Session 6, 7 MRP

8/14/2019 Session 6, 7 MRP

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8/14/2019 Session 6, 7 MRP


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Managing production system includes

materials management, sourcing, follow up,

controlling productivityComplexities of producing numerous

different products can cause

confusion, inefficiencies & inferior

customer service

MATERIAL REQUIREMENT PLANNING

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To control such an environment, timely

and accurate information is required

MRP system can provide this vital info


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Managers using reactive systems

ask, “What should I do now?”

Managers using planning

systems ask, “What will I need in

the future? How much and

when ?”


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simple to manage

high inventory cost OR ordering cost

unreliable delivery performance

Reactive systems

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complex to manage

reduced inventory cost (it carries only those

items & components that are needed – no

more/no less)

Reduces order processing delays => reduced LT=> better deliveries => better customer service

accurate information required

Planning system

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requires a lot of discipline

Commitment by scheduler, supervisor, managers,

etc.

Planning system

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It is the degree to which demand of an item is

dependent on demand for another item

E.g. demand for tea/coffee will determine the

quantity of sugar/milk, etc. required

MRP obviates the need of large safety stocks for

dependent demand items

Demand Dependency

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It is a software based production, planning and

inventory control system used to manage the

manufacturing processIt generates time-phased materials requirements

for production operations (provides due dates for

components)

MRP : a scheduling & ordering system

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Operations Planning & Scheduling System

Aggregate outputplanning

Master production

scheduling

Material requirementsplanning

Loading

Sequencing

DetailedScheduling

Expediting

Aggregate capacityplanning

Rough-cut capacity

planning

Detailed capacityplanning

Short-termcapacity control

Operations

Output planning Capacity planning

Shopfloor control

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MRP enables to estimate dept.-wise

capacity requirement

Operations Planning & Scheduling System

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Inventory reduction – how much of what and

when? No extra inventory

Reduction in production & delivery LT – prioritiesproduction activities. Ensures smooth production

due to efficient inventory management

MRP : Objective & Methods

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Realistic commitments – WYSIWYG – better

customer satisfaction. New orders are added to the

system and revised total load plan is generated and

given to production manager.

Increased efficiency – MRP ensures close

coordination among various departments as

products progress through them. Fewer unplanned

interruptions, better production efficiency.

MRP : Objective & Methods

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Main sources of information (input) are:

1. Master Production Schedule

2. Inventory Status File3. BOM

4. Purchase orders outstanding5. Lead times

MRP : System Components

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3 kinds of information

1. Order release requirements (orders to

be released now)

2. Order re-scheduling (expedite, de-

expedite, cancel open orders)

3. Planned orders (future)

MRP provides……

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MRP system

Masterproductionschedule (MPS)

BOM fileInventorystatus file

MRPprocessing

logic

Plannedorders

(future)

Order releaserequirements (ordersto be released now)

Orders rescheduling(expedite, de-expedite,

cancel open orders)

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Initially developed from (a) existing orders OR

(b) demand forecast

MPS provides input to MRP system

MPS includes replacement (service) components

for customers

MPS ultimately governs MRP on sourcing plan &

producing sub-components, to meet deliveries

MPS (master production schedule)

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It contains the following:

identification number,

quantity on hand,

safety stock level,

quantity disbursed and

sourcing LT for every item

Inventory Status File

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Identifies manufacturing process (sequence of

build up)

Identifies quantities of finished unit & thedepartments performing the build up sequence

*Primary info to MRP from BOM is the product

structure

BOM

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Product structures for 2 assembled products

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Product structures for 2 assembled products

A&D are upper level end items Components are lower-level items Each item is given unique identification number MRP schedules & time-phases the orders for lower

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MRP processing logic

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It accepts the Master Production Schedule

Determines components schedules

Calculates for each item in each product for each

time period (normally 1 week) in the planning

horizon

How much is required Vs. how much is already

available in-house


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Data processing determines the overall

requirements to meet deliveries


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Bicycle components

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The report clearly identifies the sourcing actions required for on-scheduleproduction

Can notify the suppliers in advanceWeekly updating – expedite , de-expedite , cancel

**Information system is valuable when thousands of sub-components mustbe coordinated among numerous suppliers & work centers

Management info from MRP

MRP report for one item

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1. Allocated quantity : in-house quantity but alreadyallocated to some other order

2. Gross requirements : ‘overall quantity needed’ to

meet planned output levels. *Planned output for end

items come from MIS . *Planned output for

components come from MRP

3. Scheduled receipts : quantity that will be received at

the start of time period against previously placed

orders

Terminology of MRP

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4. Available quantity : quantity expected to be availableat the end of a time period for production in

subsequent periods

Terminology of MRP

• Available qty = qty available from the previous period +

schedule receipts + planned order receipts - grossrequirement

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5. Net requirements : net quantity to be acquired to

meet production requirements for the period

6. Planned order receipts – quantity that is planned to

be ordered for receiving at the start of the period.

