1. Copyright © 2014 McGraw-Hill Higher Education. All rights reserved. CHAPTER 14 Materials and Resource Requirements Planning McGraw-Hill/Irwin

2. Learning Objectives LO14-1 Explain material requirements planning (MRP) LO14-2 Conduct MRP at multiple levels in the bill of materials (BOM) LO14-3 Explain use of distribution requirements planning LO14-4 Conduct capacity requirements planning LO14-5 Describe how material and resource planning works with enterprise requirements planning LO14-6 Explain how advanced planning and scheduling systems improve planning 14–2

3. Requirements Planning Independent Demand: demand created by customers Dependent Demand: demand is driven by demand of another item MRP: computes demand for dependent items DRP: computes demand for finished goods in the distribution system CRP: determines if sufficient resources are available 14–3 LO14-1

4. MRP and DRP in the Supply Chain 14–4 Figure 14-1 LO14-1

5. MRP Process: An Overview 14–5 Figure 14-3 LO14-1

6. MRP Inputs: Bill of Materials Bill of Materials (BOM): detailed listing of all materials needed to make an end item Figure 14-5 14–6 LO14-2

7. Activity Select one of the items below and develop a product structure BOM: Chair Desk 2 dozen cupcakes Set of golf clubs Product of your choice 14–7 LO14-2

8. MRP Inputs: Master Production Schedule Master Production Schedule (MPS): schedule for building finished products Time Bucket: time periods for planning Planning Horizon: entire time period covered by the MPS Available to Promise (ATP): planned production not already committed to a customer Rough-cut Capacity Planning: estimates the critical resources needed to build MPS 14–8 LO14-2

9. MRP Inputs: Inventory Records Inventory Records: contains information about inventory including amount on hand Inventory status file: file that contains detailed inventory and procurement records Lot-for-lot: an order for the exact amount needed Fixed order quantity (FOQ): an order for the same amount each time Periodic order quantity (POQ): an order for an amount that covers a fixed order period of time 14–9 LO14-2

10. MRP Process Gross Requirements: total amount of an end item that is required Requirements Explosion: determines how many additional units are needed Net Requirements: minimum amount needed in a time period Planned Order Receipt: amount of an item planned to arrive in a time period Planned Order Release: amount of an item planned to be ordered in time period 14–10 LO14-2

11. Distribution Requirements Planning (DRP) Distribution Requirements Planning (DRP): an estimate of the quantity and positioning of finished goods inventory. 14–11 Forecasts and firm orders combined at retailer or DC level Planned order receipts and releases determined for each location Gross requirements calculated and compared to projected on-hand Net requirements and planned orders calculated Requirements across stages of distribution consolidated up to the plant level Distribution requirements used as input for MPS and MRP LO14-3

12. Capacity Requirements Planning (CRP) Capacity Requirements Planning (CRP): an estimate of capacity needed Infinite Loading: assumption of infinite capacity Load Profile: comparison of capacity needs to what is needed 14–12 LO14-4

13. Advances in Planning Systems: ERP Enterprise Resource Planning (ERP): software that consolidates all business planning systems and data 14–13 LO14-5 Replaced old legacy systems Has multi-function capabilities Facilitates cross-functional coordination Saves time Reduces errors Enables better business decisions

14. Advances in Planning Systems: APS Advanced Planning and Scheduling (APS): combines materials and capacity planning into one system Produces better plans, faster by avoiding disjointed iterative planning processes Helps managers to identify and avoid problems Allows managers to quickly evaluate alternatives and generate contingency plans 14–14 LO14-6

15. Materials and Resource Requirements Planning Summary 1.Dependent demand is for raw materials, parts, and subassemblies. 2.MRP inputs include MPS, BOM and inventory records. 3.MRP determines how much and when to order 4.MRP outputs include reports for operations planning 5.DRP applies MRP logic to the distribution network 6.MRP plans must be balanced with available capacity using CRP 7.Technology is streamlining the planning process 14–15