Materials Requirements Planning CHAPTER 18

Learning Objectives Describe what MRP is and where it is best applied. Understand the source of the information used by the system. Demonstrate how to do an MRP “explosion.” Explain how order quantities are calculated in MRP systems.

Secondary reports Primary reports Exception reports Planning reports Firm orders from known customers Forecasts of demand from random Aggregate product plan Bill of material file Engineering design changes Inventory record file transactions Master production Schedule (MPS) Material planning (MRP computer program) Primary reports Secondary reports Planned order schedule for inventory and production control Exception reports Planning reports Reports for performance control 12 12

Master Production Schedule (MPS) Time-phased plan specifying how many and when the firm plans to build each end item Aggregate Plan (Product Groups) MPS (Specific End Items) 8 8

The Aggregate Plan and the Master Production Schedule for Mattresses Master production schedule (MPS): the time-phased plan specifying how many and when the firm plans to build each end item LO 2

Time Fences Frozen: anything from no changes to only minor changes Moderately firm: allow changes so long as parts are available Flexible: allow almost any variations LO 2

Demand for Products Customers who have placed specific orders Generated by sales personnel Orders carry promised delivery dates No forecasting of these orders Forecasted demand Normal independent-demand sales Demand for parts and components Spares and repair LO 2

Bill of Materials Bill of materials (BOM): contains the complete product description, listing the materials, parts, and components along with the sequence in which the product is created One of the three main inputs to the MRP program Often called the product structure file or product tree because it shows how a product is put together LO 2

Bill of Materials (Product Structure Tree) for Product A

Level Coding of Bills of Materials LO 2

Inventory Records File Each inventory item carried as a separate file Status according to “time buckets” Pegging Identify each parent item that created demand 14 14

MRP Explosion Process The requirements for end items are retrieved from the master schedule These are referred to as “gross requirements” by the MRP program Uses on-hand balance with schedule of orders to calculate the “net requirements” Using net requirements, it calculates when orders should be received to meet these requirements LO 3

Additional MRP Scheduling Terminology Gross Requirements Scheduled receipts Projected available balance Net requirements Planned order receipt Planned order release 19 19

Primary MRP Reports Planned orders to be released at a future time Order release notices to execute the planned orders Changes in due dates of open orders due to rescheduling Cancellations or suspensions of open orders due to cancellation or suspension of orders on the master production schedule Inventory status data 15 15

Secondary MRP Reports Planning reports, for example, forecasting inventory requirements over a period of time Performance reports used to determine agreement between actual and programmed usage and costs Exception reports used to point out serious discrepancies, such as late or overdue orders 15 15

Lot Sizing in MRP Systems Determination of lot sizes in an MRP system is a complicated and difficult problem Lot sizes: the part quantities issued in the planned order receipt and planned order release sections of an MRP schedule Will look at four Lot-for-lot (L4L) Economic order quantity (EOQ) Least total cost (LTC) Least unit cost (LUC) LO 4

Lot-for-Lot Sets planned orders to exactly match the net requirements Produces exactly what is needed each week with none carried over into future periods Minimizes carrying cost Does not take into account setup costs or capacity limitations. LO 4

Economic Order Quantity Calculate reorder quantity based on EOQ EOQ was not designed for a system with discrete time periods such as MRP The lot sizes generated by EOQ do not always cover the entire number of periods LO 4

Least Total Cost Least total cost method (LTC): a dynamic lot-sizing technique that calculates the order quantity by comparing the carrying cost and the setup costs for various lot sizes and then selects the lot in which these are most nearly equal Influenced by the length of the planning horizon LO 4

Least Unit Cost Least unit cost method: a dynamic lot-sizing technique that adds ordering and inventory carrying cost for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost LO 4

MRP Example A(2) B(1) D(5) C(2) X C(3) Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10 18 18

X A(2) It takes 2 A’s for each X 21 21

X A(2) B(1) It takes 1 B for each X 21 21

X A(2) B(1) C(3) It takes 3 C’s for each A 21 21

X A(2) B(1) C(3) C(2) It takes 2 C’s for each B 21 21

X A(2) B(1) C(3) C(2) D(5) It takes 5 D’s for each B 21 21

Closed Loop MRP Yes Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning No Feedback Realistic? Feedback Execute: Capacity Plans Material Plans Yes 22 22

Any Questions?