6. Material Requirements Planning (MRP)
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Transcript of 6. Material Requirements Planning (MRP)
6. Material Requirements Planning (MRP)
Homework problems: 2,6,7,8,9,13.
1. MRP Foundation
· Material requirements planning (MRP):· A computer-based information system that
translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.
· The MRP is designed to answer three questions:1. What is needed?
2. How much is needed?
3. When is it needed?
1. MRP Foundation
· Dependent demand· Demand for items that are subassemblies or
component parts to be used in the production of finished goods.
· Dependent demand tends to be sporadic or “lumpy”
· Large quantities are used at specific points in time with little or no usage at other times
1. MRP Foundation
What went wrong when EOQ is used to manage a dependent demand item ?
· Incorrect assumption of uniform, continuous demand
· Incorrect assumption on item independence
· Lack of Forward visibility
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Overview of MRP
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· Master Production Schedule (MPS)· Bill of Materials (BOM)· Inventory Records
MPR Inputs
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Product structure tree example
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· Inventory records/status data· Includes information on the status of each item by
time period, called time buckets· Information about
· Gross requirements· Scheduled receipts· Expected amount on hand
· Other details for each item such as· Supplier· Lead time· Lot size· Changes due to stock receipts and withdrawals· Canceled orders and similar events
MRP Inputs: Inventory Records
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Week 1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release
MRP Record
Gross requirements•Total expected demandScheduled receipts•Open orders scheduled to arriveProjected Available•Expected inventory on hand at the beginning of each time period
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Week Number 1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected on hand
Net requirements
Planned-order-receipt
Planned-order release
MRP Record
Net requirements•Actual amount needed in each time periodPlanned-order receipts•Quantity expected to received at the beginning of the period offset by lead timePlanned-order releases•Planned amount to order in each time period
6-12
Resourceplanning
Sales and operationsplanning
Demandmanagement
Master productionscheduling
Detailed capacityplanning
Detailed materialplanning
Material andcapacity plans
Shop-floorsystems
Suppliersystems
Enterprise R
esource Planning (E
RP
) System
Front End
Engine
Back End
Manufacturing Planning and Control System
Time-phased requirement (MRP) records
Routing file
Inventory status data
Bills of material
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MPR: Development
· The MRP is based on the product structure tree diagram· Requirements are determined level by level, beginning
with the end item and working down the tree· The timing and quantity of each “parent” becomes the
basis for determining the timing and quantity of the children items directly below it.
· The “children” items then become the “parent” items for the next level, and so on
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MRP: Updating PAB
· PAB: projected available balance· SR: scheduled receipts· PR: planned order receipts· GR: gross requirements
PABt=PABt-1 + SRt + PRt - GRt
6-15
Basic MRP Record
On hand
Period
1 2 3 4 5
Gross requirements 10 40 10
Scheduled receipts 50
Projected available balance (PAB) 4 54 44 44 4 44
Net requirements 6
Planned order receipts 50
Planned order releases 50
Lead time = 1 periodLot size = 50
A previously released order due in period 1
A unreleased order due in period 5
Requirements from all sources
Bill of Materials
The BOM shows the components and sub-assemblies required to produce one unit of product
Indented Bill of Materials
Finished item is not indented
Components and sub-assemblies are indented relative to their order of usage
Level 1 components
Level 1 sub-assemblies
Level 2 sub-assemblies
Indented BOM example
Sub-assemblies are represented by separate levels
Finished product is located at the top, components below
MRP Explosion
• Explosion–the process of translating product requirements into component part requirements– Considers existing inventories and scheduled receipts
• Calculating the quantities of all components needed to satisfy requirements for any given part.– Continued until all parts have been considered,
leading to exact requirements for all purchased and/or raw material parts
Gross and Net Requirements
• Gross requirements represent the total planned usage for the part
• Net requirements account for existing inventory and/or scheduled receipts
100 req’d – 25 inventory = 75 net req’d
75 req’d – 22 inventory – 25 sched. rec. = 28 net req’d
Net req’d for assembly becomes gross req’d for component
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Product Structure Tree & Low level coding
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X
B(2)
D(3)
E(4)
E
C
E(2) F(2)
Level 0
Level 1
Level 2
Level 3
· Low-level coding· Restructuring the bill of material so that multiple
occurrences of a component all coincide with the lowest level at which the component occurs
