What is the Purpose and Logic of MRP ?Schedules& ExceptionReportsMasterProductionScheduleInventoryStatusBill ofMaterialsMRP:(ExplosionOffsets,Nets)EngineeringChangesInventoryTransactionsCustomer OrdersForecasts15.768: MRP/ERPWhat is the Purpose and Logic of MRP?• Coordination of Production and Inventory in large, multi-stageproduction systems• Used for- Scheduling & re-scheduling- Capacity Planning- Supplier coordination (internal & external)• Timely dissemination of information• Time-phased production & procurement - with lead time offsets & BOM explosions• Independent vs. Dependent demand• Requires centralized information system; hence ERP• Organizes large complex production and delivery coordination requirementsCriticisms of MRP• Deterministic Model• Push system• poor data ==> GIGO• Self-fulfilling lead times• Difficult/costly to install & maintain• Centralized command & control mindsetThree Principles of Forecasting1. The Forecast is always wrong2. The longer the forecast horizon,the worse the forecast 3. End item forecasts are less accurate than aggregate forecastsWhat is the Purpose and Logic of ERP ?ERPSystemSupplyChainManagementHuman ResourcesFinanceManufacturingDataAnalysisSalesServiceEngineering?What is the Purpose and Logic of ERP?• Financial & Operational Planning & Control-uniform business processes• Integration of corporate data & systems• Used for- Financial analysis & reports- Coordinating operations, sales, engineering- Supplier coordination (internal & external)• Timely aggregation and dissemination of information• Requires centralized information system; • enables decentralized control?Criticisms of ERP systems• Implementation nightmares• Encourages centralized control• Enforces uniformity; can stifle innovation• Very expensiveManagement issues:1. Process redesign2. Flexibility and internal capabilities3. ImplementationLessons from Cisco’s Implementation?• make it a top priority; resource accordingly• do it quickly• rapid prototype iterations• in-house capabilities (outsource capacity, not knowledge)• need realistic-scale testingVolatility Amplification in the Supply Chain:“The Bullwhip Effect”Information lagsDelivery lagsOver- and underorderingMisperceptions of feedbackLumpiness in orderingChain accumulationsSOLUTIONS:Countercyclical MarketsCountercyclical TechnologiesCollaborative channel mgmt.(Cincinnati Milacron & Boeing)CustomerRetailerDistributor FactoryTier 1 SupplierEquipment-80-60-40-200204060801001961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991% Change, Year to Year% Chg. GDP % Chg. Vehicle Production Index% Chg. Net New Orders Machine Tool Industry"Upstream Volatility in the Supply Chain: The Machine Tool Industry as a Case Study," Anderson, Fine & Parker Production and Operations Management, Vol. 9, No. 3, Fall 2000, pp. 239-261.“We are experiencing a 100-year flood.” J. Chambers, 4/16/01-60.00-40.00-20.000.0020.0040.0060.0080.00100.001961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001Year% Change, Year-to-Year Worldwide Semiconductor Manufacturing Equipment SalesWorldwide Semiconductor ShipmentsElectronics, Computing and Communications Equipment OutputGDP World GDP USALESSONS FROM A FRUIT FLY:CISCO SYSTEMS1. KNOW YOUR LOCATION IN THE VALUE CHAIN2. UNDERSTAND THE DYNAMICS OF VALUE CHAIN FLUCTUATIONS3. THINK CAREFULLY ABOUT THE ROLE OF VERTICAL COLLABORATIVE RELATIONSHIPS4. INFORMATION AND LOGISTICS SPEED DO NOT REPEAL BUSINESS CYCLES OR THE BULLWHIP.Bonus Question:How does clockspeed impact volatility?Class 8 Wrap-Up• MRP for production planning• ERP Systems: Implementation & Process Design are key• Bullwhip Dynamics Next Time: Southwest AirBeef Supply Chain  900,000+ operations 62% of cow-calf operations have herd size of less than 50 Numerous inputs affect the product  Large operations include King Ranch, Lykes Brothers and Desert Cattle In addition, there are dairy operations which provide lean cows 2,000+ operations Top 5 control approximately 15% of the market Concentrated in 10 states Numerous inputs affect the product Large operations include Cactus Feeders, ContiBeef and Caprock In addition, there are dairy operations and imports (AU-NZ) Less than 50 companies Largest 4 control dominant share (~75%) Various levels of integration into processing Largest players offer packing and processing Large operations include Excel, Tyson, Swift and Smithfield Dairy cows are generally slaughtered by mid sized packers ~100 companies 800 packers and processor plants in the US Midsized companies ($50-500 MM) are generally more focused on processing Key suppliers are loyal, highly focused suppliers (Keystone and OSI) 40 company owned distribution centers across the US DCs consolidate products for individual stores Stores make one communication to restock the entire storeCow-Calf, Dairy CowsFeedlots PackersGrinder(Processors)DistributionCenter (e.g., McD) Millions of farmers provide feed and corn input Multiple companies provide genetics Genetics and feed have a dramatic impact on the animal’s development and meat produced Similar genetics and feed lead to little variation (5%)Different feed and genetics lead to wide variation (40%) Additionally, animals are subject to animal health products and medicationsInputsMIT OpenCourseWarehttp://ocw.mit.edu 15.768 Management of Services: Concepts, Design, and DeliveryFall 2010 For information about citing these materials or our Terms of Use, visit: