Material Requirements Planning (MRP)

CHAPTER 13 Material Requirements Planning (MRP)

Material Requirements Planning • Master Production Schedule • Time-phased plan specifying timing and quantity of production for each end item. • Material Requirement Planning Process Product Structure Tree Lead Times

Dependent vs Independent Demand “Lumpy” demand Stable demand Demand Demand Time Time Amount on hand Amount on hand Safety stock Time Time

Objectives of MRP • MRP answers the following production decision of a firm • What is needed? • How much is needed? • When is it needed?

Material decision • Decision on • Quantity (how much) • Time (when) • Type (what) • The first two are same as in inventory management. The last one is needed because it involves more than one type of parts or components.

Exception reports Planning reports Performance- control reports MRP Overview MRP Inputs MRP Processing MRP Outputs Changes Order releases Master schedule Planned-order schedules Primary reports Bill of materials file MRP computer programs Secondary reports Inventory records file Inventory transaction

Output from an MRP system • Generate a feasible schedule of requirements for • subassemblies • component parts • raw materials required • to produce the quantity of items required in the given time frame

6 7 1 2 3 4 5 8 9 10 Planning Horizon Assembly Subassembly Fabrication Procurement

Master Schedule Master schedule: One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities. Cumulative lead time: The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly. Time fences: Series of time intervals during which order changes are allowed or restricted.

Bill-of-Materials Bill of materials: 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.

BOM • Accuracy is important since errors may multiply many times

Chair Leg Assembly Back Assembly Seat Cross bar Side Rails (2) Cross bar Back Supports (3) Legs (2) Product Structure Tree Level 0 1 2 3

Low Level Coding Level 0 Y A B C D E 1 F E G H 2 E E E 3

MRP Processing • Gross requirements • Scheduled receipts(orders scheduled to arrive from suppliers at the beginning of the period) • Projected on hand • Net requirements • Planned-order receipts • Planned-order releases

MRP Processing Net Requirement in period t Gross Requirement in period t Projected on hand inventory in period t ) ( Safety stock Allowance for waste - = + +

Procurement of raw material D Fabrication of part E Subassembly A Procurement of raw material F Final assembly and inspection Procurement of part C Procurement of part H Subassembly B Fabrication of part G Procurement of raw material I 6 7 1 2 3 4 5 8 9 10 11 Assembly Time Chart

MRP Outputs • Planned orders - schedule indicating the amount and timing of future orders. • Order releases - Authorization for the execution of planned orders. • Changes - revisions of due dates or order quantities, or cancellations of orders.

Example (p.632) • A firm that produces wood shutters and bookcases has received two orders for shutters: One for 100 to be due for delivery at the start of week 4 and the other 150 units to be due for delivery at the start of week 8 of the current schedule. Each shutter consists of four slatted wood sections and two frames. The wood sections are made by the firm, and fabrication takes one week. The frames are ordered, and lead time is two weeks. Assembly of the shutters requires one week. There is a scheduled receipt of 70 wood sections at the beginning of week 1. Determine the size and timing of planned-order releases necessary to meet delivery requirements under each of theses conditions: • (1). Lot-for-lot ordering (order size equal to net requirement) • (2). Lot-size ordering with a lot size of 320 units for frames and 70 units for wood sections.

Solution to example Develop a master schedule and a product structure tree Shutter Frames (2) Wood sections (4)

Solution to example(lot-for-lot)

Solution to example (lot-for-lot)

Solution to example (fixed lot-size)

MRP Secondary Reports • Performance-control reports • Planning reports • Exception reports

Other Considerations • Safety Stock • Lot sizing • Lot-for-lot ordering • Economic order quantity • Fixed-period ordering • Part-period model • Yield rates

MRP Capacity requirement Planning Capacity requirements planning: The process of determining short-range capacity requirements. Load reports: Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.

Revise tentative master production schedule Convert material requirements to resource requirements Is shop capacity adequate? Firm up a portion of the MPS Change capacity MRP Capacity Requirement Planning Develop a tentative master production schedule Use MRP to simulate material requirements No Can capacity be changed to meet requirements No Yes Yes

Benefits of MRP • Low levels of in-process inventories • Ability to track material requirements • Ability to evaluate capacity requirements • Means of allocating production time

Requirements of MRP • Computer and necessary software • Accurate and up-to-date • Master schedules • Bills of materials • Inventory records • Integrity of data

MRP II • Expanded MRP with and emphasis placed on integration • Financial planning • Marketing • Engineering • Purchasing • Manufacturing

Market Demand Master production schedule Production plan MRP Rough-cut capacity planning Capacity planning Requirements schedules Problems? Problems? Overview of MRP II Finance Manufacturing Marketing Adjust master schedule Adjust production plan No Yes No Yes

Material Requirements Planning (MRP)