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Chapter 16

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  1. Chapter 16 Materials Requirements Planning

  2. OBJECTIVES • Material Requirements Planning (MRP) • Components of an MRP System • Time Fences • MRP Logic and Product Structure Trees • MRP Example • MRP II • Lot Sizing in MRP

  3. Material Requirements PlanningDefined • Materials requirements planning (MRP): • Is a means for determining the number of parts, components, and materials needed to produce a product—the quantity problem • It provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced—the when or timing problem • Dependent demand drives MRP • MRP is a software system

  4. Benefits of Material Requirements Planning • Improved facility utilization • Faster response to market • Increased customer service • Better inventory planning • Reduced setup costs

  5. Components of Material Requirements Planning • Master production schedule (MPS) • Bill of materials (BOM) • Inventory records file (IRF) • Primary output reports

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

  7. Master production Schedule (MPS) • The key input driver for MRP • Tells MRP what to schedule, how many, and when they are needed • It is time-phased requirement system • Usually end items and special order components • Aggregation of: • Customer firmed orders • Forecast demands and safety stocks • Service parts and seasonal adjustment, etc.

  8. Time Fences • Purpose: • To maintain reasonably controlled flow through the production system. • What they are: • Periods of time within which the customer can make changes to the order (MPS).

  9. Types of Time Fences • Frozen • No schedule changes allowed within this window • Moderately Firm • Specific changes allowed within product groups as long as parts are available • Flexible • Significant variation allowed as long as overall capacity requirements remain at the same levels

  10. Moderately Firm Frozen Flexible Capacity Forecast and available capacity Firm Customer Orders 8 15 26 Weeks Example of Time Fences Exhibit 16.5

  11. Bill of Materials (BOM) FileA Complete Product Description • Identifies components, parts, materials, and subassemblies in the product • Shows production sequence for the product • More of a recipe for making the product • Modular BOM: • Buildable items that are storable as subassemblies • Planning BOM: • Fractional options. Fraction of the part contained in the completed unit

  12. Bill of Materials Structure A 1. Christmas tree structure B(1) C(1) D(1) E(4) F(2) G(4) H(4) 2. Indented structure Part # Description Quantity Source A Car 1 Assembled B Engine 1 Manufactured D Block 1 Manufactured E Valves 4 Purchased C Body 1 Manufactured F Doors 2 Manufactured G Tires 4 Purchased H Shocks 4 Purchased

  13. Inventory Records File • Each inventory item carried as a separate file • See, for example, Exhibit 16.15 • Status according to “time buckets” for all items • On-hand quantities • Scheduled receipt of order • Lead times for all orders • Lot size requirements • Pegging • Identify each parent item that created demand

  14. Primary MRP Reports • Planned orders to be released at a future time. • Order releasenotices to execute the planned orders. • Changes in due dates of open orders due to rescheduling. • Cancellations or suspensions of open orders due to cancellation or suspension of orders on the master production schedule. • Inventory status data.

  15. Secondary MRP Reports • Planning reports, for example, forecasting inventory requirements over a period of time. • Performance reports used to determine agreement between actual and programmed usage and costs. • Exception reports used to point out serious discrepancies, such as late or overdue orders.

  16. Updating The MRP System • Regenerative method: • Limited replanning frequency, weekly or longer • MPS submission triggers replanning • Every end-item in the MPS is exploded • Voluminous output is generated • High data processing efficiency--batch • Net change method • High frequency of replanning • But affected parts of MPS are exploded • Limited number of outputs result

  17. Net Change System • Activity driven • Net change schedules • Potential for system nervousness

  18. 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

  19. 19 Firm orders from known customers Forecasts of demand from random customers Aggregate product plan Engineering design changes Inventory transactions Master production Schedule (MPS) Material planning (MRP computer program) Bill of material file Inventory record file Secondary reports Primary reports Exception reports Planning reports Reports for performance control Planned order schedule for inventory and production control From Exhibit 16.6 • The McGraw-Hill Companies, Inc., 2004

  20. A B(4) C(2) D(2) E(1) D(3) F(2) Example of MRP Logic and Product Structure Tree Given the product structure tree for “A” and the lead time and demand information below, provide a materials requirements plan that defines the number of units of each component and when they will be needed Product Structure Tree for Assembly A Lead Times A 1 day B 2 days C 1 day D 3 days E 4 days F 1 day Total Unit Demand Day 10 50 A Day 8 20 B (Spares) Day 6 15 D (Spares)

  21. LT = 1 day First, the number of units of “A” are scheduled backwards to allow for their lead time. So, in the materials requirement plan below, we have to place an order for 50 units of “A” on the 9th day to receive them on day 10.

