Chapter 13 MRP: Material Requirement Planning ERP: Enterprise Resource Planning

Material requirements planning Computer-based Information System for Ordering and Scheduling of Dependent Demand Inventories MRP

A B(4) C(2) D(2)E(1) D(3) F(2) Independent Demand Dependent Demand Independent and Dependent Demand Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods.

MRP InputsMRP ProcessingMRP Outputs Master schedule Bill of materials Inventory records MRP computer programs Changes Order releases Planned-order schedules Exception reports Planning reports Performance- control reports Inventory transaction Primary reports Secondary reports Information Flow, Processes, Data Bases

Inputs to MRP (1) Master schedule: Identifying (a) which end items are to be produced, (b) in what quantities, and (c) when these are needed. (2) Bill of Material : a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product. (3) Inventories

Bill-of-Materials Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels. Product Structure Tree Lead Times

Product Structure Tree

Chair Seat Legs (2) Cross bar Side Rails (2) Cross bar Back Supports (3) Front Leg Assembly Back Assembly Level

Product Structure Tree Chair Seat Legs (2) Cross bar Side Rails (2) Cross bar Back Supports (3) Front Leg Assembly Back Assembly Level

Example A D (3) E E (2)F (2) B (2)C Level E (4) Determine the quantities of B, C, D, E, and F to produce one unit of A

Extend Level 1 A D (3*2) E(2) F (2) B(2)C Level E (4)

Extend Level 2 A D (3*2) E(2) F (2) B(2)C Level E (4*3*2)

Compute the Quantities A D (6) E(2) F (2) B(2)C Level E (24) We need B=2 C=1 D=6 E=28 F=2

Example Inventory B=4 C=10 D=8 E=60 F=0 Determine the quantities of these components that we need to order or assemble to satisfy demand of 10A A(10) D (3) E E (2)F (2) B (2)C Level E (4)

Extend Level 0 A(10) D (3) E E (2)F (2) B (20)C (10) Level E (4) Inventory B=4 C=10

Level 1 Computations A(10) D (3) E E (2)F (2) B (20- 4=16)C (10-10=0) Level E (4)

Extend Level 1 A(10) B (16)C (0) Level

Extend Level 1 A(10) D (3*16) E(1*16) E (2*0)F (2*0) B (16)C (0) Level E (4)

Extend Level 1 A(10) D (48) E(16) E (0)F (0) B (16)C (0) Level E (4) Inventory D=8 E=60 F=0

Level 2 Computations A(10) D (48-8=40) E(16) E (0)F (0) B (16)C (0) Level E (4)

Level 2 Computations A(10) D (40) E(16) E (0)F (0) B (16)C (0) Level E (4)

Extend Level 2 A(10) D (40) E(16) E (0)F (0) B (16)C (0) Level E (4*40)

Extend Level 2 A(10) D (40) E(16) E (0)F (0) B (16)C (0) Level E (160)

Extend Level 2 A(10) D (40) E(16) E (0)F (0) B (16)C (0) Level E (160) Inventory E=60 Requirement E = =116 E=60 F=0

Extend Level 2 A(10) D (40) E(16) E (0)F (0) B (16)C (0) Level E (100)

Assembly Time Chart Procurement of raw material D Procurement of raw material F Procurement of part C Procurement of part H Procurement of raw material I Fabrication of part G Fabrication of part E Subassembly A Subassembly B Final assembly and inspection

Shutter, 1 Frame (LT=2W), and 4 Wood Section (LT=1W) Frame (2, 2) Wood Sections (4,1) Shutter Assembly (1)

WeekBeg Inv Quantity Shutter LT = 1W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases Master Schedule; Lot for Lot Ordering Shutter has two frames and four wood sections

Frame LT = 2W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases Shutter LT = 1W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases Frame; 2 per unit, LT=2 W

Wood Section LT = 1W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases Shutter LT = 1W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases Wood Section; 4 per unit, LT=1 W

Frame LT = 2W EOQ 320 Gross Requirement Scheduled Receipts Projected on Hand Net Requirement 200 Planned Order Receipts Planned Order Releases Shutter LT = 1W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases Master Schedule; Lot Size Ordering; EOQ 320,

Wood Section LT = 1W EOQ 70 Gross Requirement Scheduled Receipts 70 Projected on Hand 70 Net Requirement 330 Planned Order Receipts Planned Order Releases Shutter LT = 1W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases Lot Size Ordering: EOQ

