MRP

13 - Manufacturing Resource PlanningDr. Ron Tibben-Lembke

Historical Perspectivemrp material requirements planning MRP II ManufacturingResource PlanningERP- Enterprise Resource Planning

MRP Crusade (1975)Material Requirements PlanningMake sure you have enough parts when you need themTake future demands, factor in lead times (time phase), compare to on hand, orderDetermine order size and timingControl and plan purchasing vs. OSWO inventory management

Closed-Loop MRPCapacity Consideration:Part routingsCalculate loads on each work stationSee if scheduled load exceeds capacityLead-time long enough to allow some shuffling to make plan feasible

MRP II -- Manufacturing Resource PlanningA method for the effective planning of all resources of a manufacturing company (APICS def.)Financial accounting incorporatedSalesOperations PlanningSimulate capacity requirements of different possible Master Production Schedules1989, $1.2B MRPII sales in U.S., one third of total software sales

Success?MRP CrusadeBegins

Electronic Data InterchangeMy computer talks to yours, tells you exactly what I want to order, whenYou fill out a form, very compressed message sent, viewed as formSoftware, hardware expensive to implement

Sample Purchase TransactionST88850*1Transaction Set identifierBEG*00*NE*00498765**010698Beginning of SegmentPID*X*08*MC**Large WidgetDescription of ProductP01**5*DZ*4.55*TDBaseline Item DataCTT*1Transaction TotalsSE*1*1End of Segment

XMLeXtensible Markup LanguageXML provides self-describing information.Much easier, faster to implement or modify than EDI.Expected to replace EDI.Standardization through RosettaNet efforts

ERP differencesMaterial planningCapacity planningProduct designInformation warehousingAll functions in the entire company operate off of one common set of dataInstantaneous updating, visibility

Historical PerspectiveDatabaseServer(s) ApplicationServer(s)User PCs

ERP SalesWorldwide sales of top 10 vendors1995$2.8 B1996$4.2 B1997 $5.8 B$3.2 B SAPFortune survey: 44% reported spending at least 4 times as much on implementation as on software

ERP ChallengesModules assume best practices:Change software to reflect company ($)Change company to follow software (?)Accuracy of dataDrives entire systemOwnership of / responsibility forAbility to follow structure

ERP Novel?Goal-like novelHero learns more about ERP, deciding if it is right for his companyCompany rushes through installationGeneral introduction to ERP systems, what they do, how different from MRPSAP R/3 screen shots

3 Reasons for ERPLegacy systems outdated and need replacing anyway Desire for greater communication between locationsReconfigure business to take advantage of current and future communications and computing breakthroughs

Why ERP?

Multiple ClientsMostly Best PracticesCommon ClientMultiple Processes

Multiple ClientsMultiple ProcessesCommon ClientBest PracticesHighLowCentralizationHigh

LowFlexibility

ERP Considerations1. Control: how much centralization, drill-down visibility?2. Structure: How large & dispersed, how tightly integrated does it need to be?3. Database: desired structure, accessibility4. Customization: out/in source, how willing? Ability to modify in real time. Creating in-house experts vs. continued consulting dependence5. Best practices: how willing to embrace?Source: Carol A. Ptak ERP: Tools, Techniques and Applications for Integrating the Supply Chain, St. Lucie Press, APICS Series on Resource Management, 1999, p. 252.

How do weSystem for organizing WIP releasesConsider LT for each itemLook at BOM to see what parts neededRelease so they will arrive just as neededExample Snow ShovelOrder quantity is 50 unitsLT is one week

MRP Table6 units short

1

2

3

4

5

Gross Requirements

10

40

10

Scheduled receipts (begin)

50

Projected Available

Balance (ending) 4

54

44

44

4

Net Requirements

6

Planned Order Receipts

Planned Order Releases

MRP TableOrder 50 units week earlier

1

2

3

4

5

Gross Requirements

10

40

10


50

Projected Available

Balance (ending) 4

54

44

44

4

Net Requirements

6


50


50

Ending InventoryEnding inventory

1

2

3

4

5

Gross Requirements

10

40

10


50

Projected Available

Balance (ending) 4

54

44

44

4

44

Net Requirements

6


50


50

TerminologyProjected Available balanceNot on-hand (that may be greater) Tells how many will be available (in ATP sense)Planned order releases scheduled receiptsOnly when material has been committed to their productionMove to scheduled receipts as late as possiblePreserves flexibility

