Materials Requirements Planning Chapter 14 William J. Stevenson, 9th ed

Materials Requirements PlanningMaterials Requirements PlanningChapter 14Chapter 14

William J. Stevenson, 9th ed.

Independent and Dependent DemandIndependent and Dependent DemandIndependent Demand

A

B(4) C(2)

D(2) E(1) D(3) F(2)

Dependent Demand

Independent demand is uncertain. Dependent demand is certain.

Dependent 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.

DependDependeent Demandnt Demand

Dependent vs Independent DemandDependent vs Independent Demand

Time

Time Time

Time

Dem

and

Dem

and

Stable demand“Lumpy” demand

Am

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Am

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Safety stock

Material Requirements PlanningMaterial Requirements PlanningDefinedDefined

Materials requirements planning (MRP)) is a computerized inventory planning and control system for determining when (no earlier and no later) and how many of each of the parts, components, and materials should be ordered or produced.

It translates master schedule requirements for end items into time-phased requirements for subassemblies, components and raw materials.

Dependent demand drives MRP

MRP is a software system

When to Use MRPWhen to Use MRP

Dependent and discrete itemsComplex productsJob shop productionAssemble-to-order environments

7

©The McGraw-Hill Companies, Inc., 2004

Firm orders from knowncustomers

Forecastsof demand

from randomcustomers

Aggregateproduction

plan

Bill ofmaterial

file

Engineeringdesign

changes

Inventoryrecord file

Inventorytransactions

Master productionSchedule (MPS)

Primary reportsSecondary reports

Planned order schedule for inventory and production control (work orders, purchase orders), rescheduling notices

Exception reportsPlanning reportsReports for performance control

Materialplanning(MRP

computer program)

MRP Inputs MRP Processing MRP Outputs

Masterschedule

Bill ofmaterials

Inventoryrecords

MRP computerprograms

Changes

Order releases

Planned-orderschedules

Exception reports

Planning reports

Performance-controlreports

Inventorytransaction

Primaryreports

Secondaryreports

MRP SystemMRP System

MRP Inputs 1: MRP Inputs 1: Master Production ScheduleMaster Production Schedule

Drives MRP process with a schedule of finished products; states which end items are to be produced, when these are needed, and in what quantities

Quantities may consist of a combination of customer orders & demand forecasts

Quantities represent what needs to be produced, not what can be produced

Master Production Schedule (MPS)Master Production Schedule (MPS)

Time-phased plan specifying how many and when the firm plans to build each end item

Aggregate PlanAggregate Plan(Product Groups)(Product Groups)Aggregate PlanAggregate Plan

(Product Groups)(Product Groups)

MPSMPS(Specific End Items)(Specific End Items)

Master Production ScheduleMaster Production Schedule

Item / Week Oct 3 Oct. 10 Oct. 17 Oct.24 Oct. 31Clipboard 85 95 120 100 100Lapdesk 0 50 0 50 0Lapboard 75 120 47 20 17Pencil Case 125 125 125 125 125

Shows items to be producedDerived from aggregate plan

Example:

MRP Inputs 2: MRP Inputs 2: Bill-of-MaterialsBill-of-Materials

Bill of materials (BOM): One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.

Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.

Product Structure TreeProduct Structure Tree: Example 1: Example 1Chair

Seat

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)

LegAssembly

BackAssembly

Level 0

1

2

3

MRP Inputs 3: MRP Inputs 3: Inventory RecordsInventory Records File File

One of the three primary inputs of MRPIncludes information on the inventory status of

each item by time periodGross requirementsScheduled receiptsAmount on handLead timesLot sizesAnd more....

