1. Lecture 32. Revision:. Material Requirement Planning
Lecture 32 Revision: Material Requirement Planning Maintenance and Reliability
Books
Introduction to Materials Management, Sixth Edition, J. R. Tony Arnold, P.E., CFPIM, CIRM, Fleming College, Emeritus, Stephen N. Chapman, Ph.D., CFPIM, North Carolina State University, Lloyd M. Clive, P.E., CFPIM, Fleming College
Operations Management for Competitive Advantage, 11th Edition, by Chase, Jacobs, and Aquilano, 2005, N.Y.: McGraw-Hill/Irwin.
Operations Management, 11/E, Jay Heizer, Texas Lutheran University, Barry Render, Graduate School of Business, Rollins College, Prentice Hall

2. Objectives Material Requirement Planning Nature of Demand
Inputs to MRP
Bill of Material
Planned Orders
Net requirement plan
MRP and JIT
Lot sizing techniques
Maintenance and reliability
Reliability
Product failure rate
Providing redundancy
Maintenance cost
Total productive maintenance

3. Material Requirement Planning

4. Material Requirements Planning
Material Requirements Planning is a system to calculate requirements for dependent demand items
It establishes a schedule (priority plan) showing the components required at each level of the assembly and, based on lead times, calculates the time when these components will be needed
It is a system to avoid missing parts for the end item

5. Material Requirements Planning Process
We need to determine
What to order
How much to order
When to order
This will involve
Lead times
Bills of material
Inventory Status
Planning data

6. Nature of Demand Two Types of Demand Independent Dependent
Is not related to the demand for any other product and must be forecast
Master production schedule (MPS) items are independent demand items
Dependent
Is directly related to other items or end items
Such demand should be calculated and need not and should not be forecast

7. Nature of Demand If you have an order for 23 Tables, what components
Independent Demand
(Forecast)
Table
Legs
(4)
Ends
(2)
Sides
Top
(1)
Hardware
Kit (1)
Item
#206
#433
#711
#025
#822
Dependent Demand
(Calculated)
If you have an order for 23 Tables, what components
would you need to produce them?

8. Objectives of MRP Two Major Objectives Determine Requirements
What to order
How much to order
When to order
When to schedule delivery
Keep Priorities Current
It must be able to add and delete, expedite, delay, and change orders based upon present priorities

9. Linkages with Other Manufacturing Planning and Control Functions
Business
Plan
Production
MPS
PC and
Purchasing
MRP
Planning
Execution
The MRP is driven by
the MPS; it is concerned
with the components
needed to make the
end items.
The MRP in turn drives,
or is input to, production
control (PC) and purchasing

10. Inputs to the MRP System
Four Major Inputs:
Master Production Schedule
Inventory Records
Planning Data
Bills of Material
MPS
Inventory
Status
Bill of
Material
MRP
Planning
Data

11. Inputs to the MRP System
Master Production Schedule (MPS)
The MPS provides information on planned and scheduled orders for end items (how much is wanted and when)
Inventory Status
Inventory status provides information on what is already available. Inventory records include the status of each item, including amounts on order and on hand and the location

12. Inputs to the MRP System
Bills of Material
Bills of material describe components and the quantity of each needed to make one unit
Planning Data
Planning data include lot size, lead time, scrap factors, yield factors, and safety stock
The Computer
Computers are needed because they are fast , accurate, and have the ability to store and manipulate data and produce information rapidly

13. Bills of Material Bill of Material
“a listing of all the subassemblies, intermediates, parts, and raw materials that go into making the parent assembly showing the quantities of each required to make an assembly”
APICS Dictionary, 8th edition, 1995
The bill of material shows all the parts required to make one of the item
Each part or item has only one part number

14. Bills of Material Parent Parent–Component Relationship Table Legs (4)
An assembly is considered a parent, and the items that comprise it are called its component items.
Parent
Table
Legs
(4)
Ends
(2)
Sides
(2)
Top
(1)
Hardware
Kit (1)
Component
Item
#206
Item
#433
Item
#711
Item
#025
Item
#822

15. Bills of Material
The multilevel bill is made up of subassemblies. The subassemblies reflect the way manufacturing plans to build the product.
The lowest items on the bill are usually purchased parts.
All parts and subassemblies have unique numbers.
By convention, the final assembly is considered level zero. Levels down the bill are numbered consecutively.

