MRP

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MRP

• S. Cholette
• DS412

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MRP

• Material requirements planning (MRP)
  Computer-based information system for ordering
  and scheduling of dependent demand inventories
• Dependent demand Demand for items that are
  subassemblies or component parts to be used in
  production of finished goods
• MRP enables having the right materials available
  at the right place and the right time

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A FGI - Finished Goods Inventory B,C WIP
Work In Progress D,E,F Raw Materials
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Dependent vs. Independent Demand
------- Dependent Demand ----------
------- Independent Demand ------
Lumpy demand
Demand
Stable demand
Demand
Time
Time
Time
Time
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Overview of MRP
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MRP Inputs

• Master Production Schedule
• Bill of Materials
• Inventory Records
• Assumptions
• all of these inputs are available from computer
  systems in a regular and timely manner
• information is up-to-date, correct, and
  consistent (in units, naming conventions, etc.)
• If not, an army of consultants will spend even
  more time and money on implementing an MRP system

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MRP Input 1 Master Production Schedule

• Master Production Schedule (MPS) time-phased
  plan specifying which end items are to be
  produced, when these are needed, and in what
  quantities
• Demand (amount timing) for end items comes from
  many sources, including customer orders,
  forecasts, internal orders
• Aside MPS demand often broken down into Orders
  vs.- Forecast, with spare production capacity
  denoted as Available-to-Promise

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Master Production Schedule

• The creation of an MPS is studied in Chapter 14
  Aggregate Planning
• MPS creation not covered in this class, for all
  problems an existing MPS will be provided
• Important point The MPS needs to cover the
  stacked/ cumulative lead time for the production
  of all end items
• Cumulative lead time The sum of the lead times
  that sequential phases of a process require, from
  ordering of parts or raw materials to completion
  of final assembly

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MPS Planning Horizon Example
This item has 4 stages of production which
requires 9 weeks in total. Thus the planning
horizon of the MPS is likely 10 weeks or more
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MRP Input 2 Bill-of-Materials

• Bill of materials (BOM) One of the three primary
  inputs of MRP a listing of all of the raw
  materials, parts, subassemblies, and assemblies
  needed to produce one unit of a product
• This listing is hierarchal
• Product structure tree Visual depiction of the
  requirements in a bill-of-materials, where all
  components are listed by levels
• - End item at top, sub-assemblies at next level,
  and so on.

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Product Structure Tree
The chair has 2 levels below the end-item level.
Sub-assemblies are at level 1 and components are
at levels 1 (seat) and level 2 (remainder of
component parts)
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Example Using the Bill of Materials to Determine
Production Requirements
If have the following Onhand B 4 C 10 D 8 E
60 F 0

• Given
• the product structure of X
• the on-hand inventory of parts
• What do we still need to produce or procure to
  make 10 units of X?

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Example First Determine Requirements for One End
Item

• Starting at the top, multiply the number of the
  parent component needed by the number of the
  child components required to create the parent.
  This is the Bill of Materials

For 1 X need B 2 C 1 D 6 E 28 F 2
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Example Next Determine Requirements for Required
Quantity of End Items

• Starting at the top, as for BOM but multiply by
  of X to produce, subtracting off available
  Onhand.
• Need to work from top to bottom!

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For 10 X need B 16 C 0 D 40 E 116 F 0
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MRP Input 3 Inventory Records

• Inventory Records stored information on the
  status of each item by time period
• inventory status
• Onhand inventory (as per previous example)
• scheduled receipts
• gross requirements
• Also item details, such as
• Supplier (for ordered items)
• order/production lead time
• order/production lot size

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Assembly Time Chart
Construct by turning a Product Structure Tree
sideways, making the branch length to lead
times (from Inventory Records)
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MRP Processing

• MRP processing generates the following in order
• Gross Requirements GRt
• Scheduled Receipts SRt
• Projected On-hand OHt
• Net Requirements NRt
• Planned-Order Receipts PORt
• Planned-Order releases POt

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Calculating the Net Requirements

• Core MRP process. For each time period, t
• NRt GRt (OHt SRt)
• Where
• GRt Gross Requirements- total expected demand
  during t. Attained by Exploding BOM
• OHt Projected Onhand Inventory projected to be
  available at beginning of t. Scheduled Receipts
  available inventory from last period
  (subtracting any other commitments)
• Your book talks about Safety Stock (SSt )
  requirements, but for this class, SSt 0
• NRt Net Requirements actual amount needed
  during time period t.

