Material Requirement Planning (MRP)

1. Material Requirement Planning (MRP) Chapter 16 Feb 9, 2006

2. Material Requirement Planning (MRP) • ______________________________________ • ______________________________________ Key Outputs of MRP • Calculate demand for component items • Determine requirements for subassemblies, components, and raw material • Determine when they are needed • Generate work orders and purchase order • Consider lead time

3. When to use MRP • ___________________________________ • ___________________________________ • ___________________________________ • ___________________________________ Dependent / Independent Demand?

4. Demand Characteristics Demand Characteristics for Finished Products and Their Components Dependent demand Independent demand 100 x 1 = 100 tabletops 100 tables 100 x 4 = 400 table legs 400 – 300 – 200 – 100 – Discrete demand Continuous demand 400 – 300 – 200 – 100 – No. of tables No. of tables 1 2 3 4 5 Week M T W Th F M T W Th F

5. Material Requirements Planning (MRP) Work orders Purchase orders Rescheduling notices MRP Input & Output

6. Product Structure Record Clip Assembly (1) Rivets (2) Pressboard (1) Level 0 Clipboard Level 1 Top Clip (1) Bottom Clip (1) Pivot (1) Spring (1) Level 2 Major Inputs to MRP Process:1. Bill of Material • Product structure file • Determines which component items need to be scheduled

7. Major Inputs to MRP Process:2. Master Production Schedule(MPS) • Drives MRP process with a schedule of finished products • Quantities represent production not demand • Quantities may consist of a combination of customer orders & demand forecasts • Quantities represent what needs to be produced, not what can be produced • Example PERIOD MPS ITEM 1 2 3 4 5 Clipboard 85 95 120 100 100 Lapdesk 0 50 0 50 0 Lapboard 75 120 47 20 17 Pencil Case 125 125 125 125 125

8. Major Inputs to MRP Process:3. Inventory Record • _________________________________________________ • Contains an extensive amount of information on every item that is produced, ordered, or inventoried in the system • _________________________________________________ DESCRIPTION INVENTORY POLICY Item Pressboard Lead time 1 Item no. 734 Annual demand 5000 Item type Purch Holding cost 1 Product/sales class Comp Ordering/setup cost 50 Value class B Safety stock 0 Buyer/planner RSR Reorder point 39 Vendor/drawing 07142 EOQ 316 Phantom code N Minimum order qty 100 Unit price/cost 1.25 Maximum order qty 500 Pegging Y Multiple order qty LLC 1 Policy code 3

9. MRP Processes – 4 Basic Steps • Exploding the bill of material • ___________________________________ • Netting out inventory • ___________________________________ • ___________________________________ • Lot sizing rule – How many units • ___________________________________ • ___________________________________ • ___________________________________ • Time-phasing requirements • ___________________________________

10. Lot Sizing Rule Comparison • The FOQ rule ___________ _______________________ • The POQ rule ___________ _______________________ _______________________ _______________________ • The L4L rule ___________ _______________________ _______________________ _______________________

11. MRP Matrix Gross Requirement • Derived from planned order releases of the parent • Actual / estimated demand, in case of final product Schedule Receipts • Items on order • Scheduled to arrive in the future time period Projected on hand • Current inventory, or anticipated inventory at the end of period Inventory on-hand at end of period t - 1 Scheduled / planned receipts in period t Gross requirements in period t Projected on-hand Inventory at end of period t = + -

12. MRP Matrix Net requirements • Actual quantity to produce based on projected on hand and on-order quantity Planned Order Receipts • Quantity, when orders need to be received • Consider lot sizing rule: Planned Order Release • When order need to be placed to receive on time • Consider lead time

13. ITEM NAME OR NO. PERIOD LOT SIZE LT 1 2 3 4 5 MRP Matrix (You can download the template from our class webpage)

14. 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 Planned Order Receipts Planned Order Releases Example MRP Matrix

15. A LT=3 C(3) LT=4 D(2) LT=2 MRP Example 1 Given the following information, determine when orders should be released for A, C, and D and the size of those orders

16. B LT=2 D(3) LT=2 A LT=3 C(3) LT=4 D(2) LT=2 MRP Example 2 Given the following information, determine when orders should be released for A, B, C, and D and the size of those orders.

17. Evolution of MRP • MRP (material requirements planning) was the precursor to ERP • Primarily a production planning and control system • MRP evolved to MRP II (manufacturing resource planning) • ERP (Enterprise Resource Planning) and ERP II continue to extend the links through all business processes

18. Enterprise Resource Planning (ERP)An Overview • Organizes and manages a company’s business processes by sharing information across functional areas • Connects with supply-chain and customer management applications • ERP in the nutshell* • Client server software • Integrates majority of business processes • Processes majority of transactions • Enterprise wide database • Real time data access * adapted from e-courseware, MIT Sloan

19. ERP Modules [Figure 12.1 Organizational Data Flow]

20. Finance & Accounting Sales & Marketing Production & Materials Management Human Resources ERP Modules[Figure 12.2 ERP’s Central Database] ERP Data Repository

21. ERP Implementation Process • First step is to analyze business processes • Which processes have the biggest impact on customer relations? • Which process would benefit the most from integration? • Which processes should be standardized? • Use of Internet portals can aid implementation