1 OPERATIONS MANAGEMENT for MBAs Second Edition Prepared by Scott M. Shafer Wake Forest University Meredith and Shafer John Wiley and Sons, Inc

1

OPERATIONS MANAGEMENTfor MBAs Second Edition

Prepared by

Scott M. Shafer

Wake Forest University

Meredith and Shafer

John Wiley and Sons, Inc.

2

Chapter 10

Materials Requirements Planning

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Introduction

Chapter 10: Materials Requirements Planning

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Courtaulds Films Produces plastic films used to package food Plants operated 24 hours/day 7 days/week Uses 60 types of raw materials to produce 40

types of film and offers 12,5000 make-to-order products

At end of 1980s, 25% of deliveries were shipped late because production planning and scheduling system unable to handle the complexity


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Courtaulds Films continued

Visited the Formica Company to learn about MRP II

By 1990s Courtaulds implemented its own MRP II system

Became class A user Employees now take pride in their excellent

on-time performance

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Recording for the Blind & Dyslexic (RFB&D) Loans textbooks in recorded or computerized

format When RFB&D moved to new facility, took

opportunity to design and implement a new integrated production system

With limited resources needed to satisfy increasing demand

Fast response was also critical Space limited amount of inventory


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Recording for the Blind & Dyslexic (RFB&D) continued Goal: achieve lead time of no more than 2

working days for at least 95% of all requests

To achieve this, would need to increase performance from 333 books per day by 28%

To help achieve goal, RFB&D implemented a resource requirements planning system

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MRP for Dependent Demand


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Background Independent Demand

– automobiles, televisions, cartons of ice cream

– demand often occurs at constant rate

Dependent Demand– most raw materials, components, and subassemblies

– demand often occurs in lumps

Materials Requirements Planning (MRP)– designed when lumps in demand are known about

before hand


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Constant and Lumpy Demands


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Relationship Between Finished Item Inventory and Raw Material/Subassembly Item Inventory (ROP)

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Relationship Between Finished Item Inventory and Raw Material/Subassembly Item Inventory (MRP)


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The Boardsports Company

Component Lead TimeSidewalk Special 1 weekFiberglass board 3 weeksWheel assembly 1 weekWheel mount stand 4 weeksWheel 1 weekLocknut 1 weekSpindle 2 weeks


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Skateboard Product Tree


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Material Requirements of Sidewalk SpecialFiberglass boards: 1 number of specials

Wheel assemblies: 2 number of specials

Wheels: 2 number of wheel assemblies

Spindles: 1 number of wheel assemblies

Locknut: 2 number of wheel assemblies

Wheel mount stand: 1 number of wheel assemblies


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Material Required to Produce 50 Sidewalk SpecialsFiberglass boards: 1 number of specials = 1 50 = 50

Wheel assemblies: 2 number of specials = 2 50 = 100

Wheels: 2 number of wheel assemblies = 2 100 = 200

Spindles: 1 number of wheel assemblies = 1 100 = 100

Locknut: 2 number of wheel assemblies = 2 100 = 200

Wheel mount stand:

1 number of wheel assemblies = 1 100 = 100


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Delivery 50 Sidewalk Specials in Week 10

1 2 3 4 5 6 7 8 9 10Sidewalk Specials 50

Date needed 50Boards Order date 50

Date needed 100Wheel assembly Order date 100

Date needed 200Wheels Order date 200

Date needed 100Spindles Order date 100

Date needed 100Mounting stands Order date 100

Date needed 200Locknuts Order date 200

Week

3 week lead time


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Time-Scaled Assembly Chart for Skateboard

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The Mechanics of MRP


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Primary Inputs to MRP System

Master Production Schedule Bill of Materials File Inventory Master File


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Schematic of MRP System


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Master Production Schedule

Based on actual customer orders and predicted demand

Indicates when each ordered item will be produced


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Bill of Materials (BOM)

Indicates all the raw materials, components, subassemblies, and assemblies required to produce an item

Shows way a finished product or parent item is put together from individual components

Parent item shown at highest level or level zero


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Bill of Materials continued

Parts that go into parent item are called level 1 components and so on

Production planners explode BOM for level zero item to determine the number, due dates, and order dates of subcomponents


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Product Structure Tree


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Inventory Master File Detailed information regarding the quantity of

each item, on hand, on order committed to use in various time periods

MRP system using inventory master file to determine the quantity available for use in a given period

If sufficient items not available, the system includes the item on the planned order release report


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Low-Level Coding

Original product tree structure

Low-level-coded product tree structure


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MRP System Outputs

Order Action Report– which orders are to be released and canceled

during the current time period

Open Orders Report– which orders to expedite or deexpedite

Planned Order Release Report– time-phased plan for orders to be released in

future time periods


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MRP Computations

Process all items in BOM level-by-level– For each item at a level

• determine time phased gross requirements

• subtract on-hand and on-order amounts from gross requirements to determine net requirements

• apply lot-sizing rule to determine lot size

• offset the order release for lead time yielding time-phased planned order releases


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MRP Computations continued

Net requirements for planning period = gross requirements

for planning period - planned on hand at planning period

Planned on hand at planning period = current on hand +

scheduled receipts prior to planning period - scheduled

requirements prior to planning period


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MRP Computations continued

Zero-LevelWeek 1 2 3 4 5 6 7 8 9 10 11 12

Gross requirements 50 150 50 100 100On hand 400 400 400 350 350 350 200 200 200 150 50 50 50Net requirements -- -- -- -- -- -- -- -- -- -- -- 50Planned order receipts 50Planned order releases 50Lead time = 3 weeks

Level 1Week 1 2 3 4 5 6 7 8 9 10 11 12

Gross requirements 50 200On hand 50 50 50 100 100 100 100 100 100 100 50 100Net requirements 150Planned order receipts 50Planned order releases 250Lead time = 4 weeks

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MRP Extensions


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Capacity Requirements Planning

Capacity Using Overall Factors– production standards used to convert MPS into

loads on each work center– loads assumed to fall in same period as finished

goods in MPS

Bills of Capacity– same as capacity using overall factors but instead

of using historical ratios, uses the BOM and routing sheets


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Capacity Requirements Planning continued Resource Profiles

– same as bills of capacity except lead times included so workloads fall in the correct period

Capacity Requirements Planning– uses all preceding information plus MRP outputs to

take existing inventories and lot sizing into consideration

– also considers partially completed work, demands for service parts, and scrap adjustments


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Work Center Load Profiles


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Typical MRP II System and its Modules


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Enterprise Resource Planning (ERP) MRP II extends MRP systems to share

information with other functional areas Key component of MRP II is storing operational

information centrally ERP systems seek to integrate all business

activities and processes throughout the organization

Goal is to provide real-time information to all employees that need it


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Typical ERP System

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1 OPERATIONS MANAGEMENT for MBAs Second Edition Prepared by Scott M. Shafer Wake Forest University Meredith and Shafer John Wiley and Sons, Inc