of Materials
 Five common terms
 End items
 Intermediate items
 Subassemblies
 Purchased items
 Part commonality (sometimes called
standardization of parts or modularity)

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Seat cushion
Seat-frame
boards
Front
legs A
Ladder-back
chair
Back
legs
Leg supports
Back slats
Bill of Materials
Figure 15.4 – BOM for a Ladder-Back Chair

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J (4)
Seat-frame
boards
Bill of Materials
G (4)
Back slats
F (2)
Back legs
I (1)
Seat cushion
H (1)
Seat frame
C (1)
Seat
subassembly
D (2)
Front
legs
B (1)
Ladder-back
subassembly
E (4)
Leg
supports
A
Ladder-back
chair
Figure 15.4 – BOM for a
Ladder-Back Chair

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 Details how many end items will be produced
within specified periods of time
 It breaks the sales and operations plan into specific
product schedules
 Create a prospective MPS and test whether it meets the
schedule with available resources
Master Production Schedule (MPS)
 Sums of quantities must equal sales and
operational plan
 Production must be allocated efficiently over
time
 Capacity limitations and bottlenecks may be
determined

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Master Production Schedule (MPS)
April May
1 2 3 4 5 6 7 8
Ladder-back chair
Kitchen chair
Desk chair
Aggregate
production plans
for chair family
Figure 15.5 – MPS for a Family of Chairs
150 150
120 120
200 200 200 200
670 670

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No
Material
requirements
planning
Yes
Authorized master
production
schedule
Master Production Schedule (MPS)
Are resources
available?
Prospective master
production
schedule
Authorized
production
plan
Figure 15.6 – Master Production Scheduling Process

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MRP Explosion
 Translates the MPS and other sources of demand
into the requirements needed for all of the
subassemblies, components, and raw materials
the firm needs to produce parent items
 An item’s gross requirements are derived from
three sources
 The MPS for immediate parents that are end items
 The planned order releases for parents below the MPS
level
 Any other requirements not originating in the MPS, such
as the demand for replacement parts

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MRP Explosion
J(4)
Seat-frame
boards
C(1)
Seat
subassembly
H(1)
Seat
frame
I(1)
Seat
cushion
Figure 15.16 – BOM for the Seat
Subassembly