MRP

1. MRP

2. Question: how do firms actually organize things to turn materials into finished products?

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

4. MPS Example – Maine Woods Toy Co. One possible MPS…

5. Products are combinations of parts… Example: Bicycle Handle bars (1) Metal Frame (1) Wheels (2)

6. Dependent Demand Demand for a component (raw material, part, sub-assembly) is dependent on the demand for the end-item into which the component goes. demand often occurs in batches Independent Demand Demand for an item is independent of the demand for other items. These demands are typically determined by outside customers and are end-item demands Dependent vs Independent Demand

7. Shows all the assemblies, subassemblies, components, and raw materials required to produce an item Shows way a finished product or parent item is put together from individual components Parent item shown at highest level or level zero Parts that go into parent item are called level 1 components and so on Production planners explode BOM for level zero item to determine the number, due dates, and order dates of subcomponents Bill of Materials (BOM)

8. Let’s look at an example BOM... A Question: How many D’s we need in order to produce 50 A’s? B(2) C(1) D(3) E(3) D(1)

9. Schematic of MRP System

10. Computer-based information system that schedules and orders dependent-demand inventory components; Uses the master production schedule, bills of materials, and inventory records as inputs; Outputs recommendations: When to release new orders When to reschedule open orders. Material Requirements Planning (MRP)

11. Let’s look at an example BOM... A B(2) C(1) D(3) E(3) D(1)

12. How do we manage order release? We need information on delivery times!

13. Let’s look at an example BOM... A (10) Question: When do we start producing/ordering each part? B(2) C(1) (15) (10) (15) D(3) E(3) D(1) (15) (10)

14. Let’s assume that we need 50 units of A… Delivery date for final product 5 days

15. Let’s assume that we need 50 units of A… Start assembly for 50 units of A

16. Let’s assume that we need 50 units of A… Start assembly for 100 units of B

17. Let’s assume that we need 50 units of A… Start assembly for 50 units of C

18. Let’s assume that we need 50 units of A… Order 300 units of D for B’s process

19. Let’s assume that we need 50 units of A… Order 50 units of D for C’s assembly

20. Let’s assume that we need 50 units of A… Order 50 units of E for C’s assembly

21. Summary: How does MRP work? Material Requirements Planning Production Assembly Customer Production Assembly Production Units are PUSHED forward according to the plan!

22. What about JIT/Lean Production? Production Assembly Production Customer Assembly Production Units are PULLED forward only when needed!

23. Push/Pull Decoupling Point Material Requirements Planning Cheeseburger Hamburger Patties Forecast Hamburger Chicken Patties Chicken Sandwich Units are PUSHED forward to a certain point. Final configuration (PULL) occurs only when the actual customer demand occurs.

24. Lot Sizing in MRP Systems • MRP generates material orders • Order sizes/lots can be chosen according to various objectives • Lot-for-lot (L4L): • Produce to cover next period • EOQ: • Apply the EOQ approximation for yearly demand • Least Unit Cost: • Minimize total cost (order + carry) per unit These are all approximate methods, none is guaranteed to be optimal. We can apply all of them and find the least-cost one to implement.

25. Example Cost per item: $10 Order/setup cost: $47 Inventory carrying cost/month 2% Starting inventory: 50 Production lead time 1 month Monthly requirements 1 2 3 4 5 6 100 50 80 120 70 80 For the solution, see file mrp_methods.pdf

26. MRP Evolution MRP Schedule Materials Closed Loop MRP Schedule Materials Incorporate Feedback MRP II Schedule & Purchase Materials Coordinate w/ Mfg Resources ERP

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

28. 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

29. ERP Systems • Enterprise Resource Planning Systems is a computer system that integrates application programs in accounting, sales, manufacturing, and other functions in the firm • This integration is accomplished through a database shared by all the application programs

30. Typical ERP System

31. Video: ERP at Hillerich & Bradsby • Notes:

32. Major ERP Providers Source: AMR Research

33. Reasons to Implement ERP • Desire to standardize and improve processes • To improve the level of systems integration • To improve information quality

34. ERP Drawbacks • Cost • $250M+ for a Fortune 100 company • Transition pain • Implementation resources • Training • Resistance to change

35. Summary and Conclusions… • Master Production Schedule (MPS) converts aggregate plan to a detailed schedule • Primary inputs to MRP are MPS, BOM’s (for part relationships) and Inventory Records (for lead times and inventory position) • MRP is a push system but can be used in conjunction with pull systems • MRP grew and evolved to include closed-loop, Manufacturing Resource Planning (MRP II), and eventually ERP