5089529.ppt

Materials Requirements Planning

Collins Industries
Largest manufacturer of ambulances in the world
International competitor
12 major ambulance designs
18,000 different inventory items
6,000 manufactured parts
12,000 purchased parts
MRP seems to be a good way to manage inventories: IBM’s
MAPICS system is used

Independent and Dependent Demand
Independent Demand
A
B(4) C(2)
D(2) E(1) D(3) F(2)
Dependent Demand
Independent demand is uncertain.
Dependent demand is certain.

Dependent demand: Demand for items that are
subassemblies or component parts to be used in
production of finished goods.
Once the independent demand is known, the dependent
demand can be determined.
Dependent Demand

Demand Characteristics
1 2 3 4 5
Week
400 –
300 –
200 –
100 –
No.
of
tables
Continuous demand
M T W Th F M T W Th F
400 –
300 –
200 –
100 –
No.
of
tables
Discrete demand
Independent demand
100 tables
Dependent demand
100 x 1 =
100 tabletops
100 x 4 = 400 table legs

Dependent vs Independent Demand
Time
Time Time
Time
Demand
Demand
Stable demand
“Lumpy” demand
Amount
on
hand
Amount
on
hand
Safety stock

Material Requirements Planning
Defined
Materials requirements planning (MRP) is a
computerized inventory planning and control system
for determining when (no earlier and no later) and how
many of each of the parts, components, and materials
should be ordered or produced.
It translates master schedule requirements fr end
items into time-phased requirements for
subassemblies, components and raw materials.
Dependent demand drives MRP
MRP is a software system

When to Use MRP
 Dependent and discrete items
 Complex products
 Job shop production
 Assemble-to-order environments

Material Requirements Planning System
Based on a master production schedule, a material
requirements planning system:
Creates schedules identifying the specific parts
and materials required to produce end items
Determines exact unit numbers needed
Determines the dates when orders for those
materials should be released, based on lead
times

10
©The McGraw-Hill Companies, Inc., 2004
Firm orders
from known
customers
Forecasts
of demand
from random
customers
Aggregate
production
plan
Bill of
material
file
Engineering
design
changes
Inventory
record file
Inventory
transactions
Master production
Schedule (MPS)
Primary reports
Secondary reports
Planned order schedule for
inventory and production
control (work orders,
purchase orders),
rescheduling notices
Exception reports
Planning reports
Reports for performance
control
Material
planning
(MRP
computer
program)

MRP Inputs MRP Processing MRP Outputs
Master
schedule
Bill of
materials
Inventory
records
MRP computer
programs
Changes
Order releases
Planned-order
schedules
Exception reports
Planning reports
Performance-
control
reports
Inventory
transaction
Primary
reports
Secondary
reports
MRP System

MRP Inputs 1:
Master Production Schedule
 Drives MRP process with a schedule of finished products;
states which end items are to be produced, when these
are needed, and in what quantities
 Quantities may consist of a combination of customer
orders & demand forecasts
Quantities represent what needs to be produced, not what
can be produced

Master Production Schedule (MPS)
Time-phased plan specifying how many and when the
firm plans to build each end item
Aggregate Plan
(Product Groups)
MPS
(Specific End Items)

Item / Week Oct 3 Oct. 10 Oct. 17 Oct.24 Oct. 31
Clipboard 85 95 120 100 100
Lapdesk 0 50 0 50 0
Lapboard 75 120 47 20 17
Pencil Case 125 125 125 125 125
Shows items to be produced
Derived from aggregate plan
Example:

MRP Inputs 2: Bill-of-Materials
Bill of materials (BOM): One of the three primary inputs of
MRP; a listing of all of the raw materials, parts,
subassemblies, and assemblies needed to produce one
unit of a product.
Product structure tree: Visual depiction of the requirements
in a bill of materials, where all components are listed by
levels.