The order has not yet been placed

Terminology of MRP

net requirements = gross requirement – scheduled receipts –

qty. available from previous period

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7. Planned order release : it’s a release that shows

the order plan of items vis-à-vis time period.

What, how much & when. When this order is

released, it becomes a ‘scheduled receipt’

Terminology of MRP

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MRP - example

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Chair – manufacturing sequence

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Chair – manufacturing sequence

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MRP - example

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Determine & plan for end products

Determine and plan for lower level items

Info Processing System (Reverse T&A)

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Q. When must the order be placed so that the

item arrives when it is needed?

A. The processing system responds by ‘offsetting ’

the length of LT as indicated in the inventory

status file for that item

Lead-time off-setting

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Provides the information regarding relationshipbetween product and its components

It’s easy to see how many of which component isrequired at which level

Indented BOM

indented BOM for Model ‘H’ chair

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To produce a product, often multiple units of a

lower level item is required.

E.g. 1 unit of H requires 4 units of E.450 units of H requires 450 x 4 = 1800 units of E

This process of multiplication is called Product

Explosion or BOM explosion

Product Explosion

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A single item may be used at several points of

production. E.g. nut-bolts

MRP by convention assigns the item to thelowest level in which it occurs in the product

structure

Low Level Coding

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In order to maintain the schedule, planned order

releases must be acted upon in the relevant weeks

The cells which represent the weeks are theACTION BUCKETS.

*The ‘action’ is to release the order.

Using MRP outputs for material decisions

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MRP is not staticChanges with (i) new orders (ii) current production

floor conditions (iii) anticipated changes for the

future

MRP must be updated with current information

BUT should also provide stability for productionoperations

Keeping MRP ‘current’ in a changing environment

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(i) Pegging

(ii) Cycle Counting

(iii) Updating

(iv) Time Fences

Four aspects of MRP

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“tracing upward in the BOM from the components tothe parent item”

In real life material plans get disrupted every now

and then

Pegging identifies which components get affected

by such disruptions

(i) Pegging

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Pegging shows the level-by-level linkages among

components and their

time-phased status in the

MRP records

(i) Pegging

pegging the MRP records 46

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(ii) Cycle Counting

Components are counted, deducting defective units at

each stage of production and in storage area on a regular

basis

System data should be same as actual physical inventory

MRP records are updated, weekly or daily

Updated records highlight excesses or shortages andthereby indicated how the production schedules need to

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(iii) Updating

Updating is required when new jobs arrive OR

when technology changes the production design

Two updating approaches are used

(a) regenerative

(b) net change

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(iii) Updating

Regenerative completely reprocesses the

entire set of information & recreates the complete

MRP from start to end

Net change reprocesses only those portions

that are affected by informational changes

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allows a part of the master schedule to be

designated as ‘not to be rescheduled’

Dynamics of MRP environment can create

potential confusion => system nervousness

(iv) Time Fences

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Stability is gained by using ‘time fence’

Time fence = shortest LT from raw material to

finished productWithin the time fence, add longest LT at each

level of product structure + longest LT for sourcing

*frozen part of MPS is called firm planned orders

(iv) Time Fences

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(iv) Time Fences

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(iv) Time Fences

The longest LT at levels 0, 1 & 2 are 1, 2 and 4 = 7 weeks + sourcing LT 53

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MRP system generates planned order releases

which triggers P.O. for vendors

Set up costs(cost of ordering) + holding costa. LOT-FOR-LOT ORDERING (dynamic)

b. E.O.Q. TECHNIQUE (static)

LOT sizing

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LOT SIZING L4L TECHNIQUE

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LOT SIZING – L4L TECHNIQUE

Lot sizing technique that generates exactly what is

needed

No safety stock or anticipation of further orders

Works most efficiently when

– Frequent orders are economical (low set-up or

ordering costs)

– JIT inventory techniques has been implemented

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Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8

50 60 70 60 95 75 60 55

Consider the given lot sizing problem, the netrequirement are given for 8 weeks

Cost per item Rs 10

Order/Setup cost Rs 47

Inventory carrying cost/week 0.5 %


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Week Net Requirement ProductionQuantity

EndingQuantity

Holding Cost Set up Cost Total Cost

1 50 50 0 Rs 0.00 Rs 47 Rs 47

2 60 60 0 0.00 47 94

3 70 70 0 0.00 47 141

4 60 60 0 0.00 47 188

5 95 95 0 0.00 47 235

6 75 75 0 0.00 47 282

7 60 60 0 0.00 47 329

8 55 55 0 0.00 47 376

Lot-for-Lot Run Size for an MRP schedule


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LOT SIZING E O Q TECHNIQUE

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Annual demand = D = 525 x 52 = 3412.5 units8

