Production and Operations Management: Manufacturing and Services

Production and Operations Management: Manufacturing and Services

CHAPTER 18 Materials Requirements Planning Learning Objectives 1. 2. 3. 4. Describe what MRP is and where it is best applied. Understand the source of the information used by the system. Demonstrate how to do an MRP explosion. Explain how order quantities are calculated in MRP systems. Aggregate product plan Firm orders from known customers Engineering design changes Master production Schedule (MPS) Bill of material file Primary reports Planned order schedule for inventory and production control Material planning (MRP

computer program) Forecasts of demand from random customers Inventory transactions Inventory record file Secondary reports Exception reports Planning reports Reports for performance control Master Production Schedule (MPS) Time-phased plan specifying how many and when the firm plans to build each end item Aggregate Aggregate Plan Plan (Product (Product Groups) Groups) MPS (Specific End Items) The Aggregate Plan and the Master Production Schedule for Mattresses LO 2 Master production schedule (MPS): the time-phased plan specifying how many and when the firm plans to build each end item Time Fences

Frozen: anything from no changes to only minor changes Moderately firm: allow changes so long as parts are available Flexible: allow almost any variations LO 2 Demand for Products Customers who have placed specific orders 1. Generated by sales personnel Orders carry promised delivery dates No forecasting of these orders Forecasted demand 2. Normal independent-demand sales Demand for parts and components 3. LO 2 Spares and repair Bill of Materials Bill of materials (BOM): contains the complete product description, listing the materials, parts, and components along with the sequence in which the product is created

One of the three main inputs to the MRP program Often called the product structure file or product tree because it shows how a product is put together LO 2 Bill of Materials (Product Structure Tree) for Product A LO 2 Level Coding of Bills of Materials LO 2 Inventory Records File Each inventory item carried as a separate file Status according to time buckets Pegging Identify each parent item that created demand MRP Explosion Process The requirements for end items are retrieved from the master schedule 1. 2. 3.

LO 3 These are referred to as gross requirements by the MRP program Uses on-hand balance with schedule of orders to calculate the net requirements Using net requirements, it calculates when orders should be received to meet these requirements Additional MRP Scheduling Terminology Gross Requirements Scheduled Projected Net receipts available balance requirements Planned order receipt Planned order release Primary MRP Reports Planned orders to be released at a future time Order release notices to execute the planned orders Changes in due dates of open orders due

to rescheduling Cancellations or suspensions of open orders due to cancellation or suspension of orders on the master production schedule Inventory status data Secondary MRP Reports Planning reports, for example, forecasting inventory requirements over a period of time Performance reports used to determine agreement between actual and programmed usage and costs Exception reports used to point out serious discrepancies, such as late or overdue orders Lot Sizing in MRP Systems Determination of lot sizes in an MRP system is a complicated and difficult problem Lot sizes: the part quantities issued in the planned order receipt and planned order release sections of an MRP schedule Will look at four 1. 2. 3. 4. LO 4 Lot-for-lot (L4L) Economic order quantity (EOQ) Least total cost (LTC) Least unit cost (LUC) Lot-for-Lot Sets

planned orders to exactly match the net requirements Produces exactly what is needed each week with none carried over into future periods Minimizes carrying cost Does not take into account setup costs or capacity limitations. LO 4 Economic Order Quantity Calculate reorder quantity based on EOQ EOQ was not designed for a system with discrete time periods such as MRP The lot sizes generated by EOQ do not always cover the entire number of periods LO 4 Least Total Cost Least total cost method (LTC): a dynamic lot-sizing technique that calculates the order quantity by comparing the carrying cost and the setup costs for various lot sizes and then selects the lot in which these are most nearly equal Influenced by the length of the planning horizon LO 4 Least Unit Cost Least unit cost method: a dynamic lot-sizing technique that adds ordering and inventory carrying cost for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost LO 4

MRP Example Item X A B C D X A(2) C(3) B(1) C(2) On-Hand Lead Time (Weeks) 50 2 75 3 25 1 10 2 20 2 D(5) Requirements Requirementsinclude include95 95units units(80 (80firm firmorders ordersand and15 15forecast) forecast)of ofXX in inweek week10 10 Day:

X A(2) ItIttakes takes 22As As for foreach each XX X LT=2 Onhand 50 A LT=3 Onhand 75 B LT=1 Onhand 25 C LT=2 Onhand 10 D LT=2 Onhand 20 Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements

Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release 1 2 3 4 5 6 7 8 9 10 95 50 50 50 50 50 50

50 50 50 50 45 45 45 90 75 75 75 75 75 75 75 75 15 15 15 45 25 25 25 25 25 25 20 40 45 10 10 10

10 35 25 10 35 35 40 40 40 100 20 20 20 20 20 80 20 20 80 80 25 20 20 Day: X LT=2 X A(2) B(1) ItIttakes takes

11BBfor for each eachXX Onhand 50 A LT=3 Onhand 75 B LT=1 Onhand 25 C LT=2 Onhand 10 D LT=2 Onhand 20 Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release

Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release 1 2 3 4 5 6 7 8 9 10 95 50 50 50 50 50 50 50 50 50 50 45 45

45 90 75 75 75 75 75 75 75 75 15 15 15 45 25 25 25 25 25 25 20 40 45 10 10 10 10 35 25 10 35 35 40

40 40 100 20 20 20 20 20 80 20 20 80 80 25 20 20 Day: X LT=2 X A(2) C(3) ItIttakes takes33 Cs Csfor for each eachAA B(1) Onhand 50 A

LT=3 Onhand 75 B LT=1 Onhand 25 C LT=2 Onhand 10 D LT=2 Onhand 20 Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release 1

2 3 4 5 6 7 8 9 10 95 50 50 50 50 50 50 50 50 50 50 45 45 45 90 75 75 75 75

75 75 75 75 15 15 15 45 25 25 25 25 25 25 20 40 45 10 10 10 10 35 25 10 35 35 40 40 40 100 20 20 20

20 20 80 20 20 80 80 25 20 20 Day: X LT=2 X A(2) C(3) B(1) C(2) ItIttakes takes22 Cs Csfor for each eachBB Onhand 50 A LT=3 Onhand 75 B LT=1 Onhand

25 C LT=2 Onhand 10 D LT=2 Onhand 20 Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release 1 2 3 4

5 6 7 8 9 10 95 50 50 50 50 50 50 50 50 50 50 45 45 45 90 75 75 75 75 75 75 75

75 15 15 15 45 25 25 25 25 25 25 20 40 45 10 10 10 10 35 25 10 35 35 40 40 40 100 20 20 20 20 20 80

20 20 80 80 25 20 20 Day: X LT=2 X A(2) C(3) B(1) C(2) ItIttakes takes55 Ds Dsfor for each eachBB D(5) Onhand 50 A LT=3 Onhand 75 B LT=1 Onhand 25 C LT=2 Onhand

10 D LT=2 Onhand 20 Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release Gross requirements Scheduled receipts Proj. avail. balance Net requirements Planned order receipt Planner order release 1 2 3 4 5 6

7 8 9 10 95 50 50 50 50 50 50 50 50 50 50 45 45 45 90 75 75 75 75 75 75 75 75 15 15

15 45 25 25 25 25 25 25 20 40 45 10 10 10 10 35 25 10 35 35 40 40 40 100 20 20 20 20 20 80 20 20

80 80 25 20 20 Closed Loop MRP Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning No Feedback Realistic? Yes Execute: Capacity Plans Material Plans Feedback Any Questions?

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