Review of Planning Hierarchy

Capacity constraints Firm orders from known customers Aggregate Product Plan Forecast of demand from random customers Inventory levels

Engineering design changes

Master Production Schedule (MPS) Material Requirements Planning (MRP)

Inventory transactions

Bill of Materials (BOM) file

Inventory records file

Reports

Dependent versus Independent Demand

Independent Demand

Material requirements planning (MRP):

Computer-based information system that translates the finished product requirements of the master schedule into time-phased requirements for subassemblies, component parts, and raw materials, working backward from the due date using lead times and other information to determine when and how much to order.

Dependent Demand

B(4)

C(2)

D(2)

E(1)

D(3)

F(2)

MRP designed to answer the following questions: y What is needed ? y How much is needed? y When is it needed ?
3 4

MRP Inputs: Master Schedule

MRP Inputs MRP Processing MRP Outputs Changes Order releases Planned-order schedules Primary reports Bill of materials
MRP computer Secondary programs
Exception reports

y Master schedule:
y states which end items are to be produced, when these are needed,

and in what quantities.

y Managers like to plan far enough into the future so they have

Master schedule

reasonable estimates of upcoming demands to the cumulative lead time

y The master schedule should cover a period that is at least equivalent

Planning reports Performancecontrol reports

reports

Item/Week Drills

Oct 3 300 300

Oct 10 200 450

Oct 17 310 310

Oct 24 300 330

Inventory records

Inventory transaction
5

Saws

Cumulative Lead Time

Assembly

Bill of Material (BOM)

y Bill of Materials - A listing of all of the raw materials, parts,

subassemblies, and assemblies needed to produce one unit of a product

Subassembly

y Product structure tree: Visual depiction of the requirements

Fabrication Procurement

in a bill of materials, where all components are listed by levels

6 7 8 9 10
Figure 14.4

Product Structure Tree

Bicycle

Handle Bars (1)

Frame Assembly (1)

Wheels (2)

Frame (1)

10

Time-Phased Product Structure

MRP Inputs: Inventory Records

y Inventory records
y Includes information on the status of each item by time period,

Start production of D

Must have D and E completed here so production can begin on B

1 week 2 weeks

D E

called time buckets

y

2 weeks to produce

Information about y Gross requirements y Scheduled receipts y Expected amount on hand Other details for each item such as y Supplier y Lead time y Lot size y Changes due to stock receipts and withdrawals y Canceled orders and similar events

B A E F
1 week 1 week 2 weeks

2 weeks

G
1 week

3 weeks

D 1 2 3 4 5 6 7 8

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y The MRP Planning Worksheet

MRP PLANNING WORKSHEET Item Name Lead Time Time Periods Inventory Safety 1 2 3 4 5 Rule Stock Information concerning the order WORKSHEET raw material PLANNING Total MRP orders scheduled to arrive expected demand forsizeitem or an Item requirementsLotLeadOpen for Lot, etc.... Time Time Periods Size, Lot GrossName in Inventory Safetyfrom vendors time period 1 a in elsewhere 3 4 5 actual amount neededor 2of inventory that will be Expected amounteach Scheduled Receipts ThePlanned orderthe pipeline.time period expected to Rule Stock receipt is the quantity Net requirement = Gross Requirement +Safetythe time period on handin the beginning of Stock at Gross requirements Projected on hand Projected beginning of the period beThe date at which a production order in which received by theon hand Scheduled Receipts Net Requirements it is shown Projected on hand must be issued, which Net Requirements Planned Order Receipts takes into account lead times. Planned Order Receipts Planned Order Releases Planned Order Releases

MRP Terminology
y Scheduled receipts
6
6 y

y Quantities that will be received in some future

periods as their corresponding orders have been released in the past Planned order receipts become scheduled receipts at the time when they are released to suppliers

13

14

More MRP Terminology

y Projected on-hand inventory
y The inventory projected to be physically present in the

More MRP Terminology

y Net requirements
y A quantity of an item that must be purchased or

facility in a future period.

y Gross to net logic:

Net requirements = Gross requirements + Safety stock - Projected Inventory on hand
15

manufactured in order to be able to fully deliver independent demand requirements in a timely fashion
y Presence of positive net requirements signals

that an order must be planned to be received in a given period

16

More MRP Terminology

y Planned order receipts
y Quantities that must be planned to be received in

More MRP Terminology

y Lot sizing
y

some future periods in order to meet the net requirements

y Planned order receipts>= Net requirement

Lot-for-lot ordering The order or run size for each period is set equal to demand for that period. Lot size ordering

Net requirement quantities are subject to adjustments due to lot sizes considerations.

17

18

More MRP Terminology

y Planned order release
y Quantities that must be planned to be released in

Example 1
A firm that produces wood shutter has received two orders. One for 100 shutters and one for 150 shutters. The 100 unit order is due for delivery at the start of week 4, and the 150 unit order is due for delivery at the start of week 8. Each shutter consists of four slatted wood sections and two frames. The wood sections are made by the firm, and fabrication takes 1 week. The frames are ordered, and lead time is 2 weeks. Assembly of the shutters requires 1 week. There is a scheduled receipt of 70 wood sections in (i,.e., at the beginning of week 1). Determine the size and timing of planned-order release necessary to meet delivery requirements under (1) lot for lot ordering, (2) Lot size ordering with a lot size of 320 for frames and 70 units for wood sections.
19 20

some future periods in order to meet the requirements

a. Develop a product structure tree

Shutter [1]

c. Develop MRP schedule with lot for lot ordering (order size equal to net requirements). Master schedule for Shutters:
Week number Quantity 1 2 3 4 100 5 6 7 8 150

Frames (2) [2]

Wood sections (4) [1]

Shutters: LT=1 week

Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases

100

150

b. Develop master schedule

Week number 1 Quantity

4
100

8
150

100 100 100 150

150 150

21

22

Planned order releases

100

150

Frames: LT=2 weeks

Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 200

2 200 200 200 300 4 400 600 600 600 600

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d. Develop MRP schedule with lot size ordering 300 300 300 Master schedule for Shutters:
Week number Quantity 1 2 3 4 100 5 6 7 8 150

Shutters: LT=1 week

Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases

Wood sections: LT=1 week

Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases

100

150

70 70

70

70 330 330

100 100 100 150

150 150

330

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Planned order releases

100

150

Another example
There is a beginning inventory of 110 units of D on hand, and all items have lead times of one week.

