MRP

Learning ObjectivesLearning Objectives

Describe the conditions under which MRP is most appropriate.

Describe the inputs, outputs, and nature of MRP processing.

Explain how requirements in a master production schedule are translated into material requirements for lower-level items.

Discuss the benefits and requirements of MRP.

Learning ObjectivesLearning Objectives

Explain how an MRP system is useful in capacity requirements planning.

Outline the potential benefits and some of the difficulties users have encountered with MRP.

Describe MRP II and its benefits. Describe ERP, what it provides, and its

hidden costs.

Material requirements planning (MRP): Computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.

MRPMRP

End products

Time-phase based• Subassemblies• Components• Raw materials

MRP

Independent and Dependent Independent and Dependent DemandDemand

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.

Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods.

Once the independent demand is known, the dependent demand can be determined.

Dependant DemandDependant Demand

DemandDemand

Time

Time Time

Time

Dem

and

Dem

and

Stable demand“Lumpy” demand

Am

ou

nt

on

han

d

Am

ou

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on

han

d

Safety stock

MRP Inputs MRP Processing MRP Outputs

Masterschedule

Bill ofmaterials

Inventoryrecords

MRP computerprograms

Changes

Order releases

Planned-orderschedules

Exception reports

Planning reports

Performance-controlreports

Inventorytransaction

Primaryreports

Secondaryreports

Overview of MRPOverview of MRP

Master Production Schedule Time-phased plan specifying timing and

quantity of production for each end item. Material Requirement Planning Process

Product Structure

Tree

Lead Times

MPR InputsMPR Inputs

Inventory

Master ScheduleMaster Schedule

Master schedule: One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities.

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.

Planning HorizonPlanning Horizon

1 2 3 4 5 6 7 8 9 10

Procurement

Fabrication

Subassembly

Assembly

Time Period (weeks)

Bill-of-MaterialsBill-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.

Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.

Low-level coding: Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level the component occurs

Product Structure TreeProduct Structure TreeChair

Seat

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)

LegAssembly

BackAssembly

Level 0

1

2

X

B (2) C

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

E (4)

X

B (2) C

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

E (4) E E (2)

Level0

1

2

3

Inventory RecordsInventory Records

One of the three primary inputs in MRP Includes information on the status of

each item by time period Gross requirements Scheduled receipts Amount on hand Lead times Lot sizes And more …

Inventory RequirementsInventory Requirements

Net requirements:

Available Inventory:

Net Requirements = Gross Requirements – Available Inventory

Available Inventory = Projected on hand– Safety stock – Inventory allocated to other items

Assembly Time ChartAssembly Time Chart

1 2 3 4 5 6 7 8 9 10 11

Procurement ofraw material D

Procurement ofraw material F

Procurement ofpart C

Procurement ofpart H

Procurement ofraw material I

Fabricationof part G

Fabricationof part E

Subassembly A

Subassembly B

Final assemblyand inspection

Time-Phased Product Time-Phased Product StructureStructure

|| || || || || || || ||

11 22 33 44 55 66 77 88Time in weeksTime in weeks

F (2)F (2)

2 weeks2 weeks

3 weeks3 weeks

1 week1 week

AA

2 weeks2 weeks

1 week1 week

D (2)D (2)

E (2)E (2)

2 weeks2 weeks

D (2)D (2)

G (1)G (1)

1 week1 week

1 week1 week

2 weeks to 2 weeks to produceproduce

B (2)B (2)

C (3)C (3)

E (2)E (2)