Low-Level Coding
Low Level Coding
14127 Rivet is a common part. It belongs to Level 2, not 1.
Level 0
Level 1
Level 3
Level 2
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· Lot-for-Lot (L4L) ordering· The order or run size is set equal to the
demand for that period· Minimizes investment in inventory· It results in variable order quantities· A new setup is required for each run
MPR Lot Sizing Rules (L4L)
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MPR Lot Sizing Rules (EOQ)
· Economic Order Quantity (EOQ)· Also called fixed order quantity (FOQ)· Can lead to minimum costs if usage of
item is fairly uniform· This may be the case for some lower-level
items that are common to different ‘parents’· Less appropriate for ‘lumpy demand’ items
because inventory remnants often result
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MPR Lot Sizing Rules (POQ)
· Fixed Period Ordering (POQ)· Provides coverage for some
predetermined number of periods· When an order is planned (i.e., planned
order receipts), it should be sufficient to cover the next P periods (e.g., p=3)
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Example MRP
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Example MRP: L-4-L ordering
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Example MRP: EOQ
• Gross to net explosion shows how much of each part is required, but not when
• Timing requires consideration of two factors– Lead times–how long does it take to obtain the
component or sub-assembly– Precedent relationships–the order in which parts
must be assembled
• MRP considers both factors when developing the plan
Lead Time Offsetting
• Two common approaches to scheduling exist– Front schedule–schedule each step as early as
possible. This approach is simple, but parts are scheduled (and finished) earlier than need be, thus increasing WIP inventory.
– Back schedule–schedule each step as late as possible. This approach will reduce WIP, minimize storage (and time) of completed parts, reserve flexibility (postpone the commitment or raw materials to specific products), but it requires accurate BOM data and lead time estimation.
Scheduling Logic
• MRP combines back scheduling and performs the gross requirements to net requirements explosion.– Reduced inventories– Minimized storage time
Scheduling Logic and MRP
Back Scheduling
Top handle assembly has the longest duration of any sub-assembly
Scoop assembly must be complete before final assembly can begin
Only when all sub-assemblies and components are available can final assembly begin
MRP RecordsPlanned order release for top handle assembly becomes gross requirement for top handle component and nail (note 2 nails required per assembly)
Lot-for-lot order policy exactly matches supply to net requirements
Fixed lot size order policy requires orders in multiples of lot size
• Processing frequency–recalculating all records and requirements is called regeneration– This is a computationally intensive process so it is often run in
the background and during periods of low system demand
• Net change approach only recalculates those records that have experienced changes
• Less frequent processing results in an out-of-date picture
• More frequent processing increases computer costs and may lead to system nervousness
MRP Technical Issues
Theoretically, MRP systems should not require safety stock
Variability may necessitate the strategic use of safety stock
A bottleneck process or one with varying scrap rates may cause shortages in downstream operations
Shortages may occur if orders are late or fabrication or assembly times are longer than expected
When lead times are variable, the concept of safety lead time is often used
Safety Lead Time (see Fig. 6.9)– Scheduling orders for arrival or completion
sufficiently ahead of their need that the probability of shortage is eliminated or significantly reduced
Safety Stock & Safety Lead Time
• Safety stock is buffer stock over and above the quantity needed to satisfy gross requirements– Used when quantity uncertainty is the issue
• Safety lead time changes both the release and due date of shop and/or purchase orders to provide a margin for error– Used when timing of orders is the issue– Safety lead time is not just an inflated lead time
Safety Stock & Safety Lead Time
• Pegging provides a link between demand (order releases, customer orders, etc.) and the gross requirements for parts– Pegging records include the specific part numbers
associated with a gross requirement– Pegging information can track the impact of a
problem (e.g. material shortage) back to the order(s) it will affect
Pegging
• Regeneration of the MRP records can lead to large numbers of planned order changes
• To avoid this, a planned order can be converted to a firm planned order (FPO)– An FPO is not the same as a scheduled delivery,
but can’t be changed by the MRP system– Temporarily overrides the MRP system to provide
stability or to solve problems
Firm Planned Orders
• Total amount of time included in MRP calculations– Longer planning horizon increases computational
requirements– Shorter planning horizon may result in less-
effective plans if significant future demand is not visible
– At a minimum, should cover the cumulative lead time for all finished goods items
Planning Horizon
• Scheduled receipts represent an actual commitment (purchase order, production order, etc.)
