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Chapter 13

GMS 401 Chapter Notes - Chapter 13: Anxiety, Enterprise Resource Planning, Batch Production

Global Management Studies
Course Code
GMS 401
Wally Whistance- Smith

of 5
Chapter 13 - Material Requirements Planning (MPR) and Enterprise Resource Planning (ERP)
MPR is a planning and scheduling technique used for batch production of assembled items
EPR involves the use of extensive software to integrate record keeping & information sharing within a business
Dependent vs. Independent Demand
A major distinction in the way inventories are managed results from the nature of demand for those items
Dependent Demand: Demand for subassemblies, parts, or raw materials which are derived from the plan for
production of finished goods.
Independent Demand: demand for the finished goods are independent.
-Independent demand is steady, dependent demand tends to be “sporadic/lump’; large quantities are used
at specific points in time with little or no usage at other times (demand for certain parts occurs only
when that specific item is being produced)
- Independent demand items must be carried on a continual basis, dependent demand items need only be d
- stoked just prior to the time they will be needed in the production process.
- Little or no need for safety stock of dependant demand items due to the predictability of usage
Material Requirements Planning (MRP): The process to determine the ordering and scheduling of dependent
demand components (e.g. raw materials, parts, subassemblies)
A production plan for a specified number of each finished product is translated into requirements for
subassemblies, parts, and raw materials, working backward from the due dates, using lead times and other
information to determine when and how much to order.
Therefore, requirements for end items generate requirements for lower level components, so that ordering,
fabrication, and assembly can be schedules for timely competition of end items while inventory levels for
components are kept reasonably low.
MRP INPUTS - 3 major sources of information
The Master Production Schedule (MPS): States which end items are to be produced, when, and in what
The quantities come from a number of different sources, including customer orders and forecasts
Separates planning horizon into a series of time periods expressed in weeks/days (don’t have to be equal length)
It is important that the planning horizon be longer than the stacked or Cumulative Lead Time: The sum of the
lead times that sequential phases of a process require, from ordering of parts and raw materials to completion of
final assembly
Bill of Material (BOM): A listing of all of the raw material, parts, and subassemblies needed to produce one
unit of a product. (thus, each product has its own BOM)
A bill of material is related to the Assembly Diagram and Product Structure Tree: visual depiction of the
requirements in a bill of material, where components are shown by levels
It is important that the BOM accurately reflect the composition of a product, as errors at one level become
magnified by the multiplication process used to determine quantity requirements.
Inventory Levels, Lead Times, and Open Orders – each item in stock (product, subassembly, part) should
have a separate description file that contains information about the item as well as the quantity on hand and, if
purchased, the purchase lead-time.
MRP processing takes the end item requirements specified by MPS and explodes them into time-phased
requirements for fabrication or assembly of subassemblies, and fabricated parts, and purchase of purchased
parts and raw materials using the BOMs, offset by the lead times and netted for any inventory on hand or
scheduled receipts. - See figure 13-7
The determinant of the net requirements is the core of MRP process. If negative, there is no net requirement.
Gross requirements : Total expected demand for an item in each time period without regard to amount on hand
Scheduled receipts : Open orders scheduled to arrive from vendors or shop floor
Projected on hand : Expected amount of inventory that will be on hand at the beginning of a time period
Net requirements : The actual amount needed in each time period
Planned order receipts : Quantity expected to be received in the beginning of the period in which it is expected
Planned order releases : Planned amount to order in each time period; that is, planned order receipts offset by
lead time
Pegging : The process of identifying the parent items that have generated a given set of material requirements
for an item. Enables managers to determine which product(s) will be affected if an order for an item is late
Updating the System
A Material Requirements Plan (MRP) is not a static document. As time passes, some orders will have been
completed, changed, nearing completion, and new orders will have been entered, and new periods have entered
tperiod ofstart at the
Inventory Projected
tsRequiremen Gross
The two basic systems used to update MRP tables are;
Regenerative System: Recalculates all the MRP quantities periodically
- run periodically
- best suited for fairly stable systems
-Disadvantage: potential amount of lag between the time information becomes available and the time it
can be incorporated into the MRP
- This can be fixed by using a day as the time bucket instead of a week
-Advantage: Processing costs are less
-Nervousness: Frequent changes
Net-Change System: Updates only MRP tables affected by a change immediately
- continuously updated
- best suited for systems that have frequent changes
MRP Outputs
Provide management with a fairly broad range of outputs. Classified as primary reports, or secondary reports
Primary Reports
Order Releases : Authorizing the execution of week 1 planned orders
Planned Orders : A schedule indicating the amount and timing of future orders
Changes: Changes to planned orders, including revisions of due dates or order quantities
Secondary Reports
Performance Control reports : Evaluation of system operation, including deviations from plans and cost
Planning reports : Data useful for assessing future material requirements
Safety Stock
- Identify activities or operations that are subject to variability
- Determine the extent of variability
Lot sizing: choosing a lot size for ordering or production
For independent demand items, managers use economic order quantity and economic production quantity.
For dependent demand items, a much wider variety of models is used to determine lot sizes, mainly because no
single model has a clear advantage.