1. © The McGraw-Hill Companies, Inc., 2004 1

2. 2 Chapter 15 Materials Requirements Planning

3. © The McGraw-Hill Companies, Inc., 2004 3 Material Requirements Planning (MRP) MRP Logic and Product Structure Trees Time Fences MRP Example MRP II and Lot Sizing OBJECTIVES

4. © The McGraw-Hill Companies, Inc., 2004 4 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 MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced Dependent demand drives MRP MRP is a software system

5. © The McGraw-Hill Companies, Inc., 2004 5 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

6. © The McGraw-Hill Companies, Inc., 2004 6 LT = 1 day 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.

7. © The McGraw-Hill Companies, Inc., 2004 7 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

8. 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: © The McGraw-Hill Companies, Inc., 2001 8

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

10. © The McGraw-Hill Companies, Inc., 2004 10 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

11. © The McGraw-Hill Companies, Inc., 2004 11 Example of Time Fences 81526 Weeks Frozen Moderately Firm Flexible Firm Customer Orders Forecast and available capacity Capacity Exhibit 15.5

12. © The McGraw-Hill Companies, Inc., 2004 12 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

13. From Exhibit 15.6 13 © 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)

14. © The McGraw-Hill Companies, Inc., 2004 14 Bill of Materials (BOM) File A Complete Product Description Materials Parts Components Production sequence Modular BOM – Subassemblies Super BOM – Fractional options

15. © The McGraw-Hill Companies, Inc., 2004 15 Inventory Records File Each inventory item carried as a separate file – Status according to “time buckets” Pegging – Identify each parent item that created demand

16. © The McGraw-Hill Companies, Inc., 2004 16 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

17. © The McGraw-Hill Companies, Inc., 2004 17 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

18. © The McGraw-Hill Companies, Inc., 2004 18 Additional MRP Scheduling Terminology Gross Requirements Scheduled receipts Projected available balance Net requirements Planned order receipt Planned order release

19. © The McGraw-Hill Companies, Inc., 2004 19 MRP Example 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

20. © The McGraw-Hill Companies, Inc., 2004 20 A(2) X It takes 2 A’s for each X

21. © The McGraw-Hill Companies, Inc., 2004 21 B(1)A(2) X It takes 1 B for each X

22. © The McGraw-Hill Companies, Inc., 2004 22 A(2)B(1) X C(3) It takes 3 C’s for each A

23. © The McGraw-Hill Companies, Inc., 2004 23 A(2)B(1) C(2) X C(3) It takes 2 C’s for each B

24. © The McGraw-Hill Companies, Inc., 2004 24 A(2)B(1) D(5)C(2) X C(3) It takes 5 D’s for each B

25. © The McGraw-Hill Companies, Inc., 2004 25 Closed Loop MRP Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning Realistic? No Feedback Execute: Capacity Plans Material Plans Yes Feedback

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

27. © The McGraw-Hill Companies, Inc., 2004 27 Lot Sizing in MRP Programs Lot-for-lot (L4L) Economic order quantity (EOQ) Least total cost (LTC) Least unit cost (LUC) Which one to use? –The one that is least costly!

28. © The McGraw-Hill Companies, Inc., 2004 28 Question Bowl Which type of industry has only “medium” expected benefits from the use of MRP? a.Assemble-to-stock b.Fabricate-to-stock c.Assemble-to-order d.Fabricate-to-order e.Process Answer: e. Process

29. © The McGraw-Hill Companies, Inc., 2004 29 Question Bowl To ensure good master scheduling, a master scheduler must do which of the following? a.Never lose sight of the aggregate plan b.Identify and communicate all problems c.Be involved with customer order promising d.Be visible to all levels of management e.All of the above Answer: e. All of the above (Correct answer can also include objectively trade off manufacturing, marketing, and engineering conflicts and include all demands from product sales, warehouse replenishment, spares, and interplant requirements.)

30. © The McGraw-Hill Companies, Inc., 2004 30 Question Bowl The purpose of a “time fence” is which of the following? a.Make sure the cows don’t get out of the barn b.Control flow through the production system c.Maximize sales to retailers d.All of the above e.None of the above Answer: b. Control flow through the production system

31. © The McGraw-Hill Companies, Inc., 2004 31 Question Bowl Which of the following is an objective under an MRP system? a.To improve customer service b.Minimize inventory investment c.Maximize production operating efficiency d.All of the above e.None of the above Answer: d. All of the above

32. © The McGraw-Hill Companies, Inc., 2004 32 Question Bowl Which of the following is one of the three main inputs into an MRP system? a.BOM file b.Exception report c.Planning report d.All of the above e.None of the above Answer: a. BOM file (Correct answer can also include Master Schedule and Inventory Records File.)

33. © The McGraw-Hill Companies, Inc., 2004 33 Question Bowl An MRP program accesses the status of a job according to specific time periods called which of the following? a.Peg record b.Time fence c.Time bucket d.Time clock e.None of the above Answer: c. Time bucket

34. © The McGraw-Hill Companies, Inc., 2004 34 Question Bowl In MRP, workload per work center can be determined. When the work capacity is exceeded, which of the following options can be implemented to correct the imbalance of workload? a.Work overtime b.Renegotiate the due date and reschedule c.Subcontract to an outside shop d.All of the above e.None of the above Answer: d. All of the above (Correct answer can also include selecting an alternative work center and rescheduling the work at a different time.)

35. © The McGraw-Hill Companies, Inc., 2004 35 Question Bowl Which of the following are reasons why a Lot- For-Lot (L4L) method of lot sizing can be used in an MRP application? a.Minimizes carrying costs b.Sets planned orders to exactly match the net requirements c.Produces exactly what is needed d.Does not carry any units over into future periods e.All of the above Answer: e. All of the above

36. © The McGraw-Hill Companies, Inc., 2004 36 End of Chapter 15