1 Chapter 15 Resource Requirements Planning: MRP and CRP.

1

Chapter 15Chapter 15Chapter 15Chapter 15

Resource Requirements Planning:Resource Requirements Planning:

MRP and CRPMRP and CRP

2

OverviewOverviewOverviewOverview

Resource Requirements PlanningResource Requirements Planning Material Requirements Planning (MRP)Material Requirements Planning (MRP) Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP) Wrap-Up: What World-Class Companies DoWrap-Up: What World-Class Companies Do

3

Resource Requirements PlanningResource Requirements PlanningResource Requirements PlanningResource Requirements Planning

Master ProductionMaster ProductionScheduling (MPS)Scheduling (MPS)Master ProductionMaster ProductionScheduling (MPS)Scheduling (MPS)

Material RequirementsMaterial RequirementsPlanning (MRP)Planning (MRP)

Material RequirementsMaterial RequirementsPlanning (MRP)Planning (MRP)

Capacity RequirementsCapacity RequirementsPlanning (CRP)Planning (CRP)

Capacity RequirementsCapacity RequirementsPlanning (CRP)Planning (CRP)

AggregateAggregatePlanningPlanning

AggregateAggregatePlanningPlanning

ResourceResourceRequirementsRequirements

PlanningPlanning

Chapter 13Chapter 13

Chapter 15Chapter 15

4

Material Requirements Planning (MRP)Material Requirements Planning (MRP)

5

Materials Requirements Planning (MRP)Materials Requirements Planning (MRP)Materials Requirements Planning (MRP)Materials Requirements Planning (MRP)

Computer based systemComputer based system Explodes Master Schedule (MPS) into required Explodes Master Schedule (MPS) into required

amounts of raw materials and subassemblies to amounts of raw materials and subassemblies to support MPSsupport MPS

Nets against current orders and inventories to develop Nets against current orders and inventories to develop production and purchased material ordering schedulesproduction and purchased material ordering schedules

6

Objectives of MRPObjectives of MRPObjectives of MRPObjectives of MRP

Improve customer serviceImprove customer service Reduce inventory investmentReduce inventory investment Improve plant operating efficiencyImprove plant operating efficiency

7

Order ChangesOrder ChangesOrderOrder

Order ChangesOrder ChangesOrderOrder

PlanningPlanningReport Report PlanningPlanningReport Report

Elements of MRPElements of MRPElements of MRPElements of MRP

MRPMRPSystemSystem

Planned OrderPlanned OrderScheduleSchedule

Planned OrderPlanned OrderScheduleSchedule

InventoryInventoryTransaction DataTransaction Data

InventoryInventoryTransaction DataTransaction Data

Bill ofBill of Materials FileMaterials File

Bill ofBill of Materials FileMaterials File

MasterMasterProductionProductionScheduleSchedule

MasterMasterProductionProductionScheduleSchedule

InventoryInventoryStatus FileStatus FileInventoryInventoryStatus FileStatus File

Service-PartsService-PartsOrders andOrders andForecastsForecasts

Service-PartsService-PartsOrders andOrders andForecastsForecasts

PerformancePerformance PerformancePerformance

ExceptionExceptionReportsReports

ExceptionExceptionReportsReports

Inputs Outputs

8

MRP Computer ProgramMRP Computer ProgramMRP Computer ProgramMRP Computer Program

Begins with number of end items neededBegins with number of end items needed Add service parts not included in MPSAdd service parts not included in MPS Explode MPS into gross requirements by consulting Explode MPS into gross requirements by consulting

bill of materials filebill of materials file Modify gross requirements to get net requirements:Modify gross requirements to get net requirements: Net Requirements = Gross RequirementsNet Requirements = Gross Requirements

+ Allocated Inventory+ Allocated Inventory+ Safety Stock+ Safety Stock

-- Inventory On Inventory On HandHand

Offset orders to allow for lead timeOffset orders to allow for lead time

9

Outputs of MRPOutputs of MRPOutputs of MRPOutputs of MRP

Planned order schedulePlanned order schedule - quantity of material to be - quantity of material to be ordered in each time periodordered in each time period

Changes to planned ordersChanges to planned orders - modifications to - modifications to previous planned ordersprevious planned orders

Secondary outputs:Secondary outputs: Exception reports Exception reports Performance reportsPerformance reports Planning reportsPlanning reports

10

Example: MRP ScheduleExample: MRP ScheduleExample: MRP ScheduleExample: MRP Schedule

LocoMopeds is a manufacturer of off-road LocoMopeds is a manufacturer of off-road mopeds. The following product structure diagram mopeds. The following product structure diagram represents the bill of materials for its dual-carburetor represents the bill of materials for its dual-carburetor Model 442 moped.Model 442 moped.