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MRP Processing, continued

• Pay attention to timing in t!
• Scheduled Receipts (SRt) Open orders scheduled
  to be received by the beginning of period t
• Planned Order Receipts (PORt) quantity expected
  to be received in beginning of period t - takes
  into account any Lot Size (LS) issues
• Any excess of net requirements will be added to
  OHt1, though it is technically available in t
• Planned Order Releases (POt) Planned Amount to
  Order in (beginning of) period t
• Is equal to the planned order receipts from
  period tn, where n is the Lead Time (LT)
• Planned Order Releases generate the gross
  requirements at the next level down in the
  production chain.
• And so we go through this process again for all
  lower level components!

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Example Shutter Production

• We have an order for 100 shutters in Week 4 and
  150 in Week 8
• Shutters are made from 2 Frames and 4 Wood
  Sections, both ordered out of house
• Frames take 2 weeks, Wood Sections 1 week to
  arrive
• Shutters take 1 week to assemble from their
  component parts
• We have no parts on-hand at the start, but expect
  an order of 70 wood sections at the start of week
  1
• We only need make/order exactly what we need
  (lot-for-lot sizing)

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• We start with the MPS, do the MRP plan for the
  end-item (shutters) then use this and the BOM to
  determine the MRP plan for the lower-level parts

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MRP Processing Filling Out the MRP Plan

• In reality, MRP Processing is done by computer
• However it is useful to do simple examples by
  hand to learn the underlying process and help
  troubleshoot problems
• After an MRP implementation or system update,
  MRP plans are often wrong due to bad data (i.e.
  blank lead times getting set to 0 rather than a
  default)

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Other Considerations

• Safety Stock
• Theoretically not required for dependent demand
  managed by MRP
• Variation in processing times, yields rates, lead
  times, etc. may make it advisable in some cases
• May use Safety Time in place of Stock
• i.e. Schedule receipt of orders from less
  reliable vendors 1-2 time periods in advance of
  actual need.

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Other Considerations Lot Sizing

• How much to order at once? Lot Sizing is often
  used to reduce holding and/or ordering costs
  while meeting dependent demand
• Here are 2 different Lot-Sizing policies
• Fixed-lot size an order is exactly N or in
  multiples of N
• Common with external suppliers of commodity parts
• Lot-for-lot ordering Order exactly what is
  needed.
• Simplest policy with low holding costs (but
  higher order costs)
• Stevenson offers 2 additional policies that we
  ignore. Any MRP test problems will use only
  Fixed-lot or Lot-for-lot
• Economic order/production quantity (EOQ/EPQ)
  Leads to minimum costs if usage is relatively
  constant (perhaps for raw materials common to
  many end items and sub-assemblies)
• Fixed-period ordering - Ordering amount needed
  to cover net requirements of next n periods,
  where n is set by policy.
• Reduces order costs at expense of holding costs

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Other ConsiderationsInventory Pegging

• Sometimes a component is common to different
  sub-assemblies or in different end items
• In order to be able to trace the dependent
  demands, we can use inventory pegging to denote
  which lot is associated with which part
• Simplest form- using color (see following
  example)
• If production/ordering is delayed on for
  component, it may make sense to first meet the
  demands of a more strategic end item

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MRP Example

• A small toy company is surprised by the sudden
  demand for one of its hand-made wood and metal
  toys, the GX123
• The operations management team needs to determine
  how to best meet this new demand as quickly as
  possible

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MRP Example Data

• The raw materials of the GX123 are 3
  vendor-supplied parts the R_4b (Blue block), the
  L_7x (Orange ball with black rod) and the S_1b
  (red metal spring)
• To assist manufacturing, first 2 sub-assemblies
  plus an S_1b
• (1) H_ASM, the head assembly, which is composed
  of 2 S_1b and 1 L_7x
• (1) B_ASM, the body assembly, which is composed
  of 1 R_4b and 4 L_7x
• Below is the information from the inventory
  records, with the additional information that a
  lot of the L 7x is due at the beginning of week
  2, and 2 lots of s_1b are due at the beginning of
  week 7

3
3
3
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MRP ExampleSome Sample Questions

• What is the Bill of Materials for the GX123?
• What is the soonest we can produce any more GX123
  -and how many?

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Example BOM for GX123

• There are 2 levels below the end item level (0)
• Total parts for a GX123
• H_asm 1
• B_asm 1
• S_1b 3
• L_7x 5
• R_4b 1
• Notice that part S_1b and part L_7x are used in
  two different places
• Why dont we put the tail on earlier, in the body
  assembly? Who knows- its probably a
  manufacturing issue, but in any case, its
  outside of our decision power!

