1. © The McGraw-Hill Companies, Inc., 2004 1 Chapter 15 Materials Requirements Planning

2. © The McGraw-Hill Companies, Inc., 2004 2 Material Requirements Planning (MRP) Components of an MRP System Time Fences MRP Logic and Product Structure Trees MRP Example MRP II Lot Sizing in MRP OBJECTIVES

3. © The McGraw-Hill Companies, Inc., 2004 3 Material Requirements Planning Defined Materials requirements planning (MRP): —Is a means for determining the number of parts, components, and materials needed to produce a product—the quantity problem —It provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced—the when or timing problem Dependent demand drives MRP MRP is a software system

4. © The McGraw-Hill Companies, Inc., 2004 4 Benefits of Material Requirements Planning Improved facility utilization Faster response to market Increased customer service Better inventory planning Reduced setup costs

5. © The McGraw-Hill Companies, Inc., 2004 5 Components of Material Requirements Planning Master production schedule (MPS) Bill of materials (BOM) Inventory records file (IRF) Primary output reports

6. © The McGraw-Hill Companies, Inc., 2004 6 Master Production Schedule (MPS) Time-phased plan specifying how many and when the firm plans to build each end item Aggregate Plan (Product Groups) Aggregate Plan (Product Groups) MPS (Specific End Items)

7. © The McGraw-Hill Companies, Inc., 2004 7 Master production Schedule (MPS) The key input driver for MRP Tells MRP what to schedule, how many, and when they are needed It is time-phased requirement system Usually end items and special order components Aggregation of: —Customer firmed orders —Forecast demands and safety stocks —Service parts and seasonal adjustment, etc.

8. © The McGraw-Hill Companies, Inc., 2004 8 Time Fences  Purpose: — To maintain reasonably controlled flow through the production system.  What they are: — Periods of time within which the customer can make changes to the order (MPS).

9. © The McGraw-Hill Companies, Inc., 2004 9 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

10. © The McGraw-Hill Companies, Inc., 2004 10 Example of Time Fences 81526 Weeks Frozen Moderately Firm Flexible Firm Customer Orders Forecast and available capacity Capacity Exhibit 15.5

11. © The McGraw-Hill Companies, Inc., 2004 11 Bill of Materials (BOM) File A Complete Product Description  Identifies components, parts, materials, and subassemblies in the product  Shows production sequence for the product  More of a recipe for making the product  Modular BOM: – Buildable items that are storable as subassemblies  Planning BOM: – Fractional options. Fraction of the part contained in the completed unit

12. © The McGraw-Hill Companies, Inc., 2004 12 Bill of Materials Structure A B(1)C(1) D(1)E(4)F(2)G(4)H(4) 1. Christmas tree structure 2. Indented structure Part #DescriptionQuantitySource A Car 1Assembled B Engine 1Manufactured D Block 1Manufactured E Valves 4 Purchased C Body 1Manufactured F Doors 2Manufactured G Tires 4Purchased H Shocks 4Purchased

13. © The McGraw-Hill Companies, Inc., 2004 13 Inventory Records File  Each inventory item carried as a separate file — See, for example, Exhibit 15.15 — Status according to “time buckets” for all items — On-hand quantities — Scheduled receipt of order — Lead times for all orders — Lot size requirements  Pegging — Identify each parent item that created demand

14. © The McGraw-Hill Companies, Inc., 2004 14 Primary MRP Reports Planned orders to be released at a future time. Order release notices to execute the planned orders. Changes in due dates of open orders due to rescheduling. Cancellations or suspensions of open orders due to cancellation or suspension of orders on the master production schedule. Inventory status data.

15. © The McGraw-Hill Companies, Inc., 2004 15 Secondary MRP Reports Planning reports, for example, forecasting inventory requirements over a period of time. Performance reports used to determine agreement between actual and programmed usage and costs. Exception reports used to point out serious discrepancies, such as late or overdue orders.

16. © The McGraw-Hill Companies, Inc., 2004 16 Updating The MRP System Regenerative method: —Limited replanning frequency, weekly or longer —MPS submission triggers replanning —Every end-item in the MPS is exploded —Voluminous output is generated —High data processing efficiency--batch Net change method —High frequency of replanning —But affected parts of MPS are exploded —Limited number of outputs result

17. © The McGraw-Hill Companies, Inc., 2004 17 Net Change System Activity driven Net change schedules Potential for system nervousness

18. © The McGraw-Hill Companies, Inc., 2004 18 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

19. From Exhibit 15.6 19 ©The McGraw-Hill Companies, Inc., 2004 Firm orders from known customers Forecasts of demand from random customers Aggregate product plan Bill of material file Engineering design changes Inventory record file Inventory transactions Master production Schedule (MPS) Primary reports Secondary reports Planned order schedule for inventory and production control Exception reports Planning reports Reports for performance control Material planning (MRP computer program)

