21st Century Purchasing

21st Century Purchasing

Inputs and Outputs to Aggregate Production Planning Capacity Constraints Demand Forecasts Size of Workforce OMGT6743 Strategic Objectives Aggregate Production Planning Production per month (in units or $)

Inventory Levels Company Policies Financial Constraints Units or dollars subcontracted, backordered, or lost 1 Material Requirements Planning (MRP) A computerized inventory control & production planning system Schedules component items when they are needed - no earlier and no later

OMGT6743 2 When to Use MRP Dependent and discrete items Complex products Job shop production Assemble-to-order environments OMGT6743 3 Demand Types Two Types of Demand: Independent Not related to the demand for any other product & must be forecast MPS items are independent demand items Dependent

Directly related to other items or end items Such demand should be calculated should not be forecast OMGT6743 4 MRP Inputs & Outputs Master Production Schedule Product Structure File Material Requirements Planning Inventory Master File

Planned Order Releases Work Orders OMGT6743 Purchase Orders Rescheduling Notices 5 MRP Inputs Master production schedule Product structure file Inventory master file OMGT6743 6

Master Production Schedule Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders & demand forecasts Quantities represent what needs to be produced, not what can be produced OMGT6743 7 Product Structure Tree Clipboard Clip Assembly (10) Top Clip (1) Bottom Clip

(1) Rivet (2) Pivot Spring (1) Level 0 Board (1) Pressboard (1) Level 1 Finish Level 2 (2oz.)

(1) Sheet Metal (8 in2) OMGT6743 Sheet Metal (8 in2) Spring Steel (10 in.) Iron Rod (3 in.) Level 3

8 Indented Bill of Material LEVEL 0----1----2----3--2----3--2----3--2----3-1---1----2---2-OMGT6743 ITEM Unit of Measure Clipboard Ea 1 Clip AssemblyEa 1 Top Clip Ea 1 Sheet Metal In2 8 Bottom Clip Ea 1 Sheet Metal In2 8 Pivot Ea 1 Iron Rod In 3 Spring Ea 1 Spring Steel In 10 Rivet Ea 2

Board Ea 1 Press Board Ea 1 Finish Oz 2 Quantity 9 Specialized BOMS Phantom bills transient subassemblies never stocked immediately consumed in next stage K-bills group small, loose parts under pseudoitem # reduces paperwork OMGT6743 10

Specialized BOMS Modular bills product assembled from major subassemblies & customer options modular bill kept for each major subassembly simplifies forecasting & planning automobile example - 3 x 8 x 3 x 8 x 4 = 2,304 configurations - 3 + 8 + 3 + 8 + 4 = 26 modular bills OMGT6743 11 Inventory Master File Description Inventory Policy Item Board Lead time 2

Item no. 7341 Annual demand 5,000 Item type Manuf. Holding cost 1 Prod/sales Assy Ordering/setup cost 50 Value class B Safety stock 25 Buyer/planner RSR Reorder point 39 Vendor 07142 EOQ 316 Phantom code N Minimum order qty 100 Unit price/cost 1.25 Maximum order qty 500 Pegging Y Multiple order qty 100 OMGT6743

12 Inventory Master File, Cont. Physical Inventory Usage/Sales On hand 100 YTD usage/sales 1,100 Location W142 MTD usage/sales 75 On order 50 YTD receipts 1,200 Allocated 75 MTD receipts 0 Cycle 3 Last receipt 8/25 Difference -2 Last issue 10/5 Codes Cost acct. 00754 Routing 00326 Engr 07142 OMGT6743

13 Inventory Accuracy 1. Maintain orderly stockrooms 2. Control access to stockrooms 3. Establish & enforce procedures for inventory withdrawal 4. Ensure prompt and accurate entry of inventory transactions 5. Take physical inventory count on a regular basis 6. Reconcile inventory discrepancies in a timely manner (use cycle counting) OMGT6743 14 The MRP Matrix ITEM: Lot Size: LLC: LT:

PD 1 2 3 4 5 6 7 8 9 Gross Requirements

Scheduled Receipts Projected On Hand Net Requirements Planned Order Receipts Planned Order Releases OMGT6743 15 Parts Of MRP Matrix Item name or number identifying scheduled item LLC low-level-code; lowest level at which item appears in a product structure Lot size order multiples of this qty; can be min/max qty LT (lead time)-time from order placement to receipt PD (past-due)-orders behind schedule Gross requirements-demand for item by time period OMGT6743 16

