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Materials Requirements Planning

Materials Requirements Planning. Collins Industries. Largest manufacturer of ambulances in the world International competitor 12 major ambulance designs 18,000 different inventory items 6,000 manufactured parts 12,000 purchased parts

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Materials Requirements Planning

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  1. Materials Requirements Planning

  2. Collins Industries • Largest manufacturer of ambulances in the world • International competitor • 12 major ambulance designs • 18,000 different inventory items • 6,000 manufactured parts • 12,000 purchased parts • MRP seems to be a good way to manage inventories: IBM’s MAPICS system is used

  3. Independent Demand Dependent Demand A C(2) B(4) D(2) E(1) D(3) F(2) Independent demand is uncertain. Dependent demand is certain. Independent and Dependent Demand

  4. Dependent Demand • Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods. • Once the independent demand is known, the dependent demand can be determined.

  5. Independent demand Dependent demand 100 x 1 = 100 tabletops 100 x 4 = 400 table legs 100 tables Discrete demand Continuous demand 400 – 300 – 200 – 100 – 400 – 300 – 200 – 100 – No. of tables No. of tables 1 2 3 4 5 Week M T W Th F M T W Th F Demand Characteristics

  6. “Lumpy” demand Demand Stable demand Demand Time Time Amount on hand Amount on hand Safety stock Time Time Dependent vs Independent Demand

  7. Material Requirements PlanningDefined • Materials requirements planning (MRP)is a computerized inventory planning and control system for determining when (no earlier and no later) and how many of each of the parts, components, and materials should be ordered or produced. • It translates master schedule requirements fr end items into time-phased requirements for subassemblies, components and raw materials. • Dependent demand drives MRP • MRP is a software system

  8. When to Use MRP • Dependent and discrete items • Complex products • Job shop production • Assemble-to-order environments

  9. Material Requirements Planning System Based on a master production schedule, a material requirements planning system: • Creates schedules identifying the specific parts and materials required to produce end items • Determines exact unit numbers needed • Determines the dates when orders for those materials should be released, based on lead times

  10. 10 Firm orders from known customers Forecasts of demand from random customers Aggregate production plan Engineering design changes Inventory transactions Master production Schedule (MPS) Material planning (MRP computer program) Bill of material file Inventory record file Secondary reports Primary reports Exception reports Planning reports Reports for performance control Planned order schedule for inventory and production control (work orders, purchase orders), rescheduling notices • The McGraw-Hill Companies, Inc., 2004

  11. MRP Inputs MRP Processing MRP Outputs Changes Order releases Master schedule Planned-order schedules Primary reports Exception reports Bill of materials Planning reports MRP computer programs Secondary reports Performance- control reports Inventory records Inventory transaction MRP System

  12. MRP Inputs 1: Master Production Schedule • Drives MRP process with a schedule of finished products; states which end items are to be produced, when these are needed, and in what quantities • Quantities may consist of a combination of customer orders & demand forecasts • Quantities represent what needs to be produced, not what can be produced

  13. MPS (Specific End Items) Master Production Schedule (MPS) Time-phased plan specifying how many and when the firm plans to build each end item Aggregate Plan (Product Groups)

  14. Master Production Schedule Item / Week Oct 3 Oct. 10 Oct. 17 Oct.24 Oct. 31 Clipboard 85 95 120 100 100 Lapdesk 0 50 0 50 0 Lapboard 75 120 47 20 17 Pencil Case 125 125 125 125 125 Shows items to be produced Derived from aggregate plan Example:

  15. MRP Inputs 2: Bill-of-Materials Bill of materials (BOM): One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product. Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.

  16. Level 0 Chair Leg Assembly Back Assembly 1 Seat Cross bar Side Rails (2) Cross bar Back Supports (3) Legs (2) 2 3 Product Structure Tree: Example 1

  17. Bicycle(1) P/N 1000 Frame Assembly (1) Handle Bars (1) P/N 1001 P/N 1002 Wheels (2) Frame (1) P/N 1003 P/N 1004 Product Structure Tree: Example 2

  18. Clipboard Top clip (1) Bottom clip (1) Pivot (1) Spring (1) Rivets (2) Finished clipboard Pressboard (1) Product Drawing: Example 3

  19. Clipboard Level 0 Clip Ass’y (1) Rivets (2) Level 1 Pressboard (1) Top Clip (1) Bottom Clip (1) Pivot (1) Spring (1) Level 2 Product Structure Tree ( Example 3)

  20. MRP Inputs 3: Inventory Records File • One of the three primary inputs of MRP • Includes information on the inventory status of each item by time period • Gross requirements • Scheduled receipts • Amount on hand • Lead times • Lot sizes • And more....

  21. MRP Terminology (1 of 3) • Gross requirements • Scheduled receipts • Projected on hand • Net requirements • Planned-order receipts • Planned-order releases

  22. MPR Terminology (2 of 3) • Gross requirements • Total expected demand • Scheduled receipts • Open orders scheduled to arrive • Projected on hand • Expected inventory on hand at the beginning of each time period

  23. MRP Processing Terminology (3 of 3) • Net requirements • Actual amount needed in each time period • Gross requirements – available inventory • Planned-order receipts • Quantity expected to be received at the beginning of theperiod • Offset by lead time • Planned-order releases • Planned amount to be ordered in each time period

  24. Procurement of raw material D Fabrication of part E Subassembly A Procurement of raw material F Final assembly and inspection Procurement of part C Procurement of part H Subassembly B Fabrication of part G Procurement of raw material I 6 7 1 2 3 4 5 8 9 10 11 MRP Processing Logic: Assembly Time Chart Weeks