16. Bills of Material
The multilevel bill is a collection of single-level bills. Each single-level bill shows the parts to make one parent.
To reduce storage space and to make maintenance easier, the computer stores single-level bills only.
Items can be both parents of components and components of other parents.

17. Bills of Material
Low-Level Coding and Netting - A component may reside on more than one level in a bill of material
The low-level code is the lowest level on which a part resides in all bills of material. Every part has only one low-level code.
Low-level are determined by starting at the lowest level of a bill of material and, working up, recording the level against the part. If a part occurs on a higher level, its existence on the lower level has already been recorded.
Once the low-level codes are obtained, the net requirements for each part can be calculated.

18. Bills of Material Uses for Bills of Material
Product Definition
Engineering Change Control
Service Parts
Planning
Order Entry
Manufacturing
Costing
Etc.
Maintaining bills of material and their accuracy is extremely important

19. Bills of Material
List of components, ingredients, and materials needed to make product
Provides product structure
Items above given level are called parents
Items below given level are called children

20. Packing box and installation kit of wire, bolts, and screws
BOM Example
Product structure for “Awesome” (A) A
Level
B(2) Std. 12” Speaker kit
C(3)
Std. 12” Speaker kit w/ amp-booster 1
E(2)
F(2)
Packing box and installation kit of wire, bolts, and screws
Std. 12” Speaker booster assembly 2
D(2)
12” Speaker
G(1)
Amp-booster 3

21. Packing box and installation kit of wire, bolts, and screws
BOM Example
Product structure for “Awesome” (A) A
Level
B(2) Std. 12” Speaker kit
C(3)
Std. 12” Speaker kit w/ amp-booster 1
Part B: 2 x number of As = (2)(50) = 100
Part C: 3 x number of As = (3)(50) = 150
Part D: 2 x number of Bs
+ 2 x number of Fs = (2)(100) + (2)(300) = 800
Part E: 2 x number of Bs
+ 2 x number of Cs = (2)(100) + (2)(150) = 500
Part F: 2 x number of Cs = (2)(150) = 300
Part G: 1 x number of Fs = (1)(300) = 300
E(2)
F(2)
Packing box and installation kit of wire, bolts, and screws
Std. 12” Speaker booster assembly 2
D(2)
12” Speaker
G(1)
Amp-booster 3

22. Bills of Material Modular Bills
Modules are not final products but components that can be assembled into multiple end items
Can significantly simplify planning and scheduling

23. Bills of Material Planning Bills (Pseudo Bills)
Created to assign an artificial parent to the BOM
Used to group subassemblies to reduce the number of items planned and scheduled
Used to create standard “kits” for production

24. Bills of Material Phantom Bills Low-Level Coding
Describe subassemblies that exist only temporarily
Are part of another assembly and never go into inventory
Low-Level Coding
Item is coded at the lowest level at which it occurs
BOMs are processed one level at a time

25. Lead Times, Exploding, and OffsettingB C D E
LT: 1 wk
LT: 2 wk
LT: 1 wk
LT: 1 wk
LT: 1 wk
Lead time: The time from when an order is placed until the part is ready for use.
Exploding: Multiplying the parent requirements by the usage quantity through the product tree
Offsetting: Placing the requirements in their proper time periods based on lead times

26. Planned Orders Planned Order Receipt
That quantity planned to be received at a future date as a result of a planned order release.
Planned Order Release
Planned order releases are just planned; they have not been released. Orders for material should not be released until the planned order release date arrives.
The planned order release of the parent becomes the gross requirement of the component.

27. Releasing Planned Orders
Check availability of components
Create shop packet or purchase requisition
Allocate components to that order
Release planned order, creating a scheduled receipt

28. Using the Material Requirements Plan
The computer can perform all calculations and create planned order releases, but it does not (usually) issue purchase or manufacturing orders or reschedule open orders. Computer software can create exception messages and suggest types of action.

29. Using the Material Requirements Plan
On the basis of action and exception messages, the planner can release planned orders, reschedule existing orders in or out, or change quantities. In addition, the planner works with other planners, master production schedulers, production activity control, and purchasing to solve problems as they arise.

