Production System... Product structure tree: Visual depiction of the requirements in a bill of...

Anas Ma’ruf

Manufacturing Research Group

@2007

Production SystemProduction System

Material Requirement Planning (MRP) &

Manufacturing Resource Planning (MRP II)

PS-03: MRP & MRPII 2

Inventory

Process stage

Demand Type

Number & Value Other

Raw Material WIP Finished Goods

Independent Dependent

A Items B Items C Items

Maintenance Dependent Operating

Inventory ClassificationsInventory Classifications


Independent and Dependent DemandIndependent and Dependent Demand

Independent Demand(end item)

B(4) C(2)

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

Dependent Demand(component parts)

Independent demand is uncertain. Dependent demand is certain.

A


Dependant vs. Independent DemandDependant vs. Independent Demand

Independent demandIndependent demand: Demand for end items.

Dependent demandDependent 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.

Require a different inventory management technique


Item Materials WithIndependent Demand

Materials WithDependent Demand

DemandSource Company Customers Parent Items

MaterialType Finished Goods WIP & Raw Materials

Method ofEstimatingDemand

Forecast & BookedCustomer Orders

Calculated

PlanningMethod EOQ & ROP MRP

Dependent versus Independent Dependent versus Independent DemandDemand


Inputs to the Production PlanInputs to the Production Plan

Aggregate Production Plan

MarketingCustomerDemand

EngineeringDesign

Completion

ManagementReturn on

InvestmentCapital

HumanResourcesManpowerPlanning

ProcurementSupplier

Performance

FinanceCash Flow

ProductionCapacityInventory


Requirements for Effective Use of Requirements for Effective Use of Dependent Demand Inventory ModelsDependent Demand Inventory Models

Effective use of dependent demand inventory models requires that the operations manager know the:

master production schedule

specifications or bills-of-material

inventory availability

purchase orders outstanding

lead times


The Planning ProcessThe Planning Process

Production Plan

Execute MaterialPlans

Master ProductionSchedule

MaterialRequirements

Plan

CapacityRequirements

Plan

Execute CapacityPlans

Realistic??No

Yes


Typical Focus of the Master Typical Focus of the Master Production ScheduleProduction Schedule

Make to Order

(Process Focus)

Assemble to Order or Forecast

(Repetitive)

Stock to Forecast(Product Focus)

Schedule finished product

Steel, Beer, Bread Light bulbs, Paper

Print shopMachine shop

Fine dining restaurant

Examples:

Number of end items

Number of inputs

Typical focus of the master production

schedule Schedule orders

Schedule modules

Motorcycles, autos, TVs, fast-food

restaurant


Before MRPBefore MRP

Two difficulties of ordering and scheduling:

1. Enormous task of setting up schedules, keeping track of large numbers of parts and components, and coping with schedule and order changes.

2. Lack of differentiation between independent demand and dependent demand. Too often, techniques designed for independent-demand items were used to handle assembled items, which resulted in excessive inventories.

Consequently, inventory planning and scheduling presented major problems for manufacturers.


MRPMRP

MRP begins with a schedule for finished goods that is converted into a schedule of requirements for subassemblies, component parts and raw materialsneeded to produce the finished items in the specified time frame

MRP designed to answer the following questions

•• WhatWhat is needed ?

•• How muchHow much is needed?

•• WhenWhen is it needed ?


Material requirements planning (MRP)Material requirements planning (MRP)

Material requirements planning (MRP)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 works backward from the due date using lead times

and other information to determine whenwhen and how muchhow much to

order.


TimeTime--Phased Product StructurePhased Product Structure

1 2 3 4 5 6 7 8

D

G2 weeks

1 weekF

E

3 weeks

2 weeks

A1 week

C1 week

B

2 weeks to produce

E

D

Must have D and E completed here so production can begin

on B

2 weeks

1 week

Start production of D


1 2 3 4 5

Gross Requirements 2 20 25 15

Scheduled Receipts 5 30

Available 25 23 33 33 8

Net Requirements 7

Planned Order Receipts 7

Planned Order Releases 7

Material Requirements Planning Material Requirements Planning (MRP)(MRP)

Manufacturing computer information system

Determines quantity & timing of dependent demand items

© 1995 Corel Corp.


Computer system

Mainly discrete products

Accurate bill-of-material

Accurate inventory status99% inventory accuracy

Stable lead times

MRP RequirementsMRP Requirements


MRP BenefitsMRP Benefits

Increased customer satisfaction due to meeting delivery schedules

Faster response to market changes

Improved labor & equipment utilization

Better inventory planning & scheduling

Reduced inventory levels without reduced customer service


Structure of the MRP SystemStructure of the MRP System

MRP by period report

MRP by date report

Planned orders report

Purchase requirements

Exception reports

MRPPrograms

Master ProductionSchedule

BOM

Lead Times

(Item Master File)

(Bill-of-Material)

Inventory Data

Purchasing data


Forecast &Firm Orders

MaterialRequirements

Planning

AggregateProductionPlanning

ResourceAvailability

MasterProductionScheduling

ShopFloor

Schedules

CapacityRequirements

PlanningRealistic?

