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Anas Ma’ruf
Manufacturing Research Group
@2007
Production SystemProduction System
Material Requirement Planning (MRP) &
Manufacturing Resource Planning (MRP II)
PS-03: MRP & MRPII 2
Inventory
Process stage
Demand Type
Number & Value Other
Raw Material WIP Finished Goods
Independent Dependent
A Items B Items C Items
Maintenance Dependent Operating
Inventory ClassificationsInventory Classifications
PS-03: MRP & MRPII 3
Independent and Dependent DemandIndependent and Dependent Demand
Independent Demand(end item)
B(4) C(2)
D(2) E(1) D(3) F(2)
Dependent Demand(component parts)
Independent demand is uncertain. Dependent demand is certain.
A
PS-03: MRP & MRPII 4
Dependant vs. Independent DemandDependant vs. Independent Demand
Independent demandIndependent demand: Demand for end items.
Dependent demandDependent 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.
Require a different inventory management technique
PS-03: MRP & MRPII 5
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
Dependent versus Independent Dependent versus Independent DemandDemand
PS-03: MRP & MRPII 6
Inputs to the Production PlanInputs to the Production Plan
Aggregate Production Plan
MarketingCustomerDemand
EngineeringDesign
Completion
ManagementReturn on
InvestmentCapital
HumanResourcesManpowerPlanning
ProcurementSupplier
Performance
FinanceCash Flow
ProductionCapacityInventory
PS-03: MRP & MRPII 7
Requirements for Effective Use of Requirements for Effective Use of Dependent Demand Inventory ModelsDependent Demand Inventory Models
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
PS-03: MRP & MRPII 8
The Planning ProcessThe Planning Process
Production Plan
Execute MaterialPlans
Master ProductionSchedule
MaterialRequirements
Plan
CapacityRequirements
Plan
Execute CapacityPlans
Realistic??No
Yes
PS-03: MRP & MRPII 9
Typical Focus of the Master Typical Focus of the Master Production ScheduleProduction Schedule
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
PS-03: MRP & MRPII 10
Before MRPBefore MRP
Two difficulties of ordering and scheduling:
1. Enormous task of setting up schedules, keeping track of large numbers of parts and components, and coping with schedule and order changes.
2. Lack of differentiation between independent demand and dependent demand. Too often, techniques designed for independent-demand items were used to handle assembled items, which resulted in excessive inventories.
Consequently, inventory planning and scheduling presented major problems for manufacturers.
PS-03: MRP & MRPII 11
MRPMRP
MRP begins with a schedule for finished goods that is converted into a schedule of requirements for subassemblies, component parts and raw materialsneeded to produce the finished items in the specified time frame
MRP designed to answer the following questions
•• WhatWhat is needed ?
•• How muchHow much is needed?
•• WhenWhen is it needed ?
PS-03: MRP & MRPII 12
Material requirements planning (MRP)Material requirements planning (MRP)
Material requirements planning (MRP)Material requirements planning (MRP): Computer-based
information system that translates master schedule
requirements for end items into time-phased requirements
for subassemblies, components, and raw materials.
MRPMRP works backward from the due date using lead times
and other information to determine whenwhen and how muchhow much to
order.
PS-03: MRP & MRPII 13
TimeTime--Phased Product StructurePhased Product Structure
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
PS-03: MRP & MRPII 14
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
Material Requirements Planning Material Requirements Planning (MRP)(MRP)
Manufacturing computer information system
Determines quantity & timing of dependent demand items
© 1995 Corel Corp.
PS-03: MRP & MRPII 15
Computer system
Mainly discrete products
Accurate bill-of-material
Accurate inventory status99% inventory accuracy
Stable lead times
MRP RequirementsMRP Requirements
PS-03: MRP & MRPII 16
MRP BenefitsMRP Benefits
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
PS-03: MRP & MRPII 17
Structure of the MRP SystemStructure of the MRP System
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
PS-03: MRP & MRPII 18
Forecast &Firm Orders
MaterialRequirements
Planning
AggregateProductionPlanning
ResourceAvailability
MasterProductionScheduling
ShopFloor
Schedules
CapacityRequirements
PlanningRealistic?
No, modify CRP, MRP, or MPSNo, modify CRP, MRP, or MPS
YesYes
MRP and The Production Planning MRP and The Production Planning ProcessProcess
PS-03: MRP & MRPII 19
Overview of MRPOverview of MRP
PS-03: MRP & MRPII 20
MRPMRP---- InputInput
PS-03: MRP & MRPII 21
MRP InputsMRP Inputs
1. A master production schedule
2. A Bill of Materials
3. An inventory records file
Product Structure
TreeLead Tim
es
PS-03: MRP & MRPII 22
1. Master Schedule1. Master Schedule
Master (production) schedule (MPS)Master (production) schedule (MPS):: states which end items are to be produced, when these are needed, and in what quantities.
• Example: A master schedule for end item X:
Come from: customer orders, forecasts and orders from warehouses to build up seasonal inventories
PS-03: MRP & MRPII 23
Master Schedule (Cont.)Master Schedule (Cont.)
