MRP

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MRP
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Question how do firms actually organize things
to turn materials into finished products?
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Master Production Schedule (MPS)

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

Aggregate Plan (Product Groups)
MPS (Specific End Items)
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MPS Example Maine Woods Toy Co.
One possible MPS
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Products are combinations of parts
Example Bicycle
Handle bars (1)
Metal Frame (1)
Wheels (2)
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Dependent vs Independent Demand

• 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

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Bill of Materials (BOM)

• 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

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Lets look at an example BOM...
A
Question How many Ds we need in order to
produce 50 As?
B(2)
C(1)
D(3)
E(3)
D(1)
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Schematic of MRP System
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Material Requirements Planning (MRP)

• 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.

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Lets look at an example BOM...
A
B(2)
C(1)
D(3)
E(3)
D(1)
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How do we manage order release?
We need information on delivery times!
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Lets 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)
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Lets assume that we need 50 units of A
Delivery date for final product
5 days
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Lets assume that we need 50 units of A
Start assembly for 50 units of A
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Lets assume that we need 50 units of A
Start assembly for 100 units of B
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Lets assume that we need 50 units of A
Start assembly for 50 units of C
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Lets assume that we need 50 units of A
Order 300 units of D for Bs process
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Lets assume that we need 50 units of A
Order 50 units of D for Cs assembly
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Lets assume that we need 50 units of A
Order 50 units of E for Cs assembly
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Summary How does MRP work?
Material Requirements Planning
Production
Assembly
Customer
Production
Assembly
Production
Units are PUSHED forward according to the plan!
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What about JIT/Lean Production?
Production
Assembly
Customer
Production
Assembly
Production
Units are PULLED forward only when needed!
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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.
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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.
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Example
Cost per item 10 Order/setup
cost 47 Inventory carrying cost/month 2 Start
ing 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
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MRP Evolution
MRP
Schedule Materials
Closed Loop MRP
Schedule Materials Incorporate Feedback
MRP II
Schedule Purchase Materials Coordinate w/ Mfg
Resources
ERP
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Closed-Loop MRP
Production Planning Master Production
Scheduling Material Requirements
Planning Capacity Requirements Planning
No
Feedback
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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

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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

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Typical ERP System
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Video ERP at Hillerich Bradsby

• Notes

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Major ERP Providers
Source AMR Research
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Reasons to Implement ERP

• Desire to standardize and improve processes
• To improve the level of systems integration
• To improve information quality

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ERP Drawbacks

• Cost
• 250M for a Fortune 100 company
• Transition pain
• Implementation resources
• Training
• Resistance to change

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Summary and Conclusions

• Master Production Schedule (MPS) converts
  aggregate plan to a detailed schedule
• Primary inputs to MRP are MPS, BOMs (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