Topics to be Covered

1. Topics to be Covered 1. Material Requirement Planning 2. How Does MRP Fit in the Production Cycle 3. Inputs into MRP 4. MRP Processing 5. MRP Issues 6. Lot Sizing 7. Benefits and Limitations of MRP 8. MRP II and Closed Loop MRP 9. Keys to a Successful Implementation

2. What we have learned ! Supply Chain: setup of our facility, suppliers, transportation and distribution Process Planning: defined and arranged our process in terms of layout and order penetration (product vs process layout, MTO,MTS,ATO) Forecasting: defined anticipated end item demand over a specified time period. (Technique) Capacity Planning: our tactical approach to how we anticipate meeting our anticipated demand ( Type and amount of Sources, chase vs level strategy) • What is the question we need to answer now? • What, How much and when to order the stuff to make our product

4. Material Requirement Planning • 1. MRP is a computer-based information system designed to handle ordering and • scheduling of dependent -demand inventories. • 2. MRP is used to breakdown the demand requirements for each finished good into • its lower level components requirements. • 3. MRP identifies a higher level demand into all its lower level demand components , • their quantities and timing requirements. • 4. MRP continues this breakdown of component quantities and time needs until the • source of each lower level component is supplied by an external source. • 5. MRP attempts to solve two problems: • a. Setting up scheduling for all components. • b. Provide an effective means for controlling the scheduled requirements for • each dependent items.

5. Make or Buy Facility Definition Resource Planning Aggregate Plan Forecasting Rough Cut Capacity Planning Master Production Schedule MRP Detailed Capacity Planning Shop Floor Control Purchasing How Does MRP Fit In The Production Cycle.

6. Inputs Into MRP 1. Master Production Schedule 2. Bill Of Materials 3. Inventory Records File

7. MPS: Example Scheduled Man hours Aggregate Production Plan Manhrs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 520 600 580 645 700 585 475 560 635 605 560 660 7125 Model Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 123 50 54 58 59 68 51 49 48 47 59 56 62 661 456 110 120 130 140 150 160 90 140 170 120 130 150 1610 789 5 9 3 7 6 1 5 4 6 7 2 5 60 Products in that month Master Production Schedule

8. Master Production Schedule • 1. MPS states which end items are to be produced, when these end items are • needed and in what quantities. • 2. The MPS is a result of disaggregating the Aggregate Production Plan. • 3. Sources for a MPS. • A. Customer Orders • B. Forecasts • C. Internal Orders • 4. Planning Horizon for MPS is separated into Time Periods (Time Buckets). • - typically has a 1 year planning horizon. • 5. The Time Horizon should cover the cumulative lead time necessary to produce • the end product. • 6. Initial requirements for items needed may or may not be possible. • a. May exceed capacity • b. modify aggregate planning • c. recent demand changes • d. assumes sufficient time to complete tasks • 7. MRP can not distinguish between a feasible and a non-feasible MPS.

9. Bill Of Material • 1. Contains a listing of all of the assemblies, subassemblies, parts and raw materials • necessary to produce one unit of a finished product. • 2. Frequently referred to as a Product Structure Diagram. • 3. Parent component is a next higher level component which consists of one or more • Child components. • 4. A BOM will identify all components from end item through raw material or • components procured from an outside source. • - includes nuts, bolts, screws, glue, etc. • 5. It is important that the BOM is kept up to date. • - requires some sort of change coordination be put into place between • engineering and production. • - Engineering Change Notice

10. Back Cushion Seat Cushion Chair Frame Fasteners (8) Adjuster Mechanism Base Unit Wheels (6) Fasteners (3) Bill Of Material (BOM) Example Office Chair Indented Bill Of Material Item Part Number Qty Office Chair 123-4567 1 Back Cushion 6520 1 Seat Cushion 8947 1 Chair Frame 1245 1 Adjuster Mechanism 1245-1 1 Base Unit 1245-2 1 Wheels 1245-3 6 Fasteners 3145 3 Fasteners 3214 8

11. Inventory Records File • Used to store supplier information and the status of each item by time • period. • 2. Gross requirements, schedule receipts, amount on-hand • 3. Supplier name. location, lead time, pricing & lot size. • 4. This step is the feedback for the system to highlight changes to • scheduling.

