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Materials Requirements Planning Chapter 14 William J. Stevenson, 9th ed.

Materials Requirements Planning Chapter 14 William J. Stevenson, 9th ed. Independent Demand. Dependent Demand. A. C(2). B(4). D(2). E(1). D(3). F(2). Independent demand is uncertain. Dependent demand is certain. Independent and Dependent Demand. Depend e nt Demand.

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Materials Requirements Planning Chapter 14 William J. Stevenson, 9th ed.

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  1. Materials Requirements Planning Chapter 14 William J. Stevenson, 9th ed.

  2. Independent Demand Dependent Demand A C(2) B(4) D(2) E(1) D(3) F(2) Independent demand is uncertain. Dependent demand is certain. Independent and Dependent Demand

  3. Dependent Demand • Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods. • Once the independent demand is known, the dependent demand can be determined.

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

  5. Material Requirements PlanningDefined • Materials requirements planning (MRP)is a computerized inventory planning and control system for determining when (no earlier and no later) and how many of each of the parts, components, and materials should be ordered or produced. • It translates master schedule requirements for end items into time-phased requirements for subassemblies, components and raw materials. • Dependent demand drives MRP • MRP is a software system

  6. When to Use MRP • Dependent and discrete items • Complex products • Job shop production • Assemble-to-order environments

  7. 7 Firm orders from known customers Forecasts of demand from random customers Aggregate production plan Engineering design changes Inventory transactions Master production Schedule (MPS) Material planning (MRP computer program) Bill of material file Inventory record file Secondary reports Primary reports Exception reports Planning reports Reports for performance control Planned order schedule for inventory and production control (work orders, purchase orders), rescheduling notices • The McGraw-Hill Companies, Inc., 2004

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

  9. MRP Inputs 1: Master Production Schedule • Drives MRP process with a schedule of finished products; states which end items are to be produced, when these are needed, and in what quantities • Quantities may consist of a combination of customer orders & demand forecasts • Quantities represent what needs to be produced, not what can be produced

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

  11. Master Production Schedule Item / Week Oct 3 Oct. 10 Oct. 17 Oct.24 Oct. 31 Clipboard 85 95 120 100 100 Lapdesk 0 50 0 50 0 Lapboard 75 120 47 20 17 Pencil Case 125 125 125 125 125 Shows items to be produced Derived from aggregate plan Example:

  12. MRP Inputs 2: Bill-of-Materials Bill of materials (BOM): 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.

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

  14. MRP Inputs 3: Inventory Records File • One of the three primary inputs of MRP • Includes information on the inventory status of each item by time period • Gross requirements • Scheduled receipts • Amount on hand • Lead times • Lot sizes • And more....

  15. MRP Terminology (1 of 3) • Gross requirements • Scheduled receipts • Projected on hand • Net requirements • Planned-order receipts • Planned-order releases

  16. MPR Terminology (2 of 3) • Gross requirements • Total expected demand • Scheduled receipts • Open orders scheduled to arrive • Projected on hand • Expected inventory on hand at the beginning of each time period

  17. MRP Processing Terminology (3 of 3) • Net requirements • Actual amount needed in each time period • Gross requirements – available inventory • Planned-order receipts • Quantity expected to be received at the beginning of theperiod • Offset by lead time • Planned-order releases • Planned amount to be ordered in each time period

  18. 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 MRP Processing Logic: Assembly Time Chart Weeks

  19. Calculation of Gross Requirements A S C B C B Master schedule for S sold directly Lead time = 4 for A Master schedule for A Lead time = 6 for S Master schedule for S 6 5 9 10 11 12 2 7 8 9 11 10 13 3 8 1 40 50 15 40 20 30 10 10 Periods 1 2 3 4 5 6 7 8 10 50 20 40+10 = 50 15+30 = 45 40 Gross requirements: B Periods Therefore, these are the gross requirements for B

  20. Basic MRP Processes Exploding the bill of material Netting out inventory Lot sizing Time-phasing requirements

  21. ITEM NAME OR NO. LLC - LOW LEVEL CODE PERIOD LOT SIZE QTY MADE IN LY - LEAD TIME 1 2 3 4 5 The MRP Matrix

  22. Master Production Schedule 1 2 3 4 5 Clipboard 85 95 120 100 100 Lapdesk 0 60 0 60 0 Item Master File (ınventory record file CLIPBOARD LAPDESK PRESSBOARD On hand 25 20 150 On order 175 (Period 1) 0 0 (sch receipt) LLC 0 0 1 Lot size L4L Mult 50 Min 100 Lead time 1 1 1 MRP Processing:Example 1-School Mate Products

  23. Product Structure Record Level 0 Clipboard Pressboard (1) Clip Ass’y (1) Rivets (2) Level 1 Level 0 Lapdesk Glue (4 oz) Pressboard (2) Beanbag (1) Trim (3’) Level 1 School Mate Products

  24. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 Net Requirements Planned Order Receipts Planned Order Releases School Mate Products

