1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Manufacturing Planning and Control MPC 6 th Edition Chapter 6

2. 6-2 Material Requirements Planning (MRP) Material Requirements Planning (MRP) has the managerial objective of providing “the right part at the right time” to meet the schedules for completed products. MRP provides a formal plan for each part number–raw materials, components, and finished products.

3. 6-3 Agenda What is Material Requirements Planning (MRP)?MRP and Manufacturing Planning & ControlMRP Record ProcessingMRP Technical IssuesUsing the MRP SystemMRP System Dynamics

4. 6-4 Resource planning Sales and operations planning Demand management Master production scheduling Detailed capacity planning Detailed material planning Material and capacity plans Shop-floor systems Supplier systems Enterprise Resource Planning (ERP) System Front End Engine Back End Manufacturing Planning and Control System Time-phased requirement (MRP) records Routing file Bills of material Inventory status data

5. 6-5 Basic MRP Record Gross Requirements Scheduled Receipts Projected Available Balance Planned Order Releases MRP Record

6. 6-6 Basic MRP Record On hand Period 12345 Gross requirements104010 Scheduled receipts50 Projected available balance45444 4 Planned order releases50 Lead time = 1 period Lot size = 50 A previously released order due in period 1 A unreleased order due in period 5 Requirements from all sources

7. 6-7 Bill of Materials The BOM shows the components and sub-assemblies required to produce a product

8. 6-8 Product Structure Diagram Sub-assemblies are represented by separate levels Finished product is located at the top, components below

9. 6-9 Indented Bill of Materials Finished item is not indented Components and sub-assemblies are indented relative to their order of usage Level 1 components Level 1 sub-assemblies Level 2 sub-assemblies

10. 6-10 Explosion Explosion–the process of translating product requirements into component part requirements Considers existing inventories and scheduled receipts Calculating the quantities of all components needed to satisfy requirements for any given part. Continued until all parts have been considered, leading to exact requirements for all purchased and/or raw material parts

11. 6-11 Gross and Net Requirements Gross requirements represent the total planned usage for the part Net requirements account for existing inventory and/or scheduled receipts 100 req’d – 25 inventory = 75 net req’d 75 req’d – 22 inventory – 25 sched. rec. = 28 net req’d Net req’d for assembly becomes gross req’d for component

12. 6-12 Demand Types in MRP Dependent–component or sub-assembly demand driven by net requirements from the next higher level (e.g. scoop demand caused by net requirements for scoop assemblies) Independent–demand driven by requirements from outside the firm (e.g. customer orders)

13. 6-13 Lead Time Offsetting Gross to net explosion shows how much of each part is required, but not when Timing requires consideration of two factors Lead times–how long does it take to obtain the component or sub-assembly Precedent relationships–the order in which parts must be assembled MRP considers both factors when developing the plan

14. 6-14 Scheduling Logic Two common approaches to scheduling exist Front schedule–schedule each step as early as possible Back schedule–schedule each step as late as possible MRP combines back scheduling and gross to net explosion Reduced inventories Minimized storage time

15. 6-15 Back Scheduling Top handle assembly has the longest duration of any sub-assembly Scoop assembly must be complete before final assembly can begin Only when all sub- assemblies and components are available can final assembly begin

16. 6-16 MRP Records Planned order release for top handle assembly becomes gross requirement for top handle component and nail (note 2 nails required per assembly) Lot-for-lot order policy exactly matches supply to net requirements Fixed lot size order policy requires orders in multiples of lot size

17. 6-17 MRP Technical Issues Processing frequency–recalculating all records and requirements is called regeneration This is a computationally intensive process so it is often run in the background and during periods of low system demand Net change approach only recalculates those records that have experienced changes Less frequent processing results in an out-of-date picture More frequent processing increases computer costs and may lead to system nervousness

18. 6-18 Safety Stock and Safety Lead Time Safety stock is buffer stock over and above the quantity needed to satisfy gross requirements Used when quantity uncertainty is the issue Safety lead time changes both the release and due date of shop and/or purchase orders to provide a margin for error Used when timing of orders is the issue Safety lead time is not just an inflated lead time

19. 6-19 Pegging Pegging provides a link between demand (order releases, customer orders, etc.) and the gross requirements for parts Pegging records include the specific part numbers associated with a gross requirement Pegging information can track the impact of a problem (e.g. material shortage) back to the order(s) it will affect

20. 6-20 Firm Planned Orders Regeneration of the MRP records can lead to large numbers of planned order changes To avoid this, a planned order can be converted to a firm planned order (FPO) An FPO is not the same as a scheduled delivery, but can’t be changed by the MRP system Temporarily overrides the MRP system to provide stability or to solve problems

21. 6-21 Planning Horizon Total amount of time included in MRP calculations Longer planning horizon increases computational requirements Shorter planning horizon may result in less- effective plans if significant future demand is not visible At a minimum, should cover the cumulative lead time for all finished goods items

22. 6-22 Scheduled Receipts vs. Planned Order Releases Scheduled receipts represent an actual commitment (purchase order, production order, etc.) Planned orders are only the current plan and can be changed more easily Scheduled receipts for production orders already have component materials assigned Scheduled receipts do not impact gross requirements Planned order releases do not have component materials assigned Planned order releases do impact gross requirements

23. 6-23 Using the MRP System MRP PlannerException Codes Bottom-Up Replanning MRP System Output MRP Aspects

24. 6-24 MRP Planner Tasks Purchase orders Shop floor (production) orders Release Change due dates of existing orders (when desirable) Reschedule Set lot sizes and lead times Adjust scrap allowances and safety stocks Analyze and Update Identify errors and inconsistencies and eliminate their root causes Reconcile Take action now to prevent future crises Identify Problems Adjust records and system parameters to prevent recurrence Solve Shortages Identify system enhancements to improve performance Enhance

25. 6-25 Exception Codes Separating the vital few from the trivial many Part numbers with planned orders in the immediate period Orders with unsatisfactory timing or quantity Requirements that cannot be satisfied within system parameters (management input needed)

26. 6-26 Bottom-Up Replanning Using pegging data to guide efforts to solve material shortages Pegging data allows the planner to take action only when actual customer orders are impacted

27. 6-27 MRP System Output Part number and descriptionMRP system data MRP planning data Exception messages

28. 6-28 MRP System Dynamics MRP System Issues Transactions during a period– unexpected changes Rescheduling– moving the due date of an order to an earlier or later date Complex transactions– inventory adjustments, service parts, etc. Procedural inadequacies– situations the system wasn’t designed to handle

29. 6-29 Principles Effective use of an MRP system allows development of a forward-looking approach to managing material flows. The MRP system provides a coordinated set of linked product relationships, which permits decentralized decision making for individual part numbers. All decisions made to solve problems must be implemented within the system, and transactions must be processed to reflect the resultant changes. Effective use of exception messages allows attention to be focused on the “vital few” rather than the “trivial many.”

30. 6-30 Quiz – Chapter 6 Material Requirements Planning (MRP) takes place in the front end systems of the manufacturing planning and control system? (True/False) In a Material Requirements Planning (MRP) system, what does time-phasing of gross requirements mean? Front scheduling logic starts each step of the process as late as possible? (True/False) A lot-for-lot order policy generates orders for a fixed quantity, independent of actual requirements? (True/False) Processing all Material Requirements Planning (MRP) records in a single computer run is called ___________? Safety lead time involves inflating lead times to ensure stock availability? (True/False)