Cumulative lead timeCumulative lead time:: The sum of the lead
times that sequential phases of a process
require, from ordering of parts or raw materials
to completion of final assembly.
The master schedule should cover the
cumulative lead time.
PS-03: MRP & MRPII 24
Planning HorizonPlanning Horizon
The master schedule separates the planning horizon into a series of time periods and cover the cumulative lead time.
1 2 3 4 5 6 7 8 9 10
Procurement
Fabrication
Subassembly
Assembly
Time period (weeks)
PS-03: MRP & MRPII 25
2. Bill2. Bill--ofof--MaterialsMaterials
Bill of materials (BOM)Bill of materials (BOM):: a listing of all of the raw
materials, parts, subassemblies, and assemblies needed
to produce one unit of a product.
Each finished product has its own bill of materials.
Product structure treeProduct structure tree:: Visual depiction of the
requirements in a bill of materials, where all components
are listed by levels.
PS-03: MRP & MRPII 26
Assembly Diagram & Product Structure Assembly Diagram & Product Structure TreeTree
PS-03: MRP & MRPII 27
ExampleExample
Using the information above to do the follows:a) Determine the quantities of B, C, D, E, and F needed to assemble one X.
PS-03: MRP & MRPII 28
Solution to Example 1Solution to Example 1
Thus, one XX will require• B: 2 C: 1
• D:6 F: 2
• E: 28 (Note that E occurs in three places, with 2+2+24)
B(2)B(2)
XX
CC
D(3)D(3) EE
E(4)E(4)
E(2)E(2) F(2)F(2)
212: =×B 111: =×C
221: =×E212: =×E 212: =×F
623: =×D
2464: =×E
1:Xa).
PS-03: MRP & MRPII 29
Example 1 (Cont.)Example 1 (Cont.)
Using the information above to do the follows:a) Determine the quantities of B, C, D, E, and F needed to assemble one X.
b) Determine the quantities of B, C, D, E, and F needed to assemble ten X's, if you have the following in inventory:
ComponentBCDE
On hand4
108
60
PS-03: MRP & MRPII 30
ComponentBCDE
On hand4
108
60
Solution to Example 1 (Cont.)Solution to Example 1 (Cont.)
Thus, given the amounts of on-hand inventory, 10 XXs will require
• B: 16 C: 0
• D: 40 F: 0
• E: 116 (=16+100)
B(2)B(2)
XX
CC
D(3)D(3) EE
E(4)E(4)
E(2)E(2) F(2)F(2)
20102: =×B 10101: =×C
16161: =×E48163: =×D
160404: =×E
10:X
16
4−
0
10−
40
8−
100
60−
b).
0:E 0:F
PS-03: MRP & MRPII 31
3. Inventory Records File3. Inventory Records File
Inventory recordsInventory records:: includes information on the status of each item by time period:• Gross requirements
• Scheduled receipts
• Expected amount on hand
• Lead time
• Lot size policy
• And more …
PS-03: MRP & MRPII 32
MRPMRP---- ProcessProcess
PS-03: MRP & MRPII 33
Assembly Time ChartAssembly Time Chart
PS-03: MRP & MRPII 34
MRP Processing LogicMRP Processing Logic
Based on the master schedule to determine the components schedules for successively lower-level itemsthroughout the product structures.
It calculates schedules for each of the time periods (usually weekly) in the scheduling time horizon
• Gross requirements
• Schedule receipts
• Projected on hand
• Net requirements
• Planned-order receipts
• Planned-order releases
PS-03: MRP & MRPII 35
MRP ProcessingMRP Processing
Gross requirementsGross requirements:: Total expected demand for an item or raw material in a time period.
Scheduled receiptsScheduled receipts:: Open orders scheduled to arrive from vendors or elsewhere in the pipeline by the beginning of a period.
Projected on handProjected on hand:: Expected amount of inventory that will be on hand at the beginning of each time period:
Scheduled receipts + inventory carried forward
PS-03: MRP & MRPII 36
MRP ProcessingMRP Processing
Net requirementsNet requirements:: The actual amount that we need to procure in each time period:
Gross requirements - projected on-hand
PlannedPlanned--order receiptsorder receipts:: The quantity expected to be received by the beginning of the period in which it is shown.
PlannedPlanned--order releasesorder releases:: Planned amount to order in each time period; planned-order receipts offset by lead time.
PS-03: MRP & MRPII 37
Format of MRPFormat of MRP
53 4 6 7 8210Week Number
Planned-order releases
Planned-order receipts
Net requirements
Projected on hand
Scheduled receipts
Gross requirements
Item:
PS-03: MRP & MRPII 38
ExampleExample
Consider the two product structure trees shown below:
Develop a MRPMRP for item D. Given that the master schedule calls for 80 units of A in week 4 and 50 units of C in week 5. There’s a beg. inv. of 110 units of D on hand and all items have lead times of one week.
