Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Material Requirements Planning (MRP) Chapter 15 11/7/05 Overview Position of MRP in Operation Management Definitions (MPS, BOM, etc) MRP example MRP II Lot Sizing in MRP

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Master Production Schedule (MPS) Material Requirements Planning (MRP) Order scheduling Weekly workforce and customer scheduling Daily workforce and customer scheduling Process planning Strategic capacity planning Sales and operations (aggregate) planning Long range Intermediate range Short range Manufacturing Services Exhibit 13.1 Sales planAggregate operations plan Forecasting & demand management

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., E(1) Independent vs. Dependent Demand Independent Demand (Demand not related to other items) Dependent Demand (Derived) Drives MRP

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., Material Requirements Planning How much of an item is needed? When is an item needed to complete Specified number of units at Specified period of time? Where MRP is most beneficial?

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., Introductory Example - Dependent Demand B(4) E(1)D(2) C(2) F(2)D(3) A Product Structure Tree for Assembly A Lead Times A1 day B 2 days C1 day D 3 days E4 days F1 day Demand Day A Day 8 20 B (Spares) Day 6 15 D (Spares) Create a schedule to satisfy demand.

LT = 1 day 5 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill First, the number of units of “A” are scheduled backwards to allow for their lead time. So, in the materials requirement plan below, we have to place an order for 50 units of “A” in the 9 th week to receive them in the 10 th week.

Spares LT = 2 B(4) E(1)D(2) C(2) F(2)D(3) A 6 © The McGraw-Hill Companies, Inc., 1998 Irwin/McGraw-Hill 4x50=200 Next, we need to start scheduling the components that make up “A”. In the case of component “B” we need 4 B’s for each A. Since we need 50 A’s, that means 200 B’s. And again, we back the schedule up for the necessary 2 days of lead time.

B(4) E(1)D(2) C(2) F(2)D(3) A spares Part D: Day 6 Finally, repeating the process for all components, we have the final materials requirements plan: © The McGraw-Hill Companies, Inc.,

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 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) Exhibit 15.4

Firm orders from known customers Forecasts of demand from random customers Aggregate product plan Master production schedule (MPS) Material planning (MRP) Engineering design changes Bill of material file Inventory transactions Inventory record file Reports Types? From Exhibit © The McGraw-Hill Companies, Inc., 2001

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., Material Requirements Planning System Based on a master production schedule, a material requirements planning system: – Creates schedules identifying the specific parts and materials required to produce end items – Determines exact numbers needed – Determines the dates when orders for those materials should be released, based on lead times

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., Bill of Materials (BOM) File A Complete Product Description Materials Parts Components Production sequence Planning BOM –Modular BOM » Subassemblies –Super BOM » Fractional options

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Parts List & Low Level Coding B(4) E(1)D(2) C(2) F(2)D(3) A Indented A B(4) D(2) E(1) C(2) D(3) F(2) Single Level A B(4) C(2) B D(2) E(1) C D(3) F(2) Level Parent Low Level Coding - (Exhibit 15.9)

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., Inventory Status Record ( Exhibit 15.10) Each inventory item carried as a separate file – Status “Periods - time buckets” Information (records) – Gross Requirements –On-hand –Scheduled receipt (to be received in the future-it is already paid for) –Planned order release (to be released at a future time) –Planned order receipt (to be received in the future based on the planned order release) Pegging – Identify each parent item that created demand

Firm orders from known customers Forecasts of demand from random customers Aggregate product plan Master production schedule (MPS) Material planning (MRP) Engineering design changes Bill of material file Inventory transactions Inventory record file Reports Types? From Exhibit © The McGraw-Hill Companies, Inc., 2001

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 MRP program Master production schedule (MPS) Material planning (MRP) Bill of material file Inventory record file Method of calculation (explosion) - (p586) When calculations are updated (net change) Read Example (p595)

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Revise schedules because of limited capacity Work center used to make different components (Fig 15.18) If scheduled work exceeds available capacity, what should be done? Available Capacity = #machines x #shifts x # hrs/shift = 2 x 2 x 10 = 40 hrs/work center Take into account utilization and efficiency Work Center Load

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Closed Loop MRP (Exhibit 15.19) Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning Realistic? No Feedback Execute: Capacity Plans Material Plans Yes Feedback

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Manufacturing Resource Planning (MRP II) Goal: Plan and monitor all resources of a manufacturing firm (closed loop): manufacturing marketing finance engineering Simulate the manufacturing system

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Time Fences in MPS Weeks Frozen Moderately Firm Flexible Firm Customer Orders Forecast and available capacity Capacity Exhibit 15.5

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Types of Time Fences Frozen – No schedule changes allowed within this window. Moderately Firm – Specific changes allowed within product groups as long as parts are available. Flexible – Significant variation allowed as long as overall capacity requirements remain at the same levels.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 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

A(2) X It takes 2 A’s for each X

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

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

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

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

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1998 Lot Sizing in MRP Programs Lot sizes are the part quantities issued in the planned order receipt (or release) in MRP It increases complexity of MRP Several techniques are available Lot-for-lot (L4L) Economic order quantity (EOQ) Least total cost (LTC) Least unit cost (LUC)

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., Lot for Lot Set planned order to match net requirement Produces whatever is needed each week w/o carrying over to future period Does not take into account setup costs (high) or capacity limitations Minimize carrying cost

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., EOQ for MRP Same formula for inventory EOQ = batch size Setup cost = order cost Holding costs are charged at ending inventory of each period (different from regular EOQ?)

Home Work #8 Due Date 11/14/05 You may work in groups of TWO Solve problems 12, 14, and 17 (from the problems at the end of this Chapter 15 - pp 610)