1 Operations Management MRP Lecture 22 (Chapter 14)

2 Item Materials With Independent Demand Materials With Dependent Demand Demand Source Company CustomersParent Items Material Type Finished GoodsWIP & Raw Materials Method of Estimating Demand Forecast & Booked Customer Orders Calculated Planning Method EOQ & ROPMRP Dependent versus Independent Demand

3 Plans and their relationship MPS APP MRP SHORT TERM SCHEDULING HIGH LOW SHORT MEDIUMLONG TIME FRAME APP = Aggregate Production Planning: 3 – 18 months (medium/intermediate term) MPS = Master Production Schedule: 1 – 12 weeks MRP = Material Requirements Planning: Daily or weekly (short term) Short term scheduling: hourly (very short).

4 MRP Dependent demand technique that uses MPS, BOM, inventory, expected receipts and lead times to determine materials requirements Basis for ERP More preferable to EOQ models if relationship is known between items i.e. dependency occurs for the items under consideration Precisely determines feasibility of a schedule within capacity constraints

5 Dependent Inventory Model (MRP) Requirements MPS (what is to be made and when) Specifications or Bill of Materials (BOM) Inventory availability (what is in stock) PO’s outstanding (what is on order) Lead times (how long it takes to get various components)

6 Master Production Schedule (MPS) Timetable that specifies what is to be made and when Result of Aggregate/Production Planning process Disaggregates the AP (expressed in gross terms) into specific terms AP sets upper and lower bounds on the MPS

7 Aggregate Production Plan MPS 1,2001,500 Aggregate Production Plan shows the total quantity of bicycles Mountain bike Hybrid bike 100 Road bike Master Production Schedule Shows the specific type and quantity of bike to be produced Weeks FebruaryJanuaryMonths

8 Typical Focus of the Master Production Schedule Make to Order (Process Focus) Assemble to Order or Forecast (Repetitive) Stock to Forecast (Product Focus) Schedule finished product Steel, Beer, Bread Light bulbs, Paper Print shop Machine shop Fine dining restaurant Examples: Number of end items Number of inputs Typical focus of the master production schedule Schedule orders Schedule modules Motorcycles, autos, TVs, fast-food restaurant

9 Bill of Materials (BOM) Listing of components, their description and qty of each, required to make one unit of a product Due to rush to get product into market, BOM may be incomplete or non-existent Adequate to provide product structure and explode it to reveal requirements Low level coding done for items occurring at several levels

10 Bill Of Material Product Structure Tree Bicycle (1) P/N 1000 Handle Bars (1) P/N 1001 Frame Assembly (1) P/N 1002 Wheels (2) P/N 1003 Frame (1) P/N 1004

11 Purchase Orders Outstanding By-product of well managed purchasing and inventory control depts Prodn personnel should be well-informed about the orders placed and their scheduled deliveries

12 Lead times Time reqd to acquire (purchase, produce or assemble) an item For manufactured item, lead time = move time + setup time + assembly/run time For purchased item lead time = time between order placement and order receipt

13 Time-Phased Product Structure weeks F 2 weeks E A 1 week C G 2 weeks D 1 week E 2 weeks Start production of D D 1 week B 2 weeks to produce Must have D and E completed here so production can begin on B Time in weeks

14 Example

15 Item: B Description: Frame assembly Lot Size: 1000 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 115 Week MRP – Inventory Record

16 MRP – Planned Orders Item: B Description: Frame assembly Lot Size: 1000 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 115 Week

17 Item: B Description: Frame assembly Lot Size: 1000 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 115 Week MRP – Inventory Record

18 MRP – Planned Orders Item: B Description: Frame assembly Lot Size: 1000 units Lead Time: 2 weeks Gross requirements Scheduled receipts Projected on-hand inventory Planned receipts Planned order releases 115 Week

19 Structure of the MRP System MRP by period report MRP by date report Planned orders report Purchase requirements Exception reports MRP Programs Master Production Schedule BOM Lead Times (Item Master File) (Bill-of-Material) Inventory Data Purchasing data Data FilesO/p reports

20 Lot-Sizing Techniques Techniques used in determining order qty’s or lot sizes Lot-for-lot Economic Order Quantity Part Period Balancing

21 Lot-for-lot Lot sizing technique that generates exactly what is needed No safety stock or anticipation of further orders Works most efficiently when Frequent orders are economical (low set-up or ordering costs) JIT inventory techniques has been implemented

22 EOQ Preferable when demand is relatively constant and independent Not preferable for dependent demand Operations managers should take advantage of demand info when it is available rather than assuming constant demand

23 PPB Dynamic approach that balances setup / ordering and holding costs by changing the lot size to reflect requirements of next lot size in the future Develops an EPP – ratio of setup to holding cost Adds requirements until the part periods/holding costs approximate EPP

24 MRP in Services Can be used when demand for service or service items is directly related to or derived from demand for other services restaurant – demand for vegetables is dependent on demand for meals hospitals – equipment, materials and supply dependent on demand for surgeries

25 MRP in services