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INTRODUCTION TO MRP

LEATHER BUSINESS AND MANAGEMENT .


BY: TARIKU A.

Bahirdar University
Ethiopia
WHAT MRP DOES?

MASTER SCHEDULE
FOR END ITEMS

MRP

DETAILED SCHEDULE FOR


RAW MATERIALS
&
•Dependent demand COMPONENTS
•lumpy USED IN THE END PRODUCTS
By Tariku A.
INDEPENDENT VS DEPENDENT DEMAND

Independent Demand:
➢ Demand unrelated to demand of other products(end products,
components parts)
➢ Usually forecast
➢ Conventional inventory control EOQ, applicable.

By Tariku A.
INDEPENDENT VS DEPENDENT DEMAND

Dependent Demand:
• Demand directly related to demand of some other product (components, raw
materials, subassemblies)
• Requirement driver form delivery schedule of end items.
• MRP is the appropriate tool for planning & control of manufacture inventories
➢ Raw martials
➢ WIP
➢ Component parts
➢ Subassemblies
By Tariku A.
LUMPY DEMAND

Avg.
rate of
CONTINOUS DEMAND
demand Assumed in economic lot size formula
Inv. or EOQ
LEVEL
TIME

LUMPY DEMAND
TYPICAL OF MRP APPLICATION
(raw martials, components, sub assemblies
consumed in Large Increment
Inv.
Corresponding to a certain batch of final
LEVEL
t1 t2 t3 t4 t5 t6
product)
TIME

By Tariku A.
LEAD TIMES
Ordering Lead Time:
(for purchased parts)

Initiation of Receipt of item from vendor


purchase (off shelf / fabricate)
requisition

Manufacturing Lead Time:

Process part through sequence of machines


Place order as given on route sheet (operation + non- Item delivered
productive times)

In MRP, lead time are used to determine starting dates of assembling final
products and subassemblies, for product component parts, and for
ordering raw materials

By Tariku A.
INPUTS TO MRP

➢ The master production schedule and other order

data

➢ The bill of materials file.(The product structure)

➢ The inventory record file

By Tariku A.
COMMON USE ITMES

BASIC RAW MATERIAL

COMPONENTS

C1 C2 C3 Cn

PRODUCTS

P1 P2 P3 PN

MRP collects the common use times from different products to


effect economics in ordering the raw materials and manufacturing
the components/sub assemblies.
By Tariku A.
STRUTURE OF AN MPR SYSTEM

Service
Customer Sales
Parts
orders forecasts
requirements

Master Inventory
Engg.
Production transactions
changes
schedule

Bill of Inventory
MRP
Materials Record
PROCESSOR
file file

OUT PUT
REPORTS

Gross & Net Capacity vs Shop floor Production Order
requirements Load report Planning Status & exceptions
report report report
By Tariku A.
MASTER PRODUCTINO SCHEDULE

Week no 6 7 8 9 10
Product P1 50 100
Product P2 70 80 25
Etc.

TYPICAL INFORMATION IN MPS:


A, what end products are to be produced?
B, How many of each product to produced?
C, When the products are to be ready for shipment?

Firms customer orders


DEMAND Forecasted demand
Often excluded from MPS, since Demand for individual component Parts
it does not include end product (for repair and service)
demand.
By Tariku A.
BILL OF MATERIALS(BOM) FILE

Level 0
(product)
P1

Level 1
(sub-assemblies) S1 (1)
S2 (2)

Level 2
(raw materials) C1 C2 C3 C4 C5 C6
(1) (4) (1) (2) (2) (1)

Subassembly S1 is the PARENT of components C1,C2 & C3.any


engineering changes affecting products structure must be fed to
BOM file.
By Tariku A.
INVENTORY RECORD FILE

• Accurate current data on inventory status


• Generally computerized (item master file)
• Lead time must be established in inventory record file

