18 - 1 MRP is a computer based information system for ordering, scheduling, and managing dependent...

18 - 1

MRP is a computer based information system for ordering, scheduling, and managing dependent demand inventory requirements

Lesson 18

Material Requirements Planning (MRP)

End Product

E(1)

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End Product

Independent Versus Dependent Demand

Independent Demand - demand at the customer end product level

Dependent Demand - demand for items that are subassemblies, component parts or raw materials to be used in the production of end products

E(1)

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Independent Demand

A

B(4) C(2)

D(2) E(1) D(3) F(2)

Dependent Demand

Independent demand is uncertain Dependent demand is certain

Independent Versus Dependent Demand

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“ I don’t know how we managed to get along without MRP for as long as we did.

Our scheduling has gone from a state of turmoil to relative calm.

We have achieved a substantial reduction in inventory size and cost while increasing our customer service.

We are more than satisfied with MRP; it allows to plan rather than spend all our time trying to meet one crisis after another.

I would strongly recommend that all manufacturing firms adopt MRP or some similar approach”.

Positive View Of MRP

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“We had heard so many good things about MRP that we couldn’t wait to get started, but so far, it seems like we’ve just been spinning our wheels.

We’re not even close to going online with it, and yet we’ve already exceeded our original time estimates and costs are out of sight.

Everyone is discouraged, especially the brass.

There is even some talk of just scrapping the whole idea”

Negative View Of MRP

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Materials Requirements Planning is a a computer based information system designed to handle ordering and scheduling of dependent demand inventory requirements . It

. Takes into account lead times, and . Develops a production plan showing quantity and timing for materials, component parts and subassemblies from the first component to the last

Materials Requirement Planning - MRP

As you have learned or will learn in your information systems class, information systems are only as good as the input data. Two of the most prevalent reasons for MRP failure are

. Lack of planning for implementation

. GIGO

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MRP System

Inventory Transactions

MRP Inputs & Outputs

Master Schedule

Bill of Materials

InventoryFile

Secondaryreports

Exception reports

Planning reports

Performance-controlreports

Primaryreports

Changes

Order releases

Planned-orderschedules

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Master Scheduling Process

Masterscheduling

Beginning Inventory

Forecast

Customer Orders

Projected Inventory

Master Production Schedule

Available To Promise

(uncommitted inventory)

Recall the Master Production Scheduling Process is a procedure for considering inventories, customer orders, & forecasts to produce a projected inventory, master production schedule & ATP.

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The Master Production Schedule (MPS) is a schedule of how much & when to produce independent (customer end product) demand. It shows when the end product is needed but does not show when raw materials, components, subassemblies or parts are needed.

Master Production Schedule

Planning Period 1 2 3 4 5 6 7 8Forecast 30 30 30 30 40 40 40 40

Customer Orders 33 20 10 4 2Projected Demand 33 30 30 30 40 40 40 40

Projected On Hand Inventory 64 31 1 41 11 41 1 31 61Master Production Schedule (MPS) 70 70 70 70

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Product Planning Horizon

The Product Planning Horizon shows the timing, lead times and steps in the manufacturing process to assure that the end item is manufactured correctly and on-time.

1 2 3 4 5 6 7 8 9 10

Procurement

Fabrication

Sub-assembly

Assembly

Cumulative Lead Time - the sum of the lead times that sequential phases of a process require.

Procurement Lead Time

Sub-assembly Lead Time

Assembly Lead Time

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Assembly Time Charts show the material order points needed to meet scheduled availability of the end item

1 2 3 4 5 6 7 8 9 10 11

Procurement ofraw material D

Procurement ofraw material F Procurement

Of part CProcurement of

part HProcurement ofraw material I Fabrication

of part G

Fabricationof part E

Subassembly A

Subassembly B

Final assemblyand inspection

Material D, F and I must be ordered at the beginning of week 2 to meet a delivery at the beginning of week 12

Assembly Time Chart

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The Bill of Materials (BOM) is a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of an end product. The Bill of Materials File contains all Bill of Materials for each end product the company produces.

A Product Structure Tree - a visual depiction of the requirements in a bill of materials, where all components are listed by levels.

Bill Of Materials

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Cross Bar

LegsSeat

Back Supports

Cross Bar

Side Rails

Bill Of Materials – Chair Example

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Cross BarLegs (2)

Seat

Back Supports (3)Cross BarSide Rails (2)

Chair

Leg Assembly Back Assembly

Product Structure Tree - Chair Example

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Example 1: Use the information presented below to answer the following? Determine the quantities of B, C, D, E and F to complete one X. Determine the quantities of each of these components to produce 200 X’s.

X

D(3) E E(2) F(2)

B(2)

Level 0

1

2

3

C

E(4)

B - 2

C - 1

D - 3x2 = 6

E - 4x3x2+1x2+2 = 28

F - 2

B - 400

C - 200

D - 1200

E - 5600

F - 400

Product Structure Tree - Example

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Even though this template is provided, manual acuity will be necessary to solve some of the problems.

