Material Requirements Planning

Daniel SiswantoTeknik Industri UNPAR

Reference

Fogarty et al., Production and Inventory Management, South-Western Publishing Co., Cincinnati, 1991 (Ch. 10)

Tersine, Richard J., Principles of Inventory and Materials Management 4th ed., Prentice-Hall Inc., 1994 (Ch. 4)

Aggregate Planning

Master Production Scheduling

Material Requirements Planning

Material Requirements Planning (MRP)

Calculates requirements for materials using bills of material, inventory data and MPS.

Makes recommendations to release replenishment orders for material.

U1-10, Fig. 10-1, page 335: MRP overview

MRP, Closed Loop MRP, MRP II

Closed-loop MRP

Planning functionsProduction planning, MPS, capacity requirements planning.

Execution functions Manufacturing control functions of input-output, detailed scheduling and dispatching, anticipated delay reports from plant and vendors: shop floor and purchasing control.

Feedback functionsDescribes the progress of orders being manufactured. Actual production and supplier performances are measured and compared to the plan. closing the loop.

MRP, Closed Loop MRP, MRP II

Manufacturing/Business Resource Planning (MRP II/BRP)

Integrates marketing, finance and operations.Business planning functions.Production planning functions.Master production planning functions.Material requirements planning functions.Capacity requirements planning functions.Execution support systems for capacity and material.

MRP, Closed Loop MRP, MRP II

CL MRP

MRP II

Material Requirements Planning

Calculates the exact quantity, need date and planned order release date

for each of the subassemblies, components and materials required

to manufacture the products listed on the MPS.

Inputs of MRP

Demand information from the MPS.

Bill of material: description of what components go into a finished product.

Production times (or order times) for components.

Current inventory status.

Outputs of MRP

Purchase and production plans: the quantity and timing of orders to be placed.

Product/Bill of Material explosionProcess of breaking up the demand of one end item into demand for many component products.

Basic Processes of MRP

Determine product structure: demand dependencies.

Netting.

Lead time offsetting.

Determine product structure

Demand dependencies Establish end item, subassembly, component and purchased material gross number relationships.

Product structureRepresents the relationships of end item and its components.It can be shown in graphic form describing the product structure levels: End item is set at level 0. Its immediate components are at level 1. Its immediate components are at level 2. Level 3, level 4…and so on.

Vertical and horizontal dependencies

U1-10, Fig. 10-4: Dependencies

U1-10, Fig. 10-3, page 338: Simple and multilevel product structures

Netting

Is the process of calculating net requirements. Considers the effect of current inventories.

Ex. Demand for lamps: 25 units.

Inv

LampsBase assy (1)Shafts (1)Tubing (2)

374

16

Netting

25-3 = 2222-7 = 1515-4 = 1122-16 = 6

Simple

25-3 = 2225-7 = 1825-4 = 21

50-16 = 34

How long does it take to manufacture (or purchase) the items?

Lead Time Offsetting

Lead time Is the time required to either manufacture or purchase the components.

Ex. Order shipment date: week 27.

Lead time (weeks)

LampsBase assyShaftsTubing

2 123

Order placed

Week 25Week 24Week 22Week 19

MRP CHART

U1-10, Tab. 10-1, page 342: MRP chart

Time periods (time buckets)Basic planning periods, commonly in weeks.

Gross requirements (GR) For end items : represent the MPS. For lower-level items : represent quantities

needed in each period to ensure maintenance of the MPS.

GRt = parent item’s PORlt x quantity required for each parent.

Beginning inventory (BI)Number of items in the inventory at the beginning of the period. Comes from inventory records.

Scheduled receipts (SR)Orders already released (from earlier decisions).

Projected on hand (POH)The inventory balance projected out in the future.

POHt = PORct + SRt + POHt-1 – GRt

Net requirements (NR) Quantity actually needed to be received or

produced in a particular period. Exist when projected on hand is less than safety

stock. NRt = GRt – SRt – POHt-1

Planned order receipts (PORc) The quantity to be received or produced in a particular period. Indicates the order quantity ( lot sizing) and the reception period of the order.

