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MRP

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Question: how do firms actually organize things

to turn materials into finished products?

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Master Production Schedule (MPS)

Time-phased plan specifying how many and

when the firm plans to build each end item

Aggregate Plan

(Product Groups)

MPS

(Specific End Items)

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MPS ExampleMaine Woods Toy Co.

41 42 43 44 45 46 47 48 49 50 51 52

Tricycle 300 300 300 300 300 300 300 300 250 250 250 250Wagon 300 300 300 300 250 250

Scooter 300 300 300 300 250 250

Totals 2,000

Week

Produc

t

2,400 2,400

October November DecemberMonth

One possible MPS

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Products are combinations of parts

Example: Bicycle

Handle bars (1)

Metal Frame (1)

Wheels (2)

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Dependent vs Independent Demand

Dependent Demand

Demand for a

component (raw

material, part, sub-assembly) is dependent

on the demand for the

end-item into which the

component goes. demand often occurs in

batches

Independent Demand

Demand for an item is

independent of the demand

for other items. Thesedemands are typically

determined by outside

customers and are end-item

demands

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Bill of Materials (BOM)

Shows all the assemblies, subassemblies, components,

and raw materials 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

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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Lets look at an example BOM...

A

B(2) C(1)

D(3) E(3) D(1)

Question:

How many Ds we need in

order to produce 50 As?

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Schematic of MRP System

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Material Requirements Planning (MRP)

Computer-based information system that

schedules and orders dependent-demand

inventory components;

Uses the master production schedule, bills of

materials, and inventory records as inputs;

Outputs recommendations:

When to release new orders

When to reschedule open orders.

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A

B(2) C(1)

D(3) E(3) D(1)

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How do we manage order release?

Parts-Product Process Lead TimeA 10

B 15

C 10D 15

E 10

We need information on delivery times!

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A

B(2) C(1)

D(3) E(3) D(1)

Question:

When do we start

producing/ordering eachpart?

(10)

(15) (10)

(10)

(15)

(15)

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Lets assume that we need 50 units of A

Parts-Products

A

B

C

D

E

Delivery date

for final

product

5 days

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Parts-Products

A

B

C

D

E

Start

assembly for

50 units of A

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Parts-Products

A

B

C

D

E

Start

assembly for

100 units of B

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Parts-Products

A

B

C

D

E

Start

assembly for

50 units of C

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Parts-Products

A

B

C

D

E

Order 300

units of D for

Bs process

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Parts-Products

A

B

C

D

E

Order 50

units of D for

Cs assembly

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Parts-Products

A

B

C

D

E

Order 50

units of E for

Cs assembly

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Customer

Assembly

Assembly

Production

Production

Production

Units are PUSHED forward according to the plan!

Summary: How does MRP work?

Material Requirements Planning

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Customer

Assembly

Assembly

Production

Production

Production

Units are PULLED forward only when needed!

What about JIT/Lean Production?

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Forecast

HamburgerPatties

Chicken

Patties

Cheeseburger

Hamburger

Chicken

Sandwich

Push/Pull Decoupling Point


Units are PUSHED forward to a certain point. Final

configuration (PULL) occurs only when the actual

customer demand occurs.

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Lot Sizing in MRP Systems

Lot-for-lot (L4L):

Produce to cover next period

EOQ:

Apply the EOQ approximation for yearly demand

Least Unit Cost:

Minimize total cost (order + carry) per unit

These are all approximate methods, none is guaranteed to be

optimal. We can apply all of them and find the least-cost one

to implement.

MRP generates material orders

Order sizes/lots can be chosen according to various objectives

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Example

Cost per item: $10Order/setup cost: $47

Inventory carrying cost/month 2%

Starting inventory: 50

Production lead time 1 month

Monthly requirements1 2 3 4 5 6

100 50 80 120 70 80

For the solution, see file mrp_methods.pdf

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MRP Evolution

MRP

Closed Loop

MRP

MRP II

ERP

Schedule Materials

Schedule Materials

Incorporate Feedback

Schedule & Purchase Materials

Coordinate w/ Mfg Resources

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Closed-Loop MRP

Production Planning

Master Production Scheduling


Capacity Requirements Planning

Realistic?No

Feedback

Execute:

Capacity Plans

Material Plans

Yes

Feedback

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Goal: Plan and monitor all resources of amanufacturing firm (closed loop):

manufacturing marketing

finance

engineering

Simulate the manufacturing system

Manufacturing Resource Planning

(MRP II)

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Typical ERP System

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Video: ERP at Hillerich & Bradsby

Notes:

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Major ERP Providers

Firm HQ Acquisitions 2004 Shareof $23.6B

Market

SAP Germany 40%

Oracle US People Soft

JD Edwards22%

Sage Group UK 7%

Microsoft US 3%

Infor US SSA

Baan

Source: AMR Research

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Desire to standardize and improveprocesses

To improve the level of systemsintegration

To improve information quality

Reasons to Implement ERP

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Summary and Conclusions

Master Production Schedule (MPS)converts aggregate plan to a detailedschedule

Primary inputs to MRP are MPS, BOMs

(for part relationships) and InventoryRecords (for lead times and inventoryposition)

MRP is a push system but can be used inconjunction with pull systems

MRP grew and evolved to include closed-loop, Manufacturing Resource PlanningMRP II d t ll ERP

Documents

Mrp Fall08