© The McGraw-Hill Companies, Inc., 2004 1 Chapter 15 Materials Requirements Planning.

©The McGraw-Hill Companies, Inc., 2004

1

Chapter 15

Materials Requirements

Planning


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• Material Requirements Planning (MRP)

• Components of an MRP System

• Time Fences

• MRP Logic and Product Structure Trees

• MRP Example

• MRP II

• Lot Sizing in MRP

OBJECTIVES


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Material Requirements PlanningDefined

• Materials requirements planning (MRP):— Is a means for determining the number of parts,

components, and materials needed to produce a product—the quantity problem

— It provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced—the when or timing problem

• Dependent demand drives MRP

• MRP is a software system


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Benefits of Material Requirements Planning

• Improved facility utilization

• Faster response to market

• Increased customer service

• Better inventory planning

• Reduced setup costs


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Components of Material Requirements Planning

• Master production schedule (MPS)

• Bill of materials (BOM)

• Inventory records file (IRF)

• Primary output reports


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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)


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Master production Schedule (MPS)

• The key input driver for MRP

• Tells MRP what to schedule, how many, and when they are needed

• It is time-phased requirement system

• Usually end items and special order components

• Aggregation of:— Customer firmed orders— Forecast demands and safety stocks— Service parts and seasonal adjustment, etc.


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Time Fences

Purpose:— To maintain reasonably controlled flow through

the production system.

What they are:— Periods of time within which the customer can

make changes to the order (MPS).


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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


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Example of Time Fences

8 15 26

Weeks

FrozenModerately

Firm Flexible

Firm Customer Orders

Forecast and availablecapacity

Capacity

Exhibit 15.5Exhibit 15.5


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Bill of Materials (BOM) FileA Complete Product Description

Identifies components, parts, materials, and subassemblies in the product

Shows production sequence for the product More of a recipe for making the product Modular BOM:

– Buildable items that are storable as subassemblies

Planning BOM:– Fractional options. Fraction of the part contained

in the completed unit


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Bill of Materials Structure

A

B(1) C(1)

D(1) E(4) F(2) G(4) H(4)

1. Christmas tree structure

2. Indented structure

Part # Description Quantity SourceA Car 1 Assembled B Engine 1 Manufactured D Block 1 Manufactured E Valves 4 Purchased C Body 1 Manufactured F Doors 2 Manufactured G Tires 4 Purchased H Shocks 4 Purchased


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Inventory Records File

Each inventory item carried as a separate file— See, for example, Exhibit 15.15— Status according to “time buckets” for all items— On-hand quantities— Scheduled receipt of order— Lead times for all orders— Lot size requirements

Pegging— Identify each parent item that created demand


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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.


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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.


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Updating The MRP System

• Regenerative method:— Limited replanning frequency, weekly or longer— MPS submission triggers replanning— Every end-item in the MPS is exploded— Voluminous output is generated— High data processing efficiency--batch

• Net change method— High frequency of replanning— But affected parts of MPS are exploded— Limited number of outputs result


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Net Change System

• Activity driven

• Net change schedules

• Potential for system nervousness


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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

From Exhibit 15.6From Exhibit 15.6

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Firm orders from knowncustomers

Forecastsof demand

from randomcustomers

Aggregateproduct

plan

Bill ofmaterial

file

Engineeringdesign

changes

Inventoryrecord file

Inventorytransactions

Master productionSchedule (MPS)

Primary reportsSecondary reports

Planned order schedule for inventory and production control

Exception reportsPlanning reportsReports for performance control

Materialplanning(MRP

computer program)


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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 TimesA 1 dayB 2 daysC 1 dayD 3 daysE 4 daysF 1 day

Total Unit DemandDay 10 50 ADay 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

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


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Day: 1 2 3 4 5 6 7 8 9 10A Required 50

Order Placement 50

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 9th day to receive them on day 10.

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 9th day to receive them on day 10.

LT = 1 day


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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.

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.

Day: 1 2 3 4 5 6 7 8 9 10A Required 50

Order Placement 50B Required 20 200

Order Placement 20 200

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

SparesLT = 2

4x50=200

Day: 1 2 3 4 5 6 7 8 9 10A Required 50

LT=1 Order Placement 50B Required 20 200

LT=2 Order Placement 20 200C Required 100

LT=1 Order Placement 100D Required 55 400 300

LT=3 Order Placement 55 400 300E Required 20 200

LT=4 Order Placement 20 200F Required 200

LT=1 Order Placement 200

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:

Finally, repeating the process for all components, we have the final materials requirements plan:

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MRP Scheduling Terminologies

• Gross Requirements— Gross demand as taken from the MPS

• Scheduled receipts— When outstanding orders are expected

• Projected available balance (On-Hand)— Available physical inventory

• Net requirements— Net demand after available inventories are consumed

• Planned order release— When to place orders so they come in when needed


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MRP Example 1

• Straight one-to-one correspondence— No multiple parents— One component one parent

• Consider the three level part explosion diagram above. The items do not have multiple parents and only 1 unit of each item goes into the corresponding parent. Suppose that the gross requirements for product A for periods 3, 4, 5, 6, 8, and 10 are 25, 5, 35, 7, 10, and 21, respectively. Suppose also that it takes 2 periods from the period an order was placed to the time it was actually received in inventory, and that the amount of item A on hand was 20; 30 for item B, and 2 for item C. Develop the complete MRP explosion requirements needed to determine the net requirements for item C. The scheduled receipt for product A, the end item, is 25 in period 4.

