Dependent versus Independent Demand

1. Materials With Materials With Item Independent Demand Dependent Demand Demand Company Customers Parent Items Source Material Finished Goods WIP & Raw Materials Type Method of Forecast & Booked Calculated Estimating Customer Orders Demand Planning EOQ & ROP MRP Method Dependent versus Independent Demand © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458 Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 14-9

2. Marketing Customer Demand Production Capacity Inventory Finance Cash Flow Human Resources Manpower Planning Production Plan Procurement Supplier Performance Management Return on Investment Capital Engineering Design Completion Inputs to the Production Plan © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458 Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 14-10

3. The Planning Process Production Plan Master Production Schedule Material Requirements Plan Capacity Requirements Plan No Realistic?? Yes Execute Capacity Plans Execute Material Plans © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458 Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 14-12

4. Material Requirements Planning (MRP) • Manufacturing computer information system • Determines quantity & timing of dependent demand items © 1995 Corel Corp. © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458 Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 14-18

5. MRP Benefits • Increased customer satisfaction due to meeting delivery schedules • Faster response to market changes • Improved labor & equipment utilization • Better inventory planning & scheduling • Reduced inventory levels without reduced customer service © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458 Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 14-20

6. Bill-of-Material • List of components & quantities needed to make product • Provides product structure (tree) • Parents: Items above given level • Children: Items below given level • Shows low-level coding • Lowest level in structure item occurs • Top level is 0; next level is 1 etc. © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458 Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 14-14

7. Aggregate Forecast & Resource Production Firm Orders Availability Planning Material Master Production Requirements Scheduling Planning No, modify CRP, MRP, or MPS Capacity Shop Requirements Floor Realistic? Yes Planning Schedules MRP and The Production Planning Process © 1998 by Prentice Hall, Inc. A Simon & Schuster Company Upper Saddle River, N.J. 07458 Transparency Masters to accompany Operations Management, 5E (Heizer & Render) 14-22

8. Car Example

9. Time-Phased Product Structure • Purchasing - 1 week lead time, buys axles, wheels, bodies • Sub-assembly dept - 2 week lead time, 1 wheel, 1 axle makes a subassembly • Final assembly - 1 week lead time, body, 2 wheels, 2 axle subassembly

10. Basic Concepts • Start with a master schedule • MS is an overall production plan for finished goods (end items) over a planning horizon • Work backwards through the production process to raw materials and purchased parts, determining when and how much of each component

11. MRP Plans • Gross requirements = total demand in that period • Scheduled Receipt = previous orders made available in that period • Projected on hand = inventory at beginning of period