MS 401 Production and Service Systems Operations Spring 2009-2010

1. MS 401 Production and Service Systems Operations Spring 2009-2010 Material Requirements Planning (MRP) Slide Set #10

2. MRP • MRP stands for Material Requirements Planning • MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced • Managerial objective is to provide the right part at the right time to meet the schedules for completed products • MRP is a basic tool for performing detailed material planning function in the manufacturing of component parts and their assembly into finished items

3. The MPC Framework Sales and operations planning (Aggregate planning) Resource planning Demand management Rough-cut capacity planning Front End Master production scheduling (MPS) Detailed capacity planning Detailed material planning (using MRP) Engine Material and capacity plans Shop floor systems Supplier systems Back End

4. Before MRP • Before MRP, most MPC Systems revolved around some variant of statistical reorder points • Orlicky’s (father of MRP) insight was that this approach better suited to final products than components • Why? • final product demand originates from outside the company - subject to uncertainty • component demand is a function of final product demand - known for a given final assembly schedule

5. Dependent versus Independent Demand • Independent demand • subject to demand outside the firm • for ex: demand for the snow shovels • have to be forecasted • Dependent demand • demand for the components • for ex: demand for the “top handles” of the snow shovel • depends on the net requirements for the “top handle assemblies” • can be exactly calculated • using BOM, inventory, scheduled receipts information • no need for forecasting

6. The Basic MRP Record Terminology • Gross Requirements (GR): Anticipated future usage (or, demand) of the item during a period • Scheduled Receipts (SR): Existing replenishment orders for the item to arrive at the beginningof a period • Projected Available Balance (PAB): Projected inventory status for the item at the endof a period • Planned Order Releases (POR): Planned replenishment orders for the item at the beginningof a period • not “released” yet, only planned

7. The Basic MRP Record

8. Linking Records Together • The basic MRP record provides the information on each part in the system • How to link these single part records together?

9. Bill-of-Materials (BOM) • An engineering document that specifies the components & quantities needed to make an assembly (product) • Provides product structure (tree) • Parents: Items above given level • Children: Items below given level • Shows low-level coding • to show where in the product structure a particular part is with respect to the end product (level 0) • components of the end product: level 1…

10. BOM - Example Indented BOM Product Structure Diagram A B (2) E (1) J (3) F (3) G (4) H (3) J (2) C (4) H (3) quantity required The end item Level 0 A 4 2 B C Level 1 3 1 4 Level 2 E F G 3 2 3 3 H J H J Level 3

11. Snow Shovel (VBWJ, page 227)

12. Snow Shovel: Product Structure Diagram

13. Snow Shovel: Indented BOM

14. Gross to Net Explosion • Process of translating end product requirements into component parts requirements • taking into account the existing inventories and scheduled receipts • For any part number, determine the quantities for all immediate predecessors of that part in the BOM • Continue this process for every part number until all purchased part and/or raw material requirements are exactly calculated

15. Gross to Net Explosion • Consider the BOM for “snow shovel” • Suppose the company want to produce 100 shovels, and we are responsible for making the top handle assembly

16. Lead Time Offsetting: Front Schedule Start production of parts as early as possible. Drawbacks?

17. Lead Time Offsetting: Back Schedule Start production of parts as late as possible: MRP uses this

18. Linking MRP Records

19. Linking MRP Records

20. Technical Issues • Processing frequency • Safety stock and safety lead time • Low level coding • Pegging • Lot sizing

21. Processing Frequency • Whether all records should be processed in one computer run • Regeneration: processing all of the records in one run • Net change: processing only the items that are affected by the new or changed information • Processing frequency depends on the firm, its products, and its operations. • the most common practice is weekly processing using regeneration

22. Safety Stock and Safety Lead Time • Safety stock is a buffer stock above what is needed to satisfy the gross requirements • SS tends to be used in MRP systems where uncertainty about quantities is the problem • Safety lead time is a procedure whereby shop orders or purchase orders are released and scheduled to arrive one or more periods before necessary to satisfy GR • SLT tends to be used when the major uncertainty is the timing

23. MRP Record with SS

24. MRP Record with SLT

25. Low Level Coding • A low level code number is given to each part in the product structure diagram • Why? • eliminate recalculations • satisfy accurate accumulated requirements for each part • By convention, LLC of the end product is 0 • Immediate component part numbers are 1 and assignment procedure proceeds level by level • Important • the last level code assigned to a part indicates its LLC

26. End Item A LT=1 2 1 Component C Sub-Assembly B LT=2 LT=1 1 Component C LT=1 Low Level Coding Example • LLCA = 0 • LLCB = 1 • LLCC = 2

27. Pegging • Pegging relates all the gross requirements for a common item to all planned order releases that created the requirement • each component of the gross requirement is pegged with the part number of its source • By pegging it is possible to go up through the MRP records, and identify the end product of a raw material • reverse of the explosion logic: implosion • Advantage: when an item shortage occurs, pegging allows to trace the impact on all subassemblies and end products affected by this shortage • Drawback: it adds complexity in MRP information storage requirements

28. Sample Problem • VBWJ Problem 2-7 A F G (2 required) C D G H

29. Sample Problem 0 10 0 0 0 5 10 15 15

30. Sample Problem 0 0 0 5 0 5 15 5

31. Sample Problem 35 20 25 15 15 20 40 20

32. MRP: Transactions During a Period • First, launch the POR of 50. This becomes SR for week 3 • The following events occurred during week 1: • Actual disbursements from stock were only 20 instead of the planned 30 • Scheduled receipt of 50 received, but 10 units rejected due to quality issues • Inventory was counted and 20 additional pieces were found • The requirement date for 45 pieces was changed to week 4 • Marketing requested additional 5 pieces in week 2 • The requirement for week 6 has been set at 25

33. MRP: Transactions During a Period • The resulting MRP record at the beginning of week 2 is as follows • Note that the planned order release of 50 units scheduled previously to week 3 is now rescheduled to week 4 • The 50 units currently scheduled to be received at Period 3 is not needed until period 4. MRP will issue a message for this.

34. Alternative Table Format (6-row)