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Chapter 13 MATERIAL REQUIREMENTS PLANNING Dependent Demand.

Demand for items that are subassemblies or component parts to be used in the production of finished goods. Independent Demand. Fairly stable once allowances are made for seasonal variations. Material Requirements Planning. Computer-based information system for ordering and scheduling of dependent-demand inventories. MRP Inputs. Three major sources of information: 1. Master schedule. One of three primary inputs in MRP, states which end items are to be produced, when these are needed, and in what quantities. The quantities in a master schedule comes from a number of different sources, including customer orders, forecasts, orders from warehouses to build up seasonal inventories, and external demand. The master schedule covers the stacked or cumulative lead time. Cumulative lead time is the sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly. Time fences is a series of time intervals during which order changes are allowed or restricted; the nearest fence is most restrictive to change, the farthest is least restrictive. Some companies use two fences: one is a near-term demand fence, and the other is a longer-term planning fence. 2. Bill-of-materials. One of the primary inputs of MRP, a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product. The listing in the bill-of-materials file is hierarchical; it shows the quantity of each item needed to complete one unit of the following level of assembly. Product structure tree is a visual depiction of the requirements in a bill of materials, where all components are listed by levels. Low-level coding is a simplified restructuring of the bills of materials (BOM) so that all occurrences of an item are made to coincide with the lowest level in which it appears. 3. Inventory records file. One of the three primary inputs in MRP; includes information on the status of each item by time period. This includes gross requirements, scheduled receipts, and expected amount on hand. It also includes other details for each item, such as supplier, lead time, and lot size. MRP Processing MRP processing takes then end-item requirements specific by the master schedule and explode them into time-phase requirements from assemblies, parts, and raw materials using the bill of materials offset by lead times. The quantities that are generated by exploding the bill of materials are gross requirements; they do not take into account any inventory that is currently on hand or due to be received. The materials that must actually be acquired to meet the demand generated by the master schedule are the net material requirements. Net requirements in period t = Gross requirements in period t Projected inventory in period t + Safety stock The timing and sizes of orders are determined by planned-order releases. The timing of the receipts of these quantities is indicated by planned-order receipts.

Gross requirements. Total expected demand for an item or raw material in a time period. Scheduled receipts. Open orders scheduled to arrive from vendors or elsewhere in the pipeline. Projected on hand. Expected amount of inventory that will be on hand at the beginning of each time period. Planned-order receipts. Quantity expected to be received by the beginning of the period in which it is shown. Planned-order release. Planned amount to order in each time period; planned order receipts offset by lead time. Pegging. The process of identifying the parent items that have generated a given set of material requirements for an item. Updating the System The two basic systems used to update MRP records: 1. Regenerative system. Approach that updates MRP records periodically. It is generally batch type system, which compiles all changes that occur within the time interval and periodically updates the system. 2. Net-change system. Approach that updates MRP records continuously. The basic production plan is modified to reflect to reflect changes as they occur. MRP Outputs These are often classified as: 1. Primary Reports. Main reports. Production and inventory planning and control are part of primary reports. a. Planned orders. Schedule indicating the amount and timing of future orders. b. Order releases. Authorization for the execution of planned orders. c. Changes. Revisions of due dates or order quantities, or cancellations of orders. 2. Secondary Reports. Optional outputs. Performance control, planning, and exceptions belong to secondary reports. a. Performance-control reports. Evaluation of system operation, including deviations from plans and cost information. b. Planning reports. Data useful fro assessing future material requirements. c. Exception reports. Data on any major discrepancies encountered. Other Considerations Aside from the main details of inputs, outputs, and processing, the manager must be knowledgeable about a number of other aspects of MRP. These include: 1. Safety Stock. 2. Lot Sizing. Choosing a lot size for ordering or production. a. Lot-for-lot ordering b. Economic order quantity model c. Fixed-period ordering d. Part-period model. Part period refers to holding a part or parts over a number of periods. EPP = Setup cost/Unit holding cost per period Capacity Requirements Planning. The process of determining short-range capacity requirements. The necessary inputs include planned-order releases for MRP, the current shop load, routing information, and job times. Outputs include load reports for each work centers. Load Reports. Department or work center reports that compare known and expected future capacity requirements with projected capacity availability. Underutilization may mean that unused capacity can be used for other jobs; overutilization indicates that available capacity is insufficient to handle requirements.

Benefits of MRP 1. Low levels of in-process inventories. 2. The ability to keep track of material requirements. 3. The ability to evaluate capacity requirements generated by a given master schedule. 4. A mean of allocating production time. Requirements of MRP 1. A computer and the necessary software programs to handle computations and maintain records. 2. Accurate and up-to-date: a. Master schedules b. Bills of materials c. Inventory records 3. Integrity of file data. MRP II. Manufacturing resources planning. Expand approach to approach to production resource planning, involving other areas of a firm in the planning process, such as marketing and finance.