18ME56-OM_ Module 5 - MRP, Purchase and SCM.pdf

Module – 5:
• Material Requirement Planning (MRP):
• Dependent versus independent demand, an
overview of MRP – MRP inputs and outputs,
MRP processing, ERP capacity requirement
planning, benefits and limitations of MRP.
• Purchasing and Supply Chain Management
(SCM):
• Introduction, Importance of purchasing and
SCM, the procurement process, Concept of
tenders, Approaches to SCM, Vendor
development. 2
Dept. of ME, JSSATE, Bengaluru

Module Outcome:
At the end of this module, you will be able to:
CO# Course Outcome
Bloom’s
Level
5
Apply MRP, purchasing and SCM techniques into
practice.
3
3
Forecasting
Learning Objectives:
After completing this module, you should be able to:

4
• A technique of determining the quantity and timing
for the acquisition of dependent demand items
needed to satisfy the MPS requirements.
• A computerized inventory control and production
planning system.
• The main objective of any inventory system is to
ensure that material is available when needed.
• One objective of MRP is to maintain the lowest
possible level of inventory.
• MRP does this by determining when component
items are needed and scheduling them to be ready at
that time, no earlier and no later.
Material Requirement Planning

5
Material Requirement Planning
Source: OM by Russel & Taylor

6
• MRP is useful for dependent and discrete demand
items, complex products, job shop production, and
assemble-to-order environments.
• Managing component demand inventory is different
from managing finished goods inventory.
• Independent demand is demand for a finished
product, such as a computer, a bicycle, or a pizza.
• Dependent Demand: Demand for components that are
derived from the demand for the other items.
• Parent and component items: A parent is an assembly
made up of basic parts or components.
When to use MRP; Terms

7
Terms used in MRP

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• Lot size: The quantity of items required for an order
(purchased from vendor or produced in-house).
• Time phasing: Scheduling to produce or receive an
appropriate amount (lot) of material so that it will be
available in the time periods when needed – not before
or after.
• Time bucket: The time period used for planning
purposes in MRP, usually a week.
• Bill of materials: A listing of all the components
(subassemblies and materials) that go into an
assembled item. It includes the part numbers and
quantity required per assembly.
Terms used in MRP

9
• Gross requirements: The total expected demand for an
item or raw material during each time period without
regard to the amount on hand.
• For end items, these quantities are shown in the master
schedule; for components, these quantities are derived
from the planned-order releases of their immediate
“parents.”
• Projected on hand: The expected amount of inventory
that will be on hand at the beginning of each time
period (scheduled receipts plus available inventory
from last period).
• Net requirements: The actual amount needed in each
time period.
Terms used in MRP

10
• Scheduled receipt: Materials already on order from a vendor
or in-house shop. In MRP, both the quantity and the
projected time of receipt are shown.
• Planned receipt: Materials that will be ordered from a
vendor or in-house shop. Otherwise, it is similar to scheduled
receipt (no difference in some MRPs)
• Lead-time offset: The supply time, or number of time
buckets between releasing an order and receiving the
materials.
• Planned order release: The plan (quantity & date) to initiate
the purchase or manufacture of items so that they will be
received on schedule after the lead time offset.
• Time fence: Management-specified date within which no
changes in the master schedule are allowed.
Terms used in MRP

11
Inputs and Outputs of MRP
Which end items are to be
produced, when they are
needed, and in what quantities.
A listing of all of the assemblies,
subassemblies, parts, part costs, and
raw materials that are needed to
produce one unit of a finished product.
A database of information
on every item produced,
ordered, or inventoried.
Bill of Materials

12
• A listing of all of the assemblies, subassemblies, parts,
part costs, and raw materials that are needed to
produce one unit of a finished product.
• Single level BoM and Indented BoM
• Engineering bill of materials (EBOM) and Manufacturing
bill of materials (MBOM)
• EBOM- finished product details as it was originally
designed.
• (MBOM) contains information on all the parts and
assemblies required to build a complete
and shippable product (includes packing materials).
Bill of Materials

13
https://help.openbom.com/2018/09/08/bom-single-level-multi-level-flattened/
Bill of Materials

14
Bill of Materials

15
Bill of Materials
Indented or Multi-level BoM

16
• A visual depiction of the requirements in a bill of
materials, where all components are listed by levels.
Product Structure Tree
Source: OM by Stevenson, W J
Assembly Diagram

17

18

19

20

21
Product Structure Tree – Example 1
• Use the information presented in the figure to do the
following:
• Determine the quantities of B, C, D, E, and F needed to
assemble one X.
• Determine the quantities of these components that will
be required to assemble 10 Xs, taking into account the
quantities on hand (i.e., in inventory) of various
components:

22

23
Thus, for one X, quantities of components required are:
B = 2; C = 1; D = 6; E = 24+2+2 = 28; F = 2
Solution: a

24
Solution: b
Thus, for 10 Xs, quantities of components
required are:
B = 16; C = 0; D = 40; E = 100+16 = 116; F
= 0

25
• An end product P is assembled by three subassemblies,
A, B and C. Subassembly A consists of two units of D,
two units of E and one unit of F. To make B, one G and
three units of H are needed. Subassembly C requires
two units of J and one unit of F. Component D requires
two units of J and one K.
• (a) Construct product structure tree for P mentioning
the levels.
• (b) Develop an indented level of bill of materials
• (c) Compute the quantities of each component to
produce 200 units of P

26
P Level 0

27
P Level 0
B C
A Level 1

28
P Level 0
B C
A
G H 3
J 2
D 2 F
E 2 F
Level 1

29
P Level 0
B C
A
G H 3
J 2
D 2 F
E 2 F
Level 1
K
J 2

30
Bill of Materials
Part No. or
Name
Qty. Level
A 1 1
D 2 2
J 2 3
K 1 3
E 2 2
F 1 2
B 1 1
G 1 2
H 3 2
C 1 1
F 1 2
J 2 3
Product P Level 0