  25. Calculation of Gross Requirements A S C B C B Master schedule for S sold directly Lead time = 4 for A Master schedule for A Lead time = 6 for S Master schedule for S 6 5 9 10 11 12 2 7 8 9 11 10 13 3 8 1 40 50 15 40 20 30 10 10 Periods 1 2 3 4 5 6 7 8 10 50 20 40+10 = 50 15+30 = 45 40 Gross requirements: B Periods Therefore, these are the gross requirements for B

  26. Basic MRP Processes Exploding the bill of material Netting out inventory Lot sizing Time-phasing requirements

  27. ITEM NAME OR NO. LLC - LOW LEVEL CODE PERIOD LOT SIZE QTY MADE IN LY - LEAD TIME 1 2 3 4 5 The MRP Matrix

  28. Master Production Schedule 1 2 3 4 5 Clipboard 85 95 120 100 100 Lapdesk 0 60 0 60 0 Item Master File (ınventory record file CLIPBOARD LAPDESK PRESSBOARD On hand 25 20 150 On order 175 (Period 1) 0 0 (sch receipt) LLC 0 0 1 Lot size L4L Mult 50 Min 100 Lead time 1 1 1 MRP Processing:Example 1-School Mate Products

  29. Product Structure Record Level 0 Clipboard Pressboard (1) Clip Ass’y (1) Rivets (2) Level 1 Level 0 Lapdesk Glue (4 oz) Pressboard (2) Beanbag (1) Trim (3’) Level 1 School Mate Products

  30. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 Net Requirements Planned Order Receipts Planned Order Releases School Mate Products

  31. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 115 Net Requirements 0 Planned Order Receipts Planned Order Releases School Mate Products (25 + 175) = 200 units available (200 - 85) = 115 on hand at the end of Period 1

  32. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 115 20 Net Requirements 0 0 Planned Order Receipts Planned Order Releases School Mate Products 115 units available (115 - 85) = 20 on hand at the end of Period 2

  33. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 115 20 0 Net Requirements 0 0 100 Planned Order Receipts 100 Planned Order Releases 100 School Mate Products 20 units available (20 - 120) = -100 — 100 additional Clipboards are required Order must be placed in Period 2 to be received in Period 3

  34. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 115 20 0 0 0 Net Requirements 0 0 100 100 100 Planned Order Receipts 100 100 100 Planned Order Releases 100 100 100 School Mate Products Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases

  35. ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: 1 1 2 3 4 5 Gross Requirements 0 60 0 60 0 Scheduled Receipts Projected on Hand 20 Net Requirements Planned Order Receipts Planned Order Releases School Mate Products

  36. ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: 1 1 2 3 4 5 Gross Requirements 0 60 0 60 0 Scheduled Receipts Projected on Hand 20 20 10 10 0 0 Net Requirements 0 40 50 Planned Order Receipts 50 50 Planned Order Releases 50 50 School Mate Products Following the same logic, the Lapdesk MRP matrix is completed as shown

  37. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: 1 1 2 3 4 5 Planned Order Releases 100 100 100 Planned Order Releases 50 50 ITEM: PRESSBOARD LLC: 0 PERIOD LOT SIZE: MIN 100 LT: 1 1 2 3 4 5 Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases School Mate Products

  38. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: 1 1 2 3 4 5 Planned Order Releases 100 100 100 Planned Order Releases 50 50 x1 x1 x1 x2 x2 ITEM: PRESSBOARD LLC: 0 PERIOD LOT SIZE: MIN 100 LT: 1 1 2 3 4 5 Gross Requirements 100 100 200 100 0 Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases School Mate Products

  39. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: 1 1 2 3 4 5 Planned Order Releases 100 100 100 Planned Order Releases 50 50 ITEM: PRESSBOARD LLC: 0 PERIOD LOT SIZE: MIN 100 LT: 1 1 2 3 4 5 Gross Requirements 100 100 200 100 0 Scheduled Receipts Projected on Hand 150 50 50 0 0 0 Net Requirements 50 150 100 Planned Order Receipts 100 150 100 Planned Order Releases 100 150 100 School Mate Products

  40. Planned Order Report PERIOD ITEM 1 2 3 4 5 Clipboard 100 100 100 Lapdesk 50 50 Pressboard 100 150 100 School Mate Products

  41. X A(2) B(1) C(2) D(5) C(3) MRP Processing: Example 2 Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

  42. X A(2) It takes 2 A’s for each X

  43. X A(2) B(1) It takes 1 B for each X

  44. X A(2) B(1) C(3) It takes 3 C’s for each A

  45. X A(2) B(1) C(3) C(2) It takes 2 C’s for each B

  46. X A(2) B(1) C(3) C(2) D(5) It takes 5 D’s for each B

  47. MRP Outputs • Planned orders (schedule indicating the amount and timing of orders) • Work orders • Purchase orders • Order releases (authorization for the execution of planned orders) • Changes to previous plans or existing schedules (revision of due dates or order quantities, or cancellations of orders) • Action notices • Rescheduling notices

  48. Updating the MRP System • Regenerative system • Updates MRP records periodically • Net-change system • Updates MPR records continuously

  49. MRP Secondary Reports • Performance-control reports • Planning reports • Exception reports

  50. MRP Dynamics • Supports “replanning” • “Time fence” - allows a segment of the master schedule to be designated as “not to be rescheduled” • “Pegging” - tracing upward in the bill-of-materials from the component to the parent item • That a manager can react to changes, doesn’t mean he/ he should

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