To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Chapter 15 Resource Planning

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Planning Materials requirements planning (MRP) is a means for determining the number of parts, components, and materials needed to produce a product MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced Dependent demand drives MRP It is most valuable in industries where a number of products are made in batches using the same productive equipment. The theme of MRP is “getting the right materials to the right place at the right time”.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Demand Patterns |||||||||| 1510 Day 2000 — 1500 — 1000 — 500 — 0 Bicycles Rims 2000 — 1500 — 1000 — 500 — 0 |||||||||| 1510 Day Figure 15.2 (a) (b)

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Demand Patterns |||||||||| 1510 Day 2000 — 1500 — 1000 — 500 — 0 Bicycles Reorder point Figure 15.2 Rims 2000 — 1500 — 1000 — 500 — 0 |||||||||| 1510 Day (a) (b)

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Demand Patterns 2000 — 1500 — 1000 — 500 — 0 Rims 2000 — 1500 — 1000 — 500 — 0 |||||||||| 1510 Day |||||||||| 1510 Day Order 1000 on day 3 Bicycles Reorder point (a) (b)

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Demand Patterns 2000 — 1500 — 1000 — 500 — 0 |||||||||| 1510 Day Order 1000 on day 3 Bicycles Reorder point (a) (b) Rims 2000 — 1500 — 1000 — 500 — 0 |||||||||| 1510 Day

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Demand Patterns (a) (b) 2000 — 1500 — 1000 — 500 — 0 |||||||||| 1510 Day Order 1000 on day 3 Order 1000 on day 8 Bicycles Reorder point 2000 — 1500 — 1000 — 500 — 0 Rims |||||||||| 1510 Day

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Demand Patterns (a) (b) 2000 — 1500 — 1000 — 500 — 0 |||||||||| 1510 Day Order 1000 on day 3 Order 1000 on day 8 Bicycles Reorder point 2000 — 1500 — 1000 — 500 — 0 Rims |||||||||| 1510 Day

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Demand Patterns 2000 — 1500 — 1000 — 500 — 0 Rims 2000 — 1500 — 1000 — 500 — 0 |||||||||| 1510 Day (a) (b) |||||||||| 1510 Day Order 1000 on day 3 Order 1000 on day 8 Bicycles Reorder point

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Plan Inputs Figure 15.4 Bills of materials Engineering and process designs

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Plan Inputs Bills of materials Engineering and process designs Other sources of demand Authorized master production schedule

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Plan Inputs Inventory transactions Inventory records Bills of materials Engineering and process designs Other sources of demand Authorized master production schedule

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Plan Explosion Inventory transactions Inventory records Bills of materials Engineering and process designs MRPexplosion Other sources of demand Authorized master production schedule

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Material Requirements Plan Output Inventory transactions Inventory records Bills of materials Engineering and process designs Material requirements plan MRPexplosion Other sources of demand Authorized master production schedule

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Bill of Materials (BOM) Indicates all the raw materials, components, subassemblies, and assemblies required to produce an item A structured list of all components, parts, and materials of an item Shows way a finished product or parent item is put together from individual components

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Bill of Materials Figure 15.5 Seat cushion Seat-frame boards Front legs A Ladder-back chair Back legs Leg supports Back slats

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Bill of Materials Figure 15.5 Back slatsSeat cushion Seat-frame boards Leg supports Front legs Back legs A Ladder-back chair J (4) Seat-frame boards C (1) Seat subassembly D (2) Front legs B (1) Ladder-back subassembly E (4) Leg supports ALadder-backchair I (1) Seat cushion H (1) Seat frame G (4) Back slats F (2) Back legs

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Master Production Schedule Based on actual customer orders and predicted demand Indicates when each ordered item will be produced Time-phased plan specifying how many and when the firm plans to build each end item

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Master Production Schedule 200 Ladder-back chair Kitchen chair Desk chair 12 AprilMay Aggregate production plan for chair family 670 Figure 15.6

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Inventory Record Detailed information regarding the quantity of each item, on hand, on order committed to use in various time periods MRP system using inventory master file to determine the quantity available for use in a given period If sufficient items are not available, the system includes the item on the planned order release report

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Inventory Record Figure Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 00

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 00 Explanation: Gross requirements are the total demand for the two chairs. Projected on-hand inventory in week 1 is – 150

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 00 Explanation: Gross requirements are the total demand for the two chairs. Projected on-hand inventory in week 1 is – 150 = 117 units.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 00

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week 00 Projected on-hand inventory balance at end of week t Inventory on hand at end of week t - 1 Gross requirements in week t Scheduled or planned receipts in week t =+–

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Inventory Record Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week – 3 –153–273–273 Projected on-hand inventory balance at end of week t Inventory on hand at end of week t - 1 Gross requirements in week t Scheduled or planned receipts in week t =+–

