MRP Systems

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# MRP Systems - PowerPoint PPT Presentation

MRP Systems. Thus far, planned order releases were based solely on the net requirements, and offset by the lead time. What if setup costs are significantly greater than carrying inventory? Or, what about leveling production?. MRP Systems. EOQ strategy – Ex. 8.5 Setup cost (A) = \$100

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MRP Systems

Thus far, planned order releases were based solely on the net requirements, and offset by the lead time.

What if setup costs are significantly greater than carrying inventory? Or, what about leveling production?

MRP Systems

EOQ strategy – Ex. 8.5

Setup cost (A) = \$100

Holding cost (h) = \$.10/unit/week

The following MPS:

Demand = 117 + 145 + 175 + 128 + 211 + 74 + 242

= 1092 units / 10 weeks

MRP Systems

Recalling the Economic Order Quantity Equation (EOQ):

Using the EOQ results in the following planned order release.

MRP Systems

Another common strategy is to produced at periodic intervals. This strategy uses a periodic order quantity (POQ).

In the previous example, using the EOQ, an order was placed about every 4 weeks. Therefore using a 4 week POQ, orders will be placed in week 1, 5, and 9 as follows:

Week 1 = 145 + 175 + 128 – 111 = 337

Week 5 = 211 + 74 = 285

MRP Systems

• Necessary conditions for a successful MRP system:
• Feasible master production schedule – if capacity not available, lead times will not be met resulting in part shortages for higher level assemblies.
• Accurate bill of materials – BOMs evolve over time, careful coordination between Engineering change orders and material handling required. (Rheem example).
• Accurate and current inventory records – very difficult to maintain accuracy when reporting of scrap or counts are inaccurate.
• Known and constant lead times – variability in lead times are typcially handled with safety stock, increasing WIP levels.

MRP Systems

• Necessary conditions for a successful MRP system – cont.:
• Employee discipline – employees must stick to the schedule and not deviate from the amount or the ordering.
• Batch withdrawals – MRP assumes all parts of a batch must be in place before withdrawals and begin. While in practice, withdrawals may begin as soon as parts arrive. Therefore, the MRP will result in unnecessarily large buffer inventory.

MRP Systems

Structural Limitations of MRP:

Discrete time buckets - MRP assumes all parts that will be used in a time period must be available at the start of the time period. In reality, parts will be consumed throughout the time period. Therefore if time buckets are large then WIP is increased. If time buckets are small, lead time variability may hamper the ability to complete orders in time.

MRP Systems

Structural Limitations of MRP – cont.:

Lead time variability – lead time in practice are variable. To account for this variation, order sizes are increased as a safety factor, thus leading to increased WIP.

Accurate data – MRP systems require accurate inventory levels. Because counts are difficult to maintain, cycle counters are required to periodically count inventory and adjust the MRP system accordingly. This adds labor cost.