30. Material Planner’s 3 Types of Orders
Planned orders - calculated and controlled by the software
Released orders - scheduled receipts; releasing is the responsibility of the planner

31. Determining Net Requirements
Starts with a production schedule for the end item – 50 units of Item A in week 8
Because there are 10 Item As on hand, only 40 are actually required – (net requirement) = (gross requirement - on- hand inventory)
The planned order receipt for Item A in week 8 is 40 units – 40 =

32. Determining Net Requirements
Following the lead time offset procedure, the planned order release for Item A is now 40 units in week 7
The gross requirement for Item B is now 80 units in week 7
There are 15 units of Item B on hand, so the net requirement is 65 units in week 7
A planned order receipt of 65 units in week 7 generates a planned order release of 65 units in week 5

33. Determining Net Requirements
A planned order receipt of 65 units in week 7 generates a planned order release of 65 units in week 5
The on-hand inventory record for Item B is updated to reflect the use of the 15 items in inventory and shows no on-hand inventory in week 8
This is referred to as the Gross-to-Net calculation and is the third basic function of the MRP process

34. Net Requirements Plan The logic of net requirements Total requirements
Gross requirements
Allocations +
Available inventory
Net requirements
On hand
Scheduled receipts + – =

35. Gross Requirements ScheduleA B C 5 6 7 8 9 10 11 40 50 15
Lead time = 4 for A
Master schedule for A S B C 12 13 8 9 10 11 20 30 40
Lead time = 6 for S
Master schedule for S 1 2 3 10
Master schedule
for B
sold directly
Periods
Gross requirements: B 10 40 50 20
40+10
15+30
=50
=45 1 2 3 4 5 6 7 8
Periods
Therefore, these are the gross requirements for B

36. Safety Stock
BOMs, inventory records, purchase and production quantities may not be perfect
Consideration of safety stock may be prudent
Should be minimized and ultimately eliminated
Typically built into projected on-hand inventory

37. MRP Management MRP is a dynamic system
Facilitates replanning when changes occur
System nervousness can result from too many changes
Time fences put limits on replanning
Pegging links each item to its parent allowing effective analysis of changes

38. MRP and JIT
MRP is a planning system that does not do detailed scheduling
MRP requires fixed lead times which might actually vary with batch size
JIT excels at rapidly moving small batches of material through the system

39. Finite Capacity Scheduling
MRP systems do not consider capacity during normal planning cycles
Finite capacity scheduling (FCS) recognizes actual capacity limits
By merging MRP and FCS, a finite schedule is created with feasible capacities which facilitates rapid material movement

40. Small Bucket Approach MRP “buckets” are reduced to daily or hourly
The most common planning period (time bucket) for MRP systems is weekly
Planned receipts are used internally to sequence production
Inventory is moved through the plant on a JIT basis
Completed products are moved to finished goods inventory which reduces required quantities for subsequent planned orders
Back flushing based on the BOM is used to deduct inventory that was used in production

41. Lot-Sizing Techniques
Lot-for-lot techniques order just what is required for production based on net requirements
May not always be feasible
If setup costs are high, lot-for-lot can be expensive
Economic order quantity (EOQ)
EOQ expects a known constant demand and MRP systems often deal with unknown and variable demand

42. Lot-Sizing Techniques
Part Period Balancing (PPB) looks at future orders to determine most economic lot size
The Wagner-Whitin algorithm is a complex dynamic programming technique
Assumes a finite time horizon
Effective, but computationally burdensome

43. Lot-for-Lot Example 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week

44. Lot-for-Lot Example No on-hand inventory is carried through the system
Total holding cost = $0
There are seven setups for this item in this plan
Total setup cost = 7 x $100 = $700 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week

45. EOQ Lot Size Example 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand 43 66 26 69 39
Net requirements 16
Planned order receipts 73
Planned order releases
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
Average weekly gross requirements = 27; EOQ = 73 units

46. EOQ Lot Size Example Annual demand = 1,404
Total cost = setup cost + holding cost
Total cost = (1,404/73) x $100 + (73/2) x ($1 x 52 weeks)
Total cost = $3,798
Cost for 10 weeks = $3,798 x (10 weeks/52 weeks) = $730 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand
Net requirements 16
Planned order receipts 73
Planned order releases
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
Average weekly gross requirements = 27; EOQ = 73 units

47. Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
PPB Example 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
EPP = 100 units

