INTRODUCTION TO

MRP, MRP-II, ERP

AND APPLICATION OF THESE TOPICS

IN A PACKAGING PLANT

 

 

CONTENTS

 

1. THE MATERIALS MANAGEMENT SYSTEM

2. MATERIALS REQUIREMENTS PLANNING (MRP ) SYSTEMS

2.1. Objective of the MRP System

2.2. The MRP Inputs

2.3. MRP System Outputs

2.4. The Role of MPS in MRP

3. MANUFACTURING RESOURCE PLANNING (MRP-II) SYSTEMS

3.1. The Road from MRP to MRP-II

3.2. The Role of Master Production Scheduling in MRP-II

4. ENTERPRISE RESOURCE PLANNING (ERP)

4.1. Advantages of ERP

4.2. Disadvantages of ERP?

4.3. What must an organization consider when evaluating an ERP solution?

4.4. The Success of ERP

4.5. Future of ERP

5. CONCLUSION

6. AN APPLICATION OF MASTER PRODUCTION SCHEDULING (MPS) AND MRP-II IN A PACKAGING PLANT

 

 

 

1. THE MATERIALS MANAGEMENT SYSTEM

For all production centers, it is clear that the materials management systems must fit closely with the scheduling systems. In fact, such systems are typically known as production and inventory control systems or scheduling and materials control systems. This close tie-in has accelerated with the development of computerized production plan and control systems since the management of tremendous quantities and varieties of materials is not the problem for computers that it was for manual systems. This has allowed the two systems to be joined, for both substantial savings in costs and significant improvement in the control of materials and operations, thereby resulting in higher productivities, the meeting of meeting promised due dates, and other such benefits of better control.

Figure 1. The materials management system

Figure1. illustrates how these topics relate to each other in the organization. The materials inputs from vendors and also the scraps are initiated by purchase orders and scrap recycling requisitions from procurement. Receiving confirms the quality and amount of the shipments from vendors and sends the goods to storage, from which day are withdrawn, as needed, by operations. In the process of transformations, goods are temporarily stored as work-in-process (WIP) and, as they become finished products, as finished good inventory. From there they are distributed to various outlets such as directly to customers, manufacturing representatives and wholesalers.

 

2. MATERIALS REQUIREMENTS PLANNING (MRP ) SYSTEMS

Many items, particularly finished products that are demanded in small quantities by customers are said to experience independent demand. That is the demand cannot easily be related or traced to a known or predictable requirement. Demand appears to be random or to be caused by chance events. But most raw materials, components and subassemblies are dependent on demands for finished goods and other assemblies or subassemblies. This is because production is usually done in lots or batches, and when a lot is ordered for production in the factory, all materials and components needed for production are ordered at the same time, hence a lump in demand.

Figure 2. Constant and lumpy demand

Examples of constant and lumpy demands are shown in Figure2. For the constant demand case, demand varies around the average (shown by the dashed line). Material Requirements Planning (MRP) is a system designed specifically for the lumpy demand situation when the lumps are known about beforehand, typically because the demands are dependent. For example in a wooden door production facility, reorders of (finished) doors may be based on a reorder point system. When the number of finished doors. On hand reaches a pre-specified reorder point, then an order is placed into production on the shop floor.

MRP is the fundamental method used in inventory management for dependent inventory items. However dependent demand is not the only cause of lumpy demand. Demand can appear in lumps if only a small number of customers exists for the item and their purchasing habits are discontinuous. MRP is not a solution to the general lumpy demand case no basis exists for developing the materials plan unless the demand is dependent on something that a planner can either measure or forecast.

The availability and practicality of MRP systems is related directly to the advent of relatively inexpensive computer power. Without the electronic computer, operations manager would simply be unable to perform all the calculations and maintain all the schedules necessary to perform requirements planning.

2.1. Objective of the MRP System

If we examine the MRP systems or MRP softwares we see that they have a common objective. This objective is to be able to generate information needed for correct inventory order action. This action is related with procurement and production. Or we can call these activities as purchase orders and shop orders. These actions can be a new action or revision of a previous action.

So in the light of these data we can say that material requirements planning (MRP) is a production/inventory management system. As such, it requires both production and inventory information in order to produce its primary output - a schedule or plan for orders, both released and pending, which specifies actions to be taken now and in the future. Figure3. illustrates the flows of information within an MRP system.

The figure indicates three primary inputs to the MRP system.