20. © The McGraw-Hill Companies, Inc., 2004 20 Example of MRP Logic and Product Structure Tree 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 Total Unit Demand Day 10 50 A Day 8 20 B (Spares) Day 6 15 D (Spares) Given the product structure tree for “A” and the lead time and demand information below, provide a materials requirements plan that defines the number of units of each component and when they will be needed

21. © The McGraw-Hill Companies, Inc., 2004 21 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” on the 9 th day to receive them on day 10. LT = 1 day

22. © The McGraw-Hill Companies, Inc., 2004 22 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 LT = 2 4x50=200

23. B(4) E(1)D(2) C(2) F(2)D(3) A 40 + 15 spares Part D: Day 6 Finally, repeating the process for all components, we have the final materials requirements plan: 23

24. © The McGraw-Hill Companies, Inc., 2004 24 MRP Scheduling Terminologies Gross Requirements —Gross demand as taken from the MPS Scheduled receipts —When outstanding orders are expected Projected available balance (On-Hand) —Available physical inventory Net requirements —Net demand after available inventories are consumed Planned order release —When to place orders so they come in when needed

25. © The McGraw-Hill Companies, Inc., 2004 25 MRP Example 1 Straight one-to-one correspondence —No multiple parents —One component one parent Consider the three level part explosion diagram above. The items do not have multiple parents and only 1 unit of each item goes into the corresponding parent. Suppose that the gross requirements for product A for periods 3, 4, 5, 6, 8, and 10 are 25, 5, 35, 7, 10, and 21, respectively. Suppose also that it takes 2 periods from the period an order was placed to the time it was actually received in inventory, and that the amount of item A on hand was 20; 30 for item B, and 2 for item C. Develop the complete MRP explosion requirements needed to determine the net requirements for item C. The scheduled receipt for product A, the end item, is 25 in period 4. A B C (1) Level 0 1 2

26. © The McGraw-Hill Companies, Inc., 2004 26

27. © The McGraw-Hill Companies, Inc., 2004 27 MRP Example 2 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

28. © The McGraw-Hill Companies, Inc., 2004 28 12345678910 Gross Requiremts Scheduled Rcpts ITEM X LT=2 On Hand Net Requirements P. Order Releases Gross Requiremts Scheduled Rcpts ITEM A LT=3 On Hand Net Requirements P. Order Releases Gross Requiremts Scheduled Rcpts ITEM B LT=1 On Hand Net Requirements P. Order Releases Gross Requiremts Scheduled Rcpts ITEM C LT=2 On Hand Net Requirements P. Order Releases Gross Requiremts Scheduled Rcpts ITEM D LT=2 On Hand Net Requirements P. Order Releases

29. © The McGraw-Hill Companies, Inc., 2004 29 A(2) X It takes 2 A’s for each X

30. © The McGraw-Hill Companies, Inc., 2004 30 B(1)A(2) X It takes 1 B for each X

31. © The McGraw-Hill Companies, Inc., 2004 31 A(2)B(1) X C(3) It takes 3 C’s for each A

32. © The McGraw-Hill Companies, Inc., 2004 32 A(2)B(1) C(2) X C(3) It takes 2 C’s for each B

33. © The McGraw-Hill Companies, Inc., 2004 33 A(2)B(1) D(5)C(2) X C(3) It takes 5 D’s for each B

34. © The McGraw-Hill Companies, Inc., 2004 34 Closed Loop MRP Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning Realistic? No Feedback Execute: Capacity Plans Material Plans Yes Feedback

35. © The McGraw-Hill Companies, Inc., 2004 35 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

36. © The McGraw-Hill Companies, Inc., 2004 36 Lot Sizing in MRP Programs Economic order quantity (EOQ) Lot-for-lot (L4L) or (LFL) Period order quantity (POQ) Part period balancing (PPB) Least total cost (LTC) Least unit cost (LUC) Silver-Meal heuristics (SM) Wagner-Wittin (WW) Which one to use? —The one that is least costly!

37. © The McGraw-Hill Companies, Inc., 2004 37 Lot-Sizing Example: EOQ Method The net requirements for a product is as given in the table. If C=$10/unit, S=$47/order, H=.5% of cost/week, find the total cost to meet order demand requirements using the EOQ method. Weekly Net Requirements 1234567812345678 5060706095756055 Solution: TC=10(525)+(.05)(1563)+2(47)=$5,422.15 Policy: If

38. © The McGraw-Hill Companies, Inc., 2004 38 Lot-Sizing Example: LFL Method The net requirements for a product is as given in the table. If C=$10/unit, S=$47/order, H=.5% of cost/week, find the total cost to meet order demand requirements using the L4L method. Weekly Net Requirements 1234567812345678 5060706095756055 Solution: TC=10(525)+(.05)(0)+8(47)=$5,626

39. © The McGraw-Hill Companies, Inc., 2004 39 Lot-Sizing Example: POQ Method The net requirements for a product is as given in the table. If C=$10/unit, S=$47/order, H=.5% of cost/week, find the total cost to meet order demand requirements using the POQ method. Weekly Net Requirements 1234567812345678 5060706095756055 Solution: TC=10(525)+(.05)(1190)+2(47)=$5,404