Material requirements planning MRP Introduction Input data/Output BOM Calculations

1. Material requirements planning MRP Introduction Input data/Output BOM Calculations dr inż. Joanna Oleśków-Szłapka Poznan University of Technology

2. An Overview of MRP CPR module • MRP uses the concept of backward scheduling to determine how much and when to order and replenish • The CRP (Capacity Requirements Planning) module checks to make sure the scheduled work load profile is feasible • The MPS module contains the authorized schedule • The BOM module contains the product structure for each unique product • The Inventory Record module keeps track of the inventory status for each item in the database • MRP output includes schedules for all internal activities and parts as well as orders for all supply chain items

3. MRP System

4. Input/Output - MRP Process

5. Types of Demand • There are two types of demand. • Independent Demand • Is the demand for finished products • Does not depend on the demand of other products • Needs to be forecasted • Dependent Demand • Is the demand derived from finished products • Is the demand for component parts based on the number of end items being produced and is managed by the MRP system

6. Material Requirements Planning (MRP) Key Outputs of MRP • Calculate demand for component items • Determine requirements for subassemblies, components, and raw material • Determine when they are needed • Generate work orders and purchase orders • Consider lead times

7. INPUTS TO AN MRP SYSTEM Bill of Materials (BOMs) Master Production Schedule (MPS) Lot sizes Material on-hand Amount of material to be purchased.

8. Product Structure Record Clip Assembly (1) Rivets (2) Pressboard (1) Level 0 Clipboard Level 1 Top Clip (1) Bottom Clip (1) Pivot (1) Spring (1) Level 2 Major Inputs to MRP Process:1. Bill of Material • Product structure file • Determines which component items need to be scheduled

9. Bill of materials - BOM • In order to show the make-up (in terms of the parts needed for production) we have a Bill of Materials (BOM) for the end-product (namely the chair). BOM is a listing of all the subassemblies, intermediates, parts, and raw materials that go into a parent assembly showing the quantity of each required to make an assembly.

10. Structure of a BOM

11. Processes that utilize a BOM • Production • Materials planning • Product costing • Plant maintenance

12. Types of BOMs • Static (fixed) bill • A bill of material for a part that is normally made from the same components, labor and raw materials. • Used for standard assemblies, components, and engineer-to-order customer orders. • Example: • A bill of materials for a standard chair

13. Types of BOMs • Dynamic (parametric) bill • A bill of material for a product or part for which size, color, laminate, and other options can be selected. • Example: • A bill of materials for a Dell computer

14. Types of BOMs • Single level bill of material • A bill of material that lists the materials, parts and labor required to make another part. • Example: • A bill of materials to make a Dell computer

15. Types of BOMs • Multilevel bill of material • A bill of material that lists the components, assemblies, and materials required to make a part, the components, assemblies, and materials required to make each component and assembly of the part, and so forth. • Example: • A BOM for the battery inside the Dell computer.

16. What information is on a BOM? • Quantity • Item ID# • Description of Item • Cost of Item • Total Project Cost

17. Quantity • Tells user how many of each part is needed for each project • Example: • A chair needs 1 seat, 4 legs, 1 back, and 5 nails.

18. Item ID # • Tells us which part to order • Can be any of the following: • Catalog number, UPC, or any other identification number. • Example: • The chair needs a 2PC seat, 5DR legs, 6TU8 back, and 1 inch nails.

19. Description of Item • Provides a check that the correct item is being ordered.

20. Cost of Item • Cost is included to show how much each part is per item and the total cost of all like parts. • Example: • The cost of a leg is $5 per leg. Then the total price of the legs ordered would be $20 because there are 4 legs.

21. Total Project Cost • Shows the total cost of all items and is also the total cost of the direct materials used in the project. • Example: • Seat-$10, Back-$5, Leg-$5 per leg, Nail-$.5 per nail • Total Cost of a chair = 10 + 5 + 5*4 + .5*5 = $37.50

22. BOM Example Quantity ID# Description Unit Price Total Cost 1 6TU8 Back $5/Unit $ 5.00 4 5DR Legs $5/Unit 20.00 1 2PC Seat $10/Unit 10.00 5 1” Nails $0.50/Unit 2.50 Total Project Cost $37.50

23. Major Inputs to MRP Process:2. Master Production Schedule(MPS) • 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 • Example PERIOD MPS ITEM 1 2 3 4 5 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

