0 Production and Operations Management Norman Gaither Greg Frazier Slides Prepared by John Loucks  1999 South-Western College Publishing

1 Chapter 11 Resource Requirements Planning Systems: Material Requirements Planning (MRP) and Capacity Requirements Planning (CRP)

2 OverviewOverview l Resource Requirements Planning l Material Requirements Planning (MRP) l Capacity Requirements Planning (CRP) l Wrap-Up: What World-Class Producers Do

3 Resource Requirements Planning Master Production Scheduling (MPS) Material Requirements Planning (MRP) Capacity Requirements Planning (CRP) AggregatePlanning ResourceRequirementsPlanning Chapter 9 Chapter 11

4 Material Requirements Planning (MRP)

5 Materials Requirements Planning (MRP) l Computer based system l Explodes Master Schedule (MPS) into required amounts of raw materials and subassemblies to support MPS l Nets against current orders and inventories to develop production and purchased material ordering schedules

6 Objectives of MRP l Improve customer service l Reduce inventory investment l Improve plant operating efficiency

7 Order Changes Order PlanningReport Elements of MRP MRPSystem Planned Order Schedule Inventory Transaction Data Bill of Materials File Materials File MasterProductionSchedule Inventory Status File Service-Parts Orders and Forecasts Performance Performance ExceptionReports InputsOutputs

8 MRP Computer Program l Begins with number of end items needed l Add service parts not included in MPS l Explode MPS into gross requirements by consulting bill of materials file l Modify gross requirements to get net requirements: l Net Requirements = Gross Requirements + Allocated Inventory + Safety Stock - Inventory On Hand - Inventory On Hand l Offset orders to allow for lead time

9 Outputs of MRP l Planned order schedule - quantity of material to be ordered in each time period l Changes to planned orders - modifications to previous planned orders l Secondary outputs: l Exception reports l Performance reports l Planning reports

1010 Lot-Sizing in MRP l Lot-size is the quantity ordered/produced at one time l Large lots are preferred because: l Changeovers cost less and capacity greater l Annual cost of purchase orders less l Price breaks and transportation breaks can be utilized l Small lots are preferred because: l Lower inventory carrying cost l Reduced risk of obsolescence l Shorter cycle time to produce customer order

1 The best method, resulting in least cost, depends on cost and demand patterns. Lot-Sizing Methods l Economic Order Quantity (EOQ) l does not consider quantity discounts l does not always provide the most economical approach with lumpy demands l Lot-for-Lot (LFL) l accommodates lumpy demand l Period Order Quantity (POQ)

1212 Issues in MRP l Lot-Sizing l Useful at lower levels but may drive excess inventory when applied at higher levels l Net Change versus Regenerative MRP l Net change may generate too many action notices l Regenerative more costly to run but appears to be easier to manage l... more

1313 Issues in MRP l Safety Stock l Use depends on uncertainty of demand..... more uncertain the greater the need for safety stock l Assemble-to-Order Firms l MPS and MRP treated separately from Final Assembly Schedule(FAS) l Use Modular Bill of Material

1414 MRP I to MRP II l MRP I simply exploded demand (MPS) into required materials l MRP II became Manufacturing Resource Planning which provides a closed-loop business management system l Financial management l Shop floor control l Operations management l Simulation capability

1515 Evaluation of MRP l Most beneficial to process-focused systems that have long processing times and complex multistage production steps l Lead times must be reliable l Must freeze MPS for some time before actual production... certain demand l Difficult to implement

1616 Capacity Requirements Planning (CRP)

1717 l Tests MPS for feasibility l Utilizes routings to determine labor/machine loads l If schedule feasible, recommends freezing l If schedule overloads resources, points out processes that are overscheduled

1818 Load Schedules l Compares actual labor and machine hours against available hours l Offsets schedules between successive stages of production by lead times l Provides feasible MPS and economically loaded work centers l Promotes system operating efficiency... lowers costs!

1919 Wrap-Up: World-Class Practice l Lead times respond to conditions l Product development as levels of product structure tree l Lead times that adjust to load l MRP reports shared with customers and suppliers l All of the above results in bias towards smaller batches and shorter lead times

2020 End of Chapter 11