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Example MRP Processing

• Given all of the preceding information, produce
  an MRP Plan so that all materials will be ordered
  and assembled to enable 100 of GX123 to be ready
  by week 7.
• We can see that our MPS is as follows

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Example Getting Started

• The MRP Plan for the GX123 part is easily derived
  from the MPS
• Given the LT for assembly of the GX123 of 1
  period, we need to schedule the planned order
  release for Period 9

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Next Step Exploding the MRP Requirements for
Level 1

• Use the BOM (and Quantity ) to translate the
  Gross Requirements for the Level 1 components
• For now we will ignore component S_1b, as it is
  also a level 2 component

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Exploding MRP Requirements Down to Level 2

• Remember that the S_1b component is used both as
  a level 1 and level 2 component. We follow the
  convention of low-level coding and place this
  item at the lowest level it is utilized in.
• Although not mandatory, it may be useful for us
  to see how the gross requirements break down by
  usage through inventory pegging accomplished by
  use of color here.
• Notice that more components are needed for the
  head assembly earlier, too. (not surprising, as
  LT for production of H_ASM is 1 period)
• We are doing the head assembly in week 5 and we
  need only 90 heads, therefore, as 2 S_1b are used
  per head, we have a GR 290180 in wk5
• Dont forget we need the tails for assembling100
  GX123 in wk 6 (in red)
• And also remember your leftovers and that
  too-late order coming in in wk 7

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Exploding MRP Requirements Down to Level 2,
Continued

• All thats left is determining the Planned Order
  Releases for the remaining
• two raw materials, L_7x and R_4b.
• Inventory Pegging shows how many L_7x we need to
  order for both head (in 5th time period, in red)
  and body assemblies (in 4th time period, where
  380 495)
• The cumulative lead time for production of the
  GX123 is 8 periods
• In total our MRP Plan has entries for 6
  components
• End Item, H-ASM, B-ASM and the (3) level-2 parts

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MRP Processing Outputs

• The total Planned-Order Releases (POs) for all
  components over the horizon
• Just the last row of each of the components MRP
  plans from weeks 1 to 8 (no need to include 0).
• Tells us when we need to place an order for a
  part (S-1b,L-7x, R_4b) or set aside
  processing/labor time for assembly (B_asm, H_asm,
  GX123)

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MRP Outputs

• Primary Reports
• Planned Orders The MRP Plan indicating the
  amount and timing of future orders
• Order releases - Authorization for the execution
  of planned orders
• Changes to planned orders- revisions of due dates
  or order quantities, or cancellations of orders
• We do not cover Change Reports nor any of the
  Secondary Reports in this class

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Capacity Planning

• Capacity requirements planning The process of
  determining short-range capacity requirements
• Analysis need to be performed separately for each
  capacity requirement (each machine in question,
  labor, etc.) every period
• Hours used Planned Order Releases per-unit
  requirements
• Compare Hours used against amount available that
  period
• (Hours used)/(Hours Available) Utilization
• If over-utilized in any period, we may need to
  temporarily expand capacity or to delay/advance
  production to a nearby period (this requires
  adjusting later/earlier components, respectively)
• Caveat Scheduling capacity at the aggregate
  level (time buckets) may still not result in a
  feasible detailed schedule
• MRP is generally a less effective Capacity
  Planning effective tool than other methods, and
  it will not be covered in this class

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ERP

• Enterprise resource planning (ERP) An expanded
  effort to integrate standardized record-keeping
  that will permit information sharing throughout
  the organization
• MRP functionality is usually fulfilled by a
  module in ERP- such as SAPs MM/PP

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Examples HW Problems

• Stevenson, Pr3 Given the following information,
• a) If 40 units of the end item are to be
  assembled, how many additional units of component
  B are needed?
• b) An order for the end item is scheduled to be
  shipped at the start of week 8. What is the
  latest week that the order can be started and
  still be ready to be shipped on-time?

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Examples HW Problems

• Stevenson, Pr4-a Prepare a MRP plan for J given
  the following
• Eighty units of end item E are needed at the
  beginning of week 6.
• 3 cases (case30 items) of J have been ordered
  and one case is scheduled to arrive in week 3,
  one in week 4 and one in week 5.
• Sub assembly B must be produced in multiples of
  120 units.
• On-hand is 60 units of B and 20 units of J.
• (some versions of book may have 100 for J-onhand)
• Lead times are 2 weeks for E and B, 1 week for J
• We have more than enough F onhand
• The product structure tree for the end item E is
  as follows
• E
• ------------------
• B(2) J(3)
• ------------
• J(4) F(2)

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MRP Plan Solution to 4a
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Examples HW Problems

• Exam question MRP Warm-up questions from on
  final The following table lists the components
  used in assembling FG-A. Also included for each
  component are the following info the on-hand
  supply, lead time, and direct components.
• Given this info, show the Bill-of-Material
  associated with 1 unit of FG-A
• What is the total lead time (in weeks) associated
  with making an item of FG-A, assuming we had no
  starting on-hand for any part?
• If we wanted to make one FG-A, would we need to
  order any more of either E or F? (Y / N) _____
  Why or Why Not?