Lecture 9 Materials Requirements Planning Books Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M. Clive, P.E., CFPIM, Fleming College Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005, N.Y.: McGraw-Hill/Irwin. Operations Management, 11/E, Jay Heizer, Texas Lutheran University, Barry Render, Graduate School of Business, Rollins College, Prentice Hall

Objectives Material Requirement Planning Nature of Demand Inputs to MRP Bill of Material Planned Orders

Material Requirements Planning is a system to calculate requirements for dependent demand items It establishes a schedule (priority plan) showing the components required at each level of the assembly and, based on lead times, calculates the time when these components will be needed It is a system to avoid missing parts for the end item Material Requirements Planning

Material Requirements Planning Process We need to determine –What to order –How much to order –When to order This will involve –Lead times –Bills of material –Inventory Status –Planning data

Nature of Demand Two Types of Demand –Independent Is not related to the demand for any other product and must be forecast Master production schedule (MPS) items are independent demand items –Dependent Is directly related to other items or end items Such demand should be calculated and need not and should not be forecast

Nature of Demand Independent Demand (Forecast) Dependent Demand (Calculated) Table Legs (4) Ends (2) Sides (2) Top (1) Hardware Kit (1) Item #206 Item #433 Item #711 Item #025 Item #822 If you have an order for 23 Tables, what components would you need to produce them?

Two Major Objectives –Determine Requirements What to order How much to order When to order When to schedule delivery –Keep Priorities Current It must be able to add and delete, expedite, delay, and change orders based upon present priorities Objectives of MRP

Linkages with Other Manufacturing Planning and Control Functions Business Plan Production Plan MPS PC and Purchasing MRP Planning Execution The MRP is driven by the MPS; it is concerned with the components needed to make the end items. The MRP in turn drives, or is input to, production control (PC) and purchasing

Four Major Inputs: –Master Production Schedule –Inventory Records –Planning Data –Bills of Material Inputs to the MRP System MRP MPS Planning Data Bill of Material Inventory Status

Master Production Schedule (MPS) –The MPS provides information on planned and scheduled orders for end items (how much is wanted and when) Inventory Status –Inventory status provides information on what is already available. Inventory records include the status of each item, including amounts on order and on hand and the location Inputs to the MRP System

Bills of Material –Bills of material describe components and the quantity of each needed to make one unit Planning Data –Planning data include lot size, lead time, scrap factors, yield factors, and safety stock The Computer –Computers are needed because they are fast, accurate, and have the ability to store and manipulate data and produce information rapidly Inputs to the MRP System

Bill of Material “a listing of all the subassemblies, intermediates, parts, and raw materials that go into making the parent assembly showing the quantities of each required to make an assembly” APICS Dictionary, 8th edition, 1995 The bill of material shows all the parts required to make one of the item Each part or item has only one part number Bills of Material

Parent–Component Relationship –An assembly is considered a parent, and the items that comprise it are called its component items. Bills of Material Table Legs (4) Ends (2) Sides (2) Top (1) Hardware Kit (1) Item #206 Item #433 Item #711 Item #025 Item #822 Parent Component

The multilevel bill is made up of subassemblies. The subassemblies reflect the way manufacturing plans to build the product. The lowest items on the bill are usually purchased parts. All parts and subassemblies have unique numbers. By convention, the final assembly is considered level zero. Levels down the bill are numbered consecutively. Bills of Material

The multilevel bill is a collection of single-level bills. Each single-level bill shows the parts to make one parent. To reduce storage space and to make maintenance easier, the computer stores single-level bills only. Items can be both parents of components and components of other parents. Bills of Material

Low-Level Coding and Netting - A component may reside on more than one level in a bill of material –The low-level code is the lowest level on which a part resides in all bills of material. Every part has only one low-level code. –Low-level are determined by starting at the lowest level of a bill of material and, working up, recording the level against the part. If a part occurs on a higher level, its existence on the lower level has already been recorded. –Once the low-level codes are obtained, the net requirements for each part can be calculated.