48. Holding cost = $1/week; Setup cost = $100;
PPB Example
Trial Lot Size
Periods (cumulative net Costs
Combined requirements) Part Periods Setup Holding Total
2 30 0
2, = 40 x 1
2, 3,
2, 3, 4, = 40 x x
2, 3, 4, 5, = 40 x x 3
+ 40 x 4 + = 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand
Net requirements
Planned order receipts
Planned order releases
Combine periods as this results in the Part Period closest to the EPP
6 40 0
6, = 30 x 1
6, 7, = 30 x x 2
6, 7, 8, = 30 x x + =
Combine periods as this results in the Part Period closest to the EPP
Total cost + =
Holding cost = $1/week; Setup cost = $100;
EPP = 100 units

49. Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
PPB Example 1 2 3 4 5 6 7 8 9 10
Gross requirements 35 30 40 55
Scheduled receipts
Projected on hand 50 60
Net requirements
Planned order receipts 80
100
Planned order releases
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
EPP = 100 units

50. Wagner-Whitin would have yielded a plan with a total cost of $455
Lot-Sizing Summary
For these three examples
Lot-for-lot $700
EOQ $730
PPB $490
Wagner-Whitin would have yielded a plan with a total cost of $455

51. Lot-Sizing Summary
In theory, lot sizes should be recomputed whenever there is a lot size or order quantity change
In practice, this results in system nervousness and instability
Lot-for-lot should be used when low-cost JIT can be achieved

52. Lot-Sizing Summary
Lot sizes can be modified to allow for scrap, process constraints, and purchase lots
Use lot-sizing with care as it can cause considerable distortion of requirements at lower levels of the BOM
When setup costs are significant and demand is reasonably smooth, PPB, Wagner-Whitin, or EOQ should give reasonable results

53. Maintenance and Reliability

54. Strategic Importance of Maintenance and Reliability
Failure has far reaching effects on a firm’s
Operation
Reputation
Profitability
Dissatisfied customers
Idle employees
Profits becoming losses
Reduced value of investment in plant and equipment

55. Maintenance and Reliability
The objective of maintenance and reliability is to maintain the capability of the system while controlling costs
Maintenance is all activities involved in keeping a system’s equipment in working order
Reliability is the probability that a machine will function properly for a specified time

56. Important Tactics Reliability Maintenance
Improving individual components
Providing redundancy
Maintenance
Implementing or improving preventive maintenance
Increasing repair capability or speed

57. Maintenance Strategy Employee Involvement Information sharing
Skill training
Reward system
Employee empowerment
Results
Reduced inventory
Improved quality
Improved capacity
Reputation for quality
Continuous improvement
Reduced variability
Maintenance and Reliability Procedures
Clean and lubricate
Monitor and adjust
Make minor repair
Keep computerized records

58. Reliability Improving individual components Rs = R1 x R2 x R3 x … x Rn
where R1 = reliability of component 1
R2 = reliability of component 2
and so on

59. Overall System Reliability
Reliability of the system (percent)
Average reliability of each component (percent)
| | | | | | | | |
100 –
80 –
60 –
40 –
20 –
0 –
n = 10
n = 1
n = 50
n = 100
n = 200
n = 300
n = 400

60. Reliability Example R1 .90 R2 .80 R3 .99 Rs
Reliability of the process is
Rs = R1 x R2 x R3 = .90 x .80 x .99 = .713 or 71.3%

61. Product Failure Rate (FR)
Basic unit of measure for reliability
FR(%) = x 100%
Number of failures
Number of units tested
FR(N) =
Number of failures
Number of unit-hours of operating time
Mean time between failures
MTBF = 1
FR(N)

62. Failure Rate Example 20 air conditioning units designed for use in
NASA space shuttles operated for 1,000 hours
One failed after 200 hours and one after 600 hours
FR(%) = (100%) = 10% 2 20
FR(N) = = failure/unit hr 2
20, ,200
MTBF = = 9,434 hrs 1

63. Failure Rate Example 20 air conditioning units designed for use in
NASA space shuttles operated for 1,000 hours
One failed after 200 hours and one after 600 hours
Failure rate per trip
FR = FR(N)(24 hrs)(6 days/trip)
FR = ( )(24)(6)
FR = .153 failures per trip
FR(%) = (100%) = 10% 2 20
FR(N) = = failure/unit hr 2
20, ,200
MTBF = = 9,434 hr 1