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week –3 – 3 –153 – 273 Planned Orders Explanation: Without a new order in week 4, there will be a shortage of three units: – 120 = – 3 units.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: Adding the planned receipt brings the balance to – 120 = 227 units.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: Adding the planned receipt brings the balance to – 120 = 227 units.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: Offsetting for a two-week lead time puts the corresponding planned order release back to week 2.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: Offsetting for a two-week lead time puts the corresponding planned order release back to week 2.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week –43 Planned Orders Explanation: The first planned order lasts until week 7, when projected inventory would drop to – 43.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: 230 Adding the second planned receipt brings the balance to – 120 = 187.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: 230 Adding the second planned receipt brings the balance to – 120 =

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Planned Orders Explanation: The corresponding planned order release is for week 5.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Planned Orders Item: C Description: Seat subassembly Lot Size: 230 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Additional MRP Scheduling Terminology Gross Requirements-total requirements for a component or end product Scheduled receipts-when a purchase or product order that has already been placed will be available Planned order release-how many and when to produce to meet gross requirements

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Lot Sizing in MRP Programs Lot-for-lot (L4L) (producing as much as required) Fixed order quantity (ordering same quantity each time an order is issued) Periodic order quantity (allows a different order quantity for each order issued, but tends to issue the order at predetermined time intervals such as every two weeks) Economic order quantity (EOQ)

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Lot-Sizing Rule Comparison  The FOQ rule generates high average inventory because it creates remnants.  The POQ rule reduces average on-hand inventory because it does a better job of matching order quantity to requirements.  The L4L rule minimizes inventory investment but maximizes the number of orders placed.

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP Outputs Figure MRP explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP Outputs Material requirements plan Action notices  Releasing new orders  Adjusting due dates Priority reports  Dispatch lists  Supplier schedules Capacity reports  Capacity requirements planning  Finite capacity scheduling  Input-output control MRP explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP Outputs Material requirements plan Action notices  Releasing new orders  Adjusting due dates Priority reports  Dispatch lists  Supplier schedules Capacity reports  Capacity requirements planning  Finite capacity scheduling  Input-output control MRP explosion Routings and time standards

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP Outputs Material requirements plan Action notices  Releasing new orders  Adjusting due dates Priority reports  Dispatch lists  Supplier schedules Capacity reports  Capacity requirements planning  Finite capacity scheduling  Input-output control MRP explosion Manufacturing resources plan Performance reports Routings and time standards

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP Outputs Material requirements plan Action notices  Releasing new orders  Adjusting due dates Priority reports  Dispatch lists  Supplier schedules Capacity reports  Capacity requirements planning  Finite capacity scheduling  Input-output control MRP explosion Manufacturing resources plan Performance reports Cost and price data Routings and time standards

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. MRP Explosion Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 37 Week Figure 15.18

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week MRP Explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week MRP Explosion Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week Usage quantity: 1 MRP Explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week Usage quantity: 1 MRP Explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: Seat subassembly Lot size: 230 units Lead time: 2 weeks Gross requirements Planned receipts Planned order releases Week Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 40 Week Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week MRP Explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Planned receipts Planned order releases Week MRP Explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Planned receipts Planned order releases Week Gross requirements Scheduled receipts Planned receipts Planned order releases 200 Week Projected on-hand inventory Item: Seat-frame boards Lot size: 1500 units Lead time: 1 week MRP Explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Planned receipts Planned order releases Week Gross requirements Scheduled receipts Planned receipts Planned order releases 200 Week Projected on-hand inventory Item: Seat-frame boards Lot size: 1500 units Lead time: 1 week Usage quantity: 4 MRP Explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Item: Seat frames Lot size: 300 units Lead time: 1 week Gross requirements Planned receipts Planned order releases Week 300 Item: Seat cushion Lot size: L4L Lead time: 1 week Gross requirements Planned receipts Planned order releases Week Gross requirements Scheduled receipts Planned receipts Planned order releases 200 Week Projected on-hand inventory Item: Seat-frame boards Lot size: 1500 units Lead time: 1 week MRP Explosion

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Solved Problem 1 Figure LT = 2LT = 3 A B (3) C (1) LT = 1 G (1) LT = 3LT = 6 LT = 3 LT = 1 D (1) E (2)F (1)

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Solved Problem 2 Figure A B (1)C (2) D (1) LT = 2 LT = 1LT = 2 LT = 3 Inventory Record Data ITEM DATA CATEGORYBCD Lot-sizing rulePOQ (P=3)L4LFOQ = 500 units Lead time1 week2 weeks3 weeks Scheduled receiptsNone200 (week 1)None Beginning (on-hand) inventory Table 12.1

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Solved Problem 2 Item: B Lot size: POQ (P = 3) Description:Lead time: 1 week Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 20 Week

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Solved Problem 2 Item: C Lot size: L4L Description:Lead time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 0 Week

To Accompany Ritzman & Krajewski Foundations of Operations Management, © 2003 Prentice Hall, Inc. All rights reserved. Solved Problem 2 Item: D Lot size: FOQ = 500 units Description:Lead time: 3 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 425 Week