1605 Snow Shovel1605 Snow Shovel048Scoop-shaftconnector13122 Top Handle Assy314 scoop assembly118 Shaft (wood)062 Nail (4)14127 Rivet (4)

314 scoop assembly314 scoop assembly14127 Rivet (6)019 Blade (steel)2142 Scoop (aluminum)

13122 Top Handle Assembly1118Top handleCoupling (steel)11495 WeldedTop handle bracket Assembly13122 Top Handle Assembly457 Top handle(wood)129 Top HandleBracket (steel)082 Nail (2)

BOM ExplosionProcess of translating net requirements into components part requirementsTake into account existing inventoriesConsider also scheduled receipts

BOM Explosion ExampleNeed to make 100 shovelsWe are responsible for handle assemblies.

Net RequirementsSchGrossNetPart DescriptionInvRecReqReqTop handle assy25--10075Top handle2225Nail (2 required)450Bracket Assy27--Top bracket15--Top coupling3915

Net RequirementsSchGrossNetPart DescriptionInvRecReqReqTop handle assy25--10075Top handle22257528Nail (2 required)45015096Bracket Assy27--7548Top bracket15--Top coupling3915

Net RequirementsSchGrossNetPart DescriptionInvRecReqReqTop handle assy25--10075Top handle22257528Nail (2 required)45015096Bracket Assy27--7548Top bracket15--4833Top coupling391548--

Timing of ProductionThis tells us how many of each we needDoesnt tell when to startStart as soon as possible?Dependent events (oh no, not that!)Front schedule Cutting approachBack schedule

13122 Top Handle Assy

13122 Top handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

20

10

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

25

25

5

5

Net Req

5

Pl Order Rec

5

Pl Order Rel

5

13122 Top Handle Assy-2

13122 Top handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

20

10

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

25

25

5

5

0

0

0

0

0

0

0

Net Req

5

20

35

10

Pl Order Rec

5

20

35

10

Pl Order Rel

5

20

35

10

13122 Top Handle Assy -3

13122 Top handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

20

10

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

25

25

5

5

0

0

0

0

0

0

0

Net Req

5

20

5

35

10

Pl Order Rec

5

20

5

35

10

Pl Order Rel

5

20

5

35

10

457 Top HandleOne handle forEach assembly

13122 Top handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

20

10

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

25

25

5

5

0

0

0

0

0

0

0

Net Req

5

20

5

35

10

Pl Order Rec

5

20

5

35

10

Pl Order Rel

5

20

5

35

10

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

5

20

5

35

10

Sch receipts

25

Proj. Avail Bal

(ending)

22

22

Net Req

Pl Order Rec

Pl Order Rel

457 Top Handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

5

20

5

35

10

Sch receipts

25

Proj. Avail Bal

(ending)

22

22

17

Net Req

Pl Order Rec

Pl Order Rel

457 Top Handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

5

20

5

35

10

Sch receipts

25

Proj. Avail Bal

(ending)

22

22

17

42

22

17

17

Net Req

18

10

Pl Order Rec

18

10

Pl Order Rel

18

10

082 Nail (2 required)Two nails forEach assembly

LT = 1

Lot Size = 50

1

2

3

4

5

6

7

8

9

10

Gross Req

10

40

10

70

20

Sch receipts

50

Proj. Avail Bal

(ending)

4

54

Net Req

Pl Order Rec

Pl Order Rel

13122 Top handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

20

10

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

25

25

5

5

0

0

0

0

0

0

0

Net Req

5

20

5

35

10

Pl Order Rec

5

20

5

35

10

Pl Order Rel

5

20

5

35

10

082 Nail (2 required)

LT = 1

Lot Size = 50

1

2

3

4

5

6

7

8

9

10

Gross Req

10

40

10

70

20

Sch receipts

50

Proj. Avail Bal

(ending)

4

54

44

44

4

Net Req

6

Pl Order Rec

50

Pl Order Rel

50


LT = 1

Lot Size = 50

1

2

3

4

5

6

7

8

9

10

Gross Req

10

40

10

70

20

Sch receipts

50

Proj. Avail Bal

(ending)

