Chapter 18 Materials Requirements Planning

1. Chapter 18Materials Requirements Planning • Material Requirements Planning (MRP) • Bill of Material • MRP Logic and Calculations • Lot Sizes, Safety Stock and Time Fences • MRP II • MRP Management Issues

2. Material Requirements PlanningDefined • Materials requirements planning (MRP)is the logic for determining the number of parts, components, and materials needed to produce a product. • MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced. • Dependent demand drives MRP.

3. Material Requirements Planning System • Based on a master production schedule, a material requirements planning system: • Creates schedules identifying the specific parts and materials required to produce end items. • Determines exact unit numbers needed. • Determines the dates when orders for those materials should be released, based on lead times.

4. 4 Engineering design changes Inventory transactions Master production schedule (MPS) Bill of material file Inventory record file Reports Firm orders from known customers Forecasts of demand from random customers Aggregate product plan Material planning (MRP)

5. MRP Input:Bill-of-Material • List of components & quantities needed to make product • Provides product structure (tree) • Parents • Children • Shows low-level coding • Lowest level in structure item occurs • Top level is 0; next level is 1 etc.

6. Bill-of-Material Product Structure Tree Bicycle(1) Bicycle(1) P/N 1000 P/N 1000 Handle Bars (1) Frame Assy (1) Handle Bars (1) Frame Assy (1) P/N 1001 P/N 1002 P/N 1001 P/N 1002 Wheels (2) Frame (1) Wheels (2) Frame (1) P/N 1003 P/N 1004 P/N 1003 P/N 1004

7. Product Structure Thinking Challenge The demand for product A is 50. How many of each component is needed to satisfy demand? A A B(2) C(3) B(2) C(3) E(3) E(1) F(2) E(3) E(1) F(2) D(2) G(1) D(2) D(2) G(1) D(2)

8. Product Structure Solution 50 A A B(2) C(3) B(2) C(3) E(3) E(1) F(2) E(3) E(1) F(2) D(2) G(1) D(2) D(2) G(1) D(2)

9. Lead Times & Product Structure Handle Bars 2 wk. Lead time 1 wk. Frame 2 wk. Bicycle 1 wk. 3 wk. Frame Assy Wheels Time (weeks)

10. MRP Scheduling Terminology • Gross Requirements: demand for an item from: • independent demand • independent demand • dependent demand

11. MRP Scheduling Terminology • Scheduled receipts – orders that have already been released (i.e., an open order) and that are scheduled to arrive at the beginning of the period. • Projected available balance (On-hand) – amount of inventory at the beginning of a period

12. MRP Scheduling Terminology • Net requirements – • Planned order receipt – • Planned order release –

13. MRP Formulas • NRt = GRt - OHt – SRt (0 if negative) • OHt = OHt-1 + SRt-1 + POReceiptt-1 – GRt-1 – SS

14. MRP Example - One item’s complete recordStarting information Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

15. MRP Example - Period 1 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

16. MRP Example - Period 2 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

17. MRP Example - Period 3 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

18. MRP Example - Period 4 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

19. MRP Example - Period 5 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

20. Won’t having the same part at different levels make it harder to do level by level calculations? Low Level Coding • What about this? A Level 0 C B Level 1 Level 2 D C E E Level 3

21. Low Level Coding - “How to” • Place each item at same level - it simplifies the calculations After: Before: A A Level 0 C B B Level 1 Level 2 D C E D C C E E E Level 3

22. X A(2) B(1) C(2) D(5) C(3) An MRP Example Requirements include 95 units (80 firm orders and 15 forecast) of X in day 10 plus the following spares:

24. Lot Sizing in MRP Programs • We need to reflect restrictions which may exist in actual practice • Lot-for-lot (L4L) • Economic order quantity (EOQ) • Least total cost (LTC) • Least unit cost (LUC) • Fixed quantity • Minimums • Multiples

25. Lot size is 5 or multiples (5, 10, 15 etc.). Lot Size Effects 20 Lead Time = 3; Lot Size= 5 units (or Multiples);On-Hand = 20 Units; Safety Stock = 0 Units.

26. Using Safety Stock Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 2 units.

27. MRP Thinking Challenge A master schedule calls for 50 units of F in week 6, & 60 in week 8. On-hand levels are F = 0, G = 20, & H = 60. Another 20 units of G are scheduled to be received in week 4. Order quantities are lot-for-lot except for H, which has a lot size of 50 or multiples of 50. F(1) LT = 2 G(1) LT = 1 H(1) H(4) LT = 2 LT = 2

28. Product F Solution

29. Component G Solution

30. Component H Solution

31. Another MRP Example An end item (A) is assembled from 1 sub-component C, 2 part D’s, and 1 sub-component B Each sub-component C is assembled from 1 part D and 1 part E Each sub-component B is assembled from 1 part C and 2 part E’s The master production schedule calls for 250 units of A in week 6, 140 in week 8, and 200 in week 9. The following information is available from the inventory status file:

32. D(1) E(1) MRP Example Two Low Level Coded Product Structure Tree A master schedule calls for 250 units of A in week 6, 140 in week 8 & 200 in week 9. On-hand levels are A = 5, B = 5, C = 0, D = 0 & E = 5. Another 5 units of D are scheduled to be received in week 1 and 5 units of E in week 2. Order quantities are lot-for-lot for A and C, multiples of 10 for B & E & a minimum of 150 for D. A 0 B(1) 1 C(1) C(1) 2 D(2) E(2) D(1) E(1) 3

33. Product A Solution

34. Component B Solution

35. Component C Solution

36. Component D Solution

37. Component E Solution

38. Aggregate Plan (Product Groups) MRP Input:Master Production Schedule (MPS) • Time-phased plan specifying how many and when the firm plans to build each end item. MPS (Specific End Items)

39. Types of Time Fences • Frozen • No schedule changes allowed within this window. • Moderately Firm • Specific changes allowed within product groups as long as parts are available. • Flexible • Significant variation allowed as long as overall capacity requirements remain at the same levels.

40. Moderately Firm Frozen Flexible Capacity Forecast and available capacity Firm Customer Orders 8 15 26 Weeks Example of Time Fences

41. MRP Input:Inventory Records File • Each inventory item carried as a separate file • Status according to “time buckets”. • Pegging • Identify each parent item that created demand.

42. Primary MRP Output Reports • Planned orders to be released at a future time. • Order release notices to execute the planned orders. • Changes in due dates of open orders due to rescheduling. • Cancellations or suspensions of open orders due to cancellation or suspension of orders on the master production schedule. • Inventory status data.

43. No Realistic? Feedback Feedback Yes Execute: Capacity Plans Material Plans Closed Loop MRP Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning

44. Manufacturing Resource Planning (MRP II) • Goal: Plan and monitor all resources of a manufacturing firm (closed loop): • manufacturing • marketing • finance • engineering • Simulate the manufacturing system

45. MRP Management Issues • System Accuracy • Inventory records, work done, allocations • System nervousness • changes to higher levels in BOM (e.g., levels 0 or 1) can lead to major timing or quantity changes in lower levels of BOM • Integration with Just-in-Time (JIT) • Reduce time buckets to daily or hourly • Use planned receipts to sequence orders • Use kanban cards to move material • Use back flushing to reduce inventory