Parts Of MRP Matrix Scheduled receipts - quantity already on order & receipt date - released orders become scheduled receipts Projected on hand - expected on-hand inventory at end of period Net requirements - net amount needed after on-hand adjustments Planned order receipts - net requirements adjusted for lot-sizing Planned order releases - planned order receipts offset by lead time OMGT6743 17 MRP Example A LT=3 B (3)

LT=4 Item C (2) LT=2 On Hand Scheduled Receipts Lot Size 10 0 1 B 5

0 1 --- C 140 0 150 --- A period 8 OMGT6743 MPS

100, 18 MRP Matrices For A & B OMGT6743 19 MRP Matrices For C OMGT6743 20 Manufacturing Resource Planning (MRP II) Extension of MRP Plans all resources needed for running a business Usually includes capacity planning, but

Has many different modules OMGT6743 21 MRP II Modules Forecasting Customer order entry Production planning / master production scheduling Product structure / billof-material processor Inventory control OMGT6743 Material requirements planning Capacity planning Shop floor control Purchasing Accounting

Financial analysis 22 Capacity Requirements Planning (CRP) Computerized system that projects loads from the planned order releases of MRP Creates load profile Identifies underloads and overloads OMGT6743 23 MRP II Diagram Business Plan Marketing Plan Financial

Plan Production Plan No Feasible? Yes OMGT6743 more 24 Master production schedule Material requirements planning Feedback

Capacity requirements planning No Feasible? Yes Purchase orders Work orders Inventory Shop floor control Manufacture OMGT6743

MRP II Diagram 25 Problems with MRP Material requirements plan is first; capacity is an afterthought MRP assumes fixed lead times Excessive reporting requirements OMGT6743 26 Using the Material Requirements Plan Computer performs all calculations & creates planned order releases, Computer software can create exception messages & suggest types of action Computer does not (usually) issue purchase or manufacturing orders or reschedule open orders Therefore, a Planner is needed

OMGT6743 27 The Basic Responsibilities of a Planner Launch (release) orders to purchasing or shop floor Reschedule due dates of open (existing) orders as required Reconcile errors & try to find their cause Address critical material shortages by expediting or re-planning Coordinate w/other planners, master production schedulers, production activity control, & purchasing OMGT6743 28 Prospects for MRP/MRP II Coordinates strategy among different functional areas Responds quickly to what-if? questions at various levels

BOM processors, purchase modules, & customer order entry are standard requirements for Manufacturing Information Systems Monitors design & vendor quality, & customer service Builds trust, teamwork, & better decisions Cash-flow planning & profit/cost projections OMGT6743 29 Advanced Planning & Control Systems Enterprise Resource Planning (ERP) updates MRP II with relational DBMS, GUI & client/server architecture; covers entire enterprise Customer Resource Management (CRM) links business planning & mgmt control systems Customer-Oriented Manufacturing Management Systems (COMMS)

unites departments & suppliers around customer multi-plant planning, multiple languages & currencies OMGT6743 30 Hierarchical Planning Process Items Product lines or families Production Planning Capacity Planning Resource level Aggregate Production Plan Resource Requirements Plan

Individual products Master Production Schedule Rough-Cut Capacity Plan Components Material Requirements Plan Capacity Requirements Plan All work centers Shop Floor

Schedule Input/Output Control Individual machines Manufacturing operations OMGT6743 Plants Critical work centers 31 The Alpha Beta Company A LT=3

C (3) LT=4 Item B LT=2 D (2) LT=2 D (3) LT=2 On Hand Scheduled Receipts Lot Size MPS A

10 0 1 100, period 8 B 5 0 1 200, period 6 C 140

0 150 --- D 200 0 250 --- OMGT6743 32 MRP Matrices For A & B

OMGT6743 33 MRP Matrices For C & D OMGT6743 34 Alpha Beta Planned Order Report Period 1 C 2 D 3 D 4 B 5 A Item Quantity

150 250 250 195 90 OMGT6743 35

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