1. 1 MRP: Based on Dependent Demand u This chapter explores: –Master production schedule –Material Requirements Planning (MRP) »System structure »Example –Manufacturing Resource Planning (MRP II) –MRP and JIT can work together –Advanced MRP systems

2. 2 Materials Requirement Planning (MRP) u MRP software product were first introduced in the 1970s u Before MRP resource planning techniques (EOQ,etc) were based on replenishment - i.e. replacing what was used. u MRP in contrast is intended to forecast only what is needed for the future- a pull approach u Original MRP was then, and still is, a “calculation technique for planning purchase and manufacturing orders according to what is needed to complete a high-level master production schedule (MPS)

3. 3 MRP INTRODUCTION CONTINUED u For MRP to forecast future requirements accurately, other business and management applications had to be integrated into the MRP program; u then came MRP II...

4. 4 Manufacturing Resource Planning (MRP II) u MRP II has been around now for 30 years. –is still the dominant manufacturing management software today (called by different names e.g. ERP system) –basic structure has not changed over the years u MRP II creates “complete closed-loop management facility” that includes all major functional areas (over 20 modules): –planning applications (process planning) –customer services applications (order entry, finished goods, inventory, forecasting, sales analysis)...

5. 5 MRP II contd. –execution systems (production control, purchasing, product data management, inventory) –financial functions (cost accounting, general ledger, payroll, receivables, payables)

6. 6 MRP Vs. MRP II u The original MRP planned and controlled only materials: the number of purchased components, built in-house parts and raw materials needed to produce each top-level product. u MRP II (also called ERP system) plans and controls all manufacturing resources, not only materials, but machine and operator schedules, as well as inventory control. It also supports accounting and billing procedures.

7. 7 Use of MRP in Various Industries Exhibit 15.2

8. Aggregate production planning Master production scheduling Material Resource Planning System (MRP) Long-term Demand forecasts Structure of Basic Production Planning System BOM data Inventory Status Part masters (lead time) Aggregate production rates How many and when each top-level assembly is required How many and when each lower-level item is needed to meet the master production schedule

9. 9 Demand Forecast u Forecast supports entire scheduling process u May not need forecast if customers place orders far in advance u Forecast used for different purposes –Long-range forecasts used for capacity planning –Forecast in range of 9 to 18 months used for aggregate planning –Short-range forecasts used for loading and sequencing

10. 10 The Aggregate Plan u Approximate schedule of overall operations that will satisfy demand forecast at minimum cost u Planning horizon often a year or more and broken into monthly or quarterly periods u Purpose is to minimize short-sighted effects u Work with aggregate units and resources

11. 11 The Aggregate Plan continued u Equivalent units u Relevant costs –hiring and layoff costs –inventory and backorder costs –wages and overtime charges –subcontracting costs

12. 12 The Production Plan u Result of managerial iteration and changes to aggregate plan u Often disaggregated one level into major output groups –Aggregate Plan: number of automobiles to be produced in each of the upcoming 12 months –Production Plan: number of compacts, mid- size, full-size, light trucks, and minivans to produce in each of the upcoming 12 months

13. 13 The Master Schedule u Point where actual orders incorporated into scheduling system u Aggregate outputs broken down into individual end items

14. 14 Master Production Schedule (MPS) u Time-phased plan specifying how many and when the firm plans to build each end item.... Aggregate Plan (Product Groups) MPS (Specific End Items)

15. 15 MPS: Check for the Following Problems u Does schedule meet production plan? u Does schedule meet demand forecasts? u Are there priority or capacity conflicts? u Are other constraints violated? u Does schedule conform to policy? u Does schedule conform to laws and rules? u Does schedule provide flexibility?

16. 16 Rough-Cut Capacity Planning u Feasibility check of master production schedule u Historical ratios of loads placed on workcenters used u Workloads assumed to fall in period end items demanded

17. 17 Priority Planning u What materials are needed when u Feasibility check of master production schedule to make sure all materials will be available when needed u Determine when order is needed and schedule backwards from that date u Material Requirements Planning (MRP) systems often used

18. 18 Capacity Planning u Inventory control system and master schedule used to determine required capacity over planning horizon u Load reports generated for each work center u Inventory and lead times considered

19. 19 Loading u Deciding which jobs to assign to which work centers u Often some equipment or workers better for certain jobs

20. 20 Sequencing u After jobs assigned to work centers, order in which to process the jobs must be decided u Sequencing can have impact on timeliness of job completions u Priority rules often used

21. 21 Material Requirements Planning u How much of each item is needed? u When is an item needed to complete –a specified number of units –in a specified period of time u Dependent demand drives MRP....

22. Aggregate production plan Master production schedule (MPS) Material Resource Planning System (MRP) Inventory record file Bill of material (BOM) file Reports Exhibit.... Firm orders from known customers Forecasts of demand from random customers Inventory transactions Engineering Change Notices (ECN) Inputs to Standard MRP System

23. 23 Part Master (Inventory) Record File u Each inventory item described in a separate file –Part #, Description, Lead time etc. u The MRP system explodes requirements from top- level down and accesses the various part master files as needed to determine lead time and status. u Pegging –Identify each parent item that created demand

24. 24 Primary MRP Reports u Planned orders –to be released at a future time u Order release notices –to execute the planned orders u Changes in due dates of open orders due to rescheduling u Cancellations or suspensions of open orders –due to cancellation or suspension of orders on the master production schedule. u Inventory status data

25. 25 Net Change System u Activity driven u Net change schedules u Potential for system nervousness....

26. 26 Material Requirements Planning u 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 numbers needed –Determines the dates when orders for those materials should be released, based on lead times.... “Get the right materials to the right place at the right time.”

27. 27 An MRP Example Week 13 Part X Known Demand (orders)200 Forecast (Random)100 Demand....

28. 28 Product Structure Tree & Inventory Record File Data A(2)B(1) D(5)C(2) X C(3)....

29. A(2)B(1) D(5)C(2) X C(3) Demand for C is derived from A and B..... Lot for Lot

30. Use on-hand ASAP

31. 31 MRP Extensions:Closed Loop MRP Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning Realistic? Execute: Capacity Plans Material Plans Yes No Feedback.... E.G. schedule n-jobs to equipment and/or labor

32. 32 Manufacturing Resource Planning (MRP II) u Goal: Plan and monitor all resources of a manufacturing firm (closed loop): –manufacturing –marketing –finance –engineering u Simulate the manufacturing system....

33. 33 Typical MRP II System and its Modules

34. 34 Enterprise Resource Planning (ERP) u MRP II extends MRP systems to share information with other functional areas u Key component of MRP II is storing operational information centrally u ERP systems seek to integrate all business activities and processes throughout the organization u Goal is to provide real-time information to all employees that need it

35. 35 Typical ERP System