A
B D
C
D(2) F
PS-03: MRP & MRPII 39
Solution Solution -- MRP for Item AMRP for Item A
Quantity of C
Quantity of A
53 4 6210Week Number
Planned-order releases
Planned-order receipts
Net requirements
Projected on hand
Scheduled receipts
Gross requirements
Item:
80
80
8080
80
A LT=1 week
50
times 1
PS-03: MRP & MRPII 40
Solution Solution -- MRP for Item CMRP for Item C
Planned-order releases
Planned-order receipts
Net requirements
Projected on hand
Scheduled receipts
Gross requirements
Item:
50
Quantity of C
Quantity of A
53 4 6210Week Number
80
C LT=1 week
50
5050
50times 2
PS-03: MRP & MRPII 41
Solution Solution -- MRP for Item DMRP for Item D
Planned-order releases
Planned-order receipts
Net requirements
4 5 63
Projected on hand
Scheduled receipts
Gross requirements
21D LT=1 week
Item Atimes 1
80 50
Item Ctimes 2
100
110 110 110 110 307070
70
80
0
PS-03: MRP & MRPII 42
Updating the SystemUpdating the System
A material requirements plan is dynamic
Two basic updating systems:
1.1. Regenerative systemRegenerative system:: Approach that updates MRP records periodically.
• Best suited to fairly stable systems because of lag between receiving new information and creating a new plan.
2.2. NetNet--change systemchange system:: Approach that updates MRP records continuously.
• Best suited to systems that have frequent changes.
PS-03: MRP & MRPII 43
MRPMRP---- OutputOutput
PS-03: MRP & MRPII 44
MRP Outputs MRP Outputs ---- PrimaryPrimary ReportsReports
Planned ordersPlanned orders - Schedule indicating the
amount and timing of future orders.
Order releaseOrder release - Authorization for the
execution of planned orders.
ChangesChanges - revisions of due dates or order
quantities, or cancellations of orders.
PS-03: MRP & MRPII 45
MRP Outputs MRP Outputs ----SecondarySecondary ReportsReports
PerformancePerformance--control reportscontrol reports evaluate system
operations.
Planning reportsPlanning reports are useful in forecasting
future inventory requirements.
Exception reportsException reports call attention to major
discrepancies.
PS-03: MRP & MRPII 46
Benefits of MRPBenefits of MRP
Low levels of in-process inventories.
The ability to keep track of material requirements.
The ability to evaluate capacity requirements
generated by a given master schedule.
A means of allocating production time.
PS-03: MRP & MRPII 47
Requirements of MRPRequirements of MRP
A computer and the necessary software
programs to handle computations and maintain
records.
Accurate and up-to-date
• a. Master schedules
• b. Bills of materials
• c. Inventory records.
Integrity of file data.
PS-03: MRP & MRPII 48
Unforeseen Costs of MRPUnforeseen Costs of MRP
Training: The workers have to be trained to learn and become proficient with a new system and its processes.
Integration and testing: Integrating the computer systems associated with different areas of the firm and testing the links between various corporate areas and systems.
Data conversion and data analysis
Consultant fees
Solving implementation problems on an ongoing basis
Dealing with disappointing short-term results
Competition for high quality workers especially in the IT field .
PS-03: MRP & MRPII 49
MRP DynamicsMRP Dynamics
Supports “replanning”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
PS-03: MRP & MRPII 50
MRP in ServicesMRP in Services
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 meal
hospitals - implements for surgery
etc.
PS-03: MRP & MRPII 51
MRP in ServicesMRP in Services
PS-03: MRP & MRPII 52
LotLot--Sizing TechniquesSizing Techniques
Lot-for-lot
Economic Order Quantity
Part Period Balancing
Wagner-Whitin Algorithm
PS-03: MRP & MRPII 53
LotLot--forfor--lot Techniquelot Technique
PS-03: MRP & MRPII 54
Economic Order Quantity TechniqueEconomic Order Quantity Technique
PS-03: MRP & MRPII 55
Part Period Balancing TechniquePart Period Balancing Technique
PS-03: MRP & MRPII 56
Extensions of MRPExtensions of MRP
Closed loop MRP
Capacity planning - load reports
MRP II - Material Resource Planning
Enterprise Resource Planning
PS-03: MRP & MRPII 57
CloseClose--loop MRPloop MRP
PS-03: MRP & MRPII 58
Extensions of MRPExtensions of MRPCapacity PlanningCapacity 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
PS-03: MRP & MRPII 59
Load ReportsLoad Reports
PS-03: MRP & MRPII 60
MRP IIMRP II
PS-03: MRP & MRPII 61
MRP IIMRP II
Manufacturing Resources Planning (MRP II)Manufacturing Resources Planning (MRP II): Expanded MRP with emphasis placed on integration
Financial planning
Marketing
Engineering
Purchasing
Manufacturing
PS-03: MRP & MRPII 62
An Overview of MRP IIAn Overview of MRP II
MarketMarketDemandDemand
ProductionProductionplanplan
Problems?Problems?
RoughRough--cutcutcapacity planningcapacity planning
YesYes NoNo YesYesNoNo
FinanceFinance
MarketingMarketing
ManufacturingManufacturing
AdjustAdjustproduction planproduction plan
MasterMasterproduction scheduleproduction schedule
MRPMRP
CapacityCapacityplanningplanning
Problems?Problems?RequirementsRequirements
schedulesschedules
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