  1. The Master Production Schedule
  2. The Bill of Materials File
  3. The Inventory Master File

Figure 3. Schematic of MRP system

A major output from the MRP computer system is the planned order release report, although other change reports, exception reports and de-expediting reports are also outputs.

In Figure3, it is shown that the demand forecast and firm orders are directly passed right through the Master Production Schedule, which feeds the MRP system. However, MRP also requires other inputs that are not related to the master scheduling functions, such as current inventories and bill of material for the products. Also the direct MRP outputs are shown in Figure3.

The relationship between materials planning and operation scheduling is, of necessity, an intimate one. Any attempts to design these two systems so that they operate independently will either fail outright or, at best, be grossly, be inefficient.

2.2. The MRP Inputs

As indicated, the MRP inputs are the Master Production Schedule, the Bill of Materials File and the Inventory Master File.

  1. Master Production Schedule (MPS): MPS is prepared based on actual customers orders and predicted demand. This schedule indicates exactly when each ordered item will be produced to meet the firm and predicted demand; that is, it is a time-phased production plan.
  2. Bill of Material (BOM): For each item in the MPS, a bill of material exists. The BOM file indicates all the raw materials, components, subassemblies and required to produce an item. The MRP computer system accesses the BOM file to determine exactly what items, and in what quantities, are required to complete an order for a given item.
  3. The Inventory Master (IM) File: the IM file contains detailed information regarding the number of quantity of each item on hand, on order, and committed to use in various time periods. The MRP computer system accesses the IM computer file to determine the quantity available for use in a given time period and, if enough are available to meet the order needs, commits these for use during the time period by updating the inventory record. If sufficient items, as well as the usual lot size, on the planned order release report.

2.3. MRP System Outputs

The specific MRP system outputs constitutes the plan of action for released and pending orders. These are

  1. The Order Action Report
  2. The Open Orders Report
  3. The Planned Orders Release Report

The Order Action Report indicates which orders are to be released during the current time period and which orders are to be cancelled. The Open Orders Reports shows which orders are to be expedited or de-expedited. This report is an exception report listing only those open orders for which actin is necessary. The Planned Orders Release Report is the time-phased plan for orders to be released in the future time periods. It is, this report that determines whether or not an MPS is feasible.

2.4. The Role of MPS in MRP

The MPS expresses the overall plan of production. It is stated in terms of end items, which may be either (shippable) products or highest-level assemblies from which these products are eventually built in various configurations, according to a final assembly schedule. The span of time the MPS covers, termed the planning horizon, is related to the cumulative procurement and manufacturing lead times for components of the products in question. The planning horizon normally equals or exceeds this cumulative lead time.

The MPS serves as the main input to the MRP system, in the sense that the essential purpose of this system is to translate the schedule into individual component requirements and other inputs merely supply reference data that are required to achieve this end. In concept, the MPS defines the entire manufacturing program of a plant and therefore contains not only the products the plant will produce, but also orders for components that originate from sources external to the plant, as well as forecasts for items subject to independent demand. In practice, however, such orders and forecasts are normally not incorporated into the MPS document, but are fed directly to the MRP system as separate inputs.

 

3. MANUFACTURING RESOURCE PLANNING (MRP-II) SYSTEMS

Manufacturing Resource Planning (MRP-II) represents an extension of the MRP system to support many other manufacturing functions beyond the material planning, inventory control and bill of material control. So it is better to see the evolution from MRP to MRP-II.

3.1. The Road from MRP to MRP-II

Manufacturing resource planning (MRP2) evolved from MRP by a gradual series of extension to MRP system functionality. These extensions were natural and not very complicated as, for example, in the addition of transaction processing software to support the purchasing, inventory and financial functions of the firm. In supporting the extension of decision support, similar and quite reasonable assumptions are made and similar procedures to those of MRP are applied. In this way, MRP was extended to support Master Planning, Rough cut Capacity Planning (RCCP), Capacity Requirements Planning (CRP) and Production Activity Control (PAC). Production activity control is the term favored by the American Production and Inventory Control Society to cover activities traditionally described by the shop floor control.

The term closed loop MRP donates a stage of MRP system development wherein the planning functions of master scheduling, MRP and capacity requirements planning are linked with the execution functions of production activity control and purchasing. These execution modules include features for input-output measurement, detailed scheduling and dispatching on the shop floor, planned delay reports from both the shop floor and vendors, as well as purchasing follow-up and control functionality. Closed loop signifies that not only are the execution modules part of the overall system, but there is also feedback from the execution functions so that plans can be kept valid at all times. Figure 4. indicates the nature of closed loop MRP.

