Material Requirements Planning Defined Materials requirements planning (MRP) is the logic for determining the number of parts, components, and materials needed to produce a product. MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced. Dependent demand drives MRP.

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 unit numbers needed. – Determines the dates when orders for those materials should be released, based on lead times.

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 3

Product Structure Thinking Challenge The demand for product A is 50. How many of each component is needed to satisfy demand? A B(2)C(3) D(2) E(1)E(3)F(2) D(2)G(1) A B(2)C(3) D(2) E(1)E(3)F(2) D(2)G(1)

Product Structure Solution A B(2)C(3) D(2) E(1)E(3)F(2) D(2)G(1) A B(2)C(3) D(2) E(1)E(3)F(2) D(2)G(1) x 3 = x 2 = x 2 = x 1 = x 1 = x 2 = x 3 = x 2 = 200 Note: D: = 800 E: = 450

MRP Scheduling Terminology Net requirements – the amount needed to meet gross requirements in a particular period. Planned order receipt - amount of the item that you are planning to receive in a particular period Planned order release - an order that you are planning to release in a particular period

MRP Example - One item’s complete record Starting information Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Example - Period 1 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Example - Period 2 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Example - Period 3 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Example - Period 4 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Example - Period 5 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

Low Level Coding What about this? A B C DCE E Level 0 Level 1 Level 3 Level 2 Won’t having the same part at different levels make it harder to do level by level calculations?

Low Level Coding - “How to” Place each item at same level - it simplifies the calculations A B C DCE E Level 0 Level 1 Level 3 Level 2 A B CDC EE Before: After:

Another MRP Example An end item (A) is assembled from 1 sub-component C, 2 part D’s, and 1 sub-component B Each sub-component C is assembled from 1 part D and 1 part E Each sub-component B is assembled from 1 part C and 2 part E’s The master production schedule calls for 250 units of A in week 6, 140 in week 8, and 200 in week 9. The following information is available from the inventory status file:

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.

Example of Time Fences Weeks Frozen Moderately Firm Flexible Firm Customer Orders Forecast and available capacity Capacity

Work-Center Scheduling Objectives Meet due dates Minimize lead time Minimize setup time or cost Minimize work-in-process inventory Maximize machine utilization

Priority Rules for Job Sequencing 1. First-come, first-served (FCFS) 2. Shortest operating time (SOT) 3. Last-come, first served (LCFS) 4. Earliest due date first (EDD) Many other possible rules...

Example of Job Sequencing: First-Come First-Served Jobs (in orderProcessingDue DateFlow Time of arrival)Time (days)(days hence)(days) Answer: FCFS Schedule Suppose you have the four jobs to the right arrive for processing on one machine. What is the FCFS schedule? Average Lateness = ( )/4 = 5 days Average Flow Time = ( )/4 = 11 days Total Flow Time Late A454 0 B C D

Summary:

Characteristics of Location Decisions Long-term decisions Very difficult to reverse Affect fixed & variable costs –Transportation cost As much as 25% of product price –Other costs: Taxes, wages, rent etc. Objective: Maximize benefit of location to firm

Cost focus –Revenue varies little between locations Location is a major cost factor –Affects shipping & production costs (e.g., labor) –Costs vary greatly between locations Manufacturing Location Strategies © 1995 Corel Corp.

Service Location Strategies Revenue focus –Costs differences among locations are relatively less important Location is a major revenue factor –Affects amount of customer contact –Affects volume of business © 1995 Corel Corp.

Location Methods: Factor Rating Method Most widely used location technique Useful for service & manufacturing locations Rates locations using factors –Qualitative (intangible) factors Example: Education quality, labor skills –Quantitative (tangible) factors Example: Short-run & long-run costs

Factor Rating Method Solution Omaha is best

Location Methods: Factor Rating Method +/- + Easy to understand and compute - How do you pick weights? - How do you assign rankings?

Location Decision Sequence 1. Country 2. Region/Community 3. Site © 1995 Corel Corp.

Plant Location Methodology: Centroid Method Formulas C x = X coordinate of the centroid C y = Y coordinate of the centroid d ix = X coordinate of the ith location d iy = Y coordinate of the ith location V i = volume of goods moved to or from ith location

Plant Location Methodology: Example of Centroid Method Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month? Centroid method example –Several automobile showrooms are located according to the following grid which represents coordinate locations for each showroom. X Y A (100,200) D (250,580) Q (790,900) (0,0)

Thinking Challenge Solution Seattle (50,60) 494k units Aberdeen (20,35) 18k units Spokane (160,50) 171k units Warehouse at (77, 57): Wenatchee Nat’l Forest! X © 1995 Corel Corp.

Balancing Supply Chain Capability with Customer Demands Information Supply Chain Capability Customer Requirements Increased Costs Overtime Expediting Increased Inventory Increased Demand: Marketing programs Promotions Supply Chain Capability Customer Requirements Information Market Demand,New Products, Promotions Suppliers, Manufacturers, Distributors, Carriers

Formulas for Measuring Internal Supply-Chain Performance Inventory Turnover = Cost of goods sold. Average inventory value

Supply Chain Measures Common practice is to measure within a function: SupplierPlantDistribution Center Customer PriceCost Efficiency Output Inventory Stock Rotation Space Cost Quality Speed Flexibility

Measure Across Supply Chain Nodes The correct method is to measure across a node: Cycle Time On-time Delivery Vendor Managed Inventory Cycle Time Delivery Reliability Product Availability Cycle Time Order Completion Performance

The Bullwhip Effect – Cont’d

What is Outsourcing? Defined Outsourcing: moving a firm’s internal activities and decision responsibility to outside providers.

Reasons to Outsource Organizationally-driven - gain focus Improvement-driven - quality, skills, innovation Financially-driven - reduce asset investment Revenue-driven - gain market access, expand sales Cost-driven - supplier has lower cost structure