Material Requirements Planning

Chapter 09
McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives
1.

2.

3.
4.

Describe what MRP is and where it is best applied. Understand the source of the information used by the system. Demonstrate how to do an MRP explosion. Explain how order quantities are calculated in MRP systems.

9-2

Enterprise Resource Planning (ERP) and Material Requirements Planning (MRP)

ERP - a computer system that integrates application programs in accounting, sales, manufacturing, and the other functions in a firm

MRP - a means for determining the number of parts, components, and materials needed to produce a product

9-3

Material Requirements Planning (MRP)

The logic that ties production functions together from a material planning and control view. A logical, easily understood approach to the problem of managing the parts, components, and materials needed to produce end items
How

much of each part to obtain? When to order or produce the parts?

Dependent demand is drives the MPR system

9-4

MRP Applications and Benefits

9-5

Master Production Scheduling

The master schedule deals with end items and is a major input to the MRP process All production systems have limited capacity and limited resources

The aggregate plan provides the general range of operation, the master scheduler must specify exactly what is to be produced

To determine an acceptable feasible schedule to be released to the shop, trial master production schedules are tested using the MRP program

9-6

Master Production Scheduling

Aggregate plan shows overall quantities to produce without specifying type

Week

MPS shows quantities of each type, with information about the production time frame
9-7

Time Fences

Changes to productio n plan not allowed

Limited changes to productio n plan allowed

Any changes to production plan allowed

9-8

MRP System Structure

MRP system inputs

MRP system outputs

9-9

Product Demand Sources

Customers specific orders placed by either external or internal customers Aggregate production plan the firms strategy for meeting demand in the future, implemented through the master production schedule (MPS)

9-10

Bill of Materials (BOM)

Contains the complete product description, listing the materials, parts, and components along with the sequence in which the product is created Often called the product structure file or product tree because it shows how a product is put together

The BOM shows how the product is put together Modular bill of materials - a buildable item that can be produced and stocked as a subassembly

Super bill of materials - includes items with fractional options

9-11

BOM Example
Product A the end item Product A consists of 2 B and 3 C

Product B consists of 1 D and 4 E

Product C consists of 2 F, 5 G and 4 H

9-12

Alternate BOM Structures

9-13

BOM Hierarchy (Levels)

Higher levels (Iower numbers) refer to end products

Lower levels (higher numbers) refer to components and raw materials

9-14

Inventory Status Records

Basic information describing the item

Information about part availability Additional information that may be useful

9-15

MRP Explosion Process

The requirements for end items are retrieved from the master schedule
These are referred to as gross requirements by the MRP program

On-hand balance and schedule of orders are used to calculate the net requirements

Net requirements data is used to calculate when orders should be received to meet these requirements

Planned order releases are generated by offsetting to allow for lead time

9-16

MRP Explosion Process (continued)

Move to Level 1 items

Gross requirements for each level 1 item are calculated from the planned-order release schedule for the parents of each level 1 item Net requirements, planned-order receipts, and planned-order releases are calculated as described in steps 24

Repeat for all items in bill of materials

9-17

MRP Example Ampere, Inc.

Ampere, Inc., produces a line of electric meters installed in residential buildings Meters are of two basic types for different voltage and amperage ranges

Some subassemblies are sold separately for repair or for changeovers

The problem is to determine a production schedule to identify each item, the period it is needed, and the appropriate quantities The schedule is then checked for feasibility, and the schedule is modified if necessary.

9-18

Future Requirements Meters A and B and Subassembly D

Assume that required quantity must be available during week 1 of each month

Trial Master Schedule

9-19

Product Structure and Inventory Data

9-20

MRP Planning Schedule

9-21

Example 9.1

9-22

Example 9.1

To accommodate the lead time, orders must be released ahead of time

Without an order here, inventory will drop below the safety stock

9-23

Example 9.1

To accommodate the lead time, orders must be released ahead of time

Without an order here, inventory will drop below the safety stock

9-24

Example 9.1

To accommodate the lead time, orders must be released ahead of time

Without an order here, inventory will drop below the safety stock

9-25

Example 9.1
Total demand from planned order releases of parent items

Planned order release offset by 3 periods due to lead time

9-26

Lot Sizing in MRP Systems

Determination of lot sizes in an MRP system is a complicated and difficult problem Lot sizes - the part quantities issued in the planned order receipt and planned order release sections of an MRP schedule

Lot-for-lot (L4L)

Economic order quantity (EOQ)

Lot Sizing Strategies

Least total cost (LTC) Least unit cost (LUC)

9-27

Lot-for-Lot
Sets planned orders to exactly match the net requirements

Produces exactly what is needed each week with none carried over into future periods
Does not take into account setup costs or capacity limitations.
9-28

Minimizes carrying cost

Economic Order Quantity

Calculate reorder quantity based on EOQ

EOQ was not designed for a system with discrete time periods such as MRP

The lot sizes generated by EOQ do not always cover the entire number of periods
9-29

Comparison Lot-for-Lot and EOQ

LotforLot

EOQ

9-30

Least Total Cost

Least total cost method (LTC) - a dynamic lotsizing technique that calculates the order quantity by comparing the carrying cost and the setup costs for various lot sizes and then selects the lot in which these are most nearly equal Influenced by the length of the planning horizon

9-31

Least Total Cost

9-32

Least Unit Cost

Least unit cost method - a dynamic lot-sizing technique that adds ordering and inventory carrying cost for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost

9-33

Least Unit Cost

9-34