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Material Requirements Planning

Material Requirements Planning. Dr. Everette S. Gardner, Jr. End item. R. Time. LT. LT. Component. R. Time. LT. Raw material. R. Time. LT. Order point system with dependent demand. End item. R. Time. Component. Time. Raw material. Time. The MRP approach.

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Material Requirements Planning

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  1. Material Requirements Planning Dr. Everette S. Gardner, Jr.

  2. End item R Time LT LT Component R Time LT Raw material R Time LT Order point system with dependent demand MRP

  3. End item R Time Component Time Raw material Time The MRP approach MRP

  4. The simultaneous probability problem • When components are ordered independently with an order point system, the probability that all will be in stock at the same time is much lower than the probabilities for individual components • Computation: Let Pn = Prob. that n components are in stock simultaneously Si = Prob. of stockout on one order cycle for component i Then Pn = S1 x S2 x S3 … Sn MRP

  5. The simultaneous probability problem (cont.) • Example: End Item S1 = .9 S2 = .9 S3 = .9 P3 = .9 x .9 x .9 = = Prob. that all 3 components will be available at any given time to build the end item 1 2 3 .729 MRP

  6. Probabilities of simultaneous availability of components Number ofService level component items90%95% 1 .900 .950 2 .810 .902 3 .729 .857 4 .656 .814 5 .590 .774 6 .531 .735 7 .478 .698 8 .430 .663 9 .387 .630 10 .348 .599 15 .206 .463 20 .121 .358 25 .071 .277 MRP

  7. Demand forecasts and customer orders Aggregate planning/ master scheduling Product design changes Inventory transactions Bill of materials Inventory records MRP system Capacity report Mfg. orders Purchase orders Performance/ exceptions Detailed scheduling system Purchasing dept. MRP inputs and outputs MRP

  8. Product tree vs. indented parts list • Product tree A Level 0 B(2) C(4) Level 1 D(1) E(3) D(2) F(1) G(3) Level 2 MRP

  9. Product tree vs. indented parts list (cont.) • Indented parts list ● A ● B(2) ● D(1) ● E(3) ● C(4) ● D(2) ● F(1) ● G(3) MRP

  10. A Week Lead 1 2 3 4 5 6 7 8 9 time Quiz: MRP plan to produce 10 units of A — due in week 9 B C D E F G MRP

  11. Problems in requirementscomputations • Product structure • Recurring requirements within the planning horizon • Multilevel items • Rescheduling open orders MRP

  12. Product structure • Bills of material are hierarchical with distinct levels • To compute requirements, always proceed down bill of materials, processing all requirements at one level before starting another MRP

  13. Product structure (cont.) • Example: LevelInventory O.H. Truck 0 0 A. Transmission (1) 1 2 B. Gearbox (1) 2 15 C. Gear (1) 3 7 D. Forging Blank (1) 4 46 Suppose we are to produce 100 trucks. What are the net requirements for each component? MRP

  14. Recurrence of requirements within the planning horizon • The same item may be required for several different lots within the planning horizon – always process one lot entirely, level by level, before starting the next. • Example: One lot of 12 trucks, followed by 2nd lot of 100 Lot 1Lot 2 Level 1: Gross requirements 12 100 MRP

  15. Multilevel items The same item may appear at different levels on one or more BOMs – result is multiple retrievals of same record to update system. Examples: 1 2 3 4 Z X Y A A A A MRP

  16. Multilevel items (cont.) Solution: Low-level coding. Lowest level an item appears is coded on inv. record. Processing delayed until that level reached. 1 2 3 4 Z X Y A A A A MRP

  17. Rescheduling open orders • Tests for open order misalignment: 1. Are open orders scheduled for periods following the period in which a net requirement appears? 2. Is an open order scheduled for a period in which gross requirement ≤ inv. O. H. at end of preceding period? 3. Is lead-time sufficient? MRP

  18. Rescheduling open orders (cont.) • Example: Week 1 2 3 4 5 6 ●Most MRP systems make such schedule changes automatically. MRP

  19. Tactical questions in MRP • Regeneration vs. net change • Lot sizing • Safety stocks MRP

  20. Regeneration vs. net change • Regeneration • Complete replanning of requirements and update of inventory status for all items • High data processing efficiency • Usually initiated by weekly update of master schedule • Net change • Daily update based on inventory transactions • More responsive to changing conditions • Requires more discipline in file maintenance MRP

  21. Lot sizing implications in MRP • The load profiles at work centers in the system depend on the lot sizing rules used • Load profiles determine: undertime / overtime leadtimes • Example: Lot size Lot size Pd.Demand Rule 1 Rule 2 1 5 5 20 2 15 15 0 3 15 15 20 4 5 5 0 (Assume 1 unit requires 1 machine hour.) MRP

  22. Lot sizing implications in MRP (cont.) 20 20 15 15 10 10 5 5 0 0 Load profile –Load profile – Rule 1Rule 2 Machine hrs. 4 1 3 4 2 1 2 3 MRP

  23. Lot sizing techniques used in MRP systems • Lot-for-lot (L4L) – most used • Economic order quantity (EOQ) • Period order quantity (POQ) MRP

  24. Lot-for-lot (L4L) example (Assume Ø LT) The L4L technique: Minimizes carrying costs Is certainly the best method for - highly discontinuous demand - expensive purchased items MRP MRP1.xls

  25. EOQ example Setup cost, S = $100 Unit price, C = $50 Holding costs, HR = .24 per annum HP = .02 per period Annual demand, D = 200 Q = (2DS / CHR)1/2 = 58 MRP

  26. Period order quantity example Technique: 1. Compute EOQ to determine number of orders per year 2. Divide number of periods in one year by number of orders to get ordering interval EOQ = 58 Number of periods in one year = 12 D = 200 200 / 58 = 3.4 (orders per year) 12 / 3.4 = 3.5 (ordering interval) MRP

  27. Safety stocks in MRP systems • Need for safety stocks: • Variations in demand due to end-item forecast errors and inventory errors • Variations in supply – both lead-times and quantities • Since demand is not random, traditional statistical techniques do not apply. • Options to provide safety factors: • Fixed quantity buffer stocks • Safety lead-time • Increase gross requirements MRP

  28. Safety stocks in MRP systems (cont.) • Fixed quantity buffer stocks • Good rule of thumb: Set buffer = max. demand likely in a single period • Never generate order solely to replenish buffer stocks • Safety time method • Simply order early • Distorts LTs and priorities • Better than buffer stocks for items with infrequent demand • Also better for purchases outside company • Increase in gross requirements • Should be done at end item level only so that • Components available in matched sets • Safety stocks are not duplicated at different levels MRP

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