Operations Management Material Requirements Planning (MRP)


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  • One thought to be remembered from Collins is the emphasis on maintenance of record integrity. Error rates as low as 2 - 4 percent may lead to instability in an MRP system.
  • We start this chapter by linking Dependent Demand Inventory back to Independent Demand Inventory. You might note to students that independent demand is created external to the company, dependent demand, internally.
  • You might add to this list that the operations manager must know that inventory records, bill-of-materials, etc., are accurate.
  • It is probably best to walk the students through each step of this process. For most products we can create a master production schedule. And, once we have a master production schedule, MRP is the next logical step.
  • Students should be asked to explain why the focus of the Master Production Schedule changes depending upon the nature of the production process.
  • A bicycle provides a good example for deriving a bill-of-material. Most students remember enough of the parts of a bicycle to develop several levels.
  • The bicycle is simple, yet complex enough to be used for a special bills example also. Modules - pair of wheels; gearshift & cables; multiple sprockets; etc. Etc. The following slide outlines such an example.
  • This slide has been animated to demonstrate backward scheduling - item A is scheduled first, then the remaining items are scheduled so as to produce A at the proper time.
  • A point to stress here is that while MRP is heavily computer-based, it is more than simply a computer program.
  • It is important to emphasize the need for accurate records - both bill-of-material and inventory.
  • While MRP certainly can produce these benefits, it is useful to discuss the problems faced in establishing an MRP system. A number of companies have given up on the task - the necessary transformation of old processes has simply proven too difficult.
  • Emphasize that this slide illustrates the overall technological structure of MRP - people and process are also extremely important in its actual success.
  • This slide illustrates the fit of MRP into the overall production planning process. It would be helpful to walk through the actual relationship with your students.
  • It is helpful here to briefly review the “contents” of each of the boxes - i.e., what is contained in an Item Master file, what purchasing data is expected, etc.
  • This slide is also animated in an attempt to demonstrate the “building” of the master schedule.
  • This slide does merit discussion - especially the items about system nervousness and the manager’s reaction to change.
  • What does one gain by implementing one of the extensions of MRP?
  • It usually seems to be helpful to discuss the overall concept of load leveling before tackling load leveling and MRP.
  • Have the students consider what modifications may be necessary for MRP to be valuable in services.
  • Operations Management Material Requirements Planning (MRP)

    1. 2. <ul><li>Global Company Profile: Collins Industries </li></ul><ul><li>Dependent Inventory Model Requirements </li></ul><ul><ul><li>Master Production Schedule </li></ul></ul><ul><ul><li>Bills of Materials </li></ul></ul><ul><ul><li>Accurate Inventory records </li></ul></ul><ul><ul><li>Purchase Orders Outstanding </li></ul></ul><ul><ul><li>Lead Times for Each Component </li></ul></ul><ul><li>MRP Structure </li></ul>
    2. 3. <ul><li>MRP Management </li></ul><ul><ul><li>MRP Dynamics </li></ul></ul><ul><ul><li>MRP and JIT </li></ul></ul><ul><li>Lot-Sizing Techniques </li></ul><ul><li>Extensions in MRP </li></ul><ul><ul><li>Closed-Loop MRP </li></ul></ul><ul><ul><li>Capacity Planning </li></ul></ul><ul><ul><li>Material Requirements Planning II (MRP II) </li></ul></ul><ul><ul><li>Enterprise Resource Planning (ERP) </li></ul></ul>
    3. 4. <ul><li>MRP In Services </li></ul><ul><li>Distribution Resource Planning (DRP) </li></ul><ul><ul><li>DRP Structure </li></ul></ul><ul><ul><li>Allocation </li></ul></ul>