31
Bill of Materials
Part No.
or Name
Qty. per
one P
Total Qty. Required
A 1 1 x 200 = 200
B 1 1 x 200 = 200
C 1 1 x 200 = 200
D 2 2 x 1 x 200 = 400
E 2 2 x 1 x 200 = 400
F 1 (1 x 200 )+ (1 x 200) = 400
G 1 1 x 1 x 200 = 200
H 3 3 x 1 x 200 = 600
J 4 (2 x 2 x 1 x 200) + (2 x 1 x 200)
= 1200
K 1 1 x 2 x 200 = 400
Total P required = 200 units

32
MRP Processing (Logic)
• The MRP process consists of four basic steps:
• (1) exploding the bill of material
• (2) netting out inventory
• (3) lot sizing, and
• (4) time-phasing requirements.
• The process is performed again and again, moving down
the product structure until all items have been
scheduled.

33
MRP Processing (Logic) - Matrix

34
• Complete the following MRP matrix for an item X:
• In what periods should orders be released, and what
should be the size of those orders?

35
• Solution:

36
• Complete the following MRP matrix for an item X.
Determine when orders should be released and the size
of those orders.

37
• Solution:
Item X Period in Weeks
Lot size: 50
LT: 2 weeks
1 2 3 4 5 6 7 8
Gross requirements 25 30 56 25 100 40 30 20
Scheduled receipts 50
Projected on hand 30 5 25 19 44 0 10 30 10
Net requirements 31 06 56 40 20 0
Planned order receipts 50 50 56 50 50
Planned order releases 50 50 56 50 50

38
• Complete the following MRP matrix for an item X. Determine
when orders should be released and the inventory at the end of
week 8.
Lot size: 500
LT: 4 weeks
1 2 3 4 5 6 7 8
Scheduled receipts 500 500 500
Planned order releases 500 500

39
• Complete the following MRP matrix for an item X. Determine
when orders should be released and the inventory at the end of
week 8.
• MRP should have planned order releases of 500 units in week 2
and 4.
• There are 300 units on hand at the end of week 8.
Lot size: 500
LT: 4 weeks
1 2 3 4 5 6 7 8

40
• Eighty units of end item E are needed at the beginning of week 6.
Three cases (30 units per case) of J have been ordered and one
case is scheduled to arrive in week 3, one in week 4, and one in
week 5.
• Note: J must be ordered by the case, and B must be produced in
multiples of 120 units. There are 60 units of B and 20 units of J
now on hand. Lead times are two weeks each for E and B, and
one week for J.
• Prepare a material requirements
plan for component J.

41
• Prepare a material requirements plan for component J.
• Suppose that in week 4 the quantity of E needed is changed
from 80 to 70. The planned-order releases through week 3
have all been executed. How many more Bs and Js will be on
hand in week 6?

42
Item E Period in Weeks
Lot size: 80
LT: 2 weeks
1 2 3 4 5 6
Gross requirements 80
Scheduled receipts
Projected on hand
Net requirements 80
Planned order receipts 80
Planned order releases 80

43
Component B (2) Period in Weeks
Lot size: 120 units
LT: 2 weeks
1 2 3 4 5 6
Gross requirements 160
Scheduled receipts
Projected on hand 60 60 60 60 20 20 20
Net requirements 100
Planned order receipts 120
Planned order releases 120

44
Component J (4) & J (3) Period in Weeks
Lot size: 30 units (1 case)
LT: 1 week
1 2 3 4 5 6
Gross requirements 480 240
Net requirements 460 160
Planned order receipts 480 180

45
Component J (4) & J (3) Period in Weeks
Lot size: 120 units
LT: 1 week
1 2 3 4 5 6
Gross requirements 480 240
Net requirements 460 160
Planned order receipts 480 180

46

47
Purchasing
and
Supply Chain Management

48
Purchasing, Procurement
• Purchasing is the first phase of Materials
Management.
• Purchasing refers to the actual buying of materials
and the activities associated with it.
• Procurement includes purchasing, transportation,
warehousing and inbound receiving.
• Procurement is a closed loop process that begins
with the requisition and ends with the payment.

49
Purchasing
• Purchasing is a managerial activity that goes beyond
the simple act of buying.
• It includes research and development for the proper
selection of materials and sources, follow-up to ensure
timely delivery; inspection to ensure both quantity and
quality; to control traffic, receiving, storekeeping and
accounting operations related to purchases.
• The modern thinking is that Purchasing is a strategic
managerial function and any negligence will ultimately
result into decrease in profits.

50
Purchasing - Importance
• Purchasing function provides materials to the factory
without which wheels of machines cannot move.
• A one percent saving in materials cost is equivalent to a 10
percent increase in turnover. Efficient buying can achieve
this.
• Increasing proportion of one’s requirements are now
bought instead of being made as was the practice in the
earlier days. Buying, therefore, assumes significance.
• Purchasing is the main factor in timely execution of
industrial projects.
• Materials management organisations that exist now have
evolved out or purchasing departments.

51
Purchasing -Objectives
• To pay reasonably low prices for the best values
obtainable, negotiating and executing all company
commitments.
• To keep inventories as low as is consistent with
maintaining production.
• To develop satisfactory sources of supply and maintain
good relations with them.
• To secure good vendor performance including prompt
deliveries and acceptable quality.
• To locate new materials or products as required.
• To implement such programmes as value analysis, cost
analysis, and make-or-buy to reduce cost of purchases.

18ME56-OM_ Module 5 - MRP, Purchase and SCM.pdf

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