Reid & Sanders, Operations Management © Wiley 2002 Material Requirements Planning 15 C H A P T E R

Reid & Sanders, Operations Management © Wiley 2002 Page 2 Learning Objectives Distinguish independent & dependent demand Describe the objectives & inputs of MRP Explain MRP operating logic Describe bill of materials & product structure trees Understand the impact of lot size rules Understand capacity requirements planning Introduce advanced planning systems

Reid & Sanders, Operations Management © Wiley 2002 Page 3 Review: Types of Inventory

Reid & Sanders, Operations Management © Wiley 2002 Page 4 Types of Demand Independent: –Effects inventories that are managed separately from other items (e.g.: finished goods made-to- stock) –Demand is managed based on forecasts Dependent: –Effects inventories that are managed to support production of other items (e.g.: component parts) –Demand is managed based on plans (e.g.: MPS)

Reid & Sanders, Operations Management © Wiley 2002 Page 5 Material Requirements Planning An information system that uses the concept of backward scheduling to push the right material, in the right amount, at the right time, into the production process Used in dependent demand environments

Reid & Sanders, Operations Management © Wiley 2002 Page 6 MRP Overview Inputs: –Master production schedule –Bill of Materials –Inventory Records Primary objectives: –Schedule of replenishment orders (timing & quantities) –Maintain priorities & track performance to plan

Reid & Sanders, Operations Management © Wiley 2002 Page 7 Overview

Reid & Sanders, Operations Management © Wiley 2002 Page 8 Definitions End item: –The product sold as a completed item or repair part (an independently demanded item) Parent items: –Items produced from one or more “children” Components: –Raw materials & other items (“children”) that are part of a larger assembly

Reid & Sanders, Operations Management © Wiley 2002 Page 9 Lot Sizing Rules Rules are used to change the frequency of replenishment orders & set the quantity of each order (balance holding & ordering costs to reduce total costs) Common rules: –Fixed Order Quantity (FOQ) –Lot-for-Lot (L4L) –Periodic Order Quantity (POQ)

Reid & Sanders, Operations Management © Wiley 2002 Page 10 End Item Example: Pie Safe

Reid & Sanders, Operations Management © Wiley 2002 Page 11 Bill of Material (BOM) A list of all the assemblies, components, & raw materials required to produce the end item

Reid & Sanders, Operations Management © Wiley 2002 Page 12 Product Structure Tree A graphical view of the BOM:

Reid & Sanders, Operations Management © Wiley 2002 Page 13 Inventory Record Gross requirements: –The total period demand for the item Scheduled receipts: –An open order with an assigned due date Projected available: –The projected inventory balance for the period Planned orders: –Quantities & released dates suggested by the MRP system

Reid & Sanders, Operations Management © Wiley 2002 Page 14 Example

Reid & Sanders, Operations Management © Wiley 2002 Page 15 Definitions Time buckets: –The column in an inventory record that represents a unit of time Action bucket: –The current time period Action notices: –Output from the MRP system identifying the need for an action (e.g.: expedite or delay an order or receipt)

Reid & Sanders, Operations Management © Wiley 2002 Page 16 Example A Time Bucket

Reid & Sanders, Operations Management © Wiley 2002 Page 17 Operating Logic Explosion: –Calculate the children’s time-phased gross requirements by multiplying the parent item’s planned order amount by the number of children required to produce one parent item

Reid & Sanders, Operations Management © Wiley 2002 Page 18 Example

Reid & Sanders, Operations Management © Wiley 2002 Page 19 Capacity Requirements Planning (CRP) Similar to rough cut capacity planning CRP is a feasibility check on labor & machine utilization: –Compare the open orders & planned orders (from the MRP) to the actual shop floor capacity

Reid & Sanders, Operations Management © Wiley 2002 Page 20 Example

Reid & Sanders, Operations Management © Wiley 2002 Page 21 Advanced Planning Systems Manufacturing Resource Planning (MRP II): –Second generation MRP systems that connect to financial systems & help synchronize internal operations Enterprise Resource Planning (ERP): –An information system designed to integrate internal & external processes of a supply chain via a centralized database

Reid & Sanders, Operations Management © Wiley 2002 Page 22 ERP Overview

Reid & Sanders, Operations Management © Wiley 2002 Page 23 The End Copyright © 2002 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United State Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.