    4. 5. <ul><li>When you complete this chapter, you should be able to : </li></ul><ul><li>Identify or Define : </li></ul><ul><ul><li>Planning bills and kits </li></ul></ul><ul><ul><li>Phantom bills </li></ul></ul><ul><ul><li>Low-level coding </li></ul></ul><ul><ul><li>Lot sizing </li></ul></ul>
    5. 6. <ul><li>When you complete this chapter, you should be able to : </li></ul><ul><li>Describe or Explain : </li></ul><ul><ul><li>Material requirements planning </li></ul></ul><ul><ul><li>Distribution requirements planning </li></ul></ul><ul><ul><li>Enterprise resource planning </li></ul></ul>
    6. 7. <ul><li>Largest manufacturer of ambulances in the world </li></ul><ul><li>International competitor </li></ul><ul><li>12 major ambulance designs </li></ul><ul><ul><li>18,000 different inventory items </li></ul></ul><ul><ul><ul><li>6,000 manufactured parts </li></ul></ul></ul><ul><ul><ul><li>12,000 purchased parts </li></ul></ul></ul><ul><ul><li>MRP: IBM’s MAPICS </li></ul></ul>
    7. 8. <ul><li>Collins requires: </li></ul><ul><ul><li>Material plan must meet both the requirements of the master schedule and the capabilities of the production facility </li></ul></ul><ul><ul><li>Plan must be executed as designed </li></ul></ul><ul><ul><li>Effective “time-phased” deliveries, consignments, and constant review of purchase methods </li></ul></ul><ul><ul><li>Maintenance of record integrity </li></ul></ul>
    8. 9. Inventory Process stage Demand Type Number & Value Other Raw Material WIP Finished Goods Independent Dependent A Items B Items C Items Maintenance Dependent Operating
    9. 10. 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
    10. 11. Aggregate 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
    11. 12. <ul><li>Effective use of dependent demand inventory models requires that the operations manager know the: </li></ul><ul><ul><li>master production schedule </li></ul></ul><ul><ul><li>specifications or bills-of-material </li></ul></ul><ul><ul><li>inventory availability </li></ul></ul><ul><ul><li>purchase orders outstanding </li></ul></ul><ul><ul><li>lead times </li></ul></ul>
    12. 13. Production Plan Execute Material Plans Master Production Schedule Material Requirements Plan Capacity Requirements Plan Execute Capacity Plans Realistic?? No Yes
    13. 14. Make to Order (Process Focus) Assemble to Order or Forecast (Repetitive) Stock to Forecast (Product Focus) Schedule finished product Steel, Beer, Bread Light bulbs, Paper Print shop Machine shop Fine dining restaurant Examples: Number of end items Number of inputs Typical focus of the master production schedule Schedule orders Schedule modules Motorcycles, autos, TVs, fast-food restaurant
    14. 15. <ul><li>List of components & quantities needed to make product </li></ul><ul><li>Provides product structure (tree) </li></ul><ul><ul><li>Parents: Items above given level </li></ul></ul><ul><ul><li>Children: Items below given level </li></ul></ul><ul><li>Shows low-level coding </li></ul><ul><ul><li>Lowest level in structure item occurs </li></ul></ul><ul><ul><li>Top level is 0; next level is 1 etc. </li></ul></ul>
    15. 17. <ul><li>Modular bills </li></ul><ul><ul><li>Modules are final components used to make assemble-to-stock end items </li></ul></ul><ul><li>Planning bills </li></ul><ul><ul><li>Used to assign artificial parent </li></ul></ul><ul><ul><li>Reduces number of items scheduled </li></ul></ul><ul><li>Phantom bills </li></ul><ul><ul><li>Used for subassemblies that exist temporarily </li></ul></ul>
    16. 18. 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
    17. 19. 1 2 3 4 5 6 7 8 D G 2 weeks 1 week F E 3 weeks 2 weeks A 1 week C 1 week B 2 weeks to produce E D Must have D and E completed here so production can begin on B 2 weeks 1 week Start production of D
    18. 20. <ul><li>Manufacturing computer information system </li></ul><ul><li>Determines quantity & timing of dependent demand items </li></ul>© 1995 Corel Corp.
    19. 21. <ul><li>Computer system </li></ul><ul><li>Mainly discrete products </li></ul><ul><li>Accurate bill-of-material </li></ul><ul><li>Accurate inventory status </li></ul><ul><ul><li>99% inventory accuracy </li></ul></ul><ul><li>Stable lead times </li></ul>© 1984-1994 T/Maker Co.