Figure 4. Closed loop MRP

With the extension of master production scheduling to deal with all master planning and the support of business planning in financial terms and through the addition of certain financial features to the closed loops system so that outputs, such as the purchase commitment report, shopping budget and inventory projection could be produced, it was realized that the resultant system offered an integrated approach to the management of all manufacturing resources. This extended MRP was labeled manufacturing resource planning of MRP-II. The MRP-II system is this a closed loop MRP system with additional features to cover business and financial planning. MRP-II nominally includes an extensive what if capability. However several of the additional features included in MRP-II software packages remain unused in practice.

The modular structure of a typical MRP-II system is shown in Figure 5.

Figure 5. Manufacturing Resource Planning (MRP-II)

3.2. The Role of Master Production Scheduling in MRP-II

The MPS is a statement of what the company plans to manufacture. It is the planned build schedule, by quantity and date, for top level items, either finished products or high level configurations of material (either physical configurations or pseudo configurations used solely for planning purpose). The MPS module takes into account the sales forecast as well as considerations, such as backlog, availability of material, availability of capacity, management policy and company goals, etc. In determining the best manufacturing strategy.

The MPS derives MRP and is thus the key input into the MRP process. Any errors within it, such as poor forecasts, cannot be compensated for by sophisticated MRP analysis as in lot sizing, calculation of safety stock or rescheduling. The MPS must be realistic in terms of the goals it sets for the manufacturing facility. It must not be merely a wish list of desirable production levels set by top management.

The accuracy of the MPS varies over the planning horizon. The planning data for the near term would tend to be more accurate since it is dominated by actual customers orders, distribution warehouse requirements and spare parts requirements. Change to the short term MPS should be a rare occurrence and the short term MPS should be treated as a series of firm planned orders.

Figure 6. A typical MRP-II system and its modules

Further out in the planning horizon, the MPS is likely to be less accurate and to be donated by forecasts rather than actual orders. Forecasts may be based on analysis of historical trend, consideration of the state of the economy and market, and the actions of competitors. It may reflect the best guesses of those close to the market or it may involve the use of analytical forecasting and trend analysis techniques. Techniques, such as moving average analysis, exponential smoothing and regression analysis, may well be used to analyze past data in order to predict future data. The person or group responsible for the forecast must be aware of where each product in the company's portfolio of product sits in terms of the product life cycle and take this into account when preparing a forecast. This latter is particularly important today in industries, such as electronics and telecommunications, where product life cycles tend to be relatively short.

Typically the MPS module software allows for a system generated forecasts, a manually entered forecast, a schedule of actual customer orders received and a very simple procedure to combine the above into a working estimate of demand. The user may specify a master production schedule. Each order is treated a firm planned manufacturing order. There is netting process very similar to MRP as the forecast demand is netted with the MPS and current inventory to generate a projection of inventory on-hand an available to promise. Projected inventory is based on initial inventory plus the firm planned orders less total demand. Available to promise is based on initial inventory plus firm planned orders less actual orders.

The difference between MPS module and the MRP procedure is that demand will only propagate from the scheduled MPS and not from the projected requirements. This means that the MPS will not influence manufacturing or purchasing orders without the intervention of the master planner.

It is important that there be a check on the feasibility of the proposed MPS before it is frozen and released to the manufacturing system for implementation. This feasibility check may be carried out through rough cut capacity planning. Master planning and rough cut capacity planning are thus two techniques that are employed in parallel. Actual MRP-II systems vary somewhat in the support they give to these functions. Master planning systems often allow for planning at multiple levels and similar techniques to MPS and RCCP can be applied at the more aggregate business planning and production planning levels.

 

4. ENTERPRISE RESOURCE PLANNING (ERP)

Enterprise Resource Planning (ERP) provides comprehensive information management for organizations. Enterprise Resource Planning (ERP) integrates an organization's different processes into a centralized pool that facilitates data sharing and while eliminating redundancy.

ERP systems includes a commercial software package that provides for the seamless integration of all the information flowing through a company - financial, accounting, human resources, supply chain and customer information.

ERP is a collection of software programs which ties together all of an enterprise's various functions--HR, finance, manufacturing, sales, etc. ERP software also provides for the analysis of an organization’s data for the purpose of planning production, forecasting sales, analyzing quality, and other organizational functions.

ERP provides a backbone for an enterprise by providing a standardized information system. ERP can include a range of tasks from manufacturing systems, and finance to human resources.