MOPEDMOPEDMOPEDMOPED

ENGINEENGINEASSEMBLYASSEMBLY

ENGINEENGINEASSEMBLYASSEMBLY

MOTORMOTORMOTORMOTOR CARBURETORCARBURETOR(2)(2)

CARBURETORCARBURETOR(2)(2)

GASGASTANKTANKGASGASTANKTANK

WHEELWHEELASSEMBLYASSEMBLY

(2)(2)

WHEELWHEELASSEMBLYASSEMBLY

(2)(2)

HUB HUB ASSEMBLYASSEMBLY

HUB HUB ASSEMBLYASSEMBLY TIRETIRETIRETIRE

FRAMEFRAMEFRAMEFRAME

Level 0Level 0

Level 1Level 1

Level 2Level 2

11


Bill of MaterialBill of MaterialParentParent ComponentComponent LevelLevel

Compon.Compon.CodeCode CodeCode CodeCode DescriptionDescription Req’dReq’d

442442 00 #442 Moped#442 Moped

442442 EAEA 11 Engine Assem.Engine Assem. 11GTGT 11 Gas TankGas Tank 11WAWA 11 Wheel Assem.Wheel Assem. 22

FF 11 FrameFrame 11

EAEA MM 22 MotorMotor 11CC 22 CarburetorCarburetor 22

WAWA HAHA 22 Hub Assem.Hub Assem. 11TT 22 TireTire 11

12


Inventory Status ReportInventory Status Report

ItemItemCodeCode

On-On-HandHand

SafetySafetyStockStock

LotLotSizeSize

LeadLeadTimeTime

Sched. ReceiptsSched. ReceiptsQnty. WeekQnty. Week

442442 500500 200200 LFLLFL 11 ---- ----

EAEA 300300 100100 500500 11 10001000 1010

GTGT 600600 200200 LFLLFL 22 900900 1010

WAWA 500500 400400 500500 11 20002000 1010

FF 600600 00 20002000 33 20002000 1010

MM 250250 00 LFLLFL 11 ---- ----

CC 150150 100100 2500+2500+ 22 ---- ----

HAHA 100100 00 LFLLFL 11 24002400 1111

TT 500500 500500 10001000 33 3000,20003000,2000 11,1211,12

13


The company is currently planning production The company is currently planning production for weeks 10 through 16. Based on existing orders for weeks 10 through 16. Based on existing orders and demand forecasts, the master production schedule and demand forecasts, the master production schedule is as follows:is as follows:

Master Production Schedule: #442 MopedMaster Production Schedule: #442 Moped

Determine the MRP schedule required to Determine the MRP schedule required to support the master production schedule for the Model support the master production schedule for the Model 442 moped in weeks 10-16.442 moped in weeks 10-16.

1111

13001300 800800 12001200 14001400

1010 16161515141413131212

00 13001300 00

WEEKWEEK

QUANTITYQUANTITY

14


MRP Schedule for #442 Mopeds for Weeks 10 - 16, MRP Schedule for #442 Mopeds for Weeks 10 - 16, considering that:considering that: Gross Requirements come from the moped MPSGross Requirements come from the moped MPS There is an On-Hand balance of 500 mopeds at the There is an On-Hand balance of 500 mopeds at the

end of week 9end of week 9 There are no Scheduled Receipts for mopeds There are no Scheduled Receipts for mopeds A lot-for-lot rule is used for ordering mopedsA lot-for-lot rule is used for ordering mopeds Safety stock of 200 mopeds is desiredSafety stock of 200 mopeds is desired Lead time for mopeds is one weekLead time for mopeds is one week

