15 mrp

POM - J. GalvánPOM - J. Galván 11
PRODUCTION ANDPRODUCTION AND
OPERATIONSOPERATIONS
MANAGEMENTMANAGEMENT
Ch. 15: MaterialCh. 15: Material
Requirements Planning (MRP)Requirements Planning (MRP)

 Distinguish dependent fromDistinguish dependent from
independent demand inventoryindependent demand inventory
 Define material requirements planningDefine material requirements planning
 Explain the benefits of MRPExplain the benefits of MRP
 Identify the requirements of MRP, DRP,Identify the requirements of MRP, DRP,
and ERPand ERP
 Explain the inputs & outputs of MRPExplain the inputs & outputs of MRP
 Compute order releasesCompute order releases
Learning ObjectivesLearning Objectives

Item
Materials With
Independent Demand
Materials With
Dependent Demand
Demand
Source
Company Customers Parent Items
Material
Type
Finished Goods WIP & Raw Materials
Method of
Estimating
Demand
Forecast & Booked
Customer Orders
Calculated
Planning
Method
EOQ & ROP MRP
Dependent versus IndependentDependent versus Independent
DemandDemand

Inputs to theInputs to the
Production PlanProduction Plan
Production
Plan
Marketing
Customer
Demand
Engineering
Design
Completion
Management
Return on
Investment
Capital
Human
Resources
Manpower
Planning
Procurement
Supplier
Performance
Finance
Cash Flow
Production
Capacity
Inventory

Requirements for Effective Use ofRequirements for Effective Use of
Dependent Demand Inventory ModelsDependent Demand Inventory Models
Effective use of dependent demandEffective use of dependent demand
inventory models requires that theinventory models requires that the
operations manager know the:operations manager know the:
• master production schedulemaster production schedule
• specifications or bills-of-materialspecifications or bills-of-material
• inventory availabilityinventory availability
• purchase orders outstandingpurchase orders outstanding
• lead timeslead times

The Planning ProcessThe Planning Process
Production Plan
Execute Material
Plans
Master Production
Schedule
Material
Requirements
Plan
Capacity
Requirements
Plan
Execute Capacity
Plans
Realistic??No
Yes

Typical Level for theTypical Level for the
Master ScheduleMaster Schedule
 AA customer ordercustomer order in a job shopin a job shop
(process focused/make to order)(process focused/make to order)
companycompany
 ModulesModules in a repetitive (assemble-to-in a repetitive (assemble-to-
stock) companystock) company
 AnAn end itemend item in a continuous (productin a continuous (product
focused/make to stock) companyfocused/make to stock) company

 List of components & quantitiesList of components & quantities
needed to make productneeded to make product
 Provides product structure (tree)Provides product structure (tree)
• Parents: Items above given levelParents: Items above given level
• Children: Items below given levelChildren: Items below given level
 Shows low-level codingShows low-level coding
• Lowest level in structure item occursLowest level in structure item occurs
• Top level is 0; next level is 1 etc.Top level is 0; next level is 1 etc.
Bill-of-MaterialBill-of-Material

Bicycle(1)
P/N 1000
Handle Bars (1)
P/N 1001
Frame Assy (1)
P/N 1002
Wheels (2)
P/N 1003
Frame (1)
P/N 1004
Bill-of-MaterialBill-of-Material
Product Structure TreeProduct Structure Tree

Time-Phased Product StructureTime-Phased Product Structure
1 2 3 4 5 6 7 8
D
G
F
E
C
E
D
B
A
2 weeks
1 week
3 weeks
2 weeks
1 week
1 week
2 weeks
1 week 2 weeks to
produce
Start
production of D
Must have D and E
completed here so
production can begin on B

1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
 Manufacturing computer informationManufacturing computer information
systemsystem
 Determines quantity & timing ofDetermines quantity & timing of
dependent demand itemsdependent demand items
Material RequirementsMaterial Requirements
Planning (MRP)Planning (MRP)

 Computer systemComputer system
 Mainly discrete productsMainly discrete products
 Accurate bill-of-materialAccurate bill-of-material
 Accurate inventory statusAccurate inventory status
• 99% inventory accuracy99% inventory accuracy
 Stable lead timesStable lead times
MRP RequirementsMRP Requirements

MRP PURPOSEMRP PURPOSE
• Coordination of Production and InventoryCoordination of Production and Inventory
in large, multi-stage production systemsin large, multi-stage production systems
• Capacity planning, scheduling, supplierCapacity planning, scheduling, supplier
coordinationcoordination
• Timely dissemination of informationTimely dissemination of information
• Synchronized production and procurementSynchronized production and procurement
• Central engineering and logistic databaseCentral engineering and logistic database
(Central element of the ERP system)(Central element of the ERP system)

MRP PROBLEMSMRP PROBLEMS
• Deterministic model
• Large data requirements and GIGO (Garbage in garbage
out)
• Self-fulfilling lead-times, so then what happens if
fulfilment is not accomplished?
• Difficulty and cost of installation and maintenance
• Centralized command and control mindset

 Increased customer satisfaction due to meeting deliveryIncreased customer satisfaction due to meeting delivery
schedulesschedules
 Faster response to market changesFaster response to market changes
 Improved labor & equipment utilizationImproved labor & equipment utilization
 Better inventory planning & schedulingBetter inventory planning & scheduling
 Reduced inventory levels without reduced customerReduced inventory levels without reduced customer
serviceservice
MRP BenefitsMRP Benefits

