Production and Operations Management: Manufacturing and Services

1
CHASE AQUILANO JACOBS
Operations Management
For Competitive Advantage
Chapter 15
Material Requirements Planning
2
Chapter 14Materials Requirements Planning

• 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 Programs

3
Material Requirements PlanningDefined

• Materials requirements planning (MRP)
• Is the logic for determining the number of parts,
  components, and materials needed to produce a
  productthe quantity problem.
• It provides time scheduling information
  specifying when each of the components, parts,
  materials should be ordered or producedwhen
  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
6
Material planning (MRP)
From Exhibit 14.6

• The McGraw-Hill Companies, Inc., 2001

7
Master Production Schedule (MPS)

• Time-phased plan specifying how many and when the
  firm plans to build each end item.

MPS (Specific End Items)
8
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.

9
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).

10
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.

11
Example of Time Fences
Exhibit 14.5
12
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

13
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
14
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

15
Primary MRP Reports

• Planned orders to be released at a future time.
• Order release notices 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.

16
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.

17
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

18
Net Change System

• Activity driven
• Net change schedules
• Potential for system nervousness

19
The 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.

20
Example of MRP Logic and Product Structure Tree
(BOM)
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.
Lead Times A 1 day B 2 days C 1 day D 3
days E 4 days F 1 day
Product Structure Tree (BOM) for Assembly A
Demand Day 10 50 A Day 8 20 B (Spares) Day 6
15 D (Spares)
21
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 in the 9th
week to receive them in the 10th week.
LT 1 day
22
Next, we need to start scheduling the components
that make up A. In the case of component B
we need 4 Bs for each A. Since we need 50 As,
that means 200 Bs. And again, we back the
schedule up for the necessary 2 days of lead time.
23
Finally, repeating the process for all
components, we have the final materials
requirements plan
23

• The McGraw-Hill Companies, Inc., 2001

24
MRP Scheduling Terminology

• Gross Requirements
• Gross demand as taken from the MPS
• On-hand
• Available physical inventory
• Net requirements
• Net demand after inventories are consumed
• Planned order receipt
• Time outstanding orders are expected
• Planned order release
• When to place orders so they come in when needed

25
An 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
(No Transcript)
27
MRP Example 2
Requirements include 95 units (80 firm orders and
15 forecast) of X in week 10 plus the following
spares
28
 
 
29
(No Transcript)
30
Closed Loop MRP
Production Planning Master Production
Scheduling Material Requirements
Planning Capacity Requirements Planning
31
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

32
Lot Sizing in MRP Programs

• Economic order quantity (EOQ)
• Lot-for-lot (L4L)
• Period order quantity (POQ)
• Part period balancing (PPB)
• Least total cost (LTC)
• Least unit cost (LUC)
• Silver-Meal heuristics (SM)
• Wagner-Wittin (WW)

33
Lot-Sizing Example EOQ Method

• The net requirements for a product is as given in
  the table. If C10/unit, S47/order, H.5 of
  cost, 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

TC10(525)(.05)(1563)2(47)5,422.15
34
Lot-Sizing Example LFL Method

• The net requirements for a product is as given in
  the table. If C10/unit, S47/order, H.5 of
  cost, 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

TC10(525)(.05)(0)8(47)5,626
35
Lot-Sizing Example POQ Method

• The net requirements for a product is as given in
  the table. If C10/unit, S47/order, H.5 of
  cost, 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

TC10(525)(.05)(1190)2(47)5,404