4

54

44

44

4

44

Net Req

6

26

20

Pl Order Rec

50

Pl Order Rel

50


LT = 1

Lot Size = 50

1

2

3

4

5

6

7

8

9

10

Gross Req

10

40

10

70

20

Sch receipts

50

Proj. Avail Bal

(ending)

4

54

44

44

4

44

44

24

4

4

4

Net Req

6

26

Pl Order Rec

50

50

Pl Order Rel

50

11495 Bracket AssemblyOne bracket forEach assembly

13122 Top handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

20

10

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

25

25

5

5

0

0

0

0

0

0

0

Net Req

5

20

5

35

10

Pl Order Rec

5

20

5

35

10

Pl Order Rel

5

20

5

35

10

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

Sch receipts

Proj. Avail Bal

(ending)

27

Net Req

Pl Order Rec

Pl Order Rel


13122 Top handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

20

10

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

25

25

5

5

0

0

0

0

0

0

0

Net Req

5

20

5

35

10

Pl Order Rec

5

20

5

35

10

Pl Order Rel

5

20

5

35

10

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

5

Sch receipts

Proj. Avail Bal

(ending)

27

Net Req

Pl Order Rec

Pl Order Rel


13122 Top handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

20

10

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

25

25

5

5

0

0

0

0

0

0

0

Net Req

5

20

5

35

10

Pl Order Rec

5

20

5

35

10

Pl Order Rel

5

20

5

35

10

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

5

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

27

Net Req

Pl Order Rec

Pl Order Rel

11495 Bracket Assembly

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

5

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

27

22

22

2

Net Req

3

35

10

Pl Order Rec

3

35

10

Pl Order Rel

3

35

10

129 Top Bracket

LT = 1

1

2

3

4

5

6

7

8

9

10

Gross Req

3

35

10

Sch receipts

Proj. Avail Bal

(ending)

15

Net Req

Pl Order Rec

Pl Order Rel

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

5

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

27

22

22

2

Net Req

3

35

10

Pl Order Rec

3

35

10

Pl Order Rel

3

35

10

129 Top handle bracket

LT = 1

1

2

3

4

5

6

7

8

9

10

Gross Req

3

35

10

Sch receipts

Proj. Avail Bal

(ending)

15

15

15

12

12

Net Req

23

10

Pl Order Rec

23

10

Pl Order Rel

23

10

1118 Top handle coupling

LT = 3

Safety Stock = 20

1

2

3

4

5

6

7

8

9

10

Gross Req

3

35

10

Sch receipts

Proj. Avail Bal

(ending)

39

Net Req

Pl Order Rec

Pl Order Rel

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

5

20

5

35

10

Sch receipts

Proj. Avail Bal

(ending)

27

22

22

2

Net Req

3

35

10

Pl Order Rec

3

35

10

Pl Order Rel

3

35

10


LT = 3

Safety Stock = 20

1

2

3

4

5

6

7

8

9

10

Gross Req

3

35

10

Sch receipts

15

Proj. Avail Bal

(ending)

39

39

54

51

51

16

Net Req

4

Pl Order Rec

4

Pl Order Rel

4


LT = 3

Safety Stock = 20

1

2

3

4

5

6

7

8

9

10

Gross Req

3

35

10

Sch receipts

15

Proj. Avail Bal

(ending)

39

39

54

51

51

20

20

20

20

20

20

Net Req

4

10

Pl Order Rec

4

10

Pl Order Rel

4

10

Other considerationsSafety stock if uncertainty in demand or supply quantity Dont let available go down to 0Safety LT if uncertainty in arrival time of supplyPlace order earlier than necessaryOrder quantitiesEOQ, Lot-For-Lot, Periodic Order quantity, others

MRP PrioritiesFirst:Get installed, part of ongoing managerial process, get users trainedUnderstand critical linkages with other areasAchieve high levels of data integrityLink MRP with front end, engine, back endThen:Determine order quantities more exactlyBuffering conceptsNervousness

Ordering PoliciesDependent DemandNot independent demandDiscrete not continuousLumpy may have surgesComplexityReduces costs ordering & holdingAnything other than lot-for-lot Increases lumpiness downstream

AssumptionsAll requirements must be available at start of periodAll future requirements must be met, and cant be backorderedSystem operated on periodic basis (e.g. weekly)Requirements properly offset for LTsParts used uniformly through a periodUse average inventory levels for holding cost