Ordering Purchasing
Lead time records

Process
Manufacturing
Route
Lead time
sheets

• INVENTOY TRANSACTION (issue, arrivals, order placement/realization) MUST


BE KEEPT CURRENT

By Tariku A.
BASIC MRP LOGIC

➢ Input MPS,BOM, inventory status, Lead times

➢ Does parts Explosion

➢ Netting of requirements form Gross by consisting availabilities

➢ Offset requirements by lead times

➢ Lot Sizing of net requirements for procurement of production

By Tariku A.
INPUTS FOR MRP EXMPLE
P1 P2

S1 (1) S2 (2) S3 (1) S4 (1)

C1 C2 C3 C4 C5 C6 C4 C6 C7 C2 C8
(1) (4) (1) (2) (2) (1) (1) (4) (2) (2) (1)
M4 M4
PRODUCT STRUCTURE FOR PRODUCTS P1 & P2
Week 6 7 8 9 10 Master
P1 50 100 Production
P2 70 80 25 schedule
Initial inventory status for M4
PERIOD 1 2 3 4 5 6
ITEM RAW MATERIAL M4
GROSS REQUIREMENTS Lead times (in weeks)
SCHEDULED RECEIPTS 40 Assembly Manufacturing Ordering
ON HAND 50 90 P1 = 1 C4 = 2 M4 = 3
NET REQUIREMENTS P2 = 1
S2 = 1
PLANNED ORDER RELEASES
S3 = 1
By Tariku A.
PERIOD 1 2 3 4 5 6 7 8 9 10
ITME PRODUCT P1 50 100
GROSS REQUIRMENTS
SCHEDULED RECEIPT
ON HAND 0
NET REQUIRMENTS 50 100
PLAND ORDER RELASED 50 100

ITME PRODUCT P2 1 2 3 4 5 6 7 8 9 10

GROSS REQUIRMENTS 70 80 25
SCHEDULED RECEIPT
ON HAND 0
NET REQUIRMENTS 70 40 25
PLAND ORDER RELASED 70 40 25

By Tariku A.
PERIOD 1 2 3 4 5 6 7 8 9 10
ITME PRODUCT S2 100 200
GROSS REQUIRMENTS
SCHEDULED RECEIPT
ON HAND 0
NET REQUIRMENTS 100 200
PLAND ORDER RELASED 100 200

ITME PRODUCT S3

GROSS REQUIRMENTS 70 80 25
SCHEDULED RECEIPT
ON HAND 0
NET REQUIRMENTS 70 40 25
PLAND ORDER RELASED 70 80 25
By Tariku A.
PERIOD7 1 2 3 4 5 6 7 8 9 10
ITME PRODUCT C4 70 280 25 400
GROSS REQUIRMENTS
SCHEDULED RECEIPT
ON HAND 0
NET REQUIRMENTS 70 280 25 400
PLAND ORDER RELASED 70 280 25 400

ITME PRODUCT M4 1 2 3 4 5 6 7 8 9 10
GROSS REQUIRMENTS 70 280 25 400
SCHEDULED RECEIPT 40
ON HAND 50 90 20
NET REQUIRMENTS 260 25 400
PLAND ORDER RELASED 260 25 400

By Tariku A.
MRP OUTPUT REPORTS

Primary outputs:
1. Order release notice, to place orders that have been planned by the MRP
system.
2. Reports showing planned orders to be released in future periods.
3. Rescheduling notices, indicating changes in due dates for orders
4. Cancellation notices, including cancellation of open orders because of
changing in the master schedule.
5. Reports on inventory status.

By Tariku A.
MRP OUTPUT REPORTS

Second outputs:
1. Performance reports of various types-costs, item usage, actual vs planned
lead times and other measures of performance.
2. Exceptions reports showing-deviation form schedule, overdue orders,
scrap, and so on.
3. Inventory forecasts indicating projected inventory levels both aggregate
inventory as well as item inventory) in future periods.

By Tariku A.
BENEFIT OF MRP

1. Reduction in inventory (30-50% in WIP)


2. Improved customer service(late orders reduce by 90%)
3. Quick response to change in demand and master schedule
4. Greater productivity
5. Reduced setup and product change over costs
6. Better machine utilization
7. Increased sales and reduction in sales price.