15


MRP Schedule for #442 Mopeds . . . InitiallyMRP Schedule for #442 Mopeds . . . Initially

GROSS REQUIREMENTSGROSS REQUIREMENTS

SCHEDULED RECEIPTSSCHEDULED RECEIPTS

AVAILABLE (ON-HAND = 500) AVAILABLE (ON-HAND = 500)

NET REQUIREMENTSNET REQUIREMENTS

PLANNED ORDER RECEIPTSPLANNED ORDER RECEIPTS

PLANNED ORDER RELEASESPLANNED ORDER RELEASES

ITEM: 442 MOPED LT: 1 ITEM: 442 MOPED LT: 1 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: 200

00

1010

13001300 00

1111 1212 1313

13001300 800800

15151414

1400140012001200

1616

WEEKWEEK

16


MRP Schedule for #442 Mopeds . . . CompletedMRP Schedule for #442 Mopeds . . . Completed



AVAILABLE (ON-HAND = 500)AVAILABLE (ON-HAND = 500)




ITEM: 442 MOPED LT: 1 ITEM: 442 MOPED LT: 1 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: 200

00

300300

10001000

1010

10001000

10001000

300300

13001300

13001300

00

00

1111 1212 1313

13001300

12001200800800

12001200800800

1400140012001200

13001300

13001300

800800

000000 00

14001400

800800

1515

14001400

1414

1400140012001200

1616

WEEKWEEK

17


MRP Schedule for Gas Tanks for Weeks 10 - 16, MRP Schedule for Gas Tanks for Weeks 10 - 16, considering that:considering that: Gross Requirements come from moped Planned-Gross Requirements come from moped Planned-

Order-ReleasesOrder-Releases There is an On-Hand balance of 600 gas tanks at There is an On-Hand balance of 600 gas tanks at

the end of week 9the end of week 9 There is a Scheduled Receipt for 900 tanks in There is a Scheduled Receipt for 900 tanks in

week 10 week 10 A lot-for-lot rule is used for ordering gas tanksA lot-for-lot rule is used for ordering gas tanks Safety stock of 200 gas tanks is desiredSafety stock of 200 gas tanks is desired Lead time for gas tanks is two weeksLead time for gas tanks is two weeks

18


MRP Schedule for Gas Tanks . . . InitiallyMRP Schedule for Gas Tanks . . . Initially



AVAILABLE (ON-HAND = 600)AVAILABLE (ON-HAND = 600)




ITEM: GAS TANK LT: 2 ITEM: GAS TANK LT: 2 LOT SIZE: LFL SS: 200LOT SIZE: LFL SS: 200

10001000

900900

1010

00 13001300

1111 1212 1313

800800 12001200

15151414

0014001400

1616

WEEKWEEK

19


MRP Schedule for Gas Tanks . . . CompletedMRP Schedule for Gas Tanks . . . Completed



AVAILABLE AVAILABLE (ON-HAND = 600) (ON-HAND = 600)

NET REQUIREMENTS NET REQUIREMENTS



ITEM: GAS TANK LT: 2 ITEM: GAS TANK LT: 2 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: 200

10001000

900900

13001300

10001000

1010

800800

00

12001200

300300

13001300

1111 1212 1313

800800

12001200

14001400

12001200

15151414

0014001400

1616

WEEKWEEK

300300 000000

10001000

10001000 800800

800800

14001400

1400140012001200

00

20


MRP Schedule for Frames for Weeks 10 - 16, MRP Schedule for Frames for Weeks 10 - 16, considering that:considering that: Gross Requirements come from moped Planned-Gross Requirements come from moped Planned-

Order-ReleasesOrder-Releases There is an On-Hand balance of 600 frames at the There is an On-Hand balance of 600 frames at the

end of week 9end of week 9 There is a Scheduled Receipt for 2000 frames in There is a Scheduled Receipt for 2000 frames in

week 10week 10 The firm uses a Lot Size (multiple) of 2000 for The firm uses a Lot Size (multiple) of 2000 for

ordering framesordering frames No safety stock of frames is desiredNo safety stock of frames is desired Lead time for frames is 3 weeksLead time for frames is 3 weeks