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Bill of Material Menu

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ED Worksheet

Steps

1. Enter products and components in the columns to the left – this builds the product structure to the right

2. Enter quantities in the product structure tree in the bright green cells

12

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Steps

1. Click the Explode BOM Components Macro

2. Enter the end item quantity and click OK

EXPLODE Worksheet

1

2

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EXPLODE Worksheet

The BOM explosion is automatically shown in the product structure tree and the total for all

components and subcomponents are shown in the BOM Quantity to the left.

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Here, the BOM explosion is shown for 200 X’s

EXPLODE Worksheet

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ASSEMBLY Worksheet

Steps

1. If the lead times are provided for each component, enter them in the Lead Time column (here we show the lead time is 1 unit of time for each component)

2. Click the Calculate Assembly Paths macro

3. Choose which assembly time paths you wish to show in the Assembly Time Chart.

1

2 3

3

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A Material Requirements Plan shows the following time phased elements. . Gross Requirements - total expected demand for an item or raw material in a time period. Scheduled Receipts - open orders scheduled to arrive (from vendors or elsewhere) in the pipeline. Projected on Hand - Expected amount of inventory that will be on hand at the beginning of each time period. Net Requirements - The actual amount needed in each time period. Planned Order Receipts - Quantity expected to be received by the beginning of the period in which it is shown. Planned Order Releases - Planned amount to order in each time period offset by lead time

MRP Elements

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These can be shown in a time phased planning chart like the one below: The time phase can be variable (weeks, days, etc).

Time Phased MRP

ItemGross requirementsScheduled receiptsProjected on handNet requirementsPlanned-order receiptsPlanned-order releases

Week Number 1 2 3 4 5 6 7 8

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Example 1a: A firm that produces wood shutters and bookcases has received two orders for shutters. One for 100 shutters and one for 150 shutters. The 100 unit order is due for delivery a the start of week 4. The 150 unit order is due for delivery at the start of week 8. Each shutter consists of 4 slatted wood sections and two frames. The wood sections are made by the firm and fabrication takes one week. The frames are ordered, and lead time is two weeks. Assembly of the shutters requires one week. There is a scheduled receipt of 70 wood sections in week 1 (at the beginning of).

Determine the size and timing of planned orders (MRP) necessary to meet the delivery requirements where there is lot for lot ordering (e.g. order size is equal to net requirements).

MRP – Example 1

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The product structure tree for a wood shutter

Frames (2) Wood Sections (4)

Wood Shutter

Therefore, we need to develop the MRP for Wood Shutters, Frames, and Wood Sections.

MRP – Example 1

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Week Number 1 2 3 4 5 6 7 8Master Schedule Quantity 100 150

Wood ShuttersGross requirements 0 0 0 100 0 0 0 150Scheduled receiptsProjected on hand 0 0 0 0 0 0 0 0Net requirements 0 0 0 100 0 0 0 150Planned-order receipts 0 0 0 100 0 0 0 150Planned-order releases 0 0 100 0 0 0 150 0

Week Number 1 2 3 4 5 6 7 8FramesGross requirements 0 0 200 0 0 0 300 0Scheduled receiptsProjected on hand 0 0 0 0 0 0 0 0Net requirements 0 0 200 0 0 0 300 0Planned-order receipts 0 0 200 0 0 0 300 0Planned-order releases 200 0 0 0 300 0 0 0

Week Number 1 2 3 4 5 6 7 8SectionsGross requirements 0 0 400 0 0 0 600 0Scheduled receipts 70Projected on hand 70 70 70 0 0 0 0 0Net requirements 0 0 330 0 0 0 600 0Planned-order receipts 0 0 330 0 0 0 600 0Planned-order releases 0 330 0 0 0 600 0 0

MRP – Example 1

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Wood Shutters

First, develop a master schedule for the Shutters

From delivery requirement

MRP – Example 1

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Next, calculate the MRP for the Wood Shutters

From MPS

Order Releases offset for lead time of 1 week

MRP – Example 1

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Next, calculate the MRP for the FramesShutter Planned Order Release * 2 becomes Frames Gross Requirement

Order Releases offset for lead time of 2 weeks

MRP – Example 1

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Next, calculate the MRP for the Wood SectionsShutter Planned Order Release * 4 becomes Sections Gross Requirement

Order Releases offset for lead time of 1 week70 Scheduled at beginning of Week 1

MRP – Example 1

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Even though this template is provided, manual acuity will be necessary to solve some of the problems.

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MRP Menu

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ED Worksheet

Step 1: Enter the product components and subcomponents in the table to the left The representation is shown in the product structure tree.

Step 2: Enter the component quantity in the product structure tree.

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ED Worksheet

Step 3: Enter the lead time, on hand, and lot ordering rule (lot size if not lot for lot, and 1 for lot for lot ordering)

Step 4: Enter the end item demand in the appropriate starting week

Step 5: Enter any scheduled receipts in the appropriate week

34

5

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ASSEMBLY Worksheet

Steps

1. Click the Calculate Assembly Paths macro

2. Choose which assembly time paths you wish to show in the Assembly Time Chart.

1 2

2

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MRP Worksheet

Here the MRP is shown for:

1. WS

2. F

3. S

1

2

3

The MRP is automatically calculated for each component and subcomponent in the product structure tree. The levels are color coded according to their position in the product structure tree.

