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Managing the Supply Chain :

Material Requirement Planning

(MRP)

Managing the Supply Chain :

Material Requirement Planning

(MRP)

BBA-SCM : 3201 Week 1 & 2

Tutor: Dr. Shirley YeungBBA-SCM Programme Co-ordinator,

Tel: +852-2636-7140 [email protected]

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1.2Introduction

Traditional Logistics SCM

- Activities occur within the - Networks of boundariesof a single companies thatorganization work together

and co-ordinateactions to deliver

a product to market

- Focus on activities, - Acknowledge alle.g. procurement, distribution activities, including

customer service &

new product develop-

ment

Hugos, Michael (2006) Essentials of Supply Chain Management, New Jersey: JohnWiley & Sons, Inc.

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1.3 IntroductionBasic patternofSCM practice Uniquesetofmarket demands and operating

challenges

Makedecisions individually and collectively in

thefollowing 5 areas:

Production,

inventory,

location,

transportation and

information

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1.3 Contd - 5 Action Areas in SCM

Production Inventory Location Transport-

ation

Informat-

ion

What

products?

How

much?

Bywhen?

Whatto

stock?

Howmuch

tostock?

Buffer

against

uncertainty

Facilities

forproduction

&

inventory

located?

Efficient

location?

Howto

move -Air? Sea?

Truck

delivery?

Uncertainty

compensated

forhigh level

ofstock

Howmuch

Info.needed/

shared?

Accurate?

Timely?

Info.for

decision

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1.4 Introduction

Toyota has renamed continuous improvement(Kaizen) as Lean Management (orToyotaProduction System). In 2006,the NetProfitoftheToyota Inc. has soared to US$14 billion,thehighest profit amongst all Japanese companies.

Incidentally, in 2006, Fords loss was alsoUS$14billion! By June 2007,they over-took GM as theWorlds largest carmanufacturer.

Sam Walton (FounderofWal-Mart),the Worldslargest corporation, has sai

d that my day is notfinish withoutimprovement .

Based ontheteachingofMasaaki Imai, LeanManagement consultant atToyota.Sam Ho hasdeveloped theLean 5-STM Management System.

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2.1 Inventory Management - 12.1 Inventory Management - 1

A. For stock outputs (in manufacture andpossibly supply systems):

(a) to providegood service to customers;(b) toprotect thefunctionfrom uncertainties

in demand;

(c) to permit manufactureorsupply of itemsineconomic batch quantities.

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B. For stock inputs (in manufacture, supply,transport and service systems):

(a) to permitfavorable purchase/provisionarrangements (e.g. price discounts andeconomic orderquantities);

(b) to protectthefunctionfrom uncertaintiesin supply.

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C. For customer input queues (intransport and service systems):

(a) toprotect functions fromuncertainties in demand.

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E. '80/20 rule', ABC or Pareto Curve

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E. Type of Inventory Control

(a) Order Point technique --

a new order of a predeterminedquantity is placed as soon as

the quantity in stock falls to orbelow the orderpoint.

(b) Periodic Review technique

-- stocks are reviewed at setintervals, and the order quantitydepends upon on-hand stock.

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3.1 Materials RequirementPlanning3.1 Materials RequirementPlanning

Probability forAvailability:

P = R N = 0.95 10 = 0.6

R = Prob.ofAvailability for1 itemN = No.ofItems

NettingNet quantity = gross quantity - stockon-

hand - stockon-order

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3.2 MPR Netting Example3.2 MPR Netting Example

Period 1 2 3 4 5 6

Gross Requirements 20 30 18 15 35 50

On-hand Quantity 0 40 10 0 0 0

Scheduled Receipts 60 0 0 0 0 20

Net Requirements 0 0 8 15 35 ?

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3.3 MRP Lot-Sizing3.3 MRP Lot-Sizing

Economic OrderQuantity (EOQ)depends on:

Unit cost Costofsettingup anorder

Holding cost

Demand pattern Quantity discounts

Handling cost

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3.4 MRP Off-setting (BOM- Bill ofMaterials)3.4 MRP Off-setting (BOM- Bill ofMaterials)

Level

Finished Item A 1

________|_________| |

Sub-Assembly B Sub-Ass.C 2

______|______| |

Part D Part E 3

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3.4 Bill ofMaterials (BOM) contd

BOM fora product lists the items thatgointothe product, includes:

- a briefdescriptionofeach item- specifies when

- inwhat quantity each item is needed inthe

assembly process- Computerizethrough labelling levels of

product structure

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3.5 MRP Explosion3.5 MRP Explosion

Level

Finished Item A 1

40 units required in Week 8

(lead time = 2 weeks)

_________|_________| |

Sub-Ass. B Sub-Ass. C 2

2 foreach A 1 foreach A

(lead time = 3wk.)______|_________

| |

Part D Part E 3

(3foreach B) (1 foreach B)

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3.6 MRP Requirements3.6 MRP Requirements

Requirements for :

B (Week 6) = 40 x 2 = 80

C (Week 6) = 40 x 1 = 40

D (Week3) = 80 x 3 = 240

E (Week3) = 80 x 1 = 80

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3.7 MRP Types3.7 MRP Types

Clean Sweep MRP

-- Neworders are planned totake account

ofchanged requirements.-- Affects all items used inthe company.

Net Change MRP

-- Previous actions updated toreflecttheeffectofchanges.

-- Only affects the items concerned.

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3.8 MRP Implementation3.8 MRP Implementation

MRP implementationrequires:

1. Accurate specification oftherelationshipsbetween assemblies and components.

2. Accuratelead time data.3. Realistic production schedules.

4. Accuratestock control data.

5. Provisionforscrap.

6. Computersystem to process large volumeofdata involved.

7. Due-date priorities areobeyed.

8. Disciplines and procedures must be accepted.

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The only silly questionisthe one which hasnot beenasked.

Do Harvard 1-minute Agenda now.

? ? ? - Q&A -

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ThankYouThankYou !

3201 ~ W1 & 2 - MRP R

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