Example DemandsTry several lot-sizing methodsEconomic Order QuantityPeriodic Order QuantityPart Period BalancingWagner WithinOrder cost = $300 per order = CP Inventory Carrying cost = $2 / unit/ week = CHAvg Demand = 92.1 / wk = D

Week number

1

2

3

4

5

6

7

8

9

10

11

12

Requirements

10

10

15

20

70

180

250

270

230

40

0

10

EOQMinimizes total ordering & holding costsAssumes demand same every periodDefinitely not always true for this useAvg. demand and holding cost need same time units (e.g. per week)Economic Lot Size:

Where:D = avg demandCP = ordering costCH = holding cost

EOQSqrt( 2 * 300 * 92.1 / 2) = 166

Week number

1

2

3

4

5

6

7

8

9

10

11

12

Requirements

10

10

15

20

70

180

250

270

230

40

0

10

Order Quant

166

Begin Inv

Ending Inv

EOQOrdering cost = 6 * 300 = $1,800Inv carry cost = 1,532.5 * 2 = $3,065Total$4,865

Week number

1

2

3

4

5

6

7

8

9

10

11

12

Requirements

10

10

15

20

70

180

250

270

230

40

0

10

Order Quant

166

166

223

270

230

166

Begin Inv

166

156

146

131

111

207

250

270

230

166

126

126

Ending Inv

156

146

131

111

41

27

0

0

0

126

126

116

Periodic Order QuantitiesEOQ Gave good tradeoff between ordering & holdingresulted in a lot of leftovers.Only order enough to get through a certain number of periods no leftoversHow many? EOQ / avg. demand166 / 92.1 = 1.805 ~ 2 weeks worth

Periodic Order QuantitiesOrdering cost = 6 * 300 = $1,800Inv carry cost =1,082.5 * 2 = $2,145Total$3,945

Sheet1

Week No.123456789101112

Req.101015207018025027023040010

Orders203525052027010

Begin20103520250180520270270401010

End10020018002700400100

Avg Inv15527.5102159039513515520105

Part Period Balancing(Least Total Cost)Increase the quantity until holding costs equal the ordering cost

Order 10 holding = 10/2*2 = 10Order 20 holding = 10 + 10*1.5*2 = $40Order 35 = 40 + 15*2.5*2 = $115Order 55 = 115 + 20*3.5*2 = $255Order 125 = 255 + 70*4.5*2 = $85

Sheet1

Week No.123456789101112

Req.101015207018025027023040010

Orders203525052027010

Begin20103520250180520270270401010

End10020018002700400100

Avg Inv15527.5102159039513515520105

Part Period BalancingWeek 5:Order 70: Holding = 10*0.5*2 = $10Order 250: 10 + 180*1.5*2 = $550So I could:Order 250 units, pay $300 in ordering and $540 holding, for a total of $840,Order 70 now, 180 next week, and pay $600 in ordering and $10 + 180*0.5*2=180 in holding = $790Seems like the second option is best.

Sheet1

Week No.123456789101112

Req.101015207018025027023040010

Orders55000

Begin554535200-70-250-500-770-1000-1040-1040

End4535200-70-250-500-770-1000-1040-1040-1050

Avg Inv504027.510-35-160-375-635-885-1020-1040-1045

Part Period BalancingWhen should we place a separate order? If 1.5*$2*D > 300. D>300/3 = 100Whenever demand is >= 100, we might as well place a separate order.What about week 9?Order 230: holding = 230*0.5*2 = $230Order 270: = 230 + 40*1.5*2 = $350Order 280: = 350 + 10*3.5*2 = $420

Sheet1

Week No.123456789101112

Req.101015207018025027023040010

Orders5500070180250270

Begin55453520701802502700-230-270-270

End45352000000-230-270-270-280

Avg Inv504027.5103590125135-115-250-270-275

Part Period Balancing

Sheet1

Week No.123456789101112

Req.101015207018025027023040010

Orders5500070180250270280000

Begin5545352070180250270280501010

End453520000005010100

Avg Inv504027.510359012513516530105

Wagner-WithinMathematically optimal Work back from planning period farthest in the futureConsider all possibilities:Order for 5, 4 and 5, 3 and 4, then 5, etc.Uses dynamic programming similar to linear programming

Simulation ExperimentsWhat is best under real-world conditions?Multiple levels to be concerned aboutReal-time changes

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