• Planned orders are only the current plan and can be changed more easily
• Scheduled receipts for production orders already have component materials assigned– Scheduled receipts do not impact gross requirements
• Planned order releases do not have component materials assigned– Planned order releases do impact gross requirements
Scheduled Receipts vs. Planned Order Releases
MRP Processing Example
Note: Component D is required by two parents.
MRP Processing Example
MRP Planner Tasks•Purchase orders•Shop floor (production) ordersRelease
•Change due dates of existing orders (when desirable)Reschedule•Set lot sizes and lead times•Adjust scrap allowances and safety stocksAnalyze and Update
•Identify errors and inconsistencies and eliminate their root causesReconcile
•Take action now to prevent future crisesIdentify Problems
•Adjust records and system parameters to prevent recurrenceSolve Shortages
•Identify system enhancements to improve performanceEnhance
Exception Codes
Separating the vital few from the trivial many
Part numbers with planned orders in
the immediate period
Orders with unsatisfactory
timing or quantity
Requirements that cannot be satisfied
within system parameters
(management input needed)
Bottom-Up Replanning
• Using pegging data to guide efforts to solve material shortages– Pegging data allows the planner to take action
only when actual customer orders are impacted
MRP System OutputPart number and description MRP system data
MRP planning data
Exception messages
MRP System Dynamics
MRP System Issues
Transactions during a period–
unexpected changes
Rescheduling–moving the due date of
an order to an earlier or later
date
Complex transactions–
inventory adjustments, service parts,
etc.
Procedural inadequacies–situations the system wasn’t
designed to handle
An MRP is not a static documentAs time goes by
Some orders get completed
Other orders are near completion
New orders will have been entered
Existing orders will have been alteredQuantity changes
Delays
Missed deliveries– See Figure 6.11,6.12,6.13
System Dynamics
• Effective use of an MRP system allows development of a forward-looking approach to managing material flows.
• The MRP system provides a coordinated set of linked product relationships, which permits decentralized decision making for individual part numbers.
• All decisions made to solve problems must be implemented within the system, and transactions must be processed to reflect the resultant changes.
• Effective use of exception messages allows attention to be focused on the “vital few” rather than the “trivial many.”
Principles
Period 1 2 3 4 5 6 7 8 9 10
Gross Requirements 71 46 49 55 52 47 51 48 56 51
Scheduled Receipts
Proj. Available Bal. 150
Planned Order Rel.
Item A; Lot Size = 150; LT = 1, SS = 0. Average Inventory = ?
10. XYZ Company
Item B; Lot Size = 150; LT = 1, SS = 0. Average Inventory = ?
Period 1 2 3 4 5 6 7 8 9 10
Gross Requirements 77 83 90 22 10 10 16 19 27 79
Scheduled Receipts
Proj. Available Bal. 150
Planned Order Rel.
Item A; Lot Size = 3 weeks supply (P=3); LT = 1, SS = 0. Average Inventory = ?
10. XYZ Company
Item B; Lot Size = 3 weeks supply (P=3); LT = 1, SS = 0. Average Inventory = ?
Period 1 2 3 4 5 6 7 8 9 10
Gross Requirements 71 46 49 55 52 47 51 48 56 51
Scheduled Receipts
Proj. Available Bal. 150
Planned Order Rel.
Period 1 2 3 4 5 6 7 8 9 10
Gross Requirements 77 83 90 22 10 10 16 19 27 79
Scheduled Receipts
Proj. Available Bal. 150
Planned Order Rel.
a. Component C (Q=40, LT=2, SS=0)
14. ABC Manufacturing Company
1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected Available Balance
Planned Order Release
b. Component C (Q=40, LT=2, SS=0)
1 2 3 4 5 6
Gross Requirements
Scheduled Receipts
Projected Available Balance
Planned Order Release