A

B

C

(1)

(1)

(1)

Level0

1

2


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Item: A 1 2 3 4 5 6 7 8 9 10

GrossRequirementsScheduledReceiptsOnHandNetRequirementsP. OrderReleases

Item: B 1 2 3 4 5 6 7 8 9 10


Item: C 1 2 3 4 5 6 7 8 9 10



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MRP Example 2

A(2) B(1)

D(5)C(2)

X

C(3)

Item On-Hand Lead Time (Weeks)X 50 2A 75 3B 25 1C 10 2D 20 2

Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

PERIODS

SPARES 1 2 3 4 5 6 7 8 9 10

A 12

B 7

C 10

D 15


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1 2 3 4 5 6 7 8 9 10

Gross Requiremts

Scheduled Rcpts ITEM

XLT=2

On Hand

Net Requirements

P. Order Releases

Gross Requiremts


ALT=3

On Hand

Net Requirements

P. Order Releases

Gross Requiremts


BLT=1

On Hand

Net Requirements

P. Order Releases

Gross Requiremts


CLT=2

On Hand

Net Requirements

P. Order Releases

Gross Requiremts


DLT=2

On Hand

Net Requirements

P. Order Releases


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A(2)

X

Day: 1 2 3 4 5 6 7 8 9 10X Gross requirements 95

LT=2 Scheduled receipts Proj. avail. balance 50 50 50 50 50 50 50 50 50 50

On- Net requirements 45hand Planned order receipt 4550 Planner order release 45A Gross requirements 90

LT=3 Scheduled receipts Proj. avail. balance 75 75 75 75 75 75 75 75

On- Net requirements 15 hand Planned order receipt 15 75 Planner order release 15 B Gross requirements 45


On- Net requirements 20 hand Planned order receipt 20 25 Planner order release 20 C Gross requirements 45 40

LT=2 Scheduled receipts Proj. avail. balance 10 10 10 10 10

On- Net requirements 35 40 hand Planned order receipt 35 40 10 Planner order release 35 40 D Gross requirements 100

LT=2 Scheduled receipts Proj. avail. balance 20 20 20 20 20 20 20

On- Net requirements 80 hand Planned order receipt 80 20 Planner order release 80

It takes 2 A’s for each X

It takes 2 A’s for each X


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B(1)A(2)

X

It takes 1 B for each X

It takes 1 B for each X


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A(2) B(1)

X

C(3)












It takes 3 C’s for each A

It takes 3 C’s for each A


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A(2) B(1)

C(2)

X

C(3)












It takes 2 C’s for each B

It takes 2 C’s for each B


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A(2) B(1)

D(5)C(2)

X

C(3)












It takes 5 D’s for each B

It takes 5 D’s for each B


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Closed Loop MRP

Production PlanningMaster Production SchedulingMaterial Requirements PlanningCapacity Requirements Planning

Realistic?No

Feedback

Execute:Capacity PlansMaterial Plans

Yes

Feedback


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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


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Lot Sizing in MRP Programs

• Economic order quantity (EOQ)• Lot-for-lot (L4L) or (LFL)• Period order quantity (POQ)• Part period balancing (PPB)• Least total cost (LTC)• Least unit cost (LUC)• Silver-Meal heuristics (SM)• Wagner-Wittin (WW)• Which one to use?

— The one that is least costly!


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Lot-Sizing Example: EOQ Method

• The net requirements for a product is as given in the table. If C=$10/unit, S=$47/order, H=.5% of cost/week, find the total cost to meet order demand requirements using the EOQ method.

Weekly Net Requirements

1 2 3 4 5 6 7 8

50 60 70 60 95 75 60 55

• Solution:

668/5258/NRA

35310005.0

476622

H

ASQ

Period 1 2 3 4 5 6 7 8Net Req. 50 60 70 60 95 75 60 55

On Hand 0 18

Sch. Repts. 353 353

Beg. Inv. 353 303 243 173 113 371 296 236

End Inv. 303 243 173 113 18 296 236 181

P. O. R. 353 353

TC=10(525)+(.05)(1563)+2(47)=$5,422.15Policy:• If• If ,

,

EOQNR

EOQNR

NRQ

EOQQ


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Lot-Sizing Example: LFL Method

• The net requirements for a product is as given in the table. If C=$10/unit, S=$47/order, H=.5% of cost/week, find the total cost to meet order demand requirements using the L4L method.


1 2 3 4 5 6 7 8

50 60 70 60 95 75 60 55

• Solution:

TC=10(525)+(.05)(0)+8(47)=$5,626

Period 1 2 3 4 5 6 7 8Net Req. 50 60 70 60 95 75 60 55

On Hand

Sch. Repts. 50 60 70 60 95 75 60 55

Beg. Inv. 50 60 70 60 95 75 60 55

End Inv. 0 0 0 0 0 0 0 0

P. O. R. 50 60 70 60 95 75 60 55


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Lot-Sizing Example: POQ Method

• The net requirements for a product is as given in the table. If C=$10/unit, S=$47/order, H=.5% of cost/week, find the total cost to meet order demand requirements using the POQ method.


1 2 3 4 5 6 7 8

50 60 70 60 95 75 60 55

• Solution:

TC=10(525)+(.05)(1190)+2(47)=$5,404

Period 1 2 3 4 5 6 7 8Net Req. 50 60 70 60 95 75 60 55

On Hand 0

Sch. Repts. 410 115

Beg. Inv. 410 360 300 230 170 75 115 55

End Inv. 360 300 230 170 75 0 55 0

P. O. R. 410 115

666

353

A

EOQPOQ

© The McGraw-Hill Companies, Inc., 2004 1 Chapter 15 Materials Requirements Planning.

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Transcript of © The McGraw-Hill Companies, Inc., 2004 1 Chapter 15 Materials Requirements Planning.