21


MRP Schedule for Frames . . . InitiallyMRP Schedule for Frames . . . Initially



AVAILABLE AVAILABLE




ITEM: FRAME LT: 3 ITEM: FRAME LT: 3 LOT SIZE: 2000 SS: 0LOT SIZE: 2000 SS: 0

10001000

20002000

1010

00 13001300

1111 1212 1313

800800 12001200

15151414

0014001400

1616

WEEKWEEK

600600

22


MRP Schedule for Frames . . . CompletedMRP Schedule for Frames . . . Completed







ITEM: FRAME LT: 3 ITEM: FRAME LT: 3 LOT SIZE: 2000 SS: 0 LOT SIZE: 2000 SS: 0

10001000

20002000

26002600

00

20002000

1010

16001600

00

20002000

16001600

13001300

1111 1212 1313

800800

20002000

500500

20002000

300300300300 900900

00

12001200

15151414

0014001400

1616

WEEKWEEK

00 00

15001500

00 11001100

23


MRP Schedule for Engine Assemblies for Weeks 10 - MRP Schedule for Engine Assemblies for Weeks 10 - 16, considering that:16, considering that: Gross Requirements come from moped Planned-Gross Requirements come from moped Planned-

Order-ReleasesOrder-Releases There is an On-Hand balance of 300 engine There is an On-Hand balance of 300 engine

assemblies at the end of week 9assemblies at the end of week 9 There is a Scheduled Receipt for 1000 engine There is a Scheduled Receipt for 1000 engine

assemblies in week 10assemblies in week 10 The firm uses a Lot Size (multiple) of 500 for The firm uses a Lot Size (multiple) of 500 for

ordering engine assembliesordering engine assemblies Safety Stock of 100 engine assemblies is desiredSafety Stock of 100 engine assemblies is desired Lead time for engine assemblies is 1 weekLead time for engine assemblies is 1 week

24


MRP Schedule for Engine Assemblies . . . InitiallyMRP Schedule for Engine Assemblies . . . Initially







ITEM: ENGINE ASSEM. LT: 1 ITEM: ENGINE ASSEM. LT: 1 LOT SIZE: 500 SS: 100 LOT SIZE: 500 SS: 100

10001000

10001000

1010

00

13001300

1111 1212 1313

800800 12001200

15151414

0014001400

1616

WEEKWEEK

25


MRP Schedule for Engine Assemblies . . . CompletedMRP Schedule for Engine Assemblies . . . Completed







ITEM: ENGINE ASSEM. LT: 1 ITEM: ENGINE ASSEM. LT: 1 LOT SIZE: 500 SS: 100 LOT SIZE: 500 SS: 100

10001000

10001000

12001200

1010

15001500

200 200

00

500500

15001500

11001100

200200

13001300

1111 1212 1313

800800

1000100011001100

1000100015001500

10001000

400400

500500

15001500

400400100100400400 00

12001200

15151414

0014001400

1616

WEEKWEEK

26


MRP Schedule for Motors for Weeks 10 - 16, MRP Schedule for Motors for Weeks 10 - 16, considering that:considering that: Gross Requirements come from engine assembly Gross Requirements come from engine assembly

Planned-Order-ReleasesPlanned-Order-Releases There is an On-Hand balance of 250 motors at the There is an On-Hand balance of 250 motors at the

end of week 9end of week 9 There are no Scheduled Receipts for motorsThere are no Scheduled Receipts for motors A lot-for-lot rule is used for ordering motorsA lot-for-lot rule is used for ordering motors No Safety Stock of motors is desiredNo Safety Stock of motors is desired Lead time for motors is 1 weekLead time for motors is 1 week

27


MRP Schedule for Motors . . . InitiallyMRP Schedule for Motors . . . Initially


SCHEDULED RECEIPTS SCHEDULED RECEIPTS





ITEM: MOTOR LT: 1 ITEM: MOTOR LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: 0 1010