  22. LT = 2 Spares A 4x50=200 B(4) C(2) D(2) E(1) D(3) F(2) Next, we need to start scheduling the components that make up “A”. In the case of component “B” we need 4 B’s for each A. Since we need 50 A’s, that means 200 B’s. And again, we back the schedule up for the necessary 2 days of lead time.

  23. 23 A Part D: Day 6 B(4) C(2) 40 + 15 spares D(2) E(1) D(3) F(2) Finally, repeating the process for all components, we have the final materials requirements plan:

  24. MRP Scheduling Terminologies • Gross Requirements • Gross demand as taken from the MPS • Scheduled receipts • When outstanding orders are expected • Projected available balance (On-Hand) • Available physical inventory • Net requirements • Net demand after available inventories are consumed • Planned order release • When to place orders so they come in when needed

  25. MRP Example 1 Level 0 A (1) • Straight one-to-one correspondence • No multiple parents • One component one parent • Consider the three level part explosion diagram above. The items do not have multiple parents and only 1 unit of each item goes into the corresponding parent. Suppose that the gross requirements for product A for periods 3, 4, 5, 6, 8, and 10 are 25, 5, 35, 7, 10, and 21, respectively. Suppose also that it takes 2 periods from the period an order was placed to the time it was actually received in inventory, and that the amount of item A on hand was 20; 30 for item B, and 2 for item C. Develop the complete MRP explosion requirements needed to determine the net requirements for item C. The scheduled receipt for product A, the end item, is 25 in period 4. 1 B (1) 2 C (1)

  26. X A(2) B(1) C(2) D(5) C(3) MRP Example 2 Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

  27. 1 2 3 4 5 6 7 8 9 10 Gross Requiremts Scheduled Rcpts ITEM X LT=2 On Hand Net Requirements P. Order Releases Gross Requiremts Scheduled Rcpts ITEM A LT=3 On Hand Net Requirements P. Order Releases Gross Requiremts Scheduled Rcpts ITEM B LT=1 On Hand Net Requirements P. Order Releases Gross Requiremts Scheduled Rcpts ITEM C LT=2 On Hand Net Requirements P. Order Releases Gross Requiremts Scheduled Rcpts ITEM D LT=2 On Hand Net Requirements P. Order Releases

  28. No Realistic? Feedback Feedback Yes Execute: Capacity Plans Material Plans Closed Loop MRP Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning

  29. Manufacturing Resource Planning (MRP II) • Goal: Plan and monitor all resources of a manufacturing firm (closed loop): • Manufacturing • Marketing • Finance • Engineering • Simulate the manufacturing system

  30. Lot Sizing in MRP Programs • Economic order quantity (EOQ) • Lot-for-lot (L4L) or (LFL) • Period order quantity (POQ) • Part period balancing (PPB) • Least total cost (LTC) • Least unit cost (LUC) • Silver-Meal heuristics (SM) • Wagner-Wittin (WW) • Which one to use? • The one that is least costly!

  31. Lot-Sizing Example: EOQ Method • The net requirements for a product is as given in the table. If C=$10/unit, S=$47/order, H=.5% of cost/week, find the total cost to meet order demand requirements using the EOQ method. Weekly Net Requirements 1 2 3 4 5 6 7 8 50 60 70 60 95 75 60 55 • Solution: • Policy: • If • If TC=10(525)+(.05)(1563)+2(47)=$5,422.15

  32. Lot-Sizing Example: LFL Method • The net requirements for a product is as given in the table. If C=$10/unit, S=$47/order, H=.5% of cost/week, find the total cost to meet order demand requirements using the LFL method. Weekly Net Requirements 1 2 3 4 5 6 7 8 50 60 70 60 95 75 60 55 • Solution: TC=10(525)+(.05)(0)+8(47)=$5,626

  33. Lot-Sizing Example: POQ Method • The net requirements for a product is as given in the table. If C=$10/unit, S=$47/order, H=.5% of cost/week, find the total cost to meet order demand requirements using the POQ method. Weekly Net Requirements 1 2 3 4 5 6 7 8 50 60 70 60 95 75 60 55 • Solution: TC=10(525)+(.05)(1190)+2(47)=$5,404