Operations ManagementMaterial Requirements Planning (MRP)

Global Company Profile: Collins Industries Dependent Inventory Model Requirements

Master Production ScheduleBills of MaterialsAccurate Inventory recordsPurchase Orders OutstandingLead Times for Each Component

MRP Structure

MRP ManagementMRP DynamicsMRP and JIT

Lot-Sizing Techniques Extensions in MRP

Closed-Loop MRPCapacity PlanningMaterial Requirements Planning II (MRP II)Enterprise Resource Planning (ERP)

MRP In Services Distribution Resource Planning (DRP)

DRP StructureAllocation

When you complete this chapter, you should be able to :

Identify or Define: Planning bills and kits Phantom bills Low-level coding Lot sizing

When you complete this chapter, you should be able to :

Describe or Explain: Material requirements planning Distribution requirements planning Enterprise resource planning

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: IBM’s MAPICS

Collins requires:Material plan must meet both the

requirements of the master schedule and the capabilities of the production facility

Plan must be executed as designedEffective “time-phased” deliveries,

consignments, and constant review of purchase methods

Maintenance of record integrity

Inventory

Process stage

Demand Type

Number & Value Other

Raw Material WIP Finished

Goods

Independent Dependent

A Items B Items C Items

Maintenance Dependent Operating

Item Materials WithIndependent Demand

Materials WithDependent Demand

DemandSource Company Customers Parent Items

MaterialType Finished Goods WIP & Raw Materials

Method ofEstimatingDemand

Forecast & BookedCustomer Orders

Calculated

PlanningMethod EOQ & ROP MRP

Aggregate Production Plan

MarketingCustomerDemand

EngineeringDesign

Completion

ManagementReturn onInvestment

Capital

HumanResourcesManpowerPlanning

ProcurementSupplier

Performance

FinanceCash Flow

ProductionCapacityInventory

Effective use of dependent demand inventory models requires that the operations manager know the:

master production schedule specifications or bills-of-material inventory availability purchase orders outstanding lead times

Production Plan

Execute MaterialPlans

Master ProductionSchedule

MaterialRequirements

Plan

CapacityRequirements

Plan

Execute CapacityPlans

Realistic??No

Yes

Make to Order

(Process Focus)

Assemble to Order or Forecast

(Repetitive)

Stock to Forecast(Product Focus)

Schedule finished product

Steel, Beer, Bread Light bulbs, Paper

Print shopMachine shop

Fine dining restaurant

Examples:

Number of end items

Number of inputs

Typical focus of the master production

schedule Schedule orders

Schedule modules

Motorcycles, autos, TVs, fast-food

restaurant

List of components & quantities needed to make product

Provides product structure (tree) Parents: Items above given level Children: Items below given level

Shows low-level coding Lowest level in structure item occurs Top level is 0; next level is 1 etc.

Modular bills Modules are final components used to

make assemble-to-stock end items Planning bills

Used to assign artificial parent Reduces number of items scheduled

Phantom bills Used for subassemblies that exist

temporarily

Bicycle(1)P/N 1000

Handle Bars (1)P/N 1001

Frame Assembly (1)P/N 1002

Wheels (2)P/N 1003

Frame (1)P/N 1004

1 2 3 4 5 6 7 8

D

G2 weeks

1 weekF

E

3 weeks

2 weeks

A1 week

C1 week

B

2 weeks to produce

E

D

Must have D and E completed here so

production can begin on B

2 weeks

1 week

Start production of D

Manufacturing computer information system Determines quantity & timing of dependent

demand items 1 2 3 4 5

Gross Requirements 2 20 25 15

Scheduled Receipts 5 30

Available 25 23 33 33 8

Net Requirements 7

Planned Order Receipts 7

Planned Order Releases 7

1 2 3 4 5

Gross Requirements 2 20 25 15

Scheduled Receipts 5 30

Available 25 23 33 33 8

Net Requirements 7

Planned Order Receipts 7

Planned Order Releases 7

© 1995 Corel Corp.

Computer system Mainly discrete products Accurate bill-of-material Accurate inventory status

99% inventory accuracy Stable lead times

© 1984-1994 T/Maker Co.

Increased customer satisfaction due to meeting delivery schedules

Faster response to market changes Improved labor & equipment utilization Better inventory planning & scheduling Reduced inventory levels without reduced

customer service

MRP by period report

MRP by date report

Planned orders report

Purchase requirements

Exception reports

MRPPrograms

Master ProductionSchedule

BOM

Lead Times

(Item Master File)

(Bill-of-Material)

Inventory Data

Purchasing data

Forecast &Firm Orders

MaterialRequirements

Planning

AggregateProductionPlanning

ResourceAvailability

MasterProductionScheduling

ShopFloor

Schedules

CapacityRequirements

PlanningRealistic?

No, modify CRP, MRP, or MPSNo, modify CRP, MRP, or MPS

YesYes

Shows items to be produced End item, customer order, module

Derived from aggregate plan

Shows items to be produced End item, customer order, module

Derived from aggregate plan

Item/Week Oct 3 Oct 10 Oct 17 Oct 24

Drills 300 200 310 300

Saws 300 450 310 330

Example

Therefore, these are the gross

requirements for B10 40+10 = 50 40 50 20 15+30

= 45

1 2 3 4 5 6 7 8Periods

Gross requirements: B

Periods

10 101 2 3

Master schedule for S sold directly

40 50 15

A

CB

5 6 7 8 9 10 11

Lead time = 4 for AMaster schedule for A

40 20 30

S

B C

8 9 10 1211 13

Lead time = 6 for SMaster schedule for S

Supports “preplanning”Problem with system “nervousness”

“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/she should

MRP - a planning and scheduling technique with fixed lead times

JIT - a way to move material expeditiously Integrating the two:

Small bucket approach and back flushingBalanced flow approach

Lot-for-lot Economic Order Quantity Part Period Balancing Wagner-Whitin Algorithm

Closed loop MRP Capacity planning - load reports MRP II - Material Resource Planning Enterprise Resource Planning

Tactics for smoothing the load and minimizing the impact of changed lead time include:

Overlapping - reduces the lead time, entails sending pieces to the second operation before the entire lot has completed the first operation

Operations splitting - sends the lot to two different machines for the same operation

Lot splitting - breaking up the order and running part of it ahead of the schedule

MRP II with ties to customers and suppliers

Can be used when demand for service or service items is directly related to or derived from demand for other services restaurant - rolls required for each mealhospitals - implements for surgeryetc.

DRP requires:Gross requirements, which are the same as

expected demand or sales forecastsMinimum levels of inventory to meet

customer service levelsAccurate lead timesDefinition of the distribution structure