15001500

500500

1111 1212 1313

15001500

10001000

15151414 1616

WEEKWEEK

28


MRP Schedule for Motors . . . CompletedMRP Schedule for Motors . . . Completed







ITEM: MOTOR LT: 1 ITEM: MOTOR LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: 0

250250

12501250

1010

12501250

500500

12501250

250250

15001500

15001500

500500

500500

00

500500

1111 1212 1313

15001500

10001000

10001000

15001500

15001500

10001000

000000 00

10001000

15151414 1616

WEEKWEEK

29


MRP Schedule for Carburetors for Weeks 10 - 16, MRP Schedule for Carburetors for Weeks 10 - 16, considering that:considering that: Gross Requirements come from engine assembly Gross Requirements come from engine assembly

Planned-Order-Releases (times 2)Planned-Order-Releases (times 2) There is an On-Hand balance of 150 carburetors at There is an On-Hand balance of 150 carburetors at

the end of week 9the end of week 9 There are no Scheduled Receipts for carburetorsThere are no Scheduled Receipts for carburetors A Lot Size of 2500+ is used for ordering A Lot Size of 2500+ is used for ordering

carburetorscarburetors Safety Stock of 100 carburetors is desiredSafety Stock of 100 carburetors is desired Lead time for carburetors is 2 weeksLead time for carburetors is 2 weeks

30


MRP Schedule for Carburetors . . . InitiallyMRP Schedule for Carburetors . . . Initially






PLANNED ORDER RELEASES PLANNED ORDER RELEASES

ITEM: CARBURETOR LT: 2 ITEM: CARBURETOR LT: 2 LOT SIZE: 2500+ SS: 100LOT SIZE: 2500+ SS: 100 1010

30003000 10001000

1111 1212 1313

30003000 20002000

15151414 1616

WEEKWEEK

31


MRP Schedule for Carburetors . . . CompletedMRP Schedule for Carburetors . . . Completed






PLANNED ORDER RELEASES PLANNED ORDER RELEASES

ITEM: CARBURETOR LT: 2 ITEM: CARBURETOR LT: 2 LOT SIZE: 2500+ SS: 100LOT SIZE: 2500+ SS: 100

5050

25002500

1010

25002500

30503050

30003000

30003000

25002500

25002500

950950

5050

10001000

1111 1212 1313

30003000

950950

25002500

14501450

25002500

155015501050105015501550 15501550

20002000

15151414 1616

WEEKWEEK

32


MRP Schedule for Wheel Assemblies for Weeks 10 - MRP Schedule for Wheel Assemblies for Weeks 10 - 16, considering that:16, considering that: Gross Requirements come from moped Planned-Gross Requirements come from moped Planned-

Order-Releases (times 2)Order-Releases (times 2) There is an On-Hand balance of 500 wheel There is an On-Hand balance of 500 wheel

assemblies at the end of week 9assemblies at the end of week 9 There is a Scheduled Receipt for 2000 wheel There is a Scheduled Receipt for 2000 wheel

assemblies in week 10assemblies in week 10 A Lot Size (multiple) of 500 is used for ordering A Lot Size (multiple) of 500 is used for ordering

wheel assemblieswheel assemblies Safety Stock of 400 wheel assemblies is desiredSafety Stock of 400 wheel assemblies is desired Lead time for wheel assemblies is 1 weekLead time for wheel assemblies is 1 week

33


MRP Schedule for Wheel Assemblies . . . InitiallyMRP Schedule for Wheel Assemblies . . . Initially







ITEM: WHEEL ASSEM. LT: 1 ITEM: WHEEL ASSEM. LT: 1 LOT SIZE: 500 SS: 400 LOT SIZE: 500 SS: 400

20002000

20002000

1010

00

26002600

1111 1212 1313

16001600 24002400

15151414

0028002800

1616

WEEKWEEK

34


MRP Schedule for Wheel Assemblies . . . CompletedMRP Schedule for Wheel Assemblies . . . Completed