Planned order release (PORl)Indicates the order quantity and period in which the production (or purchase) request has to be released.

PORlt = PORct+L

Time Conventions

GRSRPOHNRPORcPORl

Needed by end of periodNeeded by end of periodEnding inventoryNeeded by end of periodNeeded by end of periodNeeded by end of period

Low Level Coding

What happen if some items are required at more than one level in the BOM?

Net requirements adding GR for the item through the lowest level found in BOM

low level coding

Y

C

F E G H

A D

Level 0

1

2

3

E

EEE

B

LT =1

LT =2

LT =1

LT =1LT =1

LT =1

LT =1

LT =4

LT =3LT =2

LT =3LT =1 LT =4

Low level coding

Pegging

Families of end products sometimes have a common component.

When the component is short in quantity, what is the impact on the end products? Which end product will suffer the shortness?

PeggingThe process of keeping track of parents and offsprings.

U1-10, page 356: Pegging

Lot Sizing

Affects inventory levels, setup and ordering costs, capacity requirements and capability, and delivery.

Lot size decision Affected by: Number of levels in BOM Setup/order cost Carrying cost The use of joint orders and manufacturing cells The low level code of a given item

Lot sizing criterion Preparation costs Carrying costs

Lot Sizing Method

U1-10, Tab. 10-3, page 345: Fixed lot size

Fixed Lot Size

Lot For LotOrders can be for any quantity (equals to demand quantity).Holding cost , ordering cost .

U1-10, Tab. 10-4, page 346: Lot for lot

Least Unit CostSelecting lot size and release time with the smallest per unit cost.

Period

t Tot Demand

IncrementalHolding Cost

Cum.HC

Total Cost TC per unit

1 1 75 75x0x$1= $0 $0 $100+$0 = $100

$100/75= $1,33

Period 1 2 3 4 5 6

Demand

75 0 33 28 0 10

2 75 0 0 100 1,33

3 108 33x2x$1=66 66 166 1,54

3 3 33 0 0 100 3,03

4 61 28 28 128 2,10

5 61 0 28 128 2,10

6 71 30 58 158 2,22

S = $100/order, h = 2%, C = $50/unitInitial Inventory = 0

Period 1 2 3 4 5 6Demand 75 0 33 28 0 10Order Quantity 75 61 10

Ending Inventory 0 0 28 0 0 0

Period Order Quantity Determining lot size by combining a fixed

number of period requirements.

HD

2SPOQ

S = ordering cost D = demand per period H = holding cost

This approach does not minimize ordering and carrying cost, but frequently it is less costly than ordering each period or arbitrarily selecting a fixed order period.

U1-10, Tab. 10-9, page 351: POQ

Safety Stock

Why needed?MPS is not fixed for the lead time period.Uncertainty in forecasting demand.Uncertainty in delivery of purchased and manufactured materials: late delivery, wrong quantity.

Impacts:

Raising the average inventory level

Anticipating unexpected demand increases or time advancements.

Safety Lead Time

Overstating the lead time

Early actual deliveries

Used to satisfy changed demand

Uncertainty Requirement

In demand quantity

In timing of demand

Safety stock

Safety lead time

MRP System Output

It is important that the MRP system output (report, chart, etc) clearly distinguish between safety stock requirements and upper level requirements.

Replenishing safety stock is not a legitimate cause for special orders (expediting, broken setups, overtime, etc) because special orders is expensive Manual intervention: Firm Planned Order

Firm Planned Orders

The difficulty in establishing lot sizes: the lot size decision results in requirement for items at all lower levels.

U1-10, page 354-355: Motor Assy Example

Manual intervention by a production scheduler :1. Expedite the past due order2. Change the lot size for the motor assemblies3. Introduce a Firm Planned Order

Firm Planned OrderIs an order entered by the planner that supersedes the computer’s MRP logic

FPO also can be used when the planner believes the lead time can be compressed (when the planner set the bigger quantity).

U1-10, Tab. 10-11 page 355: FPO

MRP Basic Considerations

Data accuracy and dependenciesRealistic MPSSystem processing

Managing changeNet change versus schedule regeneration