  25. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 115 Net Requirements 0 Planned Order Receipts Planned Order Releases School Mate Products (25 + 175) = 200 units available (200 - 85) = 115 on hand at the end of Period 1

  26. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 115 20 Net Requirements 0 0 Planned Order Receipts Planned Order Releases School Mate Products 115 units available (115 - 85) = 20 on hand at the end of Period 2

  27. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 115 20 0 Net Requirements 0 0 100 Planned Order Receipts 100 Planned Order Releases 100 School Mate Products 20 units available (20 - 120) = -100 — 100 additional Clipboards are required Order must be placed in Period 2 to be received in Period 3

  28. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 115 20 0 0 0 Net Requirements 0 0 100 100 100 Planned Order Receipts 100 100 100 Planned Order Releases 100 100 100 School Mate Products Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases

  29. ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: 1 1 2 3 4 5 Gross Requirements 0 60 0 60 0 Scheduled Receipts Projected on Hand 20 Net Requirements Planned Order Receipts Planned Order Releases School Mate Products

  30. ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: 1 1 2 3 4 5 Gross Requirements 0 60 0 60 0 Scheduled Receipts Projected on Hand 20 20 10 10 0 0 Net Requirements 0 40 50 Planned Order Receipts 50 50 Planned Order Releases 50 50 School Mate Products Following the same logic, the Lapdesk MRP matrix is completed as shown

  31. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: 1 1 2 3 4 5 Planned Order Releases 100 100 100 Planned Order Releases 50 50 ITEM: PRESSBOARD LLC: 0 PERIOD LOT SIZE: MIN 100 LT: 1 1 2 3 4 5 Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases School Mate Products

  32. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: 1 1 2 3 4 5 Planned Order Releases 100 100 100 Planned Order Releases 50 50 x1 x1 x1 x2 x2 ITEM: PRESSBOARD LLC: 0 PERIOD LOT SIZE: MIN 100 LT: 1 1 2 3 4 5 Gross Requirements 100 100 200 100 0 Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases School Mate Products

  33. ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 ITEM: LAPDESK LLC: 0 PERIOD LOT SIZE: MULT 50 LT: 1 1 2 3 4 5 Planned Order Releases 100 100 100 Planned Order Releases 50 50 ITEM: PRESSBOARD LLC: 0 PERIOD LOT SIZE: MIN 100 LT: 1 1 2 3 4 5 Gross Requirements 100 100 200 100 0 Scheduled Receipts Projected on Hand 150 50 50 0 0 0 Net Requirements 50 150 100 Planned Order Receipts 100 150 100 Planned Order Releases 100 150 100 School Mate Products

  34. Planned Order Report PERIOD ITEM 1 2 3 4 5 Clipboard 100 100 100 Lapdesk 50 50 Pressboard 100 150 100 School Mate Products

  35. X A(2) B(1) C(2) D(5) C(3) MRP Processing: Example 2 Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

  36. X A(2) It takes 2 A’s for each X

  37. X A(2) B(1) It takes 1 B for each X

  38. X A(2) B(1) C(3) It takes 3 C’s for each A

  39. X A(2) B(1) C(3) C(2) It takes 2 C’s for each B

  40. X A(2) B(1) C(3) C(2) D(5) It takes 5 D’s for each B

  41. MRP Outputs • Planned orders (schedule indicating the amount and timing of orders) • Work orders • Purchase orders • Order releases (authorization for the execution of planned orders) • Changes to previous plans or existing schedules (revision of due dates or order quantities, or cancellations of orders) • Action notices • Rescheduling notices

  42. Updating the MRP System • Regenerative system • Updates MRP records periodically • Net-change system • Updates MPR records continuously

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

  44. Other Considerations • Safety Stock • Lot sizing • Lot-for-lot ordering (L4L) • Economic order quantity • Part Period Balancing • Wagner-Whitin algorithm • & others Which one to use? The one that is least costly!

  45. MRP in Services • Can be used when demand for service or service items is directly related to or derived from demand for other services • Food catering service • End item => catered food • Dependent demand => ingredients for each recipe, i.e. bill of materials • Hotel renovation • Activities and materials “exploded” into component parts for cost estimation and scheduling

  46. Benefits of MRP • Reduced inventories without reduced customer service • Ability to track material requirements • Ability to evaluate capacity requirements • Means of allocating production time • Increased customer satisfaction due to meeting delivery schedules • Faster response to market changes • Improved labor and equipment utilization. • Better inventory planning and scheduling

  47. Requirements of MRP • Computer system and necessary software • Mainly discrete products • Stable lead times • Accurate and up-to-date • Master schedules • Bills of materials • Inventory status records • Integrity of data

  48. Extensions of MRP

  49. Extensions of MRP • Closed loop MRP • Capacity planning - load reports • MRP II - ManufacturingResources Planning • Enterprise Resources Planning

  50. Aggregate Forecast & Resource Production Firm Orders Availability Planning Material Master Production Requirements Scheduling Planning No, modify MPS Capacity Shop Requirements Floor Realistic? Yes Planning Schedules MRP and The Production Planning Process

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