13. MRP Processing • Identify the quantity of each finished good and the time for their completion. • 2. Use BOM to identify the subassemblies, components, and raw materials to create one unit. • 3. Identify the Gross Requirements for each component. • - These are the quantities of each part to construct the required quantity for each end item. • 4. Define the Net Requirements. • - This represents the quantity of each component or raw material that must be produced • internally or purchased from an external source. • - Net Rqmts = Gross Rqmts - (Scheduled Receipts + units on Hand + Safety Stock) • - Scheduled Receipts: Orders which have been previously placed and are anticipated to • arrive or be produced internally before the newly established need date. • - Net Rqmts for a higher level part is the Gross Rqmts for a lower level part. • 5. The Net Rqmts are then placed into the Planned Order Release category until the order for a • given component/raw material is placed • - If the component is produced internally then the Release identifies when the same level • component work order is released to the shop floor to begin production. • - So all lower level components or raw materials must be available by this date. • - Should consider lead times. • 6. The Planned Order Receipt identifies when the component or raw material anticipated to be • received. • - If the part is produced internally the Receipt identifies when this level part will be complete. • 7. This process is continued until all part requirements have been scheduled.

14. MRP Issues Safety Stock 1. Theoretically if demand is known then there is no need for safety stock. 2. Unanticipated variance in Demand causes inventory and safety stock to exist. 3. MRP does not consider machine breakdown, scrap rates, late deliveries. 4. MRP can reduce the amount of safety stock by removing variability. 5. Safety Stock determined by: History, lead time, experience Updating The MRP System 1. Regenerative: Review the entire MRP system; usually a periodic batch process (less frequent change; once a week or month) 2. Net Change: Continuous updating every time a change is made; Modifies only areas of change. ( more frequent; once or more a day) MRP Software Types: BPICS, KBM, SAP

15. MRP Outputs • Time Fences • Series of time intervals during which order changes are allowed or restricted. • - Work Order release - Purchase order release. - Rescheduling • MRP Outputs • Provides management with a range of possible reports. • Reports can be classified as primary and secondary. • Primary Reports concern production & inventory planning and control: • - schedule of planned orders - amount & timing of future orders • - order releases - executes the planned orders (POs & WOs) • - Changes to planned orders - revisions of due dates & quantities • Secondary Reports concern performance • - evaluate system operation (missed deliveries & stock outs) • - planning reports - forecasting future inventory requirements • - exception reports - attributes to major discrepancies • Load Reports • Compares known and future capacity requirements • Typically requires a separate module • - Mini MRP: a review of current inventory and planned receipts to determine what is • needed for a real or hypothetical demand.

16. Supplier Report

17. Lot Sizing 1. Goal is to minimize the setup/ordering cost & holding costs. 2. There can be advantages in grouping part orders 3. Problem is that by grouping middle and upper level parts you have a cascading effect on the lower level parts. - so it is important to consider all inventory requirements below the part/subassembly being considered for lot sizing. 4. Types of Lot Sizing Techniques. - Lot by Lot - EOQ - Wagner-Whitlin - Silver-Meal - Least Cost - Part-Period All methods, except for Lot by Lot, consider the relationship between holding costs and ordering costs.

18. Limitations of MRP Best used for Batch and job shop applications Holding costs dependent on variations in system. Inability to track material requirements Inability to determine capacity requirements given a master schedule. Lead Time is fixed Necessary to Have: - computer and software - accurate way to maintain changes to parts BOM - integrity of inventory records 7. Inability to react to short term or system changes.

19. MRP II and Closed Loop MRP Manufacturing Resources Planning 1. Expands on the scope of production resource planning - involves marketing, finance, engineering, etc. 2. A major purpose of MRP II is to integrate these primary functions of production along with the other impacted areas in a common set of goals. 3. Can be used to simulate effects of different manufacturing plans. 4. Provides each function with insight into the other functions performance and plans. Closed Loop MRP 1. Uses capacity planning and feedback to improve the ability of the production system to complete work as planned. 2. Timely feedback allows planners time to generate alternative plans.

20. Keys to a Successful Implementation 1. Top Management Support. 2. Good Information Technology Design. 3. Appropriate user-designer interaction and understanding. 4. Committing to change and to the implementation effort. 5. Defining and planning the project extensively. 6. Using organizational change theories to manage process.

21. Enterprise Resource Planning (ERP) ERP integrates a basic MRP systems with information from marketing, sales, finance, accounting, and human resources through a common database. Planning is cross functional Planning begins from Sales planning, thru MRP to the accounts receivable. See Table 16.5 pg 421 ERP Video