Material Requirement Planning (MRP)

Material Requirement Planning (MRP) ______________________________________ Key Outputs of MRP Calculate demand for component items Determine requirements for subassemblies, components, and raw material Determine when they are needed Generate work orders and purchase order Consider lead time

When to use MRP ___________________________________ Dependent / Independent Demand?

Demand Characteristics Demand Characteristics for Finished Products and Their Components Dependent demand Independent demand 100 x 1 = 100 tabletops 100 tables 100 x 4 = 400 table legs 400 – 300 – 200 – 100 – Discrete demand Continuous demand 400 – 300 – 200 – 100 – No. of tables No. of tables 1 2 3 4 5 Week M T W Th F M T W Th F

MRP Input & Output Material Requirements Planning (MRP) Work orders Purchase orders Rescheduling notices

Major Inputs to MRP Process: 1. Bill of Material Product structure file Determines which component items need to be scheduled Product Structure Record Clipboard Level 0 Level 1 Level 2 Spring (1) Bottom Clip (1) Top Clip (1) Pivot (1) Rivets (2) Clip Assembly (1) Pressboard (1)

Major Inputs to MRP Process: 2. Master Production Schedule (MPS) Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders & demand forecasts Quantities represent what needs to be produced, not what can be produced Example PERIOD MPS ITEM 1 2 3 4 5 Clipboard 85 95 120 100 100 Lapdesk 0 50 0 50 0 Lapboard 75 120 47 20 17 Pencil Case 125 125 125 125 125

Major Inputs to MRP Process: 3. Inventory Record _________________________________________________ Contains an extensive amount of information on every item that is produced, ordered, or inventoried in the system DESCRIPTION INVENTORY POLICY Item Pressboard Lead time 1 Item no. 734 Annual demand 5000 Item type Purch Holding cost 1 Product/sales class Comp Ordering/setup cost 50 Value class B Safety stock 0 Buyer/planner RSR Reorder point 39 Vendor/drawing 07142 EOQ 316 Phantom code N Minimum order qty 100 Unit price/cost 1.25 Maximum order qty 500 Pegging Y Multiple order qty LLC 1 Policy code 3

MRP Processes – 4 Basic Steps Exploding the bill of material ___________________________________ Netting out inventory Lot sizing rule – How many units Time-phasing requirements

Lot Sizing Rule Comparison The FOQ rule ___________ _______________________ The POQ rule ___________ _______________________ _______________________ The L4L rule ___________ _______________________

MRP Matrix = + - Gross Requirement Derived from planned order releases of the parent Actual / estimated demand, in case of final product Schedule Receipts Items on order Scheduled to arrive in the future time period Projected on hand Current inventory, or anticipated inventory at the end of period Projected on-hand Inventory at end of period t Inventory on-hand at end of period t - 1 Scheduled / planned receipts in period t Gross requirements in period t = + -

MRP Matrix Net requirements Actual quantity to produce based on projected on hand and on-order quantity Planned Order Receipts Quantity, when orders need to be received Consider lot sizing rule: Planned Order Release When order need to be placed to receive on time Consider lead time

MRP Matrix (You can download the template from our class webpage) ITEM NAME OR NO. PERIOD LOT SIZE LT 1 2 3 4 5 Gross Requirements Derived from MPS or planned order releases of the parent Scheduled Receipts On order and scheduled to be received Projected on Hand Beg Inv Anticipated quantity on hand at the end of the period Net Requirements Gross requirements net of inventory and scheduled receipts Planned Order Receipts When orders need to be received Planned Order Releases When orders need to be placed to be received on time

Example MRP Matrix ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 Net Requirements Planned Order Receipts Planned Order Releases

MRP Example 1 A LT=3 C(3) LT=4 D(2) LT=2 Given the following information, determine when orders should be released for A, C, and D and the size of those orders A LT=3 C(3) LT=4 D(2) LT=2 Parts On hand Scheduled Receipts Lot Size Demand A C D 10 140 200 250, period 2 L4L Mult 50 Mult 250 100, period 8

MRP Example 2 Given the following information, determine when orders should be released for A, B, C, and D and the size of those orders. A LT=3 C(3) LT=4 D(2) LT=2 B LT=2 D(3) Parts On hand Scheduled Receipts Lot Size Demand A B C D 10 5 140 200 250, period 2 L4L Mult 50 Mult 250 100, period 8 200, period 6 -

Evolution of MRP MRP (material requirements planning) was the precursor to ERP Primarily a production planning and control system MRP evolved to MRP II (manufacturing resource planning) ERP (Enterprise Resource Planning) and ERP II continue to extend the links through all business processes

Enterprise Resource Planning (ERP) An Overview Organizes and manages a company’s business processes by sharing information across functional areas Connects with supply-chain and customer management applications ERP in the nutshell* Client server software Integrates majority of business processes Processes majority of transactions Enterprise wide database Real time data access * adapted from e-courseware, MIT Sloan

ERP Modules [Figure 12.1 Organizational Data Flow]

ERP Modules [Figure 12.2 ERP’s Central Database] Finance & Accounting Sales & Marketing Production & Materials Management ERP Data Repository Human Resources

ERP Implementation Process First step is to analyze business processes Which processes have the biggest impact on customer relations? Which process would benefit the most from integration? Which processes should be standardized? Use of Internet portals can aid implementation