24. MPS – „make to stock” EXAMPLE

25. MPS „make to order” - EXAMPLE

26. Major Inputs to MRP Process:3. Inventory Record Contains an extensive amount of information on every item that is produced, ordered, or inventoried in the system DESCRIPTION INVENTORY POLICY Item Pressboard Lead time 1 Item no. 734 Annual demand 5000 Item type Purch Holding cost 1 Product/sales class Comp Ordering/setup cost 50 Value class B Safety stock 0 Buyer/planner RSR Reorder point 39 Vendor/drawing 07142 EOQ 316 Phantom code N Minimum order qty 100 Unit price/cost 1.25 Maximum order qty 500 Pegging Y Multiple order qty LLC 1 Policy code 3

27. On hand inventory ZD1 – on hand inventory – 1st version Zm – stock ZD2 - on hand inventory – 2nd version ZD3 - on hand inventory – 3rd version ZD4 - on hand inventory – 4th version Zt – stock in the transport R- reservations of the material Zz- safety stock On hand inventory can be calculated according to four following rules - ZD1 = Zm - ZD2 = Zm + ZT ZD2 = ZT - ZD3 = (ZD1, ZD2) – R - ZD4 = (ZD1, ZD2, ZD3) - ZZ

28. MRP Processes – 4 Basic Steps • Exploding the bill of material • ___________________________________ • Netting out inventory • ___________________________________ • ___________________________________ • Lot sizing rule – How many units • ___________________________________ • ___________________________________ • ___________________________________ • Time-phasing requirements • ___________________________________

29. Lot Sizing Rules – Classic methods proposed by J. Orlicky – the will be explained in the next lecture • Fixed Order Quantity • Economic Order Quantity- EOQ • Lot for Lot • Fixed Period Requierements • Period Order Quantity- POQ • Least Unit Cost- LUC • Least Total Cost- LTC • Part Period Balancing- PPB • Wagner-Whitin algorithm

30. MRP Matrix Gross Requirement • Derived from planned order releases of the parent • Actual / estimated demand, in case of final product Schedule Receipts • Items on order • Scheduled to arrive in the future time period Projected on hand • Current inventory, or anticipated inventory at the end of period Inventory on-hand at end of period t - 1 Scheduled / planned receipts in period t Gross requirements in period t Projected on-hand Inventory at end of period t = + -

31. MRP Matrix Net requirements • Actual quantity to produce based on projected on hand and on-order quantity Planned Order Receipts • Quantity, when orders need to be received • Consider lot sizing rule: Planned Order Release • When order need to be placed to receive on time • Consider lead time

32. ITEM NAME OR NO. PERIOD LOT SIZE LT 1 2 3 4 5 MRP Matrix

33. 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 Example MRP Matrix

34. L4L LT=1

35. MRP schedule Lead time – 3 weeks Batching rule: Fixed order quantity – 25 pcs/lot On-hand stock – 20 pcs/lot

36. MRP schedule

37. LOT SIZE = 120 units/deliverySafety stock = 25Lead time = 1 day, on hand = 100

38. Example • Company X produce tables (production schedule given in table 1). Each table consists of a top, four legs. Each leg consists of 1 wooden beam, 2 fastenings, 1 pad. Each top consists of 2 boards, 4 fastenings. Each fastening consists of 1 dowel and 1 screw with cap. • The following table 2 gives lead times, on-hand inventory, lot size technique and scheduled receipts. • Construct a product structure (BOM) • Prepare a material planning schedule for the table

39. Table 1. Production schedule for the table

40. Table 2. Data table

41. TABLE EOQ= 100 LT=1 ON HAND = 100 MRP schedule

42. TOP L4L, LT=1, on hand=100

43. LEGS LT= 1 Lot for lot On hand= 30 GROSS REQUIREMENTS = PLANNED ORDER RELEASE FROM TABLE * 4 LEGS

44. FasteningsLT=1. FOQ= 180, on hand = 50

45. Evolution of MRP • MRP (material requirements planning) was the precursor to ERP • Primarily a production planning and control system • MRP evolved to MRP II (manufacturing resource planning) • ERP (Enterprise Resource Planning) and ERP II continue to extend the links through all business processes

46. Enterprise Resource Planning (ERP)An Overview • Organizes and manages a company’s business processes by sharing information across functional areas • Connects with supply-chain and customer management applications • ERP in the nutshell* • Client server software • Integrates majority of business processes • Processes majority of transactions • Enterprise wide database • Real time data access * adapted from e-courseware, MIT Sloan

47. ERP Modules [Figure 12.1 Organizational Data Flow]

48. Finance & Accounting Sales & Marketing Production & Materials Management Human Resources ERP Modules[Figure 12.2 ERP’s Central Database] ERP Data Repository

49. ERP Implementation Process • First step is to analyze business processes • Which processes have the biggest impact on customer relations? • Which process would benefit the most from integration? • Which processes should be standardized? • Use of Internet portals can aid implementation