1. Principles of Operations Management
Inventory for Dependent Demand Chapter 10

2. Learning Objectives
Distinguish dependent from independent demand inventory
Define material requirements planning
State the benefits of MRP
Identify the requirements of MRP
Explain the inputs & outputs of MRP
Compute order releases

3. Inventory Classifications

4. Dependent vs. Independent Demand

5. Material Requirements Planning (MRP)
Mfg. computer information system
Determines quantity & timing of dependent demand items
© 1995 Corel Corp.

6. MRP Requirements Computer system Mainly discrete products
Accurate bill-of-material
Accurate inventory status
99% inventory accuracy
Stable lead times
© T/Maker Co.

7. MRP Benefits
Increased customer satisfaction due to meeting delivery schedules
Faster response to market changes
Improved labor & equipment utilization
Better inventory planning & scheduling
Reduced inventory levels without reduced customer service

8. MRP & Production Planning Process
Aggregate
Forecast &
Resource
Production
Firm Orders
Availability
Planning
Material
Master
Requirements
Production
Planning
Scheduling
No, modify CRP, MRP, or MPS
Capacity
Shop
Requirements
Realistic?
Floor
Yes
Planning
Schedules

9. MRP System Input & Output
What to make
& when
What items
What is in
make up
stock
the product
Material
Requirements
Planning Sys.
How long to
What is on
make items
order
What items to
make & when

10. MRP System Input & Output
What to make
& when
What items
What is in
make up
stock
the product
Material
Requirements
Planning Sys.
How long to
What is on
make items
order
Planned Order
& Other
Reports

11. MRP System Input & Output

12. Master Production Schedule
Shows items to be produced
End item, customer order, module
Derived from aggregate plan
Example

13. Bill-of-Material
List of components & quantities needed to make product
Provides product structure (tree)
Parents: Items above given level
Children: Items below given level
Shows low-level coding
Lowest level in structure item occurs
Top level is 0; next level is 1 etc.

14. Bill-of-Material Product Structure Tree

15. Bill of Material Example
© 1995 Corel Corp.

16. Product Structure Thinking Challenge
The demand for product A is 50. How many of each component is needed to satisfy demand?
Alone
Group
Class

17. Product Structure Solution*50

18. MRP System Input & Output

19. Lead Time Wait Time Move Time Queue Time Setup Time Run Time Input
Output

20. Lead Times & Product Structure
Handle Bars
2 wk.
Lead time
1 wk.
Frame
2 wk.
Bicycle
1 wk.
3 wk.
Frame Assy
Wheels
Time (weeks)

21. MRP System Input & Output

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

23. MRP Formulas Available = On-hand - Safety stock - Allocated
On-hand is inventory physically present
Allocated is inventory reserved for special orders
On-hand = Prior period's on-hand Scheduled receipts
Net requirement = Gross requirement Available

24. MRP Example Component B
A master schedule calls for starting (planned order release) 2 units of product X in week 1, 20 in week 2, & 10 in week 4. The planned order releases for product Y are 15 in week 4, and 15 in week 5. Determine the gross requirements for component B. X
A(1)
B(1) Y
A(1)
C(3)

25. Component B Solution Planned Order Releases X Planned Order Releases Y
Gross Requirements B

26. Thinking Challenge Component C
A master schedule calls for starting (planned order release) 2 units of product X in week 1, 20 in week 2, & 10 in week 4. The planned order releases for product Y are 15 in week 4, and 15 in week 5. Determine the gross requirements for component C. X
A(1)
B(1) Y
A(1)
C(3)
Alone
Group
Class

27. Component C Solution* Planned Order Releases X
Planned Order Releases Y
Gross Requirements C

28. Thinking Challenge Component A
A master schedule calls for starting (planned order release) 2 units of product X in week 1, 20 in week 2, & 10 in week 4. The planned order releases for product Y are 15 in week 4, and 15 in week 5. Determine the gross requirements for component A. X
A(1)
B(1) Y
A(1)
C(3)
Alone
Group
Class

29. Component A Solution* Planned Order Releases X
Planned Order Releases Y
Gross Requirements A

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

31. MRP Solution
An order of 7 must be started in week 2. Lead time is 3 weeks. 20
Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

32. Safety stock decreases ‘Available’ inventory
Safety stock decreases ‘Available’ inventory. The amount physically on-hand is still the same (20).
Safety Stock = 18
Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 2 units.

33. Lot Size Lot: Batch of material that moves & gets processed together
Reduces setup & handling time & cost
Techniques
Lot-for-lot (LFL)
Economic order quantity (EOQ)
Part period balancing
Wagner-Whitin algorithm

34. Lot Size
Lot size is 5 or multiples (5, 10, 15 etc.). The quantities started (i.e., released) & completed are increased. 20
Lead Time = 3; Lot Size= 5 units (or Multiples); On-Hand = 20 Units; Safety Stock = 0 Units.

35. MRP Thinking Challenge 1
A master schedule calls for 200 units of product A in period 5. No stock of any components is on-hand or on order. All order sizes are lot-for-lot. Determine the amount & timing of all planned order releases.
Alone
Group
Class

36. Product A Template

37. Component B Template

38. Component C Template

39. MRP Thinking Challenge 2
A master schedule calls for 50 units of F in week 6, & 60 in week 8. On-hand levels are F = 0, G = 20, & H = 60. Another 20 units of G are scheduled to be received in week 4. Order quantities are lot-for-lot except for H, which has a lot size of 50 or multiples of 50.
Alone
Group
Class

40. Product F Template

41. Component G Template

42. Component H Template

43. MRP Management Issues System nervousness
Time fences: Portion of master schedule not scheduled
Pegging: Tracing to parent in BOM
Integration with Just-in-Time (JIT)
Reduce time buckets to daily or hourly
Use planned receipts to sequence orders
Use kanban cards to move material
Use back flushing to reduce inventory

44. Conclusion Distinguished dependent from independent demand inventory
Defined material requirements planning
Stated the benefits of MRP
Identified the requirements of MRP
Explained the inputs & outputs of MRP
Computed order releases