MRP MRP Terminology (1 of 3)Terminology (1 of 3)

Gross requirementsScheduled receiptsProjected on handNet requirementsPlanned-order receiptsPlanned-order releases

MPR MPR Terminology (2 of 3)Terminology (2 of 3)

Gross requirements

Total expected demand

Scheduled receipts

Open orders scheduled to arrive

Projected on hand

Expected inventory on hand at the beginning of each time period

MRMRPP Processing Processing Terminology (3 of 3) Terminology (3 of 3)Net requirements

Actual amount needed in each time period

Gross requirements – available inventory

Planned-order receipts

Quantity expected to be received at the beginning of the period

Offset by lead time

Planned-order releases

Planned amount to be ordered in each time period

MRP Processing Logic: MRP Processing Logic: Assembly Time ChartAssembly Time Chart

1 2 3 4 5 6 7 8 9 10 11

Procurement ofraw material D

Procurement ofraw material F

Procurement ofpart C

Procurement ofpart H

Procurement ofraw material I

Fabricationof part G

Fabricationof part E

Subassembly A

Subassembly B

Final assemblyand inspection

WeeksWeeks

Calculation of Gross RequirementsCalculation of Gross Requirements

Therefore, these are the gross

requirements for B

Periods

10 101 2 3

Master schedule for S sold directly

40 50 15

A

CB

5 6 7 8 9 10 11

Lead time = 4 for AMaster schedule for A

40 20 30

S

B C

8 9 10 1211 13

Lead time = 6 for SMaster schedule for S

10 40+10 = 50 40 50 20 15+30

= 45

1 2 3 4 5 6 7 8Periods

Gross requirements: B

Basic MRP ProcessesBasic MRP Processes

1. Exploding the bill of material2. Netting out inventory3. Lot sizing4. Time-phasing requirements

The MRP MatrixThe MRP Matrix

Gross Requirements Derived from MPS or planned order releases of the

parentScheduled Receipts On order and scheduled to

be receivedProjected on Hand Beg Inv Anticipated quantity on hand

at the end of the periodNet Requirements Gross requirements net of

inventory and scheduled receipts

Planned Order Receipts

When orders need to be received

Planned Order Releases

When orders need to be placed to be received on time

ITEM NAME OR NO. LLC - LOW LEVEL CODE PERIODLOT SIZE QTY MADE IN LY - LEAD TIME 1 2 3 4 5

MRP Processing:MRP Processing:Example 1-Example 1-School Mate ProductsSchool Mate Products

Master Production Schedule

1 2 3 4 5

Clipboard 85 95 120 100 100Lapdesk 0 60 0 60 0

Item Master File (ınventory record file

CLIPBOARD LAPDESK PRESSBOARDOn hand 25 20 150On order 175 (Period 1) 0 0 (sch receipt)LLC 0 0 1Lot size L4L Mult 50 Min 100Lead time 1 1 1

School Mate ProductsSchool Mate ProductsProduct Structure RecordProduct Structure Record

Clipboard

Lapdesk

Pressboard(2)

Trim(3’)

Beanbag(1)

Glue(4 oz)

Level 0Level 0

Level 0Level 0

Pressboard(1)

Clip Ass’y(1)

Rivets(2) Level 1Level 1

Level 1Level 1

School Mate ProductsSchool Mate Products

ITEM: CLIPBOARD LLC: 0 PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100

Scheduled Receipts 175

Projected on Hand 25

Net Requirements





LOT SIZE: L4L LT: 1 1 2 3 4 5



Projected on Hand 25 115

Net Requirements 0



(25 + 175) = 200 units available(200 - 85) = 115 on hand at the end of Period 1



LOT SIZE: L4L LT: 1 1 2 3 4 5



Projected on Hand 25 115 20

Net Requirements 0 0



115 units available(115 - 85) = 20 on hand at the end of Period 2



LOT SIZE: L4L LT: 1 1 2 3 4 5



Projected on Hand 25 115 20 0

Net Requirements 0 0 100

Planned Order Receipts 100

Planned Order Releases 100

20 units available(20 - 120) = -100 — 100 additional Clipboards are requiredOrder must be placed in Period 2 to be received in Period 3