Start production of DStart production of D

Must have D and E Must have D and E completed here so completed here so

production can production can begin on Bbegin on B Lead timeLead time

AABBCCDDEEFFGG

11221111223322

weeksweeksweeksweeksweeksweeksweeksweeksweeksweeksweeksweeksweeksweeks

Gross Requirements PlanGross Requirements PlanWeekWeek

1 2 3 4 5 6 7 8 Lead Time

A. Required date 50Order release date 50 1 week

B. Required date 100Order release date 100 2 weeks

C. Required date 150Order release date 150 1 week

E. Required date 200 300Order release date 200 300 2 week

F. Required date 300Order release date 300 3 weeks

G. Required date 600 200Order release date 600 200 1 week

G. Required date 300Order release date 300 2 week

Net Requirements PlanNet Requirements Plan

MRP ProcessingMRP Processing

Gross requirements

Schedule receipts

Projected on hand

Net requirements

Planned-order receipts

Planned-order releases

MPR ProcessingMPR Processing

Gross requirements

Total expected demand

Scheduled receipts

Open orders scheduled to arrive

Projected on hand

Expected inventory on hand at the beginning of each time period

MPR ProcessingMPR Processing

Net requirements

Actual amount needed in each time period

Planned-order receipts

Quantity expected to be received at the beginning of the period

Offset by lead time

Planned-order releases

Planned amount to order in each time period

Lot-Sizing TechniquesLot-Sizing Techniques

Lot-for-lot techniques order just what Lot-for-lot techniques order just what is required for production based on is required for production based on net requirementsnet requirements May not always be feasibleMay not always be feasible

If setup costs are high, costs may be If setup costs are high, costs may be high as wellhigh as well

Economic order quantity (EOQ)Economic order quantity (EOQ) EOQ expects a known constant EOQ expects a known constant

demand and MRP systems often deal demand and MRP systems often deal with unknown and variable demandwith unknown and variable demand

Lot-Sizing TechniquesLot-Sizing Techniques

Part Period Balancing (PPB) looks at Part Period Balancing (PPB) looks at future orders to determine most future orders to determine most economic lot sizeeconomic lot size EPP = setup cost / holding costEPP = setup cost / holding cost

Programming techniqueProgramming technique Assumes a finite time horizonAssumes a finite time horizon

Effective, but computationally Effective, but computationally burdensomeburdensome

Lot-for-Lot ExampleLot-for-Lot Example

Week 1 2 3 4 5 6 7 8 9 10

Gross requirements

35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand

35 35 0 0 0 0 0 0 0 0 0

Net requirements

0 30 40 0 10 40 30 0 30 55

Planned order receipts

30 40 10 40 30 30 55

Planned order releases

30 40 10 40 30 30 55

Holding cost = Holding cost = $1$1/week; Setup cost = /week; Setup cost = $100/times; $100/times; Lead time = 1 weekLead time = 1 week

Lot-for-Lot ExampleLot-for-Lot Example

1 2 3 4 5 6 7 8 9 10

Gross requirements

35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand

35 35 0 0 0 0 0 0 0 0 0

Net requirements

0 30 40 0 10 40 30 0 30 55


30 40 10 40 30 30 55


30 40 10 40 30 30 55

No on-hand inventory is carried through the systemTotal holding cost = $0

There are seven setups for this item in this planTotal setup cost = 7 x $100 = $700


EOQ Lot Size ExampleEOQ Lot Size Example

Week 1 2 3 4 5 6 7 8 9 10

Gross requirements

35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand

35 35 0 43 3 3 66 26 69 69 39

Net requirements

0 30 0 0 7 0 4 0 0 16


73 73 73 73


73 73 73 73

Average weekly gross requirementsAverage weekly gross requirements = 27; = 27; EOQEOQ = 73 = 73 unitsunits


EOQ Lot Size ExampleEOQ Lot Size Example

1 2 3 4 5 6 7 8 9 10

Gross requirements

35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand

35 35 0 0 0 0 0 0 0 0 0

Net requirements

0 30 0 0 7 0 4 0 0 16


73 73 73 73


73 73 73 73

Annual demand = 1,404Total cost = setup cost + holding costTotal cost = (1,404/73) x $100 + (73/2) x ($1 x 52 weeks)Total cost = $3,798 /yearCost for 10 weeks = $3,798 x (10/52) = $730

Or

Total cost = setup cost + holding costTotal cost = 4 x $100 + 318 x ($1 /weeks)Total cost = $718

Average weekly gross requirementsAverage weekly gross requirements = 27; = 27; EOQEOQ = 73 = 73 unitsunits


PPB ExamplePPB Example

1 2 3 4 5 6 7 8 9 10

Gross requirements

35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand

35 35 0 50 10 10 0 60 30 30 0

Net requirements

0 30 0 0 0 40 0 0 0 55


80 100 55


80 100 55

Holding cost = Holding cost = $1$1/week; Setup cost = /week; Setup cost = $100; $100; Lead time = 1 weekLead time = 1 week; EPP; EPP = 100 = 100 unitsunits