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Example 1b: A firm that produces wood shutters and bookcases has received two orders for shutters. One for 100 shutters and one for 150 shutters. The 100 unit order is due for delivery a the start of week 4. The 150 unit order is due for delivery at the start of week 8. Each shutter consists of 4 slatted wood sections and two frames. The wood sections are made by the firm and fabrication takes one week. The frames are ordered, and lead time is two weeks. Assembly of the shutters requires one week. There is a scheduled receipt of 70 wood sections in week 1 (at the beginning of).

Determine the size and timing of planned orders (MRP) necessary to meet the delivery requirements with lot size ordering of

320 units for frames

70 units for wood sections

MRP – Example 2

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MRP – Example 2



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The MRP for Wood Shutters is the same as in Example 1.

From MPS

Order Releases offset for lead time of 1 week

MRP – Example 2

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Next, calculate the MRP for the Frames

On hand after meeting requirements

Lot size order quantity for frames

MRP – Example 2

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Next, calculate the MRP for the Wood Sections

On hand after meeting requirements

Lot size order quantity for sections (increments of lot size of 70)

MRP – Example 2

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ED Worksheet

Note the changes in the lot sizing rules.

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MRP Worksheet

Note the changes in the MRP for each component.

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Outputs include Primary & Secondary Reports and Inventory transactions.

Primary Reports. Planned Orders - amount and timing of future orders. Order Releases - authorizing the execution of planned orders. Changes - to planned orders, including revisions of due dates

or order quantities and cancellations of orders

Secondary Reports. Performance control reports - evaluate system operations including deviations from plans and cost information. Planning reports - data assessing future material requirements . Exception reports - data on any major discrepancies

MRP Outputs

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Updates to the system are necessary any time changes occur to make sure that planners are always aware of the latest occurrences. These updates primarily involve inventory updates regarding number produced, number received, quality fallout, etc. (e.g. if you were supposed to receive 70 units and only received 65 your MRP would be inaccurate. It must be updated to show the latest information)

MRP Updates

Depending on the business urgency or situation these updates may occur either periodically or on a continuous basis.

. Periodic update systems are called “regenerative”

. Continuous update systems are called “net-change”

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Other considerations include . Safety stock. Lot sizing (lot for lot, EOQ, fixed period ordering, part-period ordering). Capacity Requirements Planning - the process of determining the short range capacity requirements

.. Once the MRP is completed for all items that a company produces it has visibility of all the

requirements for assemblies, sub-assemblies, materials, etc. At this point, the company can evaluate its ability to meet the requirements based on equipment and labor availability. Plans may be adjusted as a result of the capacity planning procedure.

Other MRP Considerations

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Develop a tentativemaster production

schedule

Develop a tentativemaster production

schedule

Use MRP tosimulate material

requirements

Use MRP tosimulate material

requirements

Convert materialrequirements to

resource requirements

Firm up a portionof the MPS

Is shopcapacity

adequate?

Cancapacity be

changed to meetrequirements

Revise tentativemaster production

schedule

Changecapacity

Yes

No

Yes

No

Capacity Planning

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When MRP implementations are made successfully, benefits have been seen in the areas of

. Lower levels of in-process inventories

. Ability to keep track of material requirements

. Ability to keep up with the results of day to day operational effects with respect to the Master Production Schedule. Ability to evaluate capacity requirements generated by the Master Production Schedule. A means of prioritizing and allocating production resources

Benefits Of MRP

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Requirements for successful MRP implementations include but are not limited to

. Proper planning for implementation

. A computer system with software to handle the nuances of a business. Accurate and up-to-date

.. Master Schedules

.. Bills of Materials

.. Inventory Records. Integrity of data transactions

Requirements For Successful MRP

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MRP II is an expanded approach to MRP to include other areas of the company in the planning process. The MRP II system is integrated with other management information systems in the company to provide a consolidated view of all company operations.

MRP II Modules include. Forecasting . MRP. Customer Order Entry . Capacity Planning. Production Planning/ MPS . Shop Floor Control. Product Structure/BOM . Purchasing. Inventory Control . Accounting. Financial Analysis

MRP II

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Feasible?

MarketingPlan

FinancialPlan

BusinessPlan

ProductionPlan

No

Yes

Master productionschedule

Material requirementsplanning

Capacity requirementsplanning

Manufacture

Inventory Shop floorcontrol

Purchaseorders

Workorders

Feasible?No

Yes

Feedback

MRP II

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Enterprise Resource Planning

ERP software is marketed by many vendors.

It includes the same modules as MRP II as well as financial and distribution modules.

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Homework

Read and understand all material in the chapter.

Discussion and Review Questions

Recreate and understand all classroom examples

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