The successful deployment of ERP results in an enterprise that has streamlined the data flow between different parts of the business. ERP is an enterprise wide solution. Thus, ERP system gets the right information at right time to the right people. The main reason for the popularity of ERP is the efficiency that an ERP system forces an organization to implement, the analysis and reporting that can be used for long term planning, and the most efficient use of applications and system resources.

ERP systems employ client/server technology, which means that a client (user) system runs an application (finance, human resource, etc.) that accesses information from a common ERP database management system, which is on a server. ERP operates through a common database at the core of the system and the database interacts with all of the various applications in the system.

There are a number of ERP vendors. Each ERP publisher provides a range of ERP modules (applications), which are functional software packages for each individual business unit. ERP systems start with a set of core applications, and offer additional applications from which an enterprise can choose. ERP vendors also offer specialized modules to account for unique processes specific to a particular industry.

Three main types of ERP applications are finance, human resource, and manufacturing and logistics. Following is a discussion of each.

Finance:

Modules for bookkeeping. Some examples are:

i.

Accounts receivable-tracks payments from its customers to a company.

ii.

Accounts payable-schedules payments to suppliers and distributors.

iii.

Treasury management-analyzes and monitors financial deals, investment risk, and cash holdings.

iv.

General ledger-manages centralized charts of accounts and corporate financial balances.

v.

Fixed assets-handles costs related with tangible assets, including depreciation.

vi.

Cost control-handles corporate costs related to overhead, products, and manufacturing orders.

Manufacturing and Logistics:

A group of modules for taking orders, planning production, and delivering products to the customers. Some examples are:

i.

Plant maintenance-sets plans and sees upkeep of internal facilities.

ii.

Materials management-manages inventory stocks and controls purchasing of raw materials.

iii.

Production planning-handles daily production schedules and performs capacity planning.

iv.

Order entry and processing-automates the data entry processes of customer orders and keeps track of the status of orders.

v.

Warehouse management-maintains records of stocked items and movement of good in and out of the warehouse.

vi.

Transport management-arranges, schedules, and monitors delivery of products to customers via different modes of transports.

vii.

Project management-monitors costs and schedules on different projects.

viii.

Customer service management-administers service agreements and checks warranties and contracts when customers ask for service.

Human Resources:

Software for handling personnel-related tasks for corporate managers and employees. Some examples are:

i.

Human resources administration-automates personnel management processes such as recruitment, vacations, and business travel.

ii.

Payroll-takes care of accounting and preparation of checks related to employee salaries, wages, and bonuses.

iii.

Self-service HR-lets employees change their personal information and benefit allocations online.

4.1. Advantages of ERP

i.

Elimination of redundant data and procedural operations.

ii.

Provisions are available to allow for customization

iii.

Easier access to reliable information company-wide

iv.

The file structure is reliable

v.

The software forces the use of best practices

vi.

Increased efficiency, hence reduced costs

vii.

Easily adaptable in a changing business environment

viii.

Reduced cycle times

ix.

Provides functionality to interact with other modules

4.2. Disadvantages of ERP?

i.

Expensive and lengthy to implement

ii.

Maintenance is costly and time consuming

iii.

Commitment to a single vendor

iv.

Too many features are incorporated, that might lead to use of features by employees that may not help the company to move towards profitability, high quality, and efficiency

4.3. What must an organization consider when evaluating an ERP solution?

There are some important factors that must be considered when evaluating ERP systems:

i.

The amount of customization required

ii.

Total costs, including cost of license, training, implementation, maintenance, customization, and hardware requirements

iii.

The availability of local support infrastructure

iv.

Is there a good functional fit company's business process?

v.

Degree of integration between various components of the ERP system

vi.

Flexibility and scalability

vii.

Complexity versus user friendliness

viii.

Ability to control multi-site planning and control

ix.

Technology, client/server capabilities, security, database independence

x.

Quick implementation, shortened ROI period

xi.

Ability to regular upgrades

4.4. The Success of ERP

The success of an ERP system depends on how quick the benefits can be reaped from its deployment. Different vendors offer different functional capabilities. As a result, selecting the right vendor, suited to your business process is an important step that requires proper preparation and planning.

The success of implementing one ERP project depends upon the manner in which the business project team has been selected and how well they understand their business environment, which includes infra-structural and organizational. An ERP system should be viewed as a framework capable of supporting targeted niche solutions. The corporate project team should determine the required integration for each division and evaluate existing working solutions as well as targeted niche alternatives. In short, a comprehensive systems analysis perspective needs to be established.

