Operations Management Material Requirements Planning (MRP) Chapter 14

1. Operations ManagementMaterial Requirements Planning (MRP)Chapter 14

2. Review of the Production Planning Process

3. SAP R/3 Approach to Production Planning

4. Production Process for the T-W101 Ore Wagon:1) Two wheels are attached to an axle to make an axle assembly. 2) Two axle assemblies are attached to a wagon bed to make the ore wagon.

5. Bill of MaterialT-W101(AB&C) Ore Wagon

6. Three General Approaches to Production • Make-to-stock: Items produced in anticipation of orders, often from a sales forecast (DiGiorno frozen pizza, Miller Lite beer) • Make-to-order: Items produced to meet specific customer orders (Boeing 737s for Southwest Airlines) • Assemble to order: Final product assembled from make-to-stock items (Dell desk top computer) • IDES Manufacturing uses a “Make-to-stock” approach. Production of ore wagons will be driven by a sales forecast.

7. Sales and Operations PlanningThe “Rough-Cut” Plan screen for the SAP R/3 system. Sales and Operations Planning Jan Feb Mar Apr May1) Sales Forecast 240 280 320 400 3602) Production Plan 240 280 320 400 3603) Stock Level 0 0 0 0 04) Working Days 22 20 22 21 235) Capacity 440 400 440 420 4606) Utilization 55% 70% 73% 91% 78%7) T-W101 (units) 50% 120 140 160 200 1808) T-W102 (units) 30% 72 84 96 120 1089) T-W103 (units) 20% 48 56 64 80 72

8. SAP R/3 Approach to Production PlanningMPS/MRP

9. Independent versus Dependent Demand • Independent demand - demand for item is independent of demand for any other item • The TW101A is an example of an independent demand item. It is scheduled for production as a result of a sales forecast. • Dependent demand - demand for item is dependent upon the demand for some other item • The TWB101A is an example of a dependent demand item. It is scheduled to be purchased because of the demand for its parent, the TW101A ore wagon.

10. Master Production Schedule BOM (Bill-of-Material) MRP by period report Lead Times MRP by date report (Item Master File) MRP Programs Planned orders report Inventory Data Purchase requirements Purchasing data Exception reports Structure of the MRP System

11. Lead Times and Lot Sizing • The BOM is used to determinehow manyof each component is required to produce a “parent”. For example, one wagon bed and two axle assemblies are required to produce on ore wagon (parent). Two wheels and one axle are required to produce one axle assembly (parent). • To determine the timing and quantity for the purchase orders for the components requires information aboutlead-timesand lot-sizing. This is found in the Material Master File (Item Master): Material Master File for T-W101A (Ore Wagon) ComponentDescriptionVendorLot SizeLead Time T-W101AOre WagonInternal FabricationLFL5 Days T-WB101AWagon BedMinnesota Mfg 20010 Days T-AA101Axle AssemblyInternal Fabrication1005 Days T-AX101Axle Sooner Milling1005 Days T-WH101WheelMinnesota Mfg4005 Days

12. Master Production ScheduleThe production plan starts with the Sales Forecast for the month of April. This is broken down into a Detailed Production Schedule for each week. Earlier, we determined that the total demand in April for model T101A is 200. IDES Marketing Department wants these to be available for shipment at the end of each week as shown below.Model Week 14 Week 15 Week 16 Week 17T-W101A 50 25 75 50Once this has been agreed to, it becomes the Master Production Schedule (MPS).

13. Information from the Material Master File • T-W101A IDES Mfg has determined that the cost effective way tofabricate the ore wagon is to make exactly the number that are required. If 50 are needed, then make 50; If 38 are needed, then make 38. This is called “lot-for-lot” sizing (“Lot Size” = LFL). It takes 5 days to make ore wagons (“Lead-Time” = 5 days). • T-WB101A IDES Mfg has determined that the cost effective way to purchase the wagon bed is to order in quantities of 200 (“Lot Size = 200). It takes 10 days to receive an order after it has been placed (“LeadTime = 10 days).

14. The “MRP Record” for T-W101A • Week 14: Independent Requirements 50 Scheduled Receipts 0 Projected on Hand (BI) 0 Net Requirements 50 Planned Order Receipts 50 (LFL) Planned Order Release ? To fabricate wagons in Week 14, a Planned Order Release must be made at the beginning of Week 14 (Lead Time = 5 days) • Week 15: Independent Requirements 25 Scheduled Receipts 0 Projected on Hand (BI) 0 Net Requirements 25 Planned Order Receipts 25 (LFL) Planned Order Release ?

15. The “MRP Record” for T-WB101A (Wagon Bed) • Week 14: Dependent Requirements 50 Scheduled Receipts 0 Projected on Hand (BI) 0 Net Requirements 50 Planned Order Receipts 200 (Lot Size) Planned Order Release ? To receive 200 wagon beds at the beginning of Week 14, a “Planned Order Release” must be made at the beginning of Week 12 (Lead Time = 10 days) • Week 15: Dependent Requirements 25 Scheduled Receipts 0 Projected on Hand (BI) 150 Net Requirements 0 Planned Order Receipts 0 Planned Order Release ? There are zero (0) net requirements in Week 15. No wagon beds must be received in Week 15. No Planned Order Release is necessary.

16. Homework Assignment • Based on the Master Production Schedule for April 2003, complete the Material Requirements Planning for all materials. • Have this assignment ready to turn in at the beginning of class on Thursday March 13th.