BMFP 4513 :Production Planning and Control

1. BMFP 4513 :Production Planning and Control Materials Requirement Planning (MRP)

2. Learning Objectives • Review the basics of MRP • Apply lot sizing techniques such as lot for lot, EOQ, Silver Meal Heuristic and Least Unit Cost.

3. Learning questions • Difference between MRP and MPS • Where does MRP sit in the hierarchy of production planning? • What is Bill Of Materials (BOM)? • Buckets, End items, Low level items? • Dependent vs Independent items?

4. Forecast of future demand Aggregate plan Master production schedule (MPS) Schedule of production quantities by product and time period Material Requirement Planning (MRP) Generate production orders and purchase order Operations Scheduling To meet quantities and time requirements for MRP Basics of MRP

5. Months January February Aggregate Production Plan 1,500 1,200(shows the totalquantity of amplifiers) Weeks 1 2 3 4 5 6 7 8 Master Production Schedule(shows the specific type andquantity of amplifier to beproduced 240 watt amplifier 100 100 100 100 150 watt amplifier 500 500 450 450 75 watt amplifier 300 100 Transition from Aggregate Plan into MPS Figure 14.2

6. Why Push and Pull? • MRP is the classic push system. • The MRP system computes production schedules for all levels based on forecasts of sales of end items. • Once produced, subassemblies are pushed to next level whether needed or not.

7. Assumptions • 1. Known deterministic demands. • 2. Fixed, known production lead times. • 3. Infinite capacity. • Idea is to “back out” demand for components by using leadtimes and bills of material.

8. Basics of MRP • Material requirements planning (MRP): Computer-based information system that: • translates master schedule requirements for end items • into time-phased requirements for • subassemblies, components, and raw materials.

9. Basics of MRP • Many products are not single entities, they are composed of subassemblies and parts, some purchased and some manufactured. • A production plan specifies quantities of each final product (end item), subassemblies, and parts needed at distinct points in time. • To generate a production plan two things are required: estimates for the end-product demand, and a master production schedule (MPS) • What’s the difference between MPS and MRP?

10. Basics of MRP • Strictly speaking in terms of SAP.... MPS will generate requirement in terms of the finished good and one level below it only...whereas in MRP requirement will be generated for all dependent requirements • MPS stops at level one in the BOM. MRP runs through all BOM levels

11. Basics of MRP • The explosion calculus is a set of rules for converting the master production schedule to a requirements schedule for all subassemblies, components, and raw materials necessary to produce the end item • There are two basic operations comprising the explosion calculus: • Time phasing. Requirements for lower level items must be shifted backwards by the lead time required to produce the items • Multiplication. A multiplicative factor must be applied when more than one subassembly is required for each higher level item

12. 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. Basics of MRP

13. Basics of MRP Master schedule: One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities.

14. Basics of MRP 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. Low-level coding: Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level the component occurs

15. 7-15 Typical Product Structure Diagram

16. Basics of MRP • MRP is known as a push system, since it plans production according to forecasts of future demand and pushes out products accordingly • MRP planning is based on time buckets (or periods) • Orders (current demand) and forecasts (future demand) for end-items drive the system • These requirements drive the need for subassemblies and components at lower levels of the bill-of-materials (BOM)

17. Basics of MRP • Purchase orders– outside orders • Buckets– time is divided into discrete chunks • End items– finished products • Lower-level items – constituent parts of the end items • Bill of material (BOM) – relationship between end and the lower-level items

18. Basics of MRP The basic MRP procedure is simple: for each level in the bill of material, beginning with end items, MRP does the following: • Netting: Determine net requirements by subtracting on-hand inventory and any scheduled receipts from the gross requirements. The gross requirements for level-zero items come from the MPS, while those for lower-level items are the result of previous MRP operations • Lot sizing: Divide the netted demand into appropriate lot sizes to form jobs • Time phasing: Offset the due dates of the jobs with lead times to determine start times • BOM explosion: Use the start times, the lot sizes, and the BOM to generate gross requirements of any required components at the next level(s) • Iterate: Repeat these steps until all levels are processed.

19. MRP review

20. Basics of MRP • Gross requirements • Schedule receipts • Projected on hand • Net requirements • Planned-order receipts • Planned-order releases

21. Basics of MRP • Gross requirements • Total expected demand • Scheduled receipts • Open orders scheduled to arrive • Planned on hand • Expected inventory on hand at the beginning of each time period

22. Basics of MRP • Net requirements • Actual amount needed in each time period • Planned-order receipts • Quantity expected to received at the beginning of the period • Offset by lead time • Planned-order releases • Planned amount to order in each time period

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

24. X A(2) It takes 2 A’s for each X

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

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

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

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

29. Shortcomings of Material Requirement Plan • Uncertainty: MRP ignores demand uncertainty, supply uncertainty, and internal uncertainties that arise in the manufacturing process • Capacity Planning: Basic MRP does not take capacity constraints into account • Rolling Horizons: MRP is treated as a static system with a fixed horizon of n periods. The choice of n is arbitrary and can affect the results • Lead Times Dependent on Lot Sizes: In MRP lead times are assumed fixed, but they clearly depend on the size of the lot required • Quality Problems: Defective items can destroy the linking of the levels in an MRP system • Data Integrity: Real MRP systems are big (perhaps more than 20 levels deep) and the integrity of the data can be a serious problem

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

31. 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

32. 7-32 Lot Sizing For MRP Systems The simplest lot sizing scheme for MRP systems is lot-for-lot (abbreviated L4L). L4L = produces exactly what is needed. However, more cost effective lot sizing plans are possible. (need prod. cost and holding cost) This brings to mind the EOQ formula. However, there are better methods.

33. The EOQ We also need a reorder point to tell us when to place an order

34. EOQ Example (1) Problem Data Given the information below, what are the EOQ and reorder point? Annual Demand = 1,000 units Days per year considered in average daily demand = 365 Cost to place an order = $10 Holding cost per unit per year = $2.50 Lead time = 7 days Cost per unit = $15

35. EOQ Example (1) Solution In summary, you place an optimal order of 90 units. In the course of using the units to meet demand, when you only have 20 units left, place the next order of 90 units.

36. 7-36 Statement of the Lot Sizing Problem Assume there is a known set of requirements (r1, r2, . . . rn) over an n period planning horizon. Both the set up cost, K, and the holding cost, h, are given. The objective is to determine production quantities (y1, y2, . . ., yn) to meet the requirements at minimum cost.

37. 7-37 Methods One could apply the EOQ formula by defining but there are better methods. • Silver Meal Heuristic • Least Unit Cost

38. 7-38 Methods (concluded) • Experimental evidence seems to favor the Silver Meal Heuristic among the four discussed as the most cost efficient. • Optimal lot sizes can be found by using backwards dynamic programming.

39. Lot Sizing in MRP Programs • Lot-for-lot (L4L) • Economic order quantity (EOQ) • Least unit cost (LUC) • Silver Meal Heuristic Which one to use? • The one that is least costly!