MRP

Question: how do firms actually organize things to turn materials into finished products? MRP (Material Requirements Planning) - determines number of parts, components and materials to produce each end item - determines when each component, part and material is needed to finish the end items on schedule

Material Requirements Planning Manufacturing Resource Planning (MRP II) Enterprise Resource Planning

Products are combinations of parts… Example: Bicycle Handle bars (1) Metal Frame (1) Wheels (2)

MRP Systems: Materials Requirements Planning Bill of Materials (product structure tree, schematic, product flow diagram) Relationships with suppliers (we can manufacture some of the parts, others we can get from suppliers) Master Production Schedule is the key input

Summary: How does MRP work? Material Requirement Planning Production Assembly Customer Production Assembly Production Units are PUSHED forward according to the plan!

How many D’s we need in order to produce 50 A’s? Let’s look at an example BOM... A Question: How many D’s we need in order to produce 50 A’s? B(2) C(1) D(3) E(3) D(1)

We need information on delivery times! How do we manage order release? We need information on delivery times! Parts-Product Process Lead Time A 10 B 15 C D E

When do we start producing/ordering each part? Let’s look at an example BOM... A (10) Question: When do we start producing/ordering each part? B(2) C(1) (15) (10) (15) D(3) E(3) D(1) (15) (10)

Delivery date for final product Let’s assume that we need 50 units of A… Delivery date for final product 5 days Parts-Products A B C D E

Start assembly for 50 units of A Let’s assume that we need 50 units of A… Start assembly for 50 units of A Parts-Products A B C D E

Start assembly for 100 units of B Let’s assume that we need 50 units of A… Start assembly for 100 units of B Parts-Products A B C D E

Start assembly for 50 units of C Let’s assume that we need 50 units of A… Start assembly for 50 units of C Parts-Products A B C D E

Order 300 units of D for B’s process Let’s assume that we need 50 units of A… Order 300 units of D for B’s process Parts-Products A B C D E

Order 50 units of D for C’s assembly Let’s assume that we need 50 units of A… Order 50 units of D for C’s assembly Parts-Products A B C D E

Order 50 units of E for C’s assembly Let’s assume that we need 50 units of A… Order 50 units of E for C’s assembly Parts-Products A B C D E

Lot Sizing in MRP Systems Lot-for-lot (L4L): Produce to cover next period EOQ: Apply the EOQ approximation for yearly demand Least Unit Cost: Minimize total cost (order + carry) per unit These are all approximate methods, none is guaranteed to be optimal. We can apply all of them and find the least-cost one to implement.

Example Cost per item: $10 Order/setup cost: $47 Inventory carrying cost/month 2% Starting inventory: 50 Production lead time 1 month Monthly requirements 1 2 3 4 5 6 100 50 80 120 70 80 For the solution, see file mrp_methods.pdf