By Tariku A.
EVOLUTION OF MRP
Improved
computational
efficiency of AN IMPROVED ORDERING METHOD
computers

Unrealistic M/c PRIORITY PLANNING
schedules, ignoring
plant capacities 
Not only plans priorities CLOSED LOOP MRP
but provides feedback to

(Links functions
executing the priority plan -Capacity planning
MRP II -Inventory management
-Shop floor control
Manufacturing -MRP)
Resource
Planning

• Links up the closed loop MRP system with the financial systems of
the company
By Tariku A.
SUMMERY

➢ Dependent vs independent demand


➢ MRP is useful for planning requirements of components and parts
knowing end time demand
➢ Major inputs to MRP include Master Production Schedule, BOM,
Inventory and Lead Times
➢ The MRP logic goes thorough Explosion, Offsetting, Netting and Lot Size
➢ Major benefits of MRP include improved planning, lesser inventories,
shorter lead times

By Tariku A.
SUMMERY

➢ However MRP does not integrate cost function in different department


➢ MRPII ( Manufacturing Resource Planning) links the financial functions
across the organization
➢ What Is ERP (Enterprise Resource Planning)?
Reading Assignment

By Tariku A.
WHAT IS
MRP?
Master Schedule
Planning

MATERIAL
Bill of Inventory
REQURIEMENTS
Materials Records Files
PLANNING

Reports

Inventory Policy:(When to Order, How Much TO order)

By Tariku A.
MASTER
PRODUCTION
SCHEDULE

Master Production Schedule, MPS


Defines the required demand of each End-Item for production.

MPS: Master Production Schedule


Date: May 8 May 15 May 22 May 29 June 8
Required Demand: 20 0 390 0 120

By Tariku A.
Bill of Materials.BOM
BILL OF
MATERIALS Contains the product structure of the End-item.

Bill of Materials.BOM ➢ Diagram

Diagram
Hierarchy
Database . ➢ Hierarchy
20ftsq A item. Leather

Leather purse
1 B-item. Zipper
➢ Database(End-item)
Item Quantity Source description
A 2 Purse Bag top layers
B 1 Purse Closing

By Tariku A.
IRF: inventory Records File Inventory
Collection of inventory information Records
Schedule Receipts SR 100 on May File
Initial Stock Balance BI 10
Lead Time LT 2 weeks
Safety Stock SS 0
Lot Size Discipline QD LFL

Lot Size Disciplines, Qd


Lot-For-Lot Qd = LFL
Fixed Lot Size Discipline Qd=12
Minimum Lot Size Discipline Qd = 12 +

In MRP, only order exactly what you need, when you need it ,
according to the lot size discipline
By Tariku A.
MPS: Master Production Schedule
Date: May 8 May 15 May 22 May 29 June 5
Required Demand: 20 0 390 0 120

MRP: Material Requirement Planning


End-Item MRP May 1 May 8 May 15 May 22 May 29 June 5
Gross Requirements (GR) 20 0 390 0 120
Schedule Receipts (SR) 100
Project Stock balance (PSB) 10 90 90 0 0 0 SS = 0
Inventory On Hand (IOH) 10 90 90 0 0
Net Requirements (NR) 300 120 Qd = LFL
Planed Receipts (PR) , [Lot 300 120
Size(Q)] LT = 2
Planned Order Release (POR) 300 120

Planned Order Release (POR) yields how much to order and when to order.
Therefor, the POR is the inventory policy of the MRP
By Tariku A.
MRP: Material Requirement Planning
End-Item MRP May 1 May 8 May 15 May 22 May 29 June 5
Gross Requirements (GR) 20 0 390 0 120
Schedule Receipts (SR) 100
Project Stock balance (PSB) 10 90 90 0 0 0 SS = 0
Inventory On Hand (IOH) 10 90 90 0 0
Net Requirements (NR) 300 120 Qd = LFL
Planed Receipts (PR) , [Lot Size(Q)] 300 120
LT = 2
Planned Order Release (POR) 300 120

Planned Order Release (POR) , provides the information to determine the Order Frequency.
Order Frequency = 2