PPB ExamplePPB Example

1 2 3 4 5 6 7 8 9 10

Gross requirements

35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand

35

Net requirements



Holding cost = Holding cost = $1$1/week; Setup cost = /week; Setup cost = $100;$100;EPPEPP = 100 = 100 unitsunits

2 30 02, 3 70 40 = 40 x 12, 3, 4 70 40 = 40 x 12, 3, 4, 5 80 70 = 50 x 1 + 10 x 2 100 70 1702, 3, 4, 5, 6 120 230 = 90 x 1 + 50 x 2

+ 40 x 1

+ =

Combine periods 2 - 5 as this results in the Part Period closest to the EPP

Combine periods 6 - 9 as this results in the Part Period closest to the EPP

6 40 06, 7 70 30 = 30 x 16, 7, 8 70 30 = 30 x 16, 7, 8, 9 100 120 = 60 x 1 + 30 x 2 100 120 220+ =

10 55 0 100 0 100Total cost 300 190 490

+ =+ =

Trial Lot SizePeriods (cumulative net Costs

Combined requirements) Part Periods Setup Holding Total

Lot-Sizing SummaryLot-Sizing Summary

For these three examplesFor these three examples

Lot-for-lotLot-for-lot $700$700EOQEOQ $730$730PPBPPB $490$490

Wagner-Whitin would have yielded a plan Wagner-Whitin would have yielded a plan with a total cost of with a total cost of $455$455 for this example for this example

ExampleExample

1 2 3 4 5 6 7 8 9 10

Gross requirements

35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand

35 35 0 50 10 10 0 30 0 0 55

Net requirements

0 30 0 0 0 40 0 0 30 0


80 70 85


80 70 85

Holding cost = Holding cost = $1$1/week; Setup cost = /week; Setup cost = $100; $100; Lead time = 1 weekLead time = 1 week; EPP; EPP = 100 = 100 unitsunits


In theory, lot sizes should be recomputed In theory, lot sizes should be recomputed whenever there is a lot size or order whenever there is a lot size or order quantity changequantity change

In practice, this results in system In practice, this results in system nervousness and instabilitynervousness and instability

Lot-for-lot should be used whenever Lot-for-lot should be used whenever economicaleconomical

Lot sizes can be modified to allow for Lot sizes can be modified to allow for scrap, process constraints, and purchase scrap, process constraints, and purchase lotslots


Use lot-sizing with care as it can cause Use lot-sizing with care as it can cause considerable distortion of requirements considerable distortion of requirements at lower levels of the BOMat lower levels of the BOM

When setup costs are significant and When setup costs are significant and demand is reasonably smooth, PPB, demand is reasonably smooth, PPB, Wagner-Whitin, or EOQ should give Wagner-Whitin, or EOQ should give reasonable resultsreasonable results

Updating the SystemUpdating the System

Regenerative system

Updates MRP records periodically

Net-change system

Updates MPR records continuously

MRP Primary ReportsMRP Primary Reports

Planned orders - schedule indicating the amount and timing of future orders.

Order releases - Authorization for the execution of planned orders.

Changes - revisions of due dates or order quantities, or cancellations of orders.

MRP Secondary ReportsMRP Secondary Reports

Performance-control reports

system evaluation, deviation, late delivery, stockouts

Planning reports

useful for forecasting future inventory, assess future material requirement

Exception reports

late or overdue orders, excessive scrap rate, requirement of non-existing parts

Material Checking & Material Checking & BalancingBalancing

Use for monitoring of amount of part and Use for monitoring of amount of part and product during processesproduct during processes

