1. Adeyl Khan, Faculty, BBA, NSU

2. 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. BOM MRP MPS Current Availabilities Planned Order Releases Priority Planning Lead Times Lot Sizing Policies

3. Adeyl Khan, Faculty, BBA, NSU Glossary  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 14-3

4. Adeyl Khan, Faculty, BBA, NSU 14-4 Independent and Dependent Demand Independent Demand A B(4) C(2) D(2)E(1) D(3) F(2) Dependent Demand Independent demand is uncertain. Dependent demand is certain.

5. Adeyl Khan, Faculty, BBA, NSU Dependent vs Independent Demand 14-5 Time Demand Stable demand “Lumpy” demand Amount on hand Safety stock Figure 14.1

6. Adeyl Khan, Faculty, BBA, NSU MRP Inputs  Master Production Schedule  Time-phased plan specifying timing and quantity of production for each end item.  Material Requirement Planning Process  Product Structure Tree  Lead Times 14-6

7. Adeyl Khan, Faculty, BBA, NSU Bill of Materials  Bill of Materials – Parent-child diagram that shows what goes into what. Bike Frame Assy Wheel Assy Components WheelTires Hubs & Rims Spokes Frame Used to make sure enough parts for production plan Each part has LT, ordering policy One BOM for every end product

8. Adeyl Khan, Faculty, BBA, NSU Product Structure Tree 14-8 Chair Seat Legs (2) Cross bar Side Rails (2) Cross bar Back Supports (3) Leg Assembly Back Assembly Level 0 1 2 3 Figure 14.5

9. Adeyl Khan, Faculty, BBA, NSU MRP Processing 14-9 MRP computer programs Master schedule MRP InputsMRP ProcessingMRP Outputs Bill of materials Inventory records Changes Order releases Planned-order schedules Exception reports Planning reports Performance- control reports Inventory transaction Primary reports Secondary reports Figure 14.2

10. Adeyl Khan, Faculty, BBA, NSU Master Schedule- A primary input  Master schedule  States which end items are to be produced, when these are needed, and in what quantities.  Cumulative lead time  The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly. 14-10

11. Adeyl Khan, Faculty, BBA, NSU Planning Horizon 14-11 12345 67 8910 Procurement Fabrication Subassembly Assembly Figure 14.4 Time Period (weeks)

12. Adeyl Khan, Faculty, BBA, NSU Inventory Records  One of the three primary inputs in MRP  Includes information on the status of each item by time period  Gross requirements  Scheduled receipts  Amount on hand  Lead times  Lot sizes  And more … 14-12

13. Adeyl Khan, Faculty, BBA, NSU Inventory Requirements Calculation  Net requirements:  Net Requirements = Gross Requirements – Available Inventory  Available Inventory:  Available Inventory = Projected on hand – Safety stock – Inventory allocated to other items 14-13

14. Adeyl Khan, Faculty, BBA, NSU Assembly Time Chart 14-14 12345 67 891011 Procurement of raw material D Procurement of raw material F Procurement of part C Procurement of part H Procurement of raw material I Fabrication of part G Fabrication of part E Subassembly A Subassembly B Final assembly and inspection Figure 14.7

15. Adeyl Khan, Faculty, BBA, NSU MRP Processing- Outputs  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 14-15  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

16. Adeyl Khan, Faculty, BBA, NSU MRP Primary Reports  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.  MRP Secondary Reports  Performance-control reports  Planning reports  Exception reports 14-16 Regenerative system Updates MRP records periodically Net-change system Updates MPR records continuously Updating the System

17. Adeyl Khan, Faculty, BBA, NSU Other Considerations  Safety Stock  Lot sizing  Lot-for-lot ordering  Economic order quantity  Fixed-period ordering 14-17

18. Adeyl Khan, Faculty, BBA, NSU MRP in 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 14-18

19. Adeyl Khan, Faculty, BBA, NSU Benefits of MRP  Low levels of in-process inventories  Ability to track material requirements  Ability to evaluate capacity requirements  Means of allocating production time  Ability to easily determine inventory usage by backflushing 14-19

20. Adeyl Khan, Faculty, BBA, NSU Requirements of MRP  Computer and necessary software  Accurate and up-to-date  Master schedules  Bills of materials  Inventory records  Integrity of data 14-20

21. Adeyl Khan, Faculty, BBA, NSU Example 2  Plant produces  Wood Shutter  Book Cases 21 12345678 Quantity 100150 Shutter Assembly LT = 1 Shutter Assembly LT = 1 Frames (2) Order LT =2 Frames (2) Order LT =2 Wood Section (4) Fabrication LT = 1 Wood Section (4) Fabrication LT = 1 Schedule Re. W 1 = 70

22. Adeyl Khan, Faculty, BBA, NSU 22 Shutter 12345678 Quantity 100150 Shutter 12345678 Gross Req. 100150 Scheduled Receipts Projected on hand Net requirement 100150 Planned order receipts 100150 Planned order release 100150