Practice; Example (pp 606, P2), Units Required, Lead Times ItemEndBCDEFGH LT (WK) InvOnHand For 20 units of the end item, how many additional units of each item is required A E (2) F(3)G (2)E (2) B (2) D(3) Level C E (2)H (4)

Units Required A(20) E (2) F(3)G (2)E (2) B (2) D(3) Level C(1) E (2)H (4) ItemEndBCDEFGH InvOnHand

A(20) E (2) F(3)G (2)E (2) B (40) D(60) Level C(20) E (2)H (4) ItemEndBCDEFGH InvOnHand Units Required

A(20) E (2) F(3)G (2)E (2) B (40-10) D(60-25) Level C(20-10) E (2)H (4) Units Required

A(20) E (2) F(3)G (2)E (2) B (30) D(35) Level C(10) E (2)H (4) Units Required

A(10) E (2*30) F(3*30)G (2*10)E (2*35) B (30) D(35) Level C(10) E (2*10)H (4*35) Units Required

A(10) E (60) F(90)G (20)E (70) B (30) D(35) Level C(10) E (20)H (140) ItemEFGH InvOnHand Units Required

A(10) E (60-12) F(90-30)G (20-5)E (70) B (30) D(35) Level C(10) E (20)H (140) Units Required

A(10) E (48) F(60)G (15)E (70) B (30) D(35) Level C(10) E (20)H (140) ItemEndBCDEFGH Required Units Required

Example (pp 673, P2); Lead Times A(1) ItemEndBCDEFGH LT (WK) Required

Lead Times A(1) B DC ItemBCDEFGH LT (WK) Required

Lead Times A(1) B (2) D(3)C(3)

Lead Times A(1) EF GE B (2) D(3)C(3) EH ItemEFGH LT (WK)1212 Required

Lead Times A(1) E (1)F(2) G (1)E (1) B (2) D(3)C(3) E (1)H (2)

Lead Times A(1) E (1)F(2) G (1)E (1) B (2) D(3)C(3) E (1)H (2)

WeekBeg Inv Quantity120 Product X LT = 1W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases 120 Master Schedule; Lot for Lot Ordering Part X (LT=1) is formed by three Part A (LT=1) Part A is formed by two Part B (LT=2)

Part A (3) LT = 1W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases Product X LT = 1W Gross Requirement 120 Scheduled Receipts Projected on Hand Net Requirement 120 Planned Order Receipts 120 Planned Order Releases120 Part A; 3 per unit, LT=1 W 300

Part B(2) LT = 2W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases Part B; 5 per unit, LT=2 W 500 Part A (3) LT = 1W Gross Requirement Scheduled Receipts Projected on Hand Net Requirement Planned Order Receipts Planned Order Releases

Solved Problems 1 and 2 on pages First solve the problem yourself. Then look at the solution. Need More Practice ?

MRP Secondary Reports Performance-control reports Planning reports Exception reports

Other Considerations Safety Stock Lot sizing –Lot-for-lot ordering –Economic order quantity –Fixed-period ordering –Part-period model

Capacity Planning Capacity requirements planning: The process of determining short-range capacity requirements. Load reports: Department or work center reports that compare known and expected future capacity requirements with projected capacity availability. Time fences: Series of time intervals during which order changes are allowed or restricted.

MRP Planning Develop a tentative master production schedule Use MRP to simulate material requirements Convert material requirements to resource requirements Firm up a portion of the MPS Is shop capacity adequate? Can capacity be changed to meet requirements Revise tentative master production schedule Change capacity Yes No Yes No

Food catering service –End item => catered food –Dependent demand => ingredients for each recipe, i.e. bill of materials Hotel renovation –Activities and materials “exploded” into component parts MRP in Services

Benefits of MRP Low levels of in-process inventories Ability to track material requirements Ability to evaluate capacity requirements Means of allocating production time

Requirements of MRP Computer and necessary software Accurate and up-to-date –Master schedules –Bills of materials –Inventory records Integrity of data

Expanded MRP with and emphasis placed on integration –Financial planning –Marketing –Engineering –Purchasing –Manufacturing MRP II

Market Demand Production plan Problems? Rough-cut capacity planning Yes No Yes No Finance Marketing Manufacturing Adjust production plan Master production schedule MRP Capacity planning Problems? Requirements schedules Adjust master schedule MRP II

Enterprise resource planning (ERP): An expanded effort to integrate standardized record-keeping that will permit information sharing throughout the organization ERP