Operations Management Material Requirements Planning (MRP) Chapter 14

Review of the Production Planning Process

SAP R/3 Approach to Production Planning

Production Process for the T-W101 Ore Wagon: 1) Two wheels are attached to an axle to make an axle assembly. 2) Two axle assemblies are attached to a wagon bed to make the ore wagon.    

Bill of Material T-W101(AB&C) Ore Wagon

Three General Approaches to Production Make-to-stock: Items produced in anticipation of orders, often from a sales forecast (DiGiorno frozen pizza, Miller Lite beer) Make-to-order: Items produced to meet specific customer orders (Boeing 737s for Southwest Airlines) Assemble to order: Final product assembled from make-to-stock items (Dell desk top computer) IDES Manufacturing uses a “Make-to-stock” approach. Production of ore wagons will be driven by a sales forecast.

Sales and Operations Planning. The “Rough-Cut” Plan screen for the SAP Sales and Operations Planning The “Rough-Cut” Plan screen for the SAP R/3 system. Sales and Operations Planning Jan Feb Mar Apr May 1) Sales Forecast 240 280 320 400 360 2) Production Plan 240 280 320 400 360  3) Stock Level 0 0 0 0 0 4) Working Days 22 20 22 21 23 5) Capacity 440 400 440 420 460 6) Utilization 55% 70% 73% 91% 78% 7) T-W101 (units) 50% 120 140 160 200 180 8) T-W102 (units) 30% 72 84 96 120 108 9) T-W103 (units) 20% 48 56 64 80 72                  

SAP R/3 Approach to Production Planning MPS/MRP

Independent versus Dependent Demand Independent demand - demand for item is independent of demand for any other item The TW101A is an example of an independent demand item. It is scheduled for production as a result of a sales forecast. Dependent demand - demand for item is dependent upon the demand for some other item The TWB101A is an example of a dependent demand item. It is scheduled to be purchased because of the demand for its parent, the TW101A ore wagon.

MRP Systems - Input and Output Master Production Schedule Bill of Materials Material Requirements Planning System Inventory Status Planned Order & Other Reports Item Master Purchasing Data It is helpful here to briefly review the “contents” of each of the boxes - i.e., what is contained in an Item Master file, what purchasing data is expected, etc.

Structure of the MRP System MRP by period report MRP by date report Planned orders report Purchase requirements Exception reports MRP Programs Master Production Schedule BOM Lead Times (Item Master File) (Bill-of-Material) Inventory Data Purchasing data Emphasize that this slide illustrates the overall technological structure of MRP - people and process are also extremely important in its actual success.

Lead Times and Lot Sizing The BOM is used to determine how many of each component is required to produce a “parent”. For example, one wagon bed and two axle assemblies are required to produce on ore wagon (parent). Two wheels and one axle are required to produce one axle assembly (parent). To determine the timing and quantity for the purchase orders for the components requires information about lead-times and lot-sizing. This is found in the Material Master File (Item Master):  Material Master File for T-W101A (Ore Wagon) Component Description Vendor Lot Size Lead Time T-W101A Ore Wagon Internal Fabrication LFL 5 Days T-WB101A Wagon Bed Minnesota Mfg 200 10 Days  T-AA101 Axle Assembly Internal Fabrication 100 5 Days  T-AX101 Axle Sooner Milling 100 5 Days  T-WH101 Wheel Minnesota Mfg 400 5 Days    

Master Production Schedule The production plan starts with the Sales Forecast for the month of April. This is broken down into a Detailed Production Schedule for each week. Earlier, we determined that the total demand in April for model T101A is 200. IDES Marketing Department wants these to be available for shipment at the end of each week as shown below.  Model Week 14 Week 15 Week 16 Week 17 T-W101A 50 25 75 50 Once this has been agreed to, it becomes the Master Production Schedule (MPS).

Information from the Material Master File T-W101A IDES Mfg has determined that the cost effective way to fabricate the ore wagon is to make exactly the number that are required. If 50 are needed, then make 50; If 38 are needed, then make 38. This is called “lot-for-lot” sizing (“Lot Size” = LFL). It takes 5 days to make ore wagons (“Lead-Time” = 5 days). T-WB101A IDES Mfg has determined that the cost effective way to purchase the wagon bed is to order in quantities of 200 (“Lot Size = 200). It takes 10 days to receive an order after it has been placed (“Lead Time = 10 days).

The “MRP Record” for T-W101A Week 14: Independent Requirements 50 Scheduled Receipts 0 Projected on Hand (BI) 0 Net Requirements 50 Planned Order Receipts 50 (LFL) Planned Order Release ? To fabricate wagons in Week 14, a Planned Order Release must be made at the beginning of Week 14 (Lead Time = 5 days) Week 15: Independent Requirements 25 Projected on Hand (BI) 0 Net Requirements 25 Planned Order Receipts 25 (LFL)

The “MRP Record” for T-WB101A (Wagon Bed) Week 14: Dependent Requirements 50 Scheduled Receipts 0 Projected on Hand (BI) 0 Net Requirements 50 Planned Order Receipts 200 (Lot Size) Planned Order Release ? To receive 200 wagon beds at the beginning of Week 14, a “Planned Order Release” must be made at the beginning of Week 12 (Lead Time = 10 days) Week 15: Dependent Requirements 25 Projected on Hand (BI) 150 Net Requirements 0 Planned Order Receipts 0 There are zero (0) net requirements in Week 15. No wagon beds must be received in Week 15. No Planned Order Release is necessary.

Homework Assignment Based on the Master Production Schedule for April 2003, complete the Material Requirements Planning for all materials. Have this assignment ready to turn in at the beginning of class on Thursday March 13th.