23. Adeyl Khan, Faculty, BBA, NSU 23 Shutter 12345678 Planned order release 100150 Frames 12345678 Gross Req. 200300 Scheduled Receipts Projected on hand Net requirement 200300 Planned order receipts 200300 Planned order release 200300

24. Adeyl Khan, Faculty, BBA, NSU 24 SAMPLE MRP Report A B DC [2] FE

25. Adeyl Khan, Faculty, BBA, NSU Computing the item Scheduled Releases Synthesizing item demand series Projecting Inv. Positions and Net Reqs. Lot Sizing Time- Phasing Parent Sched. Rel. Item External Demand Gross Reqs Scheduled Receipts Initial Inventory Safety Stock Requirements Net Reqs Lot Sizing Policy Planne d Order Receipt s Lead Time Planned Order Releases

26. Adeyl Khan, Faculty, BBA, NSU Lot Sizing  If affordable, a lot-for-lot (L4L) policy will incur the lowest inventory holding costs and it will maintain a smoother production flow.  Possible reasons for departure from a L4L policy:  High set up times and costs => need for serial process batching to control the capacity losses  Processes that require a large production volume in order to maintain a high utilization (e.g., fermentors, furnaces, etc.) => need for parallel process batching  Selection of a pertinent process batch size  It must be large enough to maintain feasibility of the production requirements  It must control the incurred  inventory holding costs, and/or  part delays (this is a measure of disruption to the production flow caused by batching)  Move or transfer batches: The quantities in which parts are moved between the successive processing stations.  They should be as small as possible to maintain a smooth process flow

27. Adeyl Khan, Faculty, BBA, NSU Some Lot Sizing Methods employed in the traditional MRP framework  Main focus: Balance set-up and holding costs  Wagner-Whitin Algorithm for dynamic Lot Sizing  Economic Order Quantity (EOQ): Compute a lot size using the EOQ formula with the demand rate D set equal to the average of the net requirements observed over the considered planning horizon.  Periodic Order Quantity (POQ): Compute T = round(EOQ/D), and every time you schedule a new lot, size it to cover the net requirements for the subsequent T periods.

28. Adeyl Khan, Faculty, BBA, NSU Some Lot Sizing Methods employed in the traditional MRP framework …  Silver-Meal (SM): Every time you start a new lot, keep adding the net requirements of the subsequent periods, as long as the average (setup plus holding) cost per period decreases.  Least Unit Cost (LUC): Every time you start a new lot, keep adding the net requirements of the subsequent periods, as long as the average (setup plus holding) cost per unit decreases.  Part Period Balancing (PPB): Every time you start a new lot, add a number of subsequent periods such that the total holding cost matches the lot set up cost as much as possible.

29. Adeyl Khan, Faculty, BBA, NSU 14-29 Financial planning MarketingEngineeringPurchasingManufacturing

30. Adeyl Khan, Faculty, BBA, NSU MRP II 14-30 Market Demand Production plan Problems? Rough-cut capacity planning Yes No Yes No Finance Marketing Manufacturing Adjust production plan Master production schedule MRP Capacity planning Problems? Requirements schedules Adjust master schedule Figure 14.14

31. Adeyl Khan, Faculty, BBA, NSU Capacity Planning  Capacity requirements planning: The process of determining short-range capacity requirements.  Load reports  Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.  Time fences  Series of time intervals during which order changes are allowed or restricted. 14-31

32. Adeyl Khan, Faculty, BBA, NSU Capacity Planning 14-32 Develop a tentative master production schedule Use MRP to simulate material requirements Rough-cut capacity planning Firm up a portion of the MPS Is shop capacity adequate? Can capacity be changed to meet requirements Revise tentative master production schedule Change capacity Yes No Yes No Figure 14.15

33. Adeyl Khan, Faculty, BBA, NSU Solved Problem 3 Std. TimesProd. Schedule Labor0.5hrs/unitWeek1234 Machines1hrs/unitQuantity200300100150 Labor hr1001505075 Av. CapacityMachine hrs200300100150 Labor200hrsLabor Util.50.00%75.00%25.00%37.50% Machines250hrsMachine Util.80.00%120.00%40.00%60.00% 33

34. Adeyl Khan, Faculty, BBA, NSU MRP in Services  Service applications such as:  Professional services  Postal services  Retail  Banking  Healthcare  Higher education  Engineering  Logistical services  Real estate 14-34

35. Adeyl Khan, Faculty, BBA, NSU MRP >> MRPII >> ERP Integration of financial, manufacturing, and human resources on a single computer system. 14-35

36. Adeyl Khan, Faculty, BBA, NSU ERP Software  ERP software provides a system to capture and make data available in real time to decision makers and other users in the organization  Provides tools for planning and monitoring various business processes  Includes  Production planning and scheduling  Inventory management  Product costing  Distribution 14-36

37. Adeyl Khan, Faculty, BBA, NSