Material Requirement Planning

1. Material Requirement Planning

2. Outline • History of MRP Concept • Key Insight which led to the MRP Concept • Definition of MRP Systems • MRP versus Order-Point Systems • MRP Example • MRP Elements • Operating an MRP System • The Successful MRP System • Key Points • MRP2-ERPS

3. History • Computerized approach to purchasing-production scheduling(1960) • Joseph Orlicky, Oliver Wight, and others. • APICS launched “MRP Crusade” in 1972 to promote MRP.

4. Key Insight • Independent Demand – finished products • Dependent Demand – components It makes no sense to independently forecast dependent demands.

5. What is the difference between Independent and Dependant demand?

6. Independent vs Dependant Demand • Independent Demand • Inventories that are subject to market conditions and are thus independent of operations • Finished Good, Spare Parts • Satisfy Final Customer Demand • Managed by Order-Point Methods • Dependant Demand • Inventories that are dependant on the demand for higher-level parts and components up to and including the master schedule. • Raw Materials, Work in Process • Satisfy Manufacturing Process • Managed by MRP or JIT system

7. Demand “Lumpy” demand Demand Stable demand Independent Demand Dependent Demand Time Time Amount on hand Amount on hand Safety stock Time Time • Dependent items are needed just prior to when they are needed for production • Demand is lumpy • Little or no safety stock

8. Definitions of MRP Systems(Materials Requirement Planning) • Production Planning System • Management Information System • Manufacturing Control System

9. InventoryStatus Lead Times Materials Requirement Planning (MRP) • Computer based information system to handle ordering and scheduling of dependent demand items Product Structure Tree

10. Procurement of raw material D Fabrication of part E Subassembly A Final assembly and inspection Procurement of raw material F Procurement of part C Procurement of raw material G Procurement of part H Subassembly B 6 7 1 2 3 4 5 8 9 10 11 • MRP converts the production plan for final products into requirements for component items and raw materials: • What is needed • When is needed • How much is needed When should procurement, fabrication assembly start for completing end items on time

11. Assumptions 1. Known deterministic demands. 2. Fixed, known production leadtimes. 3. Infinite capacity. The basic Idea of MRP is to “back out” demand for components by using lead times and bills of material.

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

13. Aggregate production plan Orders from customers or finished goods inventory Forecast of demand Master production schedule Rough-cut capacity planning Inventory transactions Engineering design changes Parts explosion Inventory records Bill of materials Shop orders Purchase orders Capacity planning Shop-floor control product Vendors operations closed-loop MRP system

14. MRP Inputs • Master Production Schedule (MPS): due dates and quantities for all top level items • Bills of Material (BOM): for all parent items • Inventory Status: (on hand plus scheduled receipts) for all items • Planned Leadtimes: for all items

15. MRP Inputs • Master Schedule: • Which end items are to be produced, when these are needed, and in what quantities. • The planning horizon is divided into time periods (typically weeks) • Planning horizon should be long enough to cover the cumulative LT (total LT reqd from ordering of parts or raw materials to completion of final assembly)

16. Level 0 Chair (C) Leg Assembly (LA) Back Assembly (BA) 1 Seat (S) Cross bar (CB) Side Rails (2) (SR) Cross bar (CB) Back Supports (3) (BS) Legs (2) (L) 2 3 MRP Inputs • Bill-of-Materials (BOM) File: List of all raw materials,parts, subassemblies needed to produce the product. • Illustrated using a product-structure tree:

17. MRP Inputs • End Item: final product sold to the customer; it is a parent, not a component, e.g., C. • Intermediate Item: has at least one parent and one component, e.g., LA, BA. • Purchased Item: No component but has parent, e.g., L, CB, S, SR, BS.

18. BOM (Product Structure) Table (End Item) Leg Assembly (1) Top (1) Short Rails (2) Long Rails (2) Legs (4)

19. Indented BOM Level CodeComponent 0 Table (end-item) 1 Leg assembly (1) 2 Short rails (2) 2 Long rails (2) 2 Legs (4) 1 Top(1)

20. MRP Inputs • Inventory Records File: Info on the inventory status of each item by time period. • Requirements • Scheduled receipts • Projected on-hand inventory levels • Leadtime information • Other details (supplier, lot size etc) • Transactions are recorded and updates done every time period

21. Terms Defined • Gross requirements-demand for an item by time period • Scheduled Receipts-material already ordered • Net requirements-net demand adjusted for on-hand and on order quantities • Planned order releases-net requirements offset for lead times

22. MRP Processing • Time-phased requirement of all items using BOM and leadtimes. For every item and for every time period calculate: • Gross requirements: Total demand • Scheduled receipts: Orders scheduled to arrive at the beginning of the period • Projected on hand: Expected Inventory at the beginning of the period • Net requirements: Actual amount needed • Planned-order receipts: Quantity expected to be received at the beginning of the period • Planned-order releases: Planned amount to order in the period (P.O.R. offset by leadtime)

23. MRP Processing 1. Netting:net requirements against projected inventory 2. Lot Sizing: planned order quantities 3. Time Phasing: planned orders backed out by leadtime 4. BOM Explosion: gross requirements for components

24. MRP Outputs • Planned orders - schedule indicating the amount and timing of future orders. • Order releases - Authorization for the execution of planned orders. • Changes - revisions of due dates or order quantities, or cancellations of orders. Performance-control reports Planning reports Exception reports

25. Functions of MRP • Inventory • Order the right part • Order the right quantity • Order at the right time • Priorities • Order with the right due date • Keep the due date valid • Capacity • A complete load • An accurate (valid) load • An adequate time span for visibility of future load

26. Benefits of MRP • Low levels of in-process inventories • Ability to track material requirements • Ability to evaluate capacity requirements • Means of allocating production time Requirements of MRP Computer and necessary software Accurate and up-to-date inputs (master schedules,BOM,inventory records) Integrity of data

27. Types of MRP • Type I: An inventory control system • Minimal inventory control • Releases manufacturing and purchase orders for the correct quantities at the correct time • Type II: A production and inventory control system • All of above • Capacity Planning • Shop-floor Control • Type III: Enterprise Resource Planning (ERP) • Company wide • Controls all resources including: inventory, capacity, cash, personnel, facilities, and capital • MRP is integrated with all other operations in the company

28. MRP vs Order-Point

29. Example 1 (Table) Top Leg Short Rail Long Rail

32. Example 2 (Chair Assembly) • Suppose that a 100-unit delivery of chairs is scheduled at the start of week 6. Determine the size and the timing of back-support parts to meet this delivery. • The firm has 20 back support units available and 60 more is scheduled to arrive at the beginning of Week 4.

34. Should Net Requirements = Planned Order Receipts? • Lot-for-lot production • Other common lot sizing rules: • Economic Order Quantity (EOQ) • Fixed Period Ordering (Order to cover a fixed # of coming periods) • Fixed Multiple batch size • Extra production is carried into future periods as Inventory

35. Suppose that the lot-size of back support units is 50. • Can only produce at multiples of 50.

36. Operating an MRP System • Should MRP carry “safety stock”? • How much “safety stock” should be carried? • Issue of “safety lead time” • Danger of “informal” system driving out the “formal” system • Expansion of MRP to other fns like fin,HR etc)

37. Elements of Success in MRP • Implementation planning • Adequate computer support • Accurate data • Management support • User knowledge

38. Key Points • MRP is an information system used to plan and control inventories and capacity • MRP uses a requirements philosophy • Master schedule is based on marketing and production considerations • Needs accurate BOM • Needs accurate inventories • Shop floor control, controls flow of materials through factory • System and people problems must be solved to use MRP successfully • Benefits include reduced inventory, increased customer service, and improved efficiency

39. Manufacturing Resource Planning (MRPII) • Expanded MRP with and emphasis placed on integration • Financial planning • Marketing • Engineering • Purchasing • Manufacturing Precursor of ERP

40. Enterprise Resources Planning SCM BPR MRP MRP II ERP • Goal: link information • across entire enterprise: • manufacturing • distribution • accounting • financial • personnel IT

41. Advantages: integrated functionality consistent user interfaces integrated database single vendor and contract unified architecture unified product support Disadvantages: incompatibility with existing systems long and expensive implementation incompatibility with existing management practices loss of flexibility to use tactical point systems long product development and implementation cycles long payback period lack of technological innovation “Integrated” ERP Approach

42. Materials Requirement Planning