Project Stock Balance(PSB) and Inventory On Hand(IOH) provides the information to determine the
Average Inventory.
Average Inventory=(90+90+0+0+0+10+90+90+90+0+0)/10=3.7
By Tariku A.
Example 1.
Lot Size Discipline = Fixed
Safety Stock = 0

End-Item MRP 1 2 3 4 5 6 7 8 9
Gross Requirements (GR) 21 0 13 53 0 10 3 0
Schedule Receipts (SR) 12
Project Stock balance (PSB) 25 16 16 3 10 10 0 9 9
Inventory On Hand (IOH) 25 16 16 3 10 10 0 9 SS = 0
Net Requirements (NR) 50 3 Qd = 12
Planed Receipts (PR) , [Lot 60 12
Size(Q)] LT = 2
Planned Order Release (POR) 60 12

By Tariku A.
Example 1.
Lot Size Discipline = Fixed
Safety Stock = 0

End-Item MRP 1 2 3 4 5 6 7 8 9
Gross Requirements (GR) 21 0 13 53 0 10 3 0
Schedule Receipts (SR) 12
Project Stock balance (PSB) 25 16 16 3 10 10 0 12 12
Inventory On Hand (IOH) 25 16 16 3 10 10 0 12 SS = 0
Net Requirements (NR) 50 3 Qd = 12
Planed Receipts (PR) , [Lot 60 12
Size(Q)] LT = 2
Planned Order Release (POR) 60 12

By Tariku A.
Example 2.
Lot Size Discipline = Minimum
Safety Stock = 0

End-Item MRP 1 2 3 4 5 6 7 8 9
Gross Requirements (GR) 21 0 13 53 0 10 3 0
Schedule Receipts (SR) 12
Project Stock balance (PSB) 25 16 16 3 0 0 2 11 11
Inventory On Hand (IOH) 25 16 16 3 0 0 2 11 SS = 0
Net Requirements (NR) 50 10 1 Qd = 12+
Planed Receipts (PR) , [Lot 50 12 12
Size(Q)] LT = 2
Planned Order Release (POR) 50 12 12

By Tariku A.
Example 3.
Lot Size Discipline = Lot-for-Lot
Safety Stock = 0

End-Item MRP 1 2 3 4 5 6 7 8 9
Gross Requirements (GR) 21 0 13 53 0 10 3 0
Schedule Receipts (SR) 12
Project Stock balance (PSB) 25 16 16 3 0 0 0 0 0
Inventory On Hand (IOH) 25 16 16 3 SS = 0
Net Requirements (NR) 50 Qd =LFL
Planed Receipts (PR) , [Lot 50
Size(Q)] LT = 2
Planned Order Release (POR) 50 0 10 3 0

LFL Rules
1 Q=NR
2 PSB=SS
3 POR=GR By Tariku A.
Example 5.
Lot Size Discipline = Fixed
Safety Stock = 8

End-Item MRP 1 2 3 4 5 6 7 8 9
Gross Requirements (GR) 21 0 13 53 0 10 3 0
Schedule Receipts (SR) 12
Project Stock balance (PSB) 25 16 16 15 10 10 12 9 9
Inventory On Hand (IOH) 25 16 16 15 10 10 12 9 SS = 8
Net Requirements (NR) 5 46 8 Qd =12
Planed Receipts (PR) , [Lot 12 48 12
Size(Q)] LT = 2
Planned Order Release (POR) 12 48 12

By Tariku A.
Example 5.
Lot Size Discipline = Minimum
Safety Stock = 8

End-Item MRP 1 2 3 4 5 6 7 8 9
Gross Requirements (GR) 21 0 13 53 0 10 3 0
Schedule Receipts (SR) 12
Project Stock balance (PSB) 25 16 16 15 8 8 10 19 19
Inventory On Hand (IOH) 25 16 16 15 8 8 10 19 SS = 8
Net Requirements (NR) 5 46 10 1 Qd =12+
Planed Receipts (PR) , [Lot 12 46 12 12
Size(Q)] LT = 2
Planned Order Release (POR) 12 46 12 12