ITEM: WHEEL ASSEM. LT: 1 ITEM: WHEEL ASSEM. LT: 1 LOT SIZE: 500 SS: 400 LOT SIZE: 500 SS: 400

20002000

20002000

21002100

1010

25002500

100100

00

20002000

25002500

25002500

100100

26002600

1111 1212 1313

16001600

2800280020002000

3000300020002000

30003000

16001600

20002000

20002000

0040040000 200200

24002400

15151414

0028002800

1616

WEEKWEEK

35


MRP Schedule for Hub Assemblies for Weeks 10 - 16, MRP Schedule for Hub Assemblies for Weeks 10 - 16, considering that:considering that: Gross Requirements come from wheel assembly Gross Requirements come from wheel assembly

Planned-Order-ReleasesPlanned-Order-Releases There is an On-Hand balance of 100 hub assemblies There is an On-Hand balance of 100 hub assemblies

at the end of week 9at the end of week 9 There is a Scheduled Receipt of 2400 hub There is a Scheduled Receipt of 2400 hub

assemblies in week 11assemblies in week 11 A lot-for-lot rule is used for ordering hub assembliesA lot-for-lot rule is used for ordering hub assemblies No Safety Stock of hub assemblies is desiredNo Safety Stock of hub assemblies is desired Lead time for hub assemblies is 1 weekLead time for hub assemblies is 1 week

36


MRP Schedule for Hub Assemblies . . . InitiallyMRP Schedule for Hub Assemblies . . . Initially







ITEM: HUB ASSEM. LT: 1 ITEM: HUB ASSEM. LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: 0

00

1010

24002400

25002500

20002000

1111 1212 1313

20002000

30003000

15151414

0000

1616

WEEKWEEK

37


MRP Schedule for Hub Assemblies . . . CompletedMRP Schedule for Hub Assemblies . . . Completed







ITEM: HUB ASSEM. LT: 1 ITEM: HUB ASSEM. LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: 0

00

100100

1010

20002000

25002500

24002400

25002500

20002000

20002000

20002000

00

20002000

1111 1212 1313

20002000

30003000

30003000

20002000

20002000

30003000

000000 00

30003000

15151414

0000

1616

WEEKWEEK

38


MRP Schedule for Tires for Weeks 10 - 16, MRP Schedule for Tires for Weeks 10 - 16, considering that:considering that: Gross Requirements come from wheel assembly Gross Requirements come from wheel assembly

Planned-Order-ReleasesPlanned-Order-Releases There is an On-Hand balance of 500 tires at the There is an On-Hand balance of 500 tires at the

end of week 9end of week 9 There are Scheduled Receipts for 3000 and 2000 There are Scheduled Receipts for 3000 and 2000

tires weeks 11 and 12, respectivelytires weeks 11 and 12, respectively A Lot Size (multiple) of 1000 is used for ordering A Lot Size (multiple) of 1000 is used for ordering

tirestires Safety Stock of 500 tires is desiredSafety Stock of 500 tires is desired Lead time for tires is 3 weeksLead time for tires is 3 weeks

39


MRP Schedule for Tires . . . InitiallyMRP Schedule for Tires . . . Initially







ITEM: TIRE LT: 3 ITEM: TIRE LT: 3 LOT SIZE: 1000 SS: 500 LOT SIZE: 1000 SS: 500

00

1010

30003000

25002500 20002000

20002000

1111 1212 1313

20002000

30003000

15151414

0000

1616

WEEKWEEK

40


MRP Schedule for Tires . . . CompletedMRP Schedule for Tires . . . Completed







ITEM: TIRE LT: 3 ITEM: TIRE LT: 3 LOT SIZE: 1000 SS: 500 LOT SIZE: 1000 SS: 500

00

0 0

20002000

1010

30003000

30003000

30003000

25002500

25002500

20002000

20002000

1111 1212 1313

20002000

25002500

30003000

15001500

20002000

500500 500500500 500 500 500

30003000

15151414

0000

1616

WEEKWEEK

41

Lot-Sizing in MRPLot-Sizing in MRPLot-Sizing in MRPLot-Sizing in MRP

Lot-sizeLot-size is the quantity ordered/produced at one time is the quantity ordered/produced at one time Large lots are preferred because:Large lots are preferred because:

Changeovers cost less and capacity greaterChangeovers cost less and capacity greater Annual cost of purchase orders lessAnnual cost of purchase orders less Price breaks and transportation breaks can be Price breaks and transportation breaks can be

utilizedutilized Small lots are preferred because:Small lots are preferred because:

Lower inventory carrying costLower inventory carrying cost Reduced risk of obsolescenceReduced risk of obsolescence Shorter cycle time to produce customer orderShorter cycle time to produce customer order

42

Lot-Sizing MethodsLot-Sizing MethodsLot-Sizing MethodsLot-Sizing Methods

Typical MRP methodsTypical MRP methods accommodates lumpy demandaccommodates lumpy demand

Lot-for-Lot (LFL)Lot-for-Lot (LFL) Period Order Quantity (POQ)Period Order Quantity (POQ)

Comments on Economic Order Quantity (EOQ)Comments on Economic Order Quantity (EOQ) does not consider quantity discountsdoes not consider quantity discounts does not always provide the most economical does not always provide the most economical

approach with lumpy demandapproach with lumpy demand

43

Example: Lot-Sizing DecisionExample: Lot-Sizing DecisionExample: Lot-Sizing DecisionExample: Lot-Sizing Decision

The net requirements for a material from an The net requirements for a material from an MRP schedule are:MRP schedule are:

It costs $400 to change over the machines for It costs $400 to change over the machines for this material in the affected work center. It costs this material in the affected work center. It costs $0.40 per unit when one unit of this material must be $0.40 per unit when one unit of this material must be carried in inventory from one week to the next.carried in inventory from one week to the next.

Identify the lot-sizing method that results in the Identify the lot-sizing method that results in the least carrying and changeover costs for the 8-week least carrying and changeover costs for the 8-week schedule.schedule.

NET REQUIREMENTS NET REQUIREMENTS 10001000

11

00 13001300

22 33 44

800800 12001200

6655

0013001300

77

WEEKWEEK

800800

88

44


Lot-for-Lot MethodLot-for-Lot Method

Carrying Cost Carrying Cost = 0($.40) = $0 = 0($.40) = $0

Changeover Cost = 6($400) = Changeover Cost = 6($400) = $2,400$2,400

Total = $2,400Total = $2,400


BEGINNING INVENTORY BEGINNING INVENTORY

PRODUCTION LOTS PRODUCTION LOTS

ENDING INVENTORYENDING INVENTORY

10001000

00

10001000

00

11

00

00

00

00

00

13001300

13001300

00

22 33 44

800800

000000

0000

1300130012001200800800 00

00

12001200

6655

0013001300

0000

77

WEEKWEEK

800800

00

800800

00

88

45


Economic Order Quantity (EOQ) MethodEconomic Order Quantity (EOQ) Method

S = $400.00S = $400.00

D = [(Net Req. for 8 wks)/8 weeks)](50 weeks/year)D = [(Net Req. for 8 wks)/8 weeks)](50 weeks/year)

= (6400/8)(50) = 40,000= (6400/8)(50) = 40,000

C = ($0.40 per week)(50 weeks/year)C = ($0.40 per week)(50 weeks/year)

= $20.00= $20.00

2DS 2(40,000)(400)EOQ = = = 1265

C 20

2DS 2(40,000)(400)EOQ = = = 1265

C 20

46


Economic Order Quantity (EOQ) MethodEconomic Order Quantity (EOQ) Method

Carrying Cost = 4855($.40) = $1,942Carrying Cost = 4855($.40) = $1,942


Total = $4,342Total = $4,342





10001000

00

12651265

265265

11

265265

00

265265

00

230230

12651265

13001300

265265

22 33 44

800800

725725760760695695

695695230230

126512651265126512651265 00

725725

12001200

6655

0013001300

725725760760

77

WEEKWEEK

12651265

11901190

800800

725725

88

47


Period Order Quantity (POQ) MethodPeriod Order Quantity (POQ) Method

POQ = (# Weeks/year)/(# Orders/year)POQ = (# Weeks/year)/(# Orders/year)

= 50/(D/EOQ)= 50/(D/EOQ)

= 50/(40,000/1,265)= 50/(40,000/1,265)