LOT SIZE: L4L LT: 1 1 2 3 4 5



Projected on Hand 25 115 20 0 0 0

Net Requirements 0 0 100 100 100

Planned Order Receipts 100 100 100

Planned Order Releases 100 100 100

Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases


ITEM: LAPDESK LLC: 0 PERIOD

LOT SIZE: MULT 50 LT: 1 1 2 3 4 5


Scheduled Receipts

Projected on Hand 20

Net Requirements





LOT SIZE: MULT 50 LT: 1 1 2 3 4 5


Scheduled Receipts

Projected on Hand 20 20 10 10 0 0

Net Requirements 0 40 50

Planned Order Receipts 50 50

Planned Order Releases 50 50

Following the same logic, the Lapdesk MRP matrix is completed as shown


ITEM: PRESSBOARD LLC: 0 PERIOD

LOT SIZE: MIN 100 LT: 1 1 2 3 4 5Gross RequirementsScheduled ReceiptsProjected on Hand 150Net RequirementsPlanned Order ReceiptsPlanned Order Releases


LOT SIZE: L4L LT: 1 1 2 3 4 5



LOT SIZE: MULT 50 LT: 1 1 2 3 4 5




LOT SIZE: MIN 100 LT: 1 1 2 3 4 5Gross Requirements 100 100 200 100 0Scheduled ReceiptsProjected on Hand 150Net RequirementsPlanned Order ReceiptsPlanned Order Releases


LOT SIZE: L4L LT: 1 1 2 3 4 5



LOT SIZE: MULT 50 LT: 1 1 2 3 4 5


x2x2 x2x2

x1x1 x1x1x1x1



LOT SIZE: MIN 100 LT: 1 1 2 3 4 5Gross Requirements 100 100 200 100 0Scheduled ReceiptsProjected on Hand 150 50 50 0 0 0Net Requirements 50 150 100Planned Order Receipts 100 150 100Planned Order Releases 100 150 100


LOT SIZE: L4L LT: 1 1 2 3 4 5



LOT SIZE: MULT 50 LT: 1 1 2 3 4 5



Planned Order Report

PERIOD

ITEM 1 2 3 4 5

Clipboard 100 100 100

Lapdesk 50 50

Pressboard 100 150 100

MRP MRP Processing:Processing: ExampleExample 2 2

A(2) B(1)

D(5)C(2)

X

C(3)

Item On-Hand Lead Time (Weeks)X 50 2A 75 3B 25 1C 10 2D 20 2

Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

A(2)

X

Day: 1 2 3 4 5 6 7 8 9 10X Gross requirements 95

LT=2 Scheduled receipts Proj. avail. balance 50 50 50 50 50 50 50 50 50 50

On- Net requirements 45hand Planned order receipt 4550 Planner order release 45A Gross requirements 90

LT=3 Scheduled receipts Proj. avail. balance 75 75 75 75 75 75 75 75

On- Net requirements 15 hand Planned order receipt 15 75 Planner order release 15 B Gross requirements 45


On- Net requirements 20 hand Planned order receipt 20 25 Planner order release 20 C Gross requirements 45 40

LT=2 Scheduled receipts Proj. avail. balance 10 10 10 10 10

On- Net requirements 35 40 hand Planned order receipt 35 40 10 Planner order release 35 40 D Gross requirements 100

LT=2 Scheduled receipts Proj. avail. balance 20 20 20 20 20 20 20

On- Net requirements 80 hand Planned order receipt 80 20 Planner order release 80

It takes 2 A’s for each X

It takes 2 A’s for each X












B(1)A(2)

X

It takes 1 B for each X

It takes 1 B for each X

A(2) B(1)

X

C(3)












It takes 3 C’s for each A

It takes 3 C’s for each A

A(2) B(1)

C(2)

X

C(3)












It takes 2 C’s for each B

It takes 2 C’s for each B

A(2) B(1)

D(5)C(2)

X

C(3)












It takes 5 D’s for each B

It takes 5 D’s for each B

MRP OutputsMRP Outputs Planned orders (schedule indicating the amount and

timing of orders)Work ordersPurchase orders

Order releases (authorization for the execution of planned orders)

Changes to previous plans or existing schedules (revision of due dates or order quantities, or cancellations of orders)

Action noticesRescheduling notices

Updating the Updating the MRP MRP SystemSystem

Regenerative system

Updates MRP records periodically

Net-change system

Updates MPR records continuously

MRP Secondary ReportsMRP Secondary Reports

Performance-control reports

Planning reports

Exception reports

Other ConsiderationsOther ConsiderationsSafety StockLot sizing

Lot-for-lot ordering (L4L)Economic order quantityPart Period BalancingWagner-Whitin algorithm& others

Which one to use? The one that is least costlyWhich one to use? The one that is least costly!