No, modify CRP, MRP, or MPSNo, modify CRP, MRP, or MPS

YesYes

MRP and The Production Planning MRP and The Production Planning ProcessProcess


Overview of MRPOverview of MRP


MRPMRP---- InputInput


MRP InputsMRP Inputs

1. A master production schedule

2. A Bill of Materials

3. An inventory records file

Product Structure

TreeLead Tim

es


1. Master Schedule1. Master Schedule

Master (production) schedule (MPS)Master (production) schedule (MPS):: states which end items are to be produced, when these are needed, and in what quantities.

• Example: A master schedule for end item X:

Come from: customer orders, forecasts and orders from warehouses to build up seasonal inventories


Master Schedule (Cont.)Master Schedule (Cont.)

Cumulative lead timeCumulative 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.

The master schedule should cover the

cumulative lead time.


Planning HorizonPlanning Horizon

The master schedule separates the planning horizon into a series of time periods and cover the cumulative lead time.

1 2 3 4 5 6 7 8 9 10

Procurement

Fabrication

Subassembly

Assembly

Time period (weeks)


2. Bill2. Bill--ofof--MaterialsMaterials

Bill of materials (BOM)Bill of materials (BOM):: a listing of all of the raw

materials, parts, subassemblies, and assemblies needed

to produce one unit of a product.

Each finished product has its own bill of materials.

Product structure treeProduct structure tree:: Visual depiction of the

requirements in a bill of materials, where all components

are listed by levels.


Assembly Diagram & Product Structure Assembly Diagram & Product Structure TreeTree


ExampleExample

Using the information above to do the follows:a) Determine the quantities of B, C, D, E, and F needed to assemble one X.


Solution to Example 1Solution to Example 1

Thus, one XX will require• B: 2 C: 1

• D:6 F: 2

• E: 28 (Note that E occurs in three places, with 2+2+24)

B(2)B(2)

XX

CC

D(3)D(3) EE

E(4)E(4)

E(2)E(2) F(2)F(2)

212: =×B 111: =×C

221: =×E212: =×E 212: =×F

623: =×D

2464: =×E

1:Xa).


Example 1 (Cont.)Example 1 (Cont.)

Using the information above to do the follows:a) Determine the quantities of B, C, D, E, and F needed to assemble one X.

b) Determine the quantities of B, C, D, E, and F needed to assemble ten X's, if you have the following in inventory:

ComponentBCDE

On hand4

108

60


ComponentBCDE

On hand4

108

60

Solution to Example 1 (Cont.)Solution to Example 1 (Cont.)

Thus, given the amounts of on-hand inventory, 10 XXs will require

• B: 16 C: 0

• D: 40 F: 0

• E: 116 (=16+100)

B(2)B(2)

XX

CC

D(3)D(3) EE

E(4)E(4)

E(2)E(2) F(2)F(2)

20102: =×B 10101: =×C

16161: =×E48163: =×D

160404: =×E

10:X

16

4−

0

10−

40

8−

100

60−

b).

0:E 0:F


3. Inventory Records File3. Inventory Records File

Inventory recordsInventory records:: includes information on the status of each item by time period:• Gross requirements

• Scheduled receipts

• Expected amount on hand

• Lead time

• Lot size policy

• And more …


MRPMRP---- ProcessProcess


Assembly Time ChartAssembly Time Chart


MRP Processing LogicMRP Processing Logic

Based on the master schedule to determine the components schedules for successively lower-level itemsthroughout the product structures.

It calculates schedules for each of the time periods (usually weekly) in the scheduling time horizon

• Gross requirements

• Schedule receipts

• Projected on hand

• Net requirements

• Planned-order receipts

• Planned-order releases


MRP ProcessingMRP Processing

Gross requirementsGross requirements:: Total expected demand for an item or raw material in a time period.

Scheduled receiptsScheduled receipts:: Open orders scheduled to arrive from vendors or elsewhere in the pipeline by the beginning of a period.

Projected on handProjected on hand:: Expected amount of inventory that will be on hand at the beginning of each time period:

Scheduled receipts + inventory carried forward


MRP ProcessingMRP Processing

Net requirementsNet requirements:: The actual amount that we need to procure in each time period:

Gross requirements - projected on-hand

PlannedPlanned--order receiptsorder receipts:: The quantity expected to be received by the beginning of the period in which it is shown.

PlannedPlanned--order releasesorder releases:: Planned amount to order in each time period; planned-order receipts offset by lead time.


Format of MRPFormat of MRP

53 4 6 7 8210Week Number

Planned-order releases

Planned-order receipts

Net requirements

Projected on hand

Scheduled receipts

Gross requirements

Item:


ExampleExample

Consider the two product structure trees shown below:

Develop a MRPMRP for item D. Given that the master schedule calls for 80 units of A in week 4 and 50 units of C in week 5. There’s a beg. inv. of 110 units of D on hand and all items have lead times of one week.

A

B D

C

D(2) F


Solution Solution -- MRP for Item AMRP for Item A

Quantity of C

Quantity of A

53 4 6210Week Number



Net requirements

Projected on hand

Scheduled receipts

Gross requirements

Item:

80

80

8080

80

A LT=1 week

50

times 1


Solution Solution -- MRP for Item CMRP for Item C



Net requirements

Projected on hand

Scheduled receipts

Gross requirements

Item:

50

Quantity of C

Quantity of A

53 4 6210Week Number

80

C LT=1 week

50

5050

50times 2


Solution Solution -- MRP for Item DMRP for Item D



Net requirements

4 5 63

Projected on hand

Scheduled receipts

Gross requirements

21D LT=1 week

Item Atimes 1

80 50

Item Ctimes 2

100

110 110 110 110 307070

70

80

0


Updating the SystemUpdating the System

A material requirements plan is dynamic

Two basic updating systems:

1.1. Regenerative systemRegenerative system:: Approach that updates MRP records periodically.

• Best suited to fairly stable systems because of lag between receiving new information and creating a new plan.

2.2. NetNet--change systemchange system:: Approach that updates MRP records continuously.

• Best suited to systems that have frequent changes.


MRPMRP---- OutputOutput


MRP Outputs MRP Outputs ---- PrimaryPrimary ReportsReports

Planned ordersPlanned orders - Schedule indicating the

amount and timing of future orders.

Order releaseOrder release - Authorization for the

execution of planned orders.

ChangesChanges - revisions of due dates or order

quantities, or cancellations of orders.


MRP Outputs MRP Outputs ----SecondarySecondary ReportsReports

PerformancePerformance--control reportscontrol reports evaluate system

operations.

Planning reportsPlanning reports are useful in forecasting

future inventory requirements.

Exception reportsException reports call attention to major

discrepancies.


Benefits of MRPBenefits of MRP

Low levels of in-process inventories.

The ability to keep track of material requirements.

The ability to evaluate capacity requirements

generated by a given master schedule.

A means of allocating production time.


Requirements of MRPRequirements of MRP

A computer and the necessary software

programs to handle computations and maintain

records.

Accurate and up-to-date

• a. Master schedules

• b. Bills of materials

• c. Inventory records.

Integrity of file data.


Unforeseen Costs of MRPUnforeseen Costs of MRP

Training: The workers have to be trained to learn and become proficient with a new system and its processes.

Integration and testing: Integrating the computer systems associated with different areas of the firm and testing the links between various corporate areas and systems.

Data conversion and data analysis

Consultant fees

Solving implementation problems on an ongoing basis

Dealing with disappointing short-term results

Competition for high quality workers especially in the IT field .


MRP DynamicsMRP Dynamics

Supports “replanning”Problem with system “nervousness”

“Time fence” - allows a segment of the master schedule to be designated as “not to be rescheduled”

“Pegging” - tracing upward in the bill-of-materials from the component to the parent item

That a manager can react to changes, doesn’t mean he/she should


MRP in ServicesMRP in Services

Can be used when demand for service or service items is directly related to or derived from demand for other services

restaurant - rolls required for each meal

hospitals - implements for surgery

etc.


MRP in ServicesMRP in Services


LotLot--Sizing TechniquesSizing Techniques

Lot-for-lot

Economic Order Quantity

Part Period Balancing

Wagner-Whitin Algorithm


LotLot--forfor--lot Techniquelot Technique


Economic Order Quantity TechniqueEconomic Order Quantity Technique


Part Period Balancing TechniquePart Period Balancing Technique


Extensions of MRPExtensions of MRP

Closed loop MRP

Capacity planning - load reports

MRP II - Material Resource Planning

Enterprise Resource Planning


CloseClose--loop MRPloop MRP


Extensions of MRPExtensions of MRPCapacity PlanningCapacity Planning

Tactics for smoothing the load and minimizing the impact of changed lead time include:

Overlapping - reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation

Operations splitting - sends the lot to two different machines for the same operation

Lot splitting - breaking up the order and running part of it ahead of the schedule


Load ReportsLoad Reports


MRP IIMRP II


MRP IIMRP II

Manufacturing Resources Planning (MRP II)Manufacturing Resources Planning (MRP II): Expanded MRP with emphasis placed on integration

Financial planning

Marketing

Engineering

Purchasing

Manufacturing


An Overview of MRP IIAn Overview of MRP II

MarketMarketDemandDemand

ProductionProductionplanplan

Problems?Problems?

RoughRough--cutcutcapacity planningcapacity planning

YesYes NoNo YesYesNoNo

FinanceFinance

MarketingMarketing

ManufacturingManufacturing

AdjustAdjustproduction planproduction plan

MasterMasterproduction scheduleproduction schedule

MRPMRP

CapacityCapacityplanningplanning

Problems?Problems?RequirementsRequirements

schedulesschedules

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