= 1.58 or 2 weeks= 1.58 or 2 weeks

48


Period Order Quantity (POQ) MethodPeriod Order Quantity (POQ) Method

Carrying Cost = 2900($.40) = $1,160Carrying Cost = 2900($.40) = $1,160


Total = $2,760Total = $2,760





10001000

00

10001000

00

11

00

00

00

00

800800

21002100

13001300

00

22 33 44

800800

001300130000

00800800

002500250000 800800

800800

12001200

6655

0013001300

0013001300

77

WEEKWEEK

00

00

800800

800800

88

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SummarySummary

CarryingCarrying Chg.Ovr.Chg.Ovr. TotalTotalMethodMethod CostCost CostCost CostCost

LFLLFL 00 2,4002,400 2,4002,400

EOQEOQ 1,9421,942 2,4002,400 4,3424,342

POQPOQ 1,1601,160 1,6001,600 2,7602,760

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Issues in MRPIssues in MRPIssues in MRPIssues in MRP

Lot-SizingLot-Sizing Useful at lower levels but may drive excess Useful at lower levels but may drive excess

inventory when applied at higher levelsinventory when applied at higher levels Net Change versus Regenerative MRPNet Change versus Regenerative MRP

Net change may generate too many action noticesNet change may generate too many action notices Regenerative more costly to run but appears to be Regenerative more costly to run but appears to be

easier to manageeasier to manage . . . more. . . more

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Issues in MRPIssues in MRPIssues in MRPIssues in MRP

Safety StockSafety Stock Use depends on uncertainty of demand..... more Use depends on uncertainty of demand..... more

uncertain the greater the need for safety stockuncertain the greater the need for safety stock Assemble-to-Order FirmsAssemble-to-Order Firms

MPS and MRP treated separately from Final MPS and MRP treated separately from Final Assembly Schedule(FAS)Assembly Schedule(FAS)

FAS is prepared 1-2 weeks aheadFAS is prepared 1-2 weeks ahead Use Modular Bill of MaterialUse Modular Bill of Material

For each option with a demand forecastFor each option with a demand forecast

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MRP I to MRP IIMRP I to MRP IIMRP I to MRP IIMRP I to MRP II

MRP I simply exploded demand (MPS) into required MRP I simply exploded demand (MPS) into required materialsmaterials

MRP II became MRP II became Manufacturing Resource PlanningManufacturing Resource Planning which provides a closed-loop business management which provides a closed-loop business management systemsystem Financial managementFinancial management Shop floor controlShop floor control Operations managementOperations management Simulation capabilitySimulation capability

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Evaluation of MRPEvaluation of MRPEvaluation of MRPEvaluation of MRP

Most beneficial to process-focused systems that have Most beneficial to process-focused systems that have long processing times and complex multistage long processing times and complex multistage production stepsproduction steps

Lead times must be reliableLead times must be reliable Must freeze MPS for some time before actual Must freeze MPS for some time before actual

production... certain demandproduction... certain demand Difficult to implementDifficult to implement

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Capacity Requirements Planning (CRP)

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Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP)

Tests MPS for feasibilityTests MPS for feasibility Utilizes routings to determine labor/machine loadsUtilizes routings to determine labor/machine loads If schedule feasible, recommends freezingIf schedule feasible, recommends freezing If schedule overloads resources, points out processes If schedule overloads resources, points out processes

that are overscheduledthat are overscheduled

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Load SchedulesLoad SchedulesLoad SchedulesLoad Schedules

Compares actual labor and machine hours against Compares actual labor and machine hours against available hoursavailable hours

Offsets schedules between successive stages of Offsets schedules between successive stages of production by lead timesproduction by lead times

Provides feasible MPS and economically loaded work Provides feasible MPS and economically loaded work centerscenters

Promotes system operating efficiency ... lowers costs!Promotes system operating efficiency ... lowers costs!

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HW Chapter 15HW Chapter 15HW Chapter 15HW Chapter 15

HW #7 and 16 on page 612 and 617.HW #7 and 16 on page 612 and 617.

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End of Chapter 15End of Chapter 15

1 Chapter 15 Resource Requirements Planning: MRP and CRP.

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Transcript of 1 Chapter 15 Resource Requirements Planning: MRP and CRP.