Product Structure Tree: Example 1
Chair
Seat
Legs (2)
Cross
bar
Side
Rails (2)
Cross
bar
Back
Supports (3)
Leg
Assembly
Back
Assembly
Level
0
1
2
3

Bicycle(1)
P/N 1000
Handle Bars (1)
P/N 1001
Frame Assembly (1)
P/N 1002
Wheels (2)
P/N 1003
Frame (1)
P/N 1004
Product Structure Tree: Example 2

Product Drawing: Example 3
Top clip (1) Bottom clip (1)
Pivot (1) Spring (1)
Rivets (2)
Finished clipboard Pressboard (1)
Clipboard

Product Structure Tree ( Example 3)
Clipboard Level 0
Level 1
Level 2
Spring
(1)
Bottom Clip
(1)
Top Clip
(1)
Pivot
(1)
Rivets
(2)
Clip Ass’y
(1)
Pressboard
(1)

MRP Inputs 3: Inventory Records File
One of the three primary inputs of MRP
Includes information on the inventory status of
each item by time period
Gross requirements
Scheduled receipts
Amount on hand
Lead times
Lot sizes
And more....

MRP Terminology (1 of 3)
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases

MPR Terminology (2 of 3)
Total expected demand
Open orders scheduled to arrive
Projected on hand
Expected inventory on hand at the beginning
of each time period

MRP Processing Terminology (3 of 3)
Net requirements
Actual amount needed in each time period
Gross requirements – available inventory
Planned-order receipts
Quantity expected to be received at the beginning of the
period
Offset by lead time
Planned-order releases
Planned amount to be ordered in each time period

MRP Processing Logic:
Assembly Time Chart
1 2 3 4 5 6 7 8 9 10 11
Procurement of
raw material D
Procurement of
raw material F
Procurement of
part C
Procurement of
part H
Procurement of
raw material I
Fabrication
of part G
Fabrication
of part E
Subassembly A
Subassembly B
Final assembly
and inspection
Weeks

Calculation of Gross Requirements
Therefore, these are
the gross
requirements for B
Periods
10 10
1 2 3
Master schedule
for S sold directly
40 50 15
A
C
B
5 6 7 8 9 10 11
Lead time = 4 for A
Master schedule for A
40 20 30
S
B C
8 9 10 12
11 13
Lead time = 6 for S
Master schedule for S
10 40+10
= 50 40 50 20 15+30
= 45
1 2 3 4 5 6 7 8
Periods
Gross requirements: B

Basic MRP Processes
1. Exploding the bill of material
2. Netting out inventory
3. Lot sizing
4. Time-phasing requirements

The MRP Matrix
Gross Requirements Derived from MPS or
planned order releases of the
parent
Scheduled Receipts On order and scheduled to be
received
Projected on Hand Beg Inv Anticipated quantity on hand
at the end of the period
Net Requirements Gross requirements net of
inventory and scheduled
receipts
Planned Order
Receipts
When orders need to be
received
Planned Order
Releases
When orders need to be
placed to be received on time
ITEM NAME OR NO. LLC - LOW LEVEL CODE PERIOD
LOT SIZE QTY MADE IN LY - LEAD TIME 1 2 3 4 5

MRP Processing:
Example 1-School Mate Products
1 2 3 4 5
Clipboard 85 95 120 100 100
Lapdesk 0 60 0 60 0
Item Master File (ınventory record file
CLIPBOARD LAPDESK PRESSBOARD
On hand 25 20 150
On order 175 (Period 1) 0 0
(sch receipt)
LLC 0 0 1
Lot size L4L Mult 50 Min 100
Lead time 1 1 1

School Mate Products
Product Structure Record
Clipboard
Lapdesk
Pressboard
(2)
Trim
(3’)
Beanbag
(1)
Glue
(4 oz)
Level 0
Level 0
Pressboard
(1)
Clip Ass’y
(1)
Rivets
(2) Level 1
Level 1

ITEM: CLIPBOARD LLC: 0 PERIOD
LOT SIZE: L4L LT: 1 1 2 3 4 5
Gross Requirements 85 95 120 100 100
Scheduled Receipts 175
Projected on Hand 25
Net Requirements
Planned Order Receipts
Planned Order Releases

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115
Net Requirements 0
(25 + 175) = 200 units available
(200 - 85) = 115 on hand at the end of Period 1

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115 20
Net Requirements 0 0
115 units available
(115 - 85) = 20 on hand at the end of Period 2

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115 20 0
Net Requirements 0 0 100
Planned Order Receipts 100
Planned Order Releases 100
20 units available
(20 - 120) = -100 — 100 additional Clipboards are required
Order must be placed in Period 2 to be received in Period 3