    20. 22. <ul><li>Increased customer satisfaction due to meeting delivery schedules </li></ul><ul><li>Faster response to market changes </li></ul><ul><li>Improved labor & equipment utilization </li></ul><ul><li>Better inventory planning & scheduling </li></ul><ul><li>Reduced inventory levels without reduced customer service </li></ul>
    21. 23. 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
    22. 25. Forecast & Firm Orders Material Requirements Planning Aggregate Production Planning Resource Availability Master Production Scheduling Shop Floor Schedules Capacity Requirements Planning Realistic? No, modify CRP, MRP, or MPS Yes
    23. 26. Master Production Schedule Bill of Materials Material Requirements Planning System Inventory Status Planned Order & Other Reports Item Master Purchasing Data
    24. 27. <ul><li>Shows items to be produced </li></ul><ul><ul><li>End item, customer order, module </li></ul></ul><ul><li>Derived from aggregate plan </li></ul>
    25. 28. <ul><li>Shows items to be produced </li></ul><ul><ul><li>End item, customer order, module </li></ul></ul><ul><li>Derived from aggregate plan </li></ul>Example Item/Week Oct 3 Oct 10 Oct 17 Oct 24 Drills 300 200 310 300 Saws 300 450 310 330
    26. 29. Therefore, these are the gross requirements for B 10 40+10 = 50 40 50 20 15+30 = 45 1 2 3 4 5 6 7 8 Periods Gross requirements: 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
    27. 30. <ul><li>Supports “preplanning” </li></ul><ul><ul><li>Problem with system “nervousness” </li></ul></ul><ul><li>“ Time fence” - allows a segment of the master schedule to be designated as “not to be rescheduled” </li></ul><ul><li>“ Pegging” - tracing upward in the bill-of-materials from the component to the parent item </li></ul><ul><li>That a manager can react to changes, doesn’t mean he/she should </li></ul>
    28. 31. <ul><li>MRP - a planning and scheduling technique with fixed lead times </li></ul><ul><li>JIT - a way to move material expeditiously </li></ul><ul><li>Integrating the two: </li></ul><ul><ul><li>Small bucket approach and back flushing </li></ul></ul><ul><ul><li>Balanced flow approach </li></ul></ul>
    29. 32. <ul><li>Lot-for-lot </li></ul><ul><li>Economic Order Quantity </li></ul><ul><li>Part Period Balancing </li></ul><ul><li>Wagner-Whitin Algorithm </li></ul>
    30. 36. <ul><li>Closed loop MRP </li></ul><ul><li>Capacity planning - load reports </li></ul><ul><li>MRP II - Material Resource Planning </li></ul><ul><li>Enterprise Resource Planning </li></ul>
    31. 38. <ul><li>Tactics for smoothing the load and minimizing the impact of changed lead time include: </li></ul><ul><ul><li>Overlapping - reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation </li></ul></ul><ul><ul><li>Operations splitting - sends the lot to two different machines for the same operation </li></ul></ul><ul><ul><li>Lot splitting - breaking up the order and running part of it ahead of the schedule </li></ul></ul>
    32. 40. <ul><li>MRP II with ties to customers and suppliers </li></ul>
    33. 42. <ul><li>Can be used when demand for service or service items is directly related to or derived from demand for other services </li></ul><ul><ul><li>restaurant - rolls required for each meal </li></ul></ul><ul><ul><li>hospitals - implements for surgery </li></ul></ul><ul><ul><li>etc. </li></ul></ul>
    34. 44. <ul><li>DRP requires: </li></ul><ul><ul><li>Gross requirements, which are the same as expected demand or sales forecasts </li></ul></ul><ul><ul><li>Minimum levels of inventory to meet customer service levels </li></ul></ul><ul><ul><li>Accurate lead times </li></ul></ul><ul><ul><li>Definition of the distribution structure </li></ul></ul>