O peration M anagement MPS &MRP

1. Operation ManagementMPS &MRP Rachmat A. Anggara PMBS, BOPR 5301, Session 6

2. OUTLINE • MRP & MPS Structure • MRP Management • MRP Dynamics • MRP and JIT • Lot-Sizing Techniques

3. OBJECTIVES • Understand Bill of Materials • Master Production Schedule • Materials Requirement Planning • Lot sizing

4. DEMAND TYPE • Independent • Dependent • The demand for one item is related to the demand for another item • Given a quantity for the end item, the demand for all parts and components can be calculated

5. DEPENDENT DEMAND Effective use of dependent demand inventory models requires the following • Master production schedule • Specifications or bill of material • Inventory availability • Purchase orders outstanding • Lead times

6. DEPENDENT DEMAND Effective use of dependent demand inventory models requires the following • Master production schedule • Specifications or bill of material • Inventory availability • Purchase orders outstanding • Lead times

7. Production Capacity Inventory Marketing Customer demand Finance Cash flow Procurement Supplier performance Human resources Manpower planning Management Return on investment Capital Engineering Design completion Aggregate production plan Change production plan? Master production schedule OPERATION MANAGEMENT FLOW Materials Requirement Planning

8. MASTER PRODUCTION SCHEDULE Master Production Schedule gives production, planning, purchasing, and top management the information needed to plan and control the manufacturing operation. The application ties overall business planning and forecasting to detail operations through the Master Production Schedule (inventory& logistics solutions) MPS -Forecasts -Aggregate Planning -Customer order -Capacity -What to produce -When To Produce -How Much to Produce

9. MASTER PRODUCTION SCHEDULE MPS is disaggregation of Aggregate Planning

10. MPS STRUCTURE

11. BILL OF MATERIALS • List of components, ingredients, and materials needed to make product • Provides product structure • Items above given level are called parents • Items below given level are called children

12. BILL OF MATERIALS

13. LEAD TIMES • The time required to purchase, produce, or assemble an item • For purchased items – the time between the recognition of a need and the availability of the item for production • For production – the sum of the order, wait, move, setup, store, and run times

14. Must have D and E completed here so production can begin on B Start production of D 1 week 2 weeks to produce D B 2 weeks E A 2 weeks 1 week E 1 week 2 weeks G C 3 weeks F 1 week D | | | | | | | | 1 2 3 4 5 6 7 8 Time in weeks TIME PHASING FOR PRODUCT STRUCTURE

15. Data Files Output Reports MRP by period report BOM Master production schedule MRP by date report Lead times (Item master file) Planned order report Inventory data Purchase advice Material requirement planning programs (computer and software) Exception reports Order early or late or not needed Order quantity too small or too large Purchasing data MATERIAL REQUIREMENT PLANNING Figure 14.5

16. MRP STRUCTURE • INPUTS • Objective: find material plans [planned order releases] for all parts • Data requirements MPS BOMs Inventory records file • Gross requirements are ultimately derived from MPS • But in calculations, the gross requirements for a part depend only on the planned order releases of the parent parts

17. MRP STRUCTURE (2) • Parameters • Gross requirements  demand for part (forecast) • Schedule receipts planned completion times for batches of parts which have been already ordered • Projected on hand Number of ready stock • Net requirements  Number of required item on that period • Planned-order receipts planned completion times for batches of parts which have not yet been ordered • Planned-order releases planned start times for batches of parts which have not yet been ordered

18. MRP STRUCTURE (3) • OUTPUTS • Planned orders - schedule indicating the amount and timing of future orders. • Order releases - Authorization for the execution of planned orders. • Changes - revisions of due dates or order quantities, or cancellations of orders.

19. MRP STRUCTURE (3) • OUTPUTS • Planned orders - schedule indicating the amount and timing of future orders. • Order releases - Authorization for the execution of planned orders. • Changes - revisions of due dates or order quantities, or cancellations of orders.

20. MRP’s TEMPLATE

21. allocations gross requirements + total requirements scheduled receipts on hand – + = net requirements available inventory MRP’s TEMPLATE The logic of net requirements

22. MRP’s TEMPLATE example A LT 2 B (2) LT 2

23. MRP’s TEMPLATE example MRP for item B??

24. MRP’s TEMPLATE example MRP for item B??

25. LOT SIZING TECHNIQUE • Lot-for-lot techniques order just what is required for production based on net requirements • May not always be feasible • If setup costs are high, costs may be high as well • Economic order quantity (EOQ) • EOQ expects a known constant demand and MRP systems often deal with unknown and variable demand • Part Period Balancing (PPB) looks at future orders to determine most economic lot size

26. LOT SIZING TECHNIQUE LOT FOR LOT No on-hand inventory is carried through the system Total holding cost = $0 There are seven setups for this item in this plan Total setup cost = 7 x $100 = $700 Holding cost = $1/week; Setup cost = $100

27. LOT SIZING TECHNIQUE EOQ Holding cost = $1/week; Setup cost = $100; Average weekly gross requirements = 27; EOQ = 73 units

28. LOT SIZING TECHNIQUE PART PERIOD BALANCING Find Economic Part Period Holding cost = $1/week; Setup cost = $100; EPP =Setup cost/holding cost= 100 units 2. Combine each period until reach/closest to EPP (period 1, period 1-2, period 1-3, period 1-4. and so on… 3. Stop until combined period larger than EPP

29. LOT SIZING TECHNIQUE PART PERIOD BALANCING Holding cost = $1/week; Setup cost = $100; EPP = 100 units

30. 10 55 LOT SIZING TECHNIQUE PART PERIOD BALANCING 2 30 2, 3 70 2, 3, 4 70 2, 3, 4, 5 80 2, 3, 4, 5, 6 120 Combine periods 2 - 5 as this results in the Part Period closest to the EPP Combine periods 6 - 9 as this results in the Part Period closest to the EPP 6 40 6, 7 70 6, 7, 8 70 6, 7, 8, 9 100

31. LOT SIZING TECHNIQUE PART PERIOD BALANCING Fulfill The MRP TEMPLATE PLEASE

32. DISTRIBUTION RESOURCE PLANNING Using dependent demand techniques through the supply chain • Gross requirements, which are the same as expected demand or sales forecasts • Minimum levels of inventory to meet customer service levels • Accurate lead times • Definition of the distribution structure

33. DISTRIBUTION RESOURCE PLANNING

34. ENTERPRISE RESOURCE PLANNING • An extension of the MRP system to tie in customers and suppliers • Allows automation and integration of many business processes • Shares common data bases and business practices • Produces information in real time • Coordinates business from supplier evaluation to customer invoicing

35. ENTERPRISE RESOURCE PLANNING • ERP systems have the potential to • Reduce transaction costs • Increase the speed and accuracy of information • Facilitates a strategic emphasis on JIT systems and integration

36. ENTERPRISE RESOURCE PLANNING

37. HOME WORK!!!