Frames: LT=2 weeks

Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 320

2 200 200 320 300 120 120 120 120 140 180 320 320 4 400 600 20 20 20 580 630 50 B

Wood sections: LT=1 week

Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases

D (2)

70 70

70

70 20 330 350

Week number 1 Quantity

350

630
25

80[ 50[c] A]
26

Planned order releases

80

Develop MRP schedule with lot for lot ordering

Week number Quantity 1 2 3 4 80 5 6 7 8

C: LT=1 weeks 1
Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases

5 50 50 50

A: LT=1 week
Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases

80 80 80 80

D: LT=1 week
Gross requirements Scheduled receipts Projected on hand 110 Net requirements Planned order receipts Planned order releases
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80 110

50 times 2 100

110 30 70 70 70
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Updating the System

y An MRP is not a static document
y As time passes
y y y y

MRP Outputs: Primary

y Primary Outputs y Planned orders
y

Some orders get completed Other orders are nearing completion New orders will have been entered Existing orders will have been altered y Quantity changes y Delays y Missed deliveries

A schedule indicating the amount and timing of future orders Authorizing the execution of planned orders Revisions of the dates or quantities, or the cancellation of orders

y Order releases
y

y Changes
y

MRP Outputs: Secondary

y Secondary Outputs
y Performance-control reports
y

MRP in Services
y Food catering service
y End item

Evaluation of system operation, including deviations from plans and cost information
y

catered food ingredients for each recipe, i.e.,

e.g., missed deliveries and stockouts

y Dependent demand

y Planning reports
y

bill of materials

Data useful for assessing future material requirements

y

e.g., purchase commitments

y Hotel renovation
y Activities and materials

y Exception reports
y

Data on any major discrepancies encountered

y

exploded into component parts for cost estimation and scheduling

E.g., late and overdue orders, excessive scrap rates, requirements for nonexistent parts

MRP Benefits
y Enables managers to easily
y determine the quantities of each component for a given

MRP Requirements
y To implement an effective MRP system requires: y A computer and the necessary software to handle computations and maintain records y Accurate and up-to-date y Master schedules

order size
y To know when to release orders for each component y To be alerted when items need attention

y Additional benefits
y Low levels of in-process inventories y The ability to track material requirements y The ability to evaluate capacity requirements y A means of allocating production time y The ability to easily determine inventory usage via

Bills of materials Inventory records y Integrity of data files

y y

backflushing

Using MRP to Assist in CRP

MRP II
y Manufacturing resources planning (MRP II)
y Expanded approach to production resource planning, involving

Develop a tentative master production schedule

Use MRP to simulate material requirements Convert material requirements to resource requirements Is shop capacity adequate? Revise tentative master production schedule
Can No capacity be changed to meet requirements

other areas of the firm in the planning process and enabling capacity requirements planning
y

Most MRP II systems have the capability of performing simulation to answer a variety of what if questions so they can gain a better appreciation of available options and their consequences

No

Yes
Firm up a portion of the MPS

Yes
Change capacity
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True or False? Enterprise Resource Planning

y Enterprise resource planning (ERP)
y ERP was the next step in an evolution that began with MRP and

1. The master production schedule states which end items are to be produced, in addition to when and how many. 2. Net requirements equal gross requirements minus safety stock.

evolved into MRPII

y ERP, like MRP II, typically has an MRP core y Represents an expanded effort to integration financial,

manufacturing, and human resources on a single computer system

y ERP systems are composed of a collection of integrated modules

3. The bill of materials indicates how much material will be needed to produce the quantities on a given master production schedule.

True or False?
4. The bill of materials contains information on lead times and current inventory position on every component required to produce the end item.

True or False?
6. The gross requirements at one level of an MRP plan determine the gross requirements at the next lower level.

5. The inventory records contain information on the status of each item by time period.

7. Lot-for-lot ordering in MRP eliminates the holding costs for parts that are carried over to other periods.

Choose the best answer

8. The output of MRP is: A. gross requirements B. net requirements C. a schedule of requirements for all parts and end items D. inventory reorder points E. economic order quantities and reorder points

Choose the best answer

9. Which one of the following is not an input in an MRP system? A. planned-order schedules B. bill of materials C. master production schedule D. inventory records E. All are inputs.

Choose the best answer

10. The MRP input stating which end items are to be produced, when they are needed, and what quantities are needed, is the: A. master schedule B. bill-of-materials C. inventory-records D. assembly-time chart E. net-requirements chart

Choose the best answer

11. In MRP, under lot-for-lot ordering, "planned-order receipts" are: A. identical to "scheduled receipts" B. identical to "planned-order releases" C. open orders (that is, ordered before the first time bucket, but not delivered yet) D. "gross requirements" E. available to promise inventory

Choose the best answer

12. In MRP, the gross requirements of a given component part are calculated from: A. net requirements + amount on-hand. B. gross requirements of the immediate parent C. planned orders of the end item D. net requirements of end item E. planned orders of the immediate parent