Uses for Bills of Material –Product Definition –Engineering Change Control –Service Parts –Planning –Order Entry –Manufacturing –Costing –Etc. Maintaining bills of material and their accuracy is extremely important Bills of Material

 List of components, ingredients, and materials needed to make product  Provides product structure  Items above given level are called parents  Items below given level are called children

BOM Example B (2) Std. 12” Speaker kit C (3) Std. 12” Speaker kit w/ amp-booster 1 E (2) F (2) Packing box and installation kit of wire, bolts, and screws Std. 12” Speaker booster assembly 2 D (2) 12” Speaker D (2) 12” Speaker G (1) Amp-booster 3 Product structure for “Awesome” (A) ALevel0

BOM Example B (2) Std. 12” Speaker kit C (3) Std. 12” Speaker kit w/ amp-booster 1 E (2) F (2) Packing box and installation kit of wire, bolts, and screws Std. 12” Speaker booster assembly 2 D (2) 12” Speaker D (2) 12” Speaker G (1) Amp-booster 3 Product structure for “Awesome” (A) ALevel0 Part B:2 x number of As =(2)(50) =100 Part C:3 x number of As =(3)(50) =150 Part D:2 x number of Bs + 2 x number of Fs =(2)(100) + (2)(300) =800 Part E:2 x number of Bs + 2 x number of Cs =(2)(100) + (2)(150) =500 Part F:2 x number of Cs =(2)(150) =300 Part G:1 x number of Fs =(1)(300) =300

Bills of Material  Modular Bills  Modules are not final products but components that can be assembled into multiple end items  Can significantly simplify planning and scheduling

Bills of Material  Planning Bills (Pseudo Bills)  Created to assign an artificial parent to the BOM  Used to group subassemblies to reduce the number of items planned and scheduled  Used to create standard “kits” for production

Bills of Material  Phantom Bills  Describe subassemblies that exist only temporarily  Are part of another assembly and never go into inventory  Low-Level Coding  Item is coded at the lowest level at which it occurs  BOMs are processed one level at a time

Lead Times, Exploding, and Offsetting Lead time: The time from when an order is placed until the part is ready for use. Exploding: Multiplying the parent requirements by the usage quantity through the product tree Offsetting: Placing the requirements in their proper time periods based on lead times A BC D E LT: 1 wk LT: 2 wk LT: 1 wk

Planned Orders Planned Order Receipt –That quantity planned to be received at a future date as a result of a planned order release. Planned Order Release –Planned order releases are just planned; they have not been released. Orders for material should not be released until the planned order release date arrives. The planned order release of the parent becomes the gross requirement of the component.

Releasing Planned Orders –Check availability of components –Create shop packet or purchase requisition –Allocate components to that order –Release planned order, creating a scheduled receipt

MGMT Basic MRP Record The current time is the beginning of the first period. The top row shows time periods, called time buckets. The number of periods in the record is called the planning horizon. An item is considered available at the beginning of the time bucket in which it is required.

Basic MRP Record The quantity shown in the projected available row is the projected available balance at the end of the period; all other quantities are for the beginning of the period. The immediate or most current period is called the action bucket.

Example from Pg. 88 (85 3 rd. Ed.)

Example from Pg. 88

Example from Pg. 90 (87 3 rd Ed.)

Example from Pg. 90

Release the order for 200 units.

Using the Material Requirements Plan The computer can perform all calculations and create planned order releases, but it does not (usually) issue purchase or manufacturing orders or reschedule open orders. Computer software can create exception messages and suggest types of action.

Using the Material Requirements Plan On the basis of action and exception messages, the planner can release planned orders, reschedule existing orders in or out, or change quantities. In addition, the planner works with other planners, master production schedulers, production activity control, and purchasing to solve problems as they arise.

The Basic Responsibilities of a Planner –Launch (release) orders to purchasing or manufacturing –Reschedule due dates of open (existing) orders as required –Reconcile errors and try to find their cause

The Basic Responsibilities of a Planner –Address critical material shortages by expediting or re- planning –Coordinate with other planners, master production schedulers, production activity control, and purchasing to resolve problems

Material Planner’s 3 Types of Orders –Planned orders - calculated and controlled by the software –Released orders - scheduled receipts; releasing is the responsibility of the planner

Material Planner’s 3 Types of Orders –Firm planned orders - the planner tells the computer that the order is not to be changed; the planner uses firm planned orders to override the software in terms of quantity, time, or both. When re-planning, the software will not change the planner’s decision.

Managing the Material Requirements Plan The planner must consider three important factors when managing the MRP: –Priority - refers to maintaining the correct due dates by constantly evaluating the true due-date need for released orders and, if necessary, expediting or de-expediting. –Bottom-up Re-planning - Action to correct for changed conditions should occur as low in the product structure as possible

Managing the Material Requirements Plan The planner must consider three important factors when managing the MRP: –Reducing System Nervousness - Requirements can change rapidly and by small amounts. The planner must judge whether the changes are important enough to react to and whether an order should be released.

End of Lecture 9