Murat Kaya, Sabancı Üniversitesi 1 MS 401 Production and Service Systems Operations Spring Material Requirements Planning (MRP) Slide Set #10

Murat Kaya, Sabancı Üniversitesi 2 MRP MRP stands for Material Requirements Planning MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced Managerial objective is to provide the right part at the right time to meet the schedules for completed products MRP is a basic tool for performing detailed material planning function in the manufacturing of component parts and their assembly into finished items

Murat Kaya, Sabancı Üniversitesi 3 The MPC Framework Sales and operations planning (Aggregate planning) Detailed material planning (using MRP) Master production scheduling (MPS) Resource planning Demand management Material and capacity plans Supplier systems Shop floor systems Detailed capacity planning Front End Engine Back End Rough-cut capacity planning

Murat Kaya, Sabancı Üniversitesi 4 Before MRP Before MRP, most MPC Systems revolved around some variant of statistical reorder points Orlicky’s (father of MRP) insight was that this approach better suited to final products than components Why? –final product demand originates from outside the company - subject to uncertainty –component demand is a function of final product demand - known for a given final assembly schedule

Murat Kaya, Sabancı Üniversitesi 5 Dependent versus Independent Demand Independent demand –subject to demand outside the firm –for ex: demand for the snow shovels –have to be forecasted Dependent demand –demand for the components –for ex: demand for the “top handles” of the snow shovel –depends on the net requirements for the “top handle assemblies” –can be exactly calculated using BOM, inventory, scheduled receipts information no need for forecasting

Murat Kaya, Sabancı Üniversitesi 6 The Basic MRP Record Terminology Gross Requirements (GR): Anticipated future usage (or, demand) of the item during a period Scheduled Receipts (SR): Existing replenishment orders for the item to arrive at the beginning of a period Projected Available Balance (PAB): Projected inventory status for the item at the end of a period Planned Order Releases (POR): Planned replenishment orders for the item at the beginning of a period –not “released” yet, only planned

Murat Kaya, Sabancı Üniversitesi 7 The Basic MRP Record

Murat Kaya, Sabancı Üniversitesi 8 Linking Records Together The basic MRP record provides the information on each part in the system How to link these single part records together? –

Murat Kaya, Sabancı Üniversitesi 9 Bill-of-Materials (BOM) An engineering document that specifies the components & quantities needed to make an assembly (product) Provides product structure (tree) Parents: Items above given level Children: Items below given level Shows low-level coding to show where in the product structure a particular part is with respect to the end product (level 0) components of the end product: level 1…

Murat Kaya, Sabancı Üniversitesi 10 Indented BOM Product Structure Diagram A B (2) E (1) J (3) F (3) G (4) H (3) J (2) C (4) H (3) A B EFG J HJH C BOM - Example Level 0 Level 1 Level 2 Level 3 The end item quantity required

Murat Kaya, Sabancı Üniversitesi 11 Snow Shovel (VBWJ, page 227)

Murat Kaya, Sabancı Üniversitesi 12 Snow Shovel: Product Structure Diagram

Murat Kaya, Sabancı Üniversitesi 13 Snow Shovel: Indented BOM

Murat Kaya, Sabancı Üniversitesi 14 Gross to Net Explosion Process of translating end product requirements into component parts requirements –taking into account the existing inventories and scheduled receipts For any part number, determine the quantities for all immediate predecessors of that part in the BOM Continue this process for every part number until all purchased part and/or raw material requirements are exactly calculated

Murat Kaya, Sabancı Üniversitesi 15 Gross to Net Explosion Consider the BOM for “snow shovel” Suppose the company want to produce 100 shovels, and we are responsible for making the top handle assembly

Murat Kaya, Sabancı Üniversitesi 16 Lead Time Offsetting: Front Schedule Start production of parts as early as possible. Drawbacks?

Murat Kaya, Sabancı Üniversitesi 17 Lead Time Offsetting: Back Schedule Start production of parts as late as possible: MRP uses this

Murat Kaya, Sabancı Üniversitesi 18 Linking MRP Records

Murat Kaya, Sabancı Üniversitesi 19 Linking MRP Records

Murat Kaya, Sabancı Üniversitesi 20 Technical Issues Processing frequency Safety stock and safety lead time Low level coding Pegging Lot sizing

Murat Kaya, Sabancı Üniversitesi 21 Processing Frequency Whether all records should be processed in one computer run –Regeneration: processing all of the records in one run –Net change: processing only the items that are affected by the new or changed information Processing frequency depends on the firm, its products, and its operations. –the most common practice is weekly processing using regeneration

Murat Kaya, Sabancı Üniversitesi 22 Safety Stock and Safety Lead Time Safety stock is a buffer stock above what is needed to satisfy the gross requirements –SS tends to be used in MRP systems where uncertainty about quantities is the problem Safety lead time is a procedure whereby shop orders or purchase orders are released and scheduled to arrive one or more periods before necessary to satisfy GR –SLT tends to be used when the major uncertainty is the timing

Murat Kaya, Sabancı Üniversitesi 23 MRP Record with SS

Murat Kaya, Sabancı Üniversitesi 24 MRP Record with SLT

Murat Kaya, Sabancı Üniversitesi 25 Low Level Coding A low level code number is given to each part in the product structure diagram Why? –eliminate recalculations –satisfy accurate accumulated requirements for each part By convention, LLC of the end product is 0 Immediate component part numbers are 1 and assignment procedure proceeds level by level Important –the last level code assigned to a part indicates its LLC

Murat Kaya, Sabancı Üniversitesi 26 End Item A Component C Sub-Assembly B Component C LT=1 LT=2 LT=1 LLC A = 0 LLC B = 1 LLC C = 2 Low Level Coding Example

Murat Kaya, Sabancı Üniversitesi 27 Pegging Pegging relates all the gross requirements for a common item to all planned order releases that created the requirement –each component of the gross requirement is pegged with the part number of its source By pegging it is possible to go up through the MRP records, and identify the end product of a raw material – reverse of the explosion logic: implosion Advantage: when an item shortage occurs, pegging allows to trace the impact on all subassemblies and end products affected by this shortage Drawback: it adds complexity in MRP information storage requirements

Murat Kaya, Sabancı Üniversitesi 28 VBWJ Problem 2-7 A G (2 required) CD F HG Sample Problem

Murat Kaya, Sabancı Üniversitesi Sample Problem

Murat Kaya, Sabancı Üniversitesi Sample Problem

Murat Kaya, Sabancı Üniversitesi Sample Problem

Murat Kaya, Sabancı Üniversitesi 32 MRP: Transactions During a Period First, launch the POR of 50. This becomes SR for week 3 The following events occurred during week 1: Actual disbursements from stock were only 20 instead of the planned 30 Scheduled receipt of 50 received, but 10 units rejected due to quality issues Inventory was counted and 20 additional pieces were found The requirement date for 45 pieces was changed to week 4 Marketing requested additional 5 pieces in week 2 The requirement for week 6 has been set at 25

Murat Kaya, Sabancı Üniversitesi 33 MRP: Transactions During a Period The resulting MRP record at the beginning of week 2 is as follows Note that the planned order release of 50 units scheduled previously to week 3 is now rescheduled to week 4 The 50 units currently scheduled to be received at Period 3 is not needed until period 4. MRP will issue a message for this.

Murat Kaya, Sabancı Üniversitesi Alternative Table Format (6-row) 34 Stool Gross Requirements Scheduled Receipts Projected Ending Inv. 30 Net requirements Planned order receipts Planned order releases