LOT SIZE: L4L LT: 1 1 2 3 4 5
Projected on Hand 25 115 20 0 0 0
Net Requirements 0 0 100 100 100
Planned Order Receipts 100 100 100
Planned Order Releases 100 100 100
Following the same logic Gross Requirements in Periods 4
and 5 develop Net Requirements, Planned Order Receipts, and

ITEM: LAPDESK LLC: 0 PERIOD
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Scheduled Receipts
Net Requirements

LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
Scheduled Receipts
Planned Order Receipts 50 50
Planned Order Releases 50 50
Following the same logic, the Lapdesk MRP matrix is
completed as shown

ITEM: PRESSBOARD LLC: 0 PERIOD
LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Gross Requirements
Scheduled Receipts
Net Requirements
LOT SIZE: L4L LT: 1 1 2 3 4 5
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5

LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Scheduled Receipts
Net Requirements
LOT SIZE: L4L LT: 1 1 2 3 4 5
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5
x2 x2
x1 x1
x1

LOT SIZE: MIN 100 LT: 1 1 2 3 4 5
Scheduled Receipts
Planned Order Receipts 100 150 100
LOT SIZE: L4L LT: 1 1 2 3 4 5
LOT SIZE: MULT 50 LT: 1 1 2 3 4 5

Planned Order Report
PERIOD
ITEM 1 2 3 4 5
Clipboard 100 100 100
Lapdesk 50 50
Pressboard 100 150 100

MRP Processing:
Example 2
A(2) B(1)
D(5)
C(2)
X
C(3)
Item On-Hand Lead Time (Weeks)
X 50 2
A 75 3
B 25 1
C 10 2
D 20 2
Requirements include 95 units (80 firm orders and 15 forecast) of X
in week 10

A(2)
X
Day: 1 2 3 4 5 6 7 8 9 10
X Gross requirements 95
LT=2 Scheduled receipts
Proj. avail. balance 50 50 50 50 50 50 50 50 50 50
On- Net requirements 45
hand Planned order receipt 45
50 Planner order release 45
A Gross requirements 90
Proj. avail. balance 75 75 75 75 75 75 75 75
B Gross requirements 45
C Gross requirements 45 40
Proj. avail. balance 10 10 10 10 10
On- Net requirements 35 40
hand Planned order receipt 35 40
10 Planner order release 35 40
D Gross requirements 100
Proj. avail. balance 20 20 20 20 20 20 20
It takes
2 A’s for
each X

Day: 1 2 3 4 5 6 7 8 9 10
B(1)
A(2)
X
It takes
1 B for
each X

A(2) B(1)
X
C(3)
Day: 1 2 3 4 5 6 7 8 9 10
It takes 3
C’s for
each A

A(2) B(1)
C(2)
X
C(3)
Day: 1 2 3 4 5 6 7 8 9 10
It takes 2
C’s for
each B

A(2) B(1)
D(5)
C(2)
X
C(3)
Day: 1 2 3 4 5 6 7 8 9 10
It takes 5
D’s for each
B

MRP Outputs
 Planned orders (schedule indicating the amount and
timing of orders)
Work orders
Purchase orders
 Order releases (authorization for the execution of
planned orders)
 Changes to previous plans or existing schedules
(revision of due dates or order quantities, or
cancellations of orders)
Action notices
Rescheduling notices

Updating the MRP System
Regenerative system
Updates MRP records periodically
Net-change system
Updates MPR records continuously

MRP Secondary Reports
Performance-control reports
Planning reports
Exception reports

MRP Dynamics
Supports “replanning”
“Time fence” - allows a segment of the master
schedule to be designated as “not to be
rescheduled”
“Pegging” - tracing upward in the bill-of-materials
from the component to the parent item
That a manager can react to changes, doesn’t mean
he/ he should

Other Considerations
Safety Stock
Lot sizing
Lot-for-lot ordering (L4L)
Economic order quantity
Part Period Balancing
Wagner-Whitin algorithm
& others
Which one to use? The one that is least costly!

