BUAD306

1. BUAD306 MRP

2. Disaggregating & Why It’s Important • Enables managers to take aggregate plan and break it down into actual units being produced • Especially important in companies with multiple product lines • Show quantities and timing of items to be produced (specific products) • Enables rough cut capacity planning to test feasibility • Feeds the MRP process

3. Materials Requirement Planning (MRP) • A computerized inventory control and production planning system for dependent demand inventories (individual parts that make up a final product). • Objective: To ensure that material is available when needed and to maintain the lowest possible level of inventory.

4. Dependent Demand • Items are used internally to produce a final product • Example: Production of cookies

5. MRP Impacts • Inventory levels • Purchasing materials • Manufacturing activities • Delivery schedules

6. MRP Questions • MRP is designed to answer these three questions: • What is needed? • How much is needed? • When is it needed?

7. Material Requirements Planning Bill of Materials Inventory Master File Master Production Schedule MRP Inputs MRP Outputs Planned Order Releases Rescheduling Notices Purchase Orders Work Orders

8. MRP Uses • Dependent and discrete items (where demand varies) • Complex products • Job shop production (where each job takes a different path through the system) • Assemble-to-order environments (previously completed subassemblies are configured to order)

9. Master Production Schedule • 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

10. Terms of Production • Time Periods/Buckets – how long it takes to execute portions of the master schedule tasks • Cumulative lead time - the total length of time needed to manufacture a product • Time fence - a date beyond which no changes in the master schedule are allowed

11. Bill of Materials (BOM) • The list of items that go into the product • Includes a brief description of each item • Specifies when and in what quantity each item is needed in the assembly process • Created with Product Structure Tree

12. Product Structure Tree • Visual depiction of the BOM requirements– where all components are listed by level

13. Product Structure Tree Shelves Legs Wheel Assemblies Stickers Electrical Assembly Mat AV Cart

14. Continued - Product Structure Tree Cart Legs(4) Mat (1) Stickers(2) Shelves (3) Wheel Assembly(4) Electrical Assembly(1) Tires(1) Surge Protector(1) Axels(1) Power Cord (1) Brakes (1)

15. Example A - Product Structure Tree for Product X Level 0 X B(4) C 1 2 D(3) E(2) E(2) F(2) What total quantity of each component (B, C, D, E and F) is needed to produce one X? 3 E(4)

16. Inventory Master File • A database of information on every item produced, ordered, or inventoried • Cycle Counting – Taking physical counts of at least some inventory items reconciling differences as they occur

17. Example B - Product Structure Tree for Product X Level 0 X B(4) C 1 2 D(3) E(2) E(2) F(2) What if you needed 10 X’s and we had the following inventory: B – 4 C – 10 D – 8 E – 60 F - 10 3 E(4)

18. End item B (2) C D (3) G (2) E (2) H (4) E (2) E (2) F (3) EXAMPLE C: The table below lists the components needed to assemble an end item, lead times, and quantities on hand. • If 30 units of the end item are to be assembled, how many additional units of E are needed?

19. End item B (2) C D (3) G (2) E (2) H (4) E (2) E (2) F (3) EXAMPLE D – CUMULATIVE LEAD TIME: An order for the end item is scheduled to be shipped at the start of week 11. What is the latest week that the order can be started and still be ready to ship on time? (You do not have to develop an MRP)

20. Time-Phased Plan Lot-for-lot: the order or run size for each period is set equal to the demand for that period.

21. MRP Processing • Takes the end item requirements specified by the master schedule and “explodes” them into time-phased requirements for assemblies, parts, and raw materials using the bill of materials offset by lead times.

22. MRP Processing Terms • Gross Requirements: Total expected demand for an item or raw material in a time period. • Scheduled Receipts: Open orders scheduled to arrive from vendors or elsewhere in the pipeline. • Projected on hand: Expected amount of inventory that will be on hand at the beginning of each time period

23. MRP Processing Terms Net Gross Projected Requirements = Requirements - inventory + Safety in period t in period t in period t stock • Net requirements: The actual amount needed in each time period • Planned-order releases: Planned amount to order in each time period; planned-order receipts offset by lead time

24. MRP EXAMPLE 1 – MRP SCHEDULE A product structure tree for end item X is below. A manager wants to know the materials requirements for ordered part R that will be needed to complete 120 units of X by the start of week 5. Lead times for items are one week for level 0 and level 1 items and 2 weeks for level 2 items. There is a scheduled receipt of 60 units of M at the END of week 1 and 100 units of R at the START of week 1. Lot for lot ordering is used. X Level 0 M (3) I (2) Level 1 Level 2 R (2) P N (4) V

25. MRP EXAMPLE 1a – MRP SCHEDULE A product structure tree for end item X is below. A manager wants to know the materials requirements for ordered part R that will be needed to complete 120 units of X for the start of week 6 and 150 for the start of week 8. Lead times for items are one week for level 0 and level 1 items and 2 weeks for level 2 items. There is a scheduled receipt of 60 units of M at the END of week 1 and 100 units of R at the START of week 1. Lot for lot ordering is used. X Level 0 M (3) I (2) Level 1 Level 2 R (2) P R (4) V

26. MRP EXAMPLE 1b – MRP SCHEDULE A product structure tree for end item X is below. A manager wants to know the materials requirements for ordered part R that will be needed to complete 150 units of X for the start of week 6 and 200 for the start of week 8. Lead times for items are one week for X and M and 2 weeks for all other items. There is a scheduled receipt of 60 units of M at the END of week 1 and 100 units of R at the START of week 1. Lot for lot ordering is used. X Level 0 M (3) I (2) Level 1 Level 2 R (2) P R (4) V

27. MRP EXAMPLE 1c – MRP SCHEDULE Demand for X: 100 in SOW 7 All LTs = 1 week 100 in SOW8 60 Ms to arrive in EOW1 100 Rs to arrive SOW1 I has a minimum order requirement of 500 units M must be ordered in BATCHES of 300 X Level 0 M (3) I (2) R (2) Level 1 Level 2 R (2) P R (4) V

28. MRP HW # 5 End item P is composed of three subassemblies: K, L and W. K is assembled using 3Gs and 4 Hs. L is made of 2 Ms and 2 Ns. W is made of 3 Zs. On hand inventories are 20 Ls, 40 Gs, and 200 Hs. Scheduled receipts are 10 Ks at the start of week 3, 30 Ks at the start of week 6, and 200 Ws at the start of week 3. One hundred Ps will be shipped at the start of week 6 and another 100 at the start of week 7. Lead times are two weeks for subassemblies and one week for components G, H and M. Final assembly of P requires one week. Include an extra 10% scrap allowance in each planned order of G. Minimum order size for H is 200.