Needs information to balance materialsNeeds information to balance materialsAccumulative production planning or target Accumulative production planning or target

planplan

BOM or Assembly diagramBOM or Assembly diagram

Normally periodic checkedNormally periodic checked

Material Checking & Material Checking & BalancingBalancing

9 8 7 6 5 4 3 2 1 09 8 7 6 5 4 3 2 1 0WeekWeek

AA

BB CC

DD

EE

FF

GG

HH II JJ KK

Assembly diagramAssembly diagram

DNOSAJJMAMFJ

Target PlanTarget Plan

Acc

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pro

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ccu

mu

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rod

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KJIHGFEDCBA

Balancing chartBalancing chart

Resource Requirements ProfileResource Requirements Profile

Lot1

Lot2

Lot4

Lot7

Lot8Lot

3Lot5

Lot10 Lot

13

Lot9 Lot

12

Lot14 Lot

16

Lot6

Lot15

Lot11

Available Available capacitycapacity

Capacity exceeded Capacity exceeded in periods 4 & 6in periods 4 & 6

Lot1

Lot2

Lot4

Lot7

Lot8Lot

3Lot5

Lot10 Lot

13

Lot9 Lot

12

Lot14 Lot

16

Lot6

Lot15

Lot11

Available Available capacitycapacity

Lot 6 “split”Lot 6 “split”Lot 11 movedLot 11 moved200 200 –

150 150 –

100 100 –

50 50 –

–11 22 33 44 55 66 77 88

PeriodPeriod(a)(a)

Sta

nd

ard

lab

or

ho

urs

Sta

nd

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lab

or

ho

urs

200 200 –

150 150 –

100 100 –

50 50 –

–11 22 33 44 55 66 77 88

PeriodPeriod(b)(b)

Sta

nd

ard

lab

or

ho

urs

Sta

nd

ard

lab

or

ho

urs

Smoothing TacticsSmoothing Tactics

1.1. OverlappingOverlapping Sends part of the work to following Sends part of the work to following

operations before the entire lot is completeoperations before the entire lot is complete

Reduces lead timeReduces lead time

2.2. Operations splittingOperations splitting Sends the lot to two different machines for Sends the lot to two different machines for

the same operationthe same operation Shorter throughput time but increased setup Shorter throughput time but increased setup

costscosts

3.3. Lot splittingLot splitting Breaking up the order into smaller lots and Breaking up the order into smaller lots and

running part ahead of schedulerunning part ahead of schedule

Other ConsiderationsOther Considerations

Safety Stock Lot sizing

Lot-for-lot ordering Economic order quantity Fixed-period ordering

Food catering service End item => catered food

Dependent demand => ingredients for each recipe, i.e. bill of materials

MRP in ServicesMRP in Services

Benefits of MRPBenefits of MRP

Low levels of in-process inventories

Ability to track material requirements

Ability to evaluate capacity requirements

Means of allocating production time

Ability to easily determine inventory usage by backflushing

Backflushing: Exploding an end item’s bill of materials to determine the quantities of the components that were used to make the item.

Requirements of MRPRequirements of MRP

Computer and necessary software Accurate and up-to-date

Master schedules Bills of materials Inventory records

Integrity of data

Expanded MRP with emphasis placed on integration Financial planning

Marketing

Engineering

Purchasing

Manufacturing

MRP IIMRP II

MarketMarketDemandDemand

ProductionProductionplanplan

Problems?Problems?

Rough-cutRough-cutcapacity planningcapacity planning

YesYes NoNo YesYesNoNo

FinanceFinance

MarketingMarketing

ManufacturingManufacturing

AdjustAdjustproduction planproduction plan

MasterMasterproduction scheduleproduction schedule

MRPMRP

CapacityCapacityplanningplanning

Problems?Problems?RequirementsRequirements

schedulesschedules

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MRP IIMRP II

Enterprise resource planning (ERP): Next step in an evolution that began with

MPR and evolved into MRPII Integration of financial, manufacturing, and

human resources on a single computer system.

ERPERP

ERP SoftwareERP Software

ERP software provides a system to capture and make data available in real time to decision makers and other users in the organization

Provides tools for planning and monitoring various business processes

Includes Production planning and scheduling Inventory management Product costing Distribution

MRP in ServicesMRP in Services

Service applications such as: Professional services Postal services Retail Banking Healthcare Higher education Engineering Logistical services Real estate

ERP Strategy ConsiderationsERP Strategy Considerations

High initial cost High cost to maintain Future upgrades Training

MRP

Documents

Transcript of MRP