Can be used when demand for service or service
items is directly related to or derived from demand
for other services
Food catering service
End item => catered food
Dependent demand => ingredients for each
recipe, i.e. bill of materials
Hotel renovation
Activities and materials “exploded” into
component parts for cost estimation and
scheduling
MRP in Services

Benefits of MRP
Reduced inventories without reduced customer service
Ability to track material requirements
Ability to evaluate capacity requirements
Means of allocating production time
Increased customer satisfaction due to meeting delivery
schedules
Faster response to market changes
Improved labor and equipment utilization.
Better inventory planning and scheduling

Requirements of MRP
Computer system and necessary software
Mainly discrete products
Stable lead times
Accurate and up-to-date
Master schedules
Bills of materials
Inventory status records
Integrity of data

Extensions of MRP
Closed loop MRP
Capacity planning - load reports
MRP II - Manufacturing Resources Planning
Enterprise Resources Planning

Forecast &
Firm Orders
Material
Requirements
Planning
Aggregate
Production
Planning
Resource
Availability
Master
Production
Scheduling
Shop
Floor
Schedules
Capacity
Requirements
Planning
Realistic?
No, modify MPS
Yes
MRP and The Production Planning
Process

Capacity Planning
Capacity requirements planning: The process of
determining short-range capacity requirements.
Load reports: Department or work center reports that
compare known and expected future capacity
requirements with projected capacity availability.
Time fences: Series of time intervals during which
order changes are allowed or restricted.

Capacity Requirements Planning
(CRP)
 Computerized system that projects load from
material plan
 Creates load profile
 Identifies underloads and overloads

Capacity
Usually expressed as standard machine
hours or labor hours
Capacity = (no. machines or workers)
x (no. shifts) x (utilization)
x (efficiency)

Capacity Terms
 Load reports
Department or work center reports that compare known
and expected future capacity requirements with projected
capacity availability.
 Load profile
Compares released and planned orders with work center
capacity
 Capacity
Productive capability; includes utilization and efficiency
Utilization
% of available working time spent working

More Capacity Terms
Efficiency
Refers to how well a machine or worker porforms
compared to a standard output level
Load
The standard hours of work assigned to a facility
 Load percent
The ratio of load to capacity
Load % = (load/capacity)x100%

Capacity Requirements Planning
MRP planned
order
releases
Routing
file
Capacity
requirements
planning
Open
orders
file
Load profile for
each machine center

Capacity Planning
Develop a tentative
master production
schedule
Use MRP to
simulate material
requirements
Convert material
requirements to
resource requirements
Firm up a portion
of the MPS
Is shop
capacity
adequate?
Can
capacity be
changed to meet
requirements
Revise tentative
master production
schedule
Change
capacity
Yes
No
Yes
No

Determining Loads and Capacities
2 copiers, 2 operators
5 days/wk, 8 hr/day
1/2 hr meals, 1/2 hr maintenance per day
The machines are new, so efficiency is estimated at 100%
Utilization = 7/8 = 87.5%
Daily capacity = 2 machines x 2 shifts
x 8 hours/shift x 100% efficiency
x 87.5% utilization
= 28 hours or 1,680 minutes

Determining Loads
and Capacities
JOB NO. OF SETUP RUN TIME
NO. COPIES TIME (MIN) (MIN/UNIT) TOTAL TIME
10 500 5.2 0.08 5.2 + (500 x 0.08) = 45.2
20 1,000 10.6 0.10 10.6 + (1,000 x 0.10) = 110.6
30 5,000 3.4 0.12 3.4 + (5,000 x 0.12) = 603.4
40 10,000 11.2 0.14 11.2 + (10,000 x 0.14) = 1,411.2
50 2,000 15.3 0.10 15.3 + (2,000 x 0.10) = 215.3
2385.7 min
Load percent = 2,385.7 / 1,680 = 1.42 x 100% = 142%
Add another shift:
Daily capacity = 2 machines x 3 shifts x 8 hours/shift
x 100% efficiency x 87.5% utilization
= 42 hours or 2,520 minutes
Revised load percent = 2,385.7 / 2,520 = 0.9467 x 100% = 94.67%

Initial Load Profile
Hours
of
capacity
1 2 3 4 5 6
Time (weeks)
Normal
capacity
120 –
110 –
100 –
90 –
80 –
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0 –

Remedies for Underloads
1. Acquire more work
2. Pull work ahead that is scheduled for later time
periods
3. Reduce normal capacity

Remedies for Overloads
 Eliminate unnecessary requirements
 Reroute jobs to alternative machines or work centers
 Change lot-sizing or safety stock requirements
 Split lots between two or more machines
 Send pieces to the second operation before the entire lot has
completed the first operation
 Increase normal capacity
 Subcontract
 Increase the efficiency of the operation
 Push work back to later time periods
 Revise master schedule