Annual holding cost =H= 0.5%xRs 10x52 weeks=2.60units

Setup cost = S = Rs 47

EOQ = √2DS = 351 units√ H

LOT SIZING – E.O.Q. TECHNIQUE

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LOT SIZING E O Q TECHNIQUE

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Week Net Requirement ProductionQuantity

EndingInventory

Holding Cost Set up Cost Total Cost

1 50 351 301 Rs 15.05 Rs 47 Rs 62.05

2 60 0 241 12.05 0 74.10

3 70 0 171 8.55 0 82.65

4 60 0 111 5.55 0 88.20

5 95 0 16 0.80 0 89.00

6 75 351 292 14.60 47 150.60

7 60 0 232 11.60 0 162.20

8 55 0 177 8.85 0 171.05

EOQ Run Size for an MRP schedule

∑=525

LOT SIZING – E.O.Q. TECHNIQUE

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D il d C i Pl i (DCP)

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a.k.a. capacity requirements planning

Each time the MRP system is updated, it is

imperative to check whether sufficient capacity isavailable

DCP addresses this question

Detailed Capacity Planning (DCP)

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*E.g. detailed capacity analysis for component A(the front legs)Step 1: route sheet is developed for component A

Detailed Capacity Planning

route sheet for component A

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Step 2 : construct the operation set-back chart

Detailed Capacity Planning

partial operation set-back chart for chair model H

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Li it ti f MRP

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A computer is necessary Product structure must be assembly oriented

BOM + inventory status information must be

recorded & computerised

Valid master schedule must be prepared

Data integrity Training people else ad hoc methods resurfaces

Limitations of MRP

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Dynamic nature Reacts well to changing activities (real time

adjustments for thousands of components)

Better PPC

Better inventory management

Shorter delivery LT – sourcing Better deliveries

Advantages of MRP

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Least accurate information is available on

capacity, market forecasts, production control

Most accurate information on BOM, MPS,

inventory records

Managers speak……

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Man fact ring Reso rce Planning (MRPII)

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‘closed loop’ MRPMRP systems was developed on a segregated

basis

MRPII connects many of the information

subsystems to the MRP system

Synchronises all aspects of the business ( sales ,purchasing , manufacturing , finance , engineering ) by

adopting a focal production plan

Manufacturing Resource Planning (MRPII)

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MRPII

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MRPII involves developing a production plan fromthe business plan to specify monthly projections for

each product line over next 1 to 5 years.

Developed by consensus of all executives

Production dept. produce (PS)

Sales dept. sell (PSFPD)Finance ??

MRPII

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Rough Cut Capacity Planning (RCCP)

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Used to evaluate capacity with availability

A repeating occurrence of an abundance amount

of inventory being created or pulled through a

supply chain is a big problem

RCCP prevents over production and determines

the appropriate amount of capacity that should be

used in the system

Rough Cut Capacity Planning (RCCP)

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MRPII: an integrated system for planning & control

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BUSINESS PLAN

PRODUCTIONPLAN

M.P.S.

ROUGH CUTCAPACITY

PLAN

M.R.P.

DETAILED

CAPACITYPLAN

SHOP FLOOR CONTROL;PURCHASES CONTROL

MANUFACTURING(materials, capacity,

production schedules

Purchasing(vendor orders)

Engineering(process &

product design)

Marketing (salesorder entry, delivery

projections)

Finance (capitalrequirements for

capacity, working capitalrequirements)

Accounting (a/cpayable; a/creceivable) 69

Purchasing

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1. Purchasing activities related to procuringmaterials and supplies consumed during production

2. Materials management activities relating to

managing the flow of materials into and through the

firm

3. Physical distribution activities relating to (2) aswell as to storing & transporting finished products

through distribution system to customers

Purchasing

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Purchasing : objectives

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1. Good value – price & quality combo2. Reliable schedule – on time, JIT

3. Minimised investment – depends on economies

of order size, carrying costs, stock out costs

4. Efficient admin – keeping the cost of buying at

low levels, coordinate with other depts.effectively

Purchasing : objectives

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Effective purchasing

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a. Purchasing requirement – description, qty, del.date, etc.

b. Sources of supply – personnel knowledge,

salespersons, ads, trade & industry associations,

peers, company records, etc. (sometimes

vendors must be developed)c. Cost of supply – cost per transaction, inventory

carrying costs, make or buy


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d. Prices & Value – buy at better prices (commonsources of price – lists , quotations , market px. ,

competitive bids , direct negotiations )

e. Administering the purchase – requisition costs are

evaluated sources identified price & values

established P.O. is raised supplies are receivedpayments

authorised records are kept


Documents

Session 6, 7 MRP