Page 360 - Accounting Information Systems

C H A P TER 7 The Conversion Cycle 331

be controlled by the value stream team, are not attached to the product family. Thus, no attempt is made
to fully absorb facilities costs. Although corporate overhead costs must be accounted for, they are not
allocated to value streams.

Information Systems That Support

Lean Manufacturing

In this section we discuss the information systems commonly associated with lean manufacturing and
world-class companies. It begins with a review of materials requirements planning (MRP). As the name
implies, MRP systems are limited in focus and geared toward determining how much raw materials are
required to fulfill production orders. We then review manufacturing resources planning (MRP II).
These systems evolved from MRP to integrate additional functionality into the manufacturing process,
including sales, marketing, and accounting. Finally, we examine some key features of enterprise
resource planning (ERP) systems. ERP takes MRP II a step further by integrating all business functions
into a core set of applications that use a common database.

MATERIALS REQUIREMENT PLANNING (MRP)
MRP is an automated production planning and control system used to support inventory management. Its
operational objectives are to:
Ensure that adequate raw materials are available to the production process.
Maintain the lowest possible level of inventory on hand.
Produce production and purchasing schedules and other information needed to control production.
Figure 7-23 illustrates the key features of an MRP system. Depending on the manufacturing process in
place, inputs to the MRP system will include sales, sales forecasts, FG inventory on hand, RM inventory
on hand, and the bill of materials. MRP is a calculation method geared toward determining how much of
which raw materials are required and when they should be ordered to fill a production order. By compar-
ing FG inventory on hand with the needed levels (based on the sales forecast), MRP calculates the total
production requirements and the individual batch lot sizes needed. From this, the BOM is exploded to
produce a list of raw materials needed for production, which is compared to the raw materials on hand.
The difference is the amount that will be ordered from vendors. The primary outputs from the MRP sys-
tem are RM purchase requisitions that are sent to the purchases system. In addition, the system output
may include production schedules, management reports, and day-to-day production documents such as
work orders and move tickets.

MANUFACTURING RESOURCE PLANNING (MRP II)
MRP II is an extension of MRP that has evolved beyond the confines of inventory management. It is both a
system and a philosophy for coordinating a wide range of manufacturing activities. MRP II integrates prod-
uct manufacturing, product engineering, sales order processing, customer billing, human resources, and
related accounting functions. Figure 7-24 shows the functional integration under an MRP II environment.
The MRP II system will produce a BOM for the product, fit the production of the product into the
master production schedule, produce a rough-cut capacity plan based on machine and labor availability,
design a final capacity plan for the factory, and manage the RM and FG inventories. In addition, MRP II
will produce a materials requirements plan that will schedule the delivery of the raw materials on a JIT
basis. The ordering of raw material must be coordinated with the manufacturing process to avoid waste
(early arrival) while ensuring that stock-out situations do not disrupt the production processes. Manufac-
turing firms can realize considerable benefits from a highly integrated MRP II system. Among these are
the following:
Improved customer service
Reduced inventory investment