Selection of ERP, hardware, and database vendor often require an interrelated choice. For example, selecting Geac/DBS as ERP vendor will result in the de facto selection of Sybase as DBMS vendor because Geas/DBS will require Sybase as their database. Conversely, a strategic DBMS or hardware platform may decide the ERP vendor, or narrow the choices. Teaming, with proper communication and accountability, of senior management, the application package vendor, the systems integrator, the database vendor, and the hardware vendor is one of the most significant variables for deployment success.

Properly implemented ERP results in running all operational applications against a single operational data store and it brings about the most elegant integration.

Thus, users considering investing in multiple packaged applications may find synchronization across many platforms difficult.

4.5. Future of ERP

There is a big trend among vendor companies to expand their ERP systems by integrating supply-chain and front office software. These companies are linking their ERP systems directly to the diverse applications of their suppliers and customers. By mixing existing enterprise systems with custom software, vendors are expecting to add functionality and provide companies with a sustained competitive advantage.

The Internet represents the next major technology enabler which will allow rapid supply chain management between multiple operations and trading partners. Most ERP systems are enhancing their products to become web enabled, so that customer can have direct to the supplier's ERP systems. With globalization of the economy, formation of multi-national companies, sharing of information can be efficiently and effectively accomplished through World Wide Web.

 

5. CONCLUSION

ERP integrates the different processes necessary in a business into a centralized location that facilitates data sharing among the users and eliminates redundancy in business processes. Examples of ERP modules are finance, human resources, manufacturing, and logistics. Each ERP package may offer different functionality to different types of industries.

ERP systems are installed on database management system and require an initial setup according to the organization functions and its processes.

ERP includes client/server architecture, graphical user interfaces, and ideally is portable across platforms. Key to ERP is the way in which the users can tailor the application, so it is easy to use.

ERP systems are an expensive investment for a company and failure to thoroughly investigate an ERP system before implementation could have serious implications for a business. Important differences do exist between different vendor products, which have their strengths and weaknesses. Choosing the market leader may be inappropriate. Vendors are expanding their ERP systems by integrating supply-chain and front office software. The Internet represents the next major technology enabler for ERP systems.

 

6. AN APPLICATION OF MASTER PRODUCTION SCHEDULING (MPS) AND MRP-II IN A PACKAGING PLANT (LAWSON MORDON BAK A.Ş.)

Lawson Mordon Bak A.Ş. is a plant built in Atatürk Organized Industry Region in Çiğli in İzmir. Lawson Mordon Bak A.ş. produces paper and board packages especially for Phil-SA in Turkey and some certain firms like BAT and ITL in the region around Turkey.

In Lawson Mordon Bak A.Ş. MRP system and MPS is held by Production Planning and Control Department. And here is the short brief of how these systems are implemented in Lawson Mordon Bak A.Ş.

First of all the orders of customers and order forecasts (Appendix A.) are arranged. In the middle of each year sales forecasts for each product for the next year is computed. By this way changes and investments are held if they need any. but any time in a year Lawson Mordon Bak A.Ş. has some confirmed orders and non-confirmed orders. Confirmed orders are the actual orders. Non-confirmed orders are not actual but the expected orders from customers. These orders loose their accuracy as we go forward from now to the future.

In Lawson Mordon Bak A.Ş. every product has a BOM (Appendix B.) which is called prescription in the plant. At this point the Material Request Report (Appendix C.) is generated by the software used in Lawson Mordon Bak A.Ş.

Then a draft MPS is developed and this MPS is tested if it is feasible or not. For example the Inventory Levels (Appendix D.) are controlled and orders are released if there are not enough inventory.

Then actual MPS (Appendix E.) is generated. This MPS answers these questions. "How much of which product will be produced on what time?"

Then the MPS is transferred to the shop-floor and the production is monitored every day with Daily Production Reports (Appendix F.) And also figures are generated by the software for the Job Loading (Appendix G.) for each machine.

As the orders are completed, the Distribution Plan (Appendix H.) is generated. In this plan which product will be distributed when is answered.

In Lawson Mordon Bak A.Ş. also some extra and exceptional reports are produced when needed or upon request. By this way more analysis can be made on production. These reports are:

i.

Hour analysis of machines by week. (Appendix I.)

ii.

Hour analysis of machines by month. (Appendix J.)

iii.

Monthly production levels. (Appendix K.)

iv.

The production pyramid. (Appendix L.)

v.

Capacity usage and waste report. (Appendix M.)