MRP Introduction EXAMPLES Joanna Oleśków Szłapka Production Management

Dealing with the Problem Complexity through Decomposition Corporate Strategy Aggregate Unit Demand Aggregate Planning (Plan. Hor.: 1 year, Time Unit: 1 month) Capacity and Aggregate Production Plans End Item (SKU) Demand Master Production Scheduling (Plan. Hor.: a few months, Time Unit: 1 week) SKU-level Production Plans Manufacturing and Procurement lead times Materials Requirement Planning (Plan. Hor.: a few months, Time Unit: 1 week) Component Production lots and due dates Part process plans Shop floor-level Production Control (Plan. Hor.: a day or a shift, Time Unit: real-time)

The “MRP Explosion” Calculus Lead Times Lot Sizing Policies BOM MRP MPS Current Availabilities Planned Order Releases Priority Planning

Independent vs. Dependent Demand Independent Demand (finished goods and spare parts) B(4) C(2) D(2) E(1) D(3) F(2) Dependent Demand (components) 3

The “MRP Explosion” Calculus External Demand Level 0 Capacity Planning Initial Inventories Level 1 Level 2 Scheduled Receipts Level N Planned Order Releases Gross Requirements

Example: BOM for an end Item A C B D A Level 0 Level 1 1 1 1 2 2 2 Level 2 2 2 6

C B D A 1 3 25 50 25 50 25 50 25 50 50 50 50 1 2 50 50 50 POHt = POHt-1 - GRt + Rt 50*1 50*1 50*1 50 50 50 50 50 50 100 100 7

100*1 50*3 50*3 50*3 C B D A 150 100 150 150 20 120 20 120 120 220 220 220 1 3 250 250 250 250 1 2 (100*2) +10 10 10 210 10 10 10 10 10 40 30 20 10 200 190 180 170 200 200 8

1. Fixed Order Quantity (FOQ) Specify a number of units arbitrarily to be ordered each time an order is placed for a particular item. Quantity may be arbitrary or EOQ 240 80 460 200 570 450 265 150 500 500 500 500 9

2. Economic Order Quantity (EOQ) A type of fixed order quantity that determines the amount of an item to be purchased or produced at one time. Wish to minimize the combined cost of order (acquiring) and carrying inventory. EOQ = D = Annual demand for the item Q = Order quantity CP = Cost of order preparation or Setup cost CH = Inventory carrying cost per unit per year 10

Example: EOQ Setup cost = $10/order Cost of item = $1.50/unit Inventory carrying cost = 25% /year = 240 80 610 350 220 100 565 450 650 650 650 650 Avg. Demand = 152.5/wk D = 152.5  52 wks/yr = 7,930 EOQ = = = 650 11

3. Lot-for-Lot (L4L) aka. discrete order quantity It generates planned orders in quantities equal to the net requirements in each period. No extra on-hand inventory. Used for perishable food items or items for which the market fluctuates widely. 12

Example: Lot-for-Lot 80 130 160 80 80 80 80 80 80 80 80 120 260 130 120 185 115 120 260 130 120 185 115 13

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 B LT=2 D(3) A LT=3 C(3) LT=4 D(2) LT=2 Given the following information, determine when orders should be released for A, B, C, and D and the size of those orders. 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 -

Product structure tree & MRP schedule - EXAMPLE Assume that Product Z is made up of two units of A and four units of B.   The lead time for Z is two weeks. The lead time for all other units is one week.  The demand for Z is 100 units in Week 10 and 200 units in Week 14.  The lot size for Z and A are Lot-for-Lot (LFL).  The lot size for B is 500+ units (FOQ).  For Z, and A there are no units on hand, no safety stock, and no units allocated.  Item B has 500 units on hand, 100 units of safety stock and 100 units already allocated.   a)  Develop an MRP schedule showing the gross and net requirements and the planned order receipts and releases for Product Z and each of its components.