Variables in MRPVariables in MRP
o Master Schedule -WHENMaster Schedule -WHEN
o Bills of Material -WHATBills of Material -WHAT
o Stocks & Work in Progress (WIP) – HOWStocks & Work in Progress (WIP) – HOW
MUCHMUCH
o Lead-times – WHEN TO HAVE AVAILABLELead-times – WHEN TO HAVE AVAILABLE
o Work orders / schedules – WHAT TO DOWork orders / schedules – WHAT TO DO
o Purchase orders / schedules –WHEN TOPurchase orders / schedules –WHEN TO
ORDERORDER
o Yields – WHAT IS LOSTYields – WHAT IS LOST
o Working daysWorking days / times - CALENDAR/ times - CALENDAR

Structure of the MRP SystemStructure of the MRP System
MRP by period report
MRP by date report
Planned orders report
Purchase requirements
Exception reports
MRP
Programs
Master Production
Schedule
BOM
Lead Times
(Item Master File)
(Bill-of-Material)
Inventory Data
Purchasing data

Forecast &
Firm Orders
Material
Requirements
Planning
Aggregate
Production
Planning
Resource
Availability
Master
Production
Scheduling
Shop
Floor
Schedules
Capacity
Requirements
Planning
Realistic?
modify CRP, MRP, or MPSmodify CRP, MRP, or MPS
YesYes
MRP and The ProductionMRP and The Production
Planning ProcessPlanning Process
NoNo

 Shows items to be producedShows items to be produced
• End item, customer order, moduleEnd item, customer order, module
 Derived from aggregate planDerived from aggregate plan
Master Production ScheduleMaster Production Schedule

Item/Week Oct 3 Oct 10 Oct 17 Oct 24
Drills 300 200 310 300
Saws 300 450 310 330
 Shows items to be producedShows items to be produced
• End item, customer order, moduleEnd item, customer order, module
 Derived from aggregate planDerived from aggregate plan
 ExampleExample
Master Production ScheduleMaster Production Schedule

MRP DynamicsMRP Dynamics
 Supports “replanning”Supports “replanning”
• Problem with system “nervousness”Problem with system “nervousness”
 ““Time fence” - allows a segment of the masterTime fence” - allows a segment of the master
schedule to be designated as “not to beschedule to be designated as “not to be
rescheduled”rescheduled”
 ““Pegging” - tracing upward in the bill-of-Pegging” - tracing upward in the bill-of-
materials from the component to the parentmaterials from the component to the parent
itemitem
 ManagerManager cancan react to changes, doesn’t meanreact to changes, doesn’t mean
he/she shouldhe/she should

MRP and JITMRP and JIT
 MRP - a planning and schedulingMRP - a planning and scheduling
technique with fixed lead timestechnique with fixed lead times
 JIT - a way to move materialJIT - a way to move material
expeditiouslyexpeditiously
 Integrating the two:Integrating the two:
• Small bucket approach and back flushingSmall bucket approach and back flushing
• balanced flow approachbalanced flow approach

Extensions of MRPExtensions of MRP
 Closed loop MRPClosed loop MRP
 Capacity planning - load reportsCapacity planning - load reports
 MRP II - MaterialMRP II - Material ResourceResource PlanningPlanning
 Enterprise Resource PlanningEnterprise Resource Planning

Closed Loop MRPClosed Loop MRP
Dispatch List
Is
specific capacity
adequate?
Is
average capacity
adequate?
Material
Requirements
(detailed)
Capacity
Requirements
(detailed)
Input/Output
Desired Master
Production
Schedule
Realistic?
Priority Control
Capacity PlanningPriority Planning
Capacity Control
Resource
Planning
First Cut
Capacity
Production Plan
NoNo
No
Yes Yes

Capacity PlanningCapacity Planning
 Tactics for smoothing the load and minimizing the impactTactics for smoothing the load and minimizing the impact
of changed lead time include:of changed lead time include:
• Overlapping - reduces the lead time, entails sendingOverlapping - reduces the lead time, entails sending
pieces to the second operation before the entire lot haspieces to the second operation before the entire lot has
completed the first operationcompleted the first operation
• Operations splitting - sends the lot to two differentOperations splitting - sends the lot to two different
machines for the same operationmachines for the same operation
• Lot splitting - breaking up the order and running part of itLot splitting - breaking up the order and running part of it
ahead of the scheduleahead of the schedule

Extensions to MRPExtensions to MRP
Enterprise Resource PlanningEnterprise Resource Planning
MRP II with ties to customers andMRP II with ties to customers and
supplierssuppliers

MRP in ServicesMRP in Services
 Can be used when demand forCan be used when demand for
service or service items is directlyservice or service items is directly
related to or derived from demandrelated to or derived from demand
for other servicesfor other services
• restaurant - rolls required for each mealrestaurant - rolls required for each meal
• hospitals - implements for surgeryhospitals - implements for surgery
• etc.etc.

Distribution Resource PlanningDistribution Resource Planning
 DRP requires:DRP requires:
• Gross requirements, which are the sameGross requirements, which are the same
as expected demand or sales forecastsas expected demand or sales forecasts
• Minimum levels of inventory to meetMinimum levels of inventory to meet
customer service levelscustomer service levels
• Accurate lead timesAccurate lead times
• Definition of the distribution structureDefinition of the distribution structure

15 mrp

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