MRP Structure Cont d

1. MRP Structure (Cont�d)

2. Example 2 The Firm in Example 1 produces all items in Product A. Using Lead times and MPS, we construct the Gross Material Requirements Plan as follows:

3. Example 2

4. Example 2 So far we assumed there is no Inventory on hand. If there is inventory on hand for a Parent item, The requirements for the parent item and all its components will decrease.

5. Example 3 Given the following on-hand inventory, We construct a Net Requirements Plan:

6. Example 3 Net Requirements plan includes following: 1) Gross Requirements, 2) On hand inventory, 3) Net requirements, 4) Planned Order Receipt, and 5) Planned Order Release for each item.

7. Example 3 We now begin with A and work backward through the components:

9. Example 3 A: We need 80 units of B at week 7 because we need 40 units of A at this week, and one unit of A requires 2 units of B. Therefore 2 times 40 = 80.

10. Example 3

11. Example 3 Scheduled receipts are empty because it is the products that we get from Outside. In this example, we assume that we do not buy any of the parts.

12. Example 3

13. Example 3

14. Example 3

15. Example 3

16. Example 3 This example considered only product A. Normally, there is demand for many products. Scheduled program of each product contributes to the Master Schedule AND ultimately to the Net Material Requirements Plan (which includes all components for all products).

17. Example Lets combine several products into a single plan. Assume that product B is used in making products of A and S. It is also sold directly to the market.

18. Example Now we will prepare a Gross Requirements Plan for B, by combining the master schedules of A,S, and B Master schedules for A, S, and B are as follows:

19. Example

20. Example Now we will combine all three schedules AND create Gross Requirements for B: At period 1: we sell 10 units of B directly, therefore we should produce 10 units B. At period 2: we sell 10 units of B directly. Plus, We also need 40 units of B for producing A at period 6. Because lead time for A is 4 periods.

21. Example At period 3: we need 40 units of B because we will use them to produce 40 units of S at period 9. � Therefore: Gross Requirements for B is as follows:

22. Example Period 1 2 3 4 5 6 7 8 Gross Req. 10 50 40 50 20 45

23. Example In this example, we calculated only the gross requirements for B. However, Remember that: Net Requirements = (Gross Req.) - [(On hand) + (Scheduled Receipts)]

24. Example Therefore, we should also consider the Inventory on hand for B AND also Scheduled Receipts for B (if we buy some of B from other suppliers). Remember that, Scheduled receipts are the ones we do not produce and buy from Outside.

25. Example Scrapped components, Missed receiving dates, and Machine breakdowns May Cause changes in the Material Requirements Plan. Similarly, changes occur in MRP When MPS changes.

26. Example Computerized programs perform all the calculations and such changes. So far we assumed that we produce exactly What we Need. No more or No less.

27. Example The objective in an MRP system is to produce units only as needed, With no safety stock AND no anticipation of further orders. Such a procedure is consistent with small lot sizes, frequent orders, low inventory, and dependent demand.

28. Example However, when independent demand exists, A lot sizing technique called �Economic Order Quantity� is preferable. EOQ technique provides a formula that averages (or smooths) demand over an extended time horizon.

29. Example Now we will compare the traditional MRP technique (produce as needed) with EOQ technique in the following example:

30. Example 4 Suppose that for product B, lead time is 1 week, and inventory on hand is 35 units. We will first apply the �produce as needed� approach. (traditional MRP)

31. Example 4

32. Example 4 Now we will apply the EOQ formula: Economic Order Quantity (Q*) = [(2 D S) / H] �

33. Example 4 Here, D is annual demand for B = 1404 units S is annual Setup cost = $100 H is annual inventory Holding cost = $52

34. Example 4 Therefore: Q* = [(2 (1404) (100)) / 52] � = 73 units per order. This means that, every time we give a production order, it should be 73 units. In this case, Order releases for product B will be as follows:

35. Example 4

36. Closed-Loop MRP This implies an MRP system that provides Feedback to scheduling from the Inventory Control System. All new and sophisticated computerized MRP systems are now closed-loop systems.

37. Closed-Loop MRP A closed-loop MRP system also provides feedback to the 1) Capacity Plan, 2) Master Production Schedule, and ultimately 3) to the Production Plan. In the Capacity Planning, For each work center, Load reports are required.

38. Closed-Loop MRP Load reports show the Resource Requirements (in hours) in a work center For all work currently assigned to that work center. For example, suppose that initial load of a work center exceeds the capacity of that work center (say 150 hours/period).

39. Closed-Loop MRP Here, closed loop MRP systems allow production planners to Move the work to other periods IN ORDER TO smooth the work load in each period.

40. Closed-Loop MRP

41. Closed-Loop MRP Some tactics for Smoothing the work load are as follows: 1) Sending a lot to two different machines for the same operation. This is called �splitting the lot.� This process involves additional setup for the machines, but results in a shorter time.

42. Closed-Loop MRP 2) Moving the entire lot to another period which is near to the current period. Today, the most sophisticated version of Material Requirements Planning (which is called MRP II) has substantial applications beyond Scheduling and Inventory Management.

43. Closed-Loop MRP Once a firm has MRP system, Inventory data can be changed by Labor Hours, by Material Costs, by Capital Cost, or by any Resource Variable. When MRP is used in this manner, It is usually referred as Material RESOURCE Planning.

44. Closed-Loop MRP MRP II computer programs are generally tied into other computer programs. It receives such data as Order Entry, Inventory, Billing, Purchasing, Scheduling, Capacity Planning, Accounting, Warehouse Management, etc.