Adjusted Load Profile
Hours
of
capacity
1 2 3 4 5 6
Time (weeks)
Normal
capacity
120 –
110 –
100 –
90 –
80 –
70 –
60 –
50 –
40 –
30 –
20 –
10 –
0 –
Pull ahead
Push back
Push back
Overtime
Work
an
extra
shift

Relaxing MRP Assumptions
Material is not always the constraining resource
 Lead times can vary
Not every transaction needs to be recorded
 JIT can be used with MRP
 The shop floor may require a more sophisticated
scheduling system

Expanded MRP with emphasis placed on integration of:
Financial planning
Marketing
Engineering
Purchasing
Manufacturing
Human resources
Manufacturing Resources Planning- MRP II

Manufacturing Resources Planning
(MRP II)
Goal: Plan and monitor all resources of a
manufacturing firm (closed loop):
manufacturing
marketing
finance
engineering
Simulate the manufacturing system

Market
Demand
Production
plan
Problems?
Rough-cut
capacity planning
Yes No Yes
No
Finance
Marketing
Manufacturing
Adjust
production plan
Master
production schedule
MRP
Capacity req.
planning
Problems?
Requirements
schedules
Adjust
master
schedule
MRP II

Manufacturing Resource
Planning
(MRP II)
Forecast Aggregate
production
plan
Customer
orders
Feasible?
Master production
schedule
Material requirements
planning
Capacity requirements
planning
Feasible?
Purchase
orders
Work
orders
Inventory Shop floor
control
Manufacture
No
Yes
Feedback
No
Yes

Manufacturing
Resource Planning
(MRP II)
Forecast Aggregate
production
plan
Customer
orders
Feasible?
Master production
schedule
planning
planning
Feasible?
Purchase
orders
Work
orders
control
Manufacture
No
Yes
Feedback
No
Yes
Forecast Aggregate
production
plan
Customer
orders
Feasible?
Master
production
schedule
No
Yes

Manufacturing
Resource Planning
(MRP II)
Forecast Aggregate
production
plan
Customer
orders
Feasible?
Master production
schedule
planning
planning
Feasible?
Purchase
orders
Work
orders
control
Manufacture
No
Yes
Feedback
No
Yes
Master production
schedule
planning
planning
Feasible?
Yes
No

Forecast Aggregate
production
plan
Customer
orders
Feasible?
Master production
schedule
planning
planning
Feasible?
Purchase
orders
Work
orders
control
Manufacture
No
Yes
Feedback
No
Yes
Manufacturing
Resource Planning
(MRP II)
Inventory
Shop floor
control
Manufacture
Purchase
orders
Work
orders

Manufacturing
Resource Planning
(MRP II)
Forecast Aggregate
production
plan
Customer
orders
Feasible?
Master production
schedule
planning
planning
Feasible?
Purchase
orders
Work
orders
control
Manufacture
No
Yes
Feedback
No
Yes

Enterprise Resource Planning (ERP)
The next step in the evolution that began with MRP
and evolved into MRP II
ERP system is a computer system that integrates
application programs in accounting, sales,
manufacturing, human resources and other
functions in the firm.
ERP provides a system to capture and make data
available in real time do decision makers and other
users in the organization

MRP II with ties to customers and suppliers
(connects with supply-chain and customer
management applications)
Integrates financial, manufacturing and human
resources on a single computer system.
Provides tools for planning and monitoring various
business processes
ERP

Enterprise Resource Planning (ERP)
Attempts to integrate all departments and functions
across a company onto a single computer system that
can serve all those different departments’ particular needs
Organizes and manages a company’s business
processes by sharing information across functional areas
Standardized record-keeping permit information sharing
and communication throughout the organization

Enterprise Resource Planning - ERP
Such an integration is accomplished through a
database shared by all the application programs

ERP
ERP allows companies to:
1. Automate and integrate many of their business
processes
2. Share a common database and business
practices throughout the enterprise
3. Produce information in real time
ERP systems also include:
1. Supply Chain Management software and
2. Customer Relationship Management software

ERP’s Central Database
Finance &
Accounting
Sales
&
Marketing
Human
Resources
Production &
Materials
Management
ERP Data
Repository

ERP Strategy Considerations
High initial cost
High cost to maintain
Future upgrades
Training

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