By Tariku A.
Example 6.
Lot Size Discipline = Lot-for-Lot
Safety Stock = 8

End-Item MRP 1 2 3 4 5 6 7 8 9
Gross Requirements (GR) 21 0 13 53 0 10 3 0
Schedule Receipts (SR) 12
Project Stock balance (PSB) 25 16 16 8 8 8 8 8 8
Inventory On Hand (IOH) 25 16 16 SS = 8
Net Requirements (NR) 5 Qd =LFL
Planed Receipts (PR) , [Lot 5
Size(Q)] LT = 2
Planned Order Release (POR) 5 53 10 3

LFL Rules
1 Q=NR
2 PSB=SS
3 POR=GR By Tariku A.
Exercise 2

1. The XYZ company has just hired you as production manager of their Anbessa shoe factory
facility. Your first job is to use the MRP methodology to schedule production for the next
weeks. The XYZ company give you’re the following information to work with:

Bill of Materials: Current Inventory Records:


(product structure diagram) Part Leadtime Lot size Inventory currently
(In weeks) on-hand
A A 1 Lot-for-Lot 125
B 3 100 875
C 2 Lot-for-Lot 55
B C D 1 50+ 900

Master Production Schedule:


D
-Weeks-
Part 1 2 3 4 5 6 7 8 9
A 100 0 0 500 0 500 100 0 95

By Tariku A.
PART: A LEADTIME: 1 LOTSIZE:LFL
1 2 3 4 5 6 7 8 9
Gross Requirement 100 0 0 500 0 500 100 0 95
Planned Order Receipts: 475 500 100 95
Available Balance: 125 25 25 25 0 0 0 0 0 0
Planned Order Releases: 475 500 100 95

PART: B LEADTIME: 3 LOTSIZE:100


1 2 3 4 5 6 7 8 9
Gross Requirement 475 500 100 95
Planned Order Receipts: 100 100 100
Available Balance: 875 875 875 400 400 0 0 0 5 5
Planned Order Releases: 100 100 100

By Tariku A.
PART: C LEADTIME:2 LOTSIZE:LFL
1 2 3 4 5 6 7 8 9
Gross Requirement 475 500 100 95
Planned Order Receipts: 420 500 100 95
Available Balance: 55 55 55 0 0 0 0 0 0 0
Planned Order Releases: 420 500 100 95

PART: D LEADTIME: 1 LOTSIZE:50


1 2 3 4 5 6 7 8 9
Gross Requirement 420 500 100 95
Planned Order Receipts: 50 100 100
Available Balance: 900 480 480 30 30 30 35 35 35 35
Planned Order Releases: 50 100 100

By Tariku A.
Exercise 3

1. Suppose you made a belt form two different finished leathers and one buckle.
Suppose a friend of you drew a product structure diagram to describe what you just
did. Which of the following statements is true about this diagram?

I. The buckle is a “level Zero” item.


II. The leathers is a “child” of your finished belt, which means the finished belt is its
“parent’’ item.
III. This diagram has a total of three levels.

A, I only B, II only C, I and II only D I,II and III

By Tariku A.
Exercise 4

1. Anbessa shoe assembling section . Each finished shoe has three Childs items: a
shoe upper, a sole and lacing . Lead time on assembling a finished shoe is 1 days,
while the lead time for manufacturing upper shoe panel is also 1 day. Although the
lead time is 5 days for attaching shoe sole and 2 days for procuring more shoe lace.
Assuming that all the assumption of an MRP bill of materials is true, how long would
it take Anbessa shoe to create at least one pair of finished shoe if it started with
nothing in stock?

A, 6 days B, 7 days C, 4 days D 5 days

By Tariku A.
“ Exercise 4.

1. Consider the following structure: Each A consist of 2 B’s and 1 c. Each B


consists of 3 D’s and 2 E’s. Each C consists of 4 D’s and 2 E’s. How many D’s
are necessary to produce 400 A’s?

A, 1600 B, 2400 C, 4000 D 400

By Tariku A.
አመሰግናለሁ!

THANK YOU

By Tariku A.