64. Providing Redundancy Provide backup components to increase reliability+ x
Probability of first component working
Probability of needing second component
Probability of second component working
(.8) + x
(1 - .8) = +
= .96

65. Reliability has increased from .713 to .94
Redundancy Example
A redundant process is installed to support the earlier example where Rs = .713 R1
0.90 R2
0.80 R3
0.99
Reliability has increased from .713 to .94
= [ (1 - .9)] x [ (1 - .8)] x .99
= [.9 + (.9)(.1)] x [.8 + (.8)(.2)] x .99
= .99 x .96 x .99 = .94

66. Maintenance Two types of maintenance
Preventive maintenance – routine inspection and servicing to keep facilities in good repair
Breakdown maintenance – emergency or priority repairs on failed equipment

67. Implementing Preventive Maintenance
Need to know when a system requires service or is likely to fail
High initial failure rates are known as infant mortality
Once a product settles in, MTBF generally follows a normal distribution
Good reporting and record keeping can aid the decision on when preventive maintenance should be performed

68. Computerized Maintenance System
Data Files
Personnel data with skills, wages, etc.
Equipment file with parts list
Maintenance
and work order schedule
Inventory of spare parts
Repair history file
Output Reports
Inventory and purchasing reports
Equipment parts list
Equipment history reports
Cost analysis
(Actual vs. standard)
Work orders
Preventive maintenance
Scheduled downtime
Emergency maintenance
Data entry
Work requests
Purchase requests
Time reporting
Contract work

69. Maintenance Costs
The traditional view attempted to balance preventive and breakdown maintenance costs
Typically this approach failed to consider the true total cost of breakdowns
Inventory
Employee morale
Schedule unreliability

70. cost maintenance policy)
Maintenance Costs
Costs
Maintenance commitment
Total costs
Preventive maintenance costs
Breakdown maintenance costs
Optimal point (lowest
cost maintenance policy)
Traditional View

71. cost maintenance policy)
Maintenance Costs
Full cost of breakdowns
Costs
Maintenance commitment
Total costs
Preventive maintenance costs
Optimal point (lowest
cost maintenance policy)
Full Cost View

72. Maintenance Cost Example
Should the firm contract for maintenance on their printers?
Number of Breakdowns
Number of Months That Breakdowns Occurred 2 1 8 6 3 4
Total: 20
Average cost of breakdown = $300

73. Maintenance Cost Example
Compute the expected number of breakdowns
Number of Breakdowns
Frequency
2/20 = .1 2
6/20 = .3 1
8/20 = .4 3
4/20 = .2 ∑
Number of breakdowns
Expected number of breakdowns
Corresponding frequency = x
= (0)(.1) + (1)(.4) + (2)(.3) + (3)(.2)
= 1.6 breakdowns per month

74. Maintenance Cost Example
Compute the expected breakdown cost per month with no preventive maintenance
Expected breakdown cost
Expected number of breakdowns
Cost per breakdown = x
= (1.6)($300)
= $480 per month

75. Maintenance Cost Example
Compute the cost of preventive maintenance
Preventive maintenance cost
Cost of expected breakdowns if service contract signed
Cost of
service contract = +
= (1 breakdown/month)($300) + $150/month
= $450 per month
Hire the service firm; it is less expensive

76. Increasing Repair Capabilities
Well-trained personnel
Adequate resources
Ability to establish repair plan and priorities
Ability and authority to do material planning
Ability to identify the cause of breakdowns
Ability to design ways to extend MTBF

77. How Maintenance is Performed
Operator
Maintenance department
Manufacturer’s field service
Depot service
(return equipment)
Preventive
maintenance costs less and
is faster the more we move to the left
Competence is higher as we
move to the right

78. Total Productive Maintenance (TPM)
Designing machines that are reliable, easy to operate, and easy to maintain
Emphasizing total cost of ownership when purchasing machines, so that service and maintenance are included in the cost
Developing preventive maintenance plans that utilize the best practices of operators, maintenance departments, and depot service
Training workers to operate and maintain their own machines

79. Establishing Maintenance Policies
Simulation
Computer analysis of complex situations
Model maintenance programs before they are implemented
Physical models can also be used
Expert systems
Computers help users identify problems and select course of action

80. End of Lecture 32