The Material Requirements Planning Process

What is MRP? MRP answers the following questions: What materials are required? How many of the materials are required? When are the materials required?

MRP Process Flowchart

Production Planning Process (Overview) SIS Forecasting CO/PA Sales & Operations Planning Strategic Planning Demand Management Detailed Planning MPS MRP Manufacturing Execution Procurement Process Order Settlement

MRP Problems (1) Too much inventory Materials in stock that we cannot sell Raw materials that we no longer need in the manufacturing process Materials that have lost significant value Expired materials

MRP Problems (2) Too little inventory Out of stock conditions Backorder conditions

Cisco Case Purchased extra parts Did not accurately estimate demand Did not forecast demand drop-off Cisco wrote off $2.5 billion in inventory in 2001

MRP Data Dependencies Materials (Material masters) Vendors (for acquisition) Production (for estimates) Warehouse (to get raw materials and store finished goods)

What Causes an MRP Sales and operations planning estimates materials (finished goods) requirements Sales quotation / orders Demand management calculates the required raw materials to produce the finished goods Final production proposals are generated which trigger production

MRP Master Data Bill of material is used to determine raw materials Product routings are used to estimate production time

MRP (Types of Planning) Consumption-based relies on historical consumption data Reorder point planning See figures 8.3 and 8.4 Forecast-based planning uses historical data and forecasted estimates Time-phased planning is used when materials arrive on specific days of the week OFBiz will not do all of these

MRP Reorder Point Planning

Reorder Point Planning (Details) When material is withdrawn, the reorder level is checked Net requirements are then calculated Available stock + firmed receipts (purchase orders, production orders) If a shortage exists, calculate the procurement quantity according to material master lot sizing procedure Procurement is then scheduled

MRP (Lot Size Data) Lot size – The procedure used to determine the lot size (quantity produced) Static lot-sizing Fixed lot size (predetermined value) Lot-for-lot (exact quantity required) Period lot-sizing (combine requirements for multiple time periods) Optimum lot-sizing (takes into account economic order quantity and economic production quantity)

MRP (Lot Size Data) Minimum and Maximum Lot size contains the min and max amounts that can be made during a production run Ordering costs are used in optimum lot sizing procedures Rounding profiles used to round the lot size to a “deliverable quantity)

MRP (Scheduling) In-house production time Only used when we are producing goods “in-house” This comes from production Planned delivery time is only used when material is procured externally GR (Goods receipt) processing time

MRP (Net Requirements) Safety stock Desired Minimum Safety time ind. is used to enable safety stock calculations

MRP (Planning) Strategy group Make to stock Make to order Sales order based consumption Assemble to order Similar to make to order Assemble finished goods from prefabricated assemblies There are others

MRP (Planning) Consumption mode Backward or forward Back. consumption per contains the number of workdays used for backward consumption Forw. Consumption per contains the workdays for future consumption

MRP (BOM) BOM Selection Method Requirement Group Determines which bill of material to use based on Production version Date Order quantity Requirement Group Combine or display requirements individually

Forecasting (Introduction) Caveat – Forecasts are always wrong But some are more wrong than others Accurate forecasts essential to manufacturing Our goal is to match supply and demand This is challenging for innovative products, fashions

Forecasting Models Trend Seasonal Trend and seasonal Constant