Can be used when demand for service or service items is directly related to or derived from demand for other services

Food catering service

End item => catered food

Dependent demand => ingredients for each recipe, i.e. bill of materials

Hotel renovation

Activities and materials “exploded” into component parts for cost estimation and scheduling

MRP in ServicesMRP in Services

Benefits of MRPBenefits of MRPReduced inventories without reduced customer service

Ability to track material requirements

Ability to evaluate capacity requirements

Means of allocating production time

Increased customer satisfaction due to meeting delivery schedules

Faster response to market changes

Improved labor and equipment utilization.

Better inventory planning and scheduling

Requirements of MRPRequirements of MRP

Computer system and necessary softwareMainly discrete productsStable lead timesAccurate and up-to-date

Master schedulesBills of materialsInventory status records

Integrity of data

Extensions of MRP Extensions of MRP

Extensions of MRPExtensions of MRP

Closed loop MRPCapacity planning - load reportsMRP II - Manufacturing Resources PlanningEnterprise Resources Planning

Forecast &Firm Orders

MaterialRequirements

Planning

AggregateProductionPlanning

ResourceAvailability

MasterProductionScheduling

ShopFloor

Schedules

CapacityRequirements

PlanningRealistic?

No, modify MPS

Yes

MRP and The Production Planning MRP and The Production Planning ProcessProcess

Closed Loop MRPClosed Loop MRP

Expanded MRP with emphasis placed on integration of:Financial planningMarketingEngineeringPurchasingManufacturingHuman resources

Manufacturing Resources Planning- Manufacturing Resources Planning- MRP MRP IIII

Manufacturing ResourceManufacturing Resourcess Planning Planning (MRP II)(MRP II)

Goal: Plan and monitor all resources of a manufacturing firm (closed loop):manufacturingmarketingfinanceengineering

Simulate the manufacturing system

MarketMarketDemandDemand

ProductionProductionplanplan

Problems?Problems?

Rough-cutRough-cutcapacity planningcapacity planning

YesYes NoNo YesYesNoNo

FinanceFinance

MarketingMarketing

ManufacturingManufacturing

AdjustAdjustproduction planproduction plan

MasterMasterproduction scheduleproduction schedule

MRPMRP

CapacityCapacity req. req.planningplanning

Problems?Problems?RequirementsRequirements

schedulesschedules

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ule

MRP IIMRP II

Enterprise Resource Planning (ERP)Enterprise Resource Planning (ERP)The next step in the evolution that began with MRP

and evolved into MRP II

ERP system is a computer system that integrates application programs in accounting, sales, manufacturing, human resources and other functions in the firm.

ERP provides a system to capture and make data available in real time do decision makers and other users in the organization

MRP II with ties to customers and suppliers (connects with supply-chain and customer management applications)

Integrates financial, manufacturing and human resources on a single computer system.

Provides tools for planning and monitoring various business processes

ERPERP

Enterprise Resource Planning (ERP)Enterprise Resource Planning (ERP)

Attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments’ particular needs

Organizes and manages a company’s business processes by sharing information across functional areas

Standardized record-keeping permit information sharing and communication throughout the organization

Enterprise Resource PlanningEnterprise Resource Planning - ERP - ERP

Such an integration is accomplished through a database shared by all the application programs

ERPERP

ERP allows companies to:1. Automate and integrate many of their business

processes2. Share a common database and business

practices throughout the enterprise3. Produce information in real time

ERP systems also include:1. Supply Chain Management software and2. Customer Relationship Management software

ERP ModulesERP Modules

ERP’s Central DatabaseERP’s Central Database

Finance & Accounting

Sales &

Marketing

Human Resources

Production & Materials

ManagementERP Data

Repository

ERP Strategy ConsiderationsERP Strategy Considerations

High initial costHigh cost to maintainFuture upgradesTraining

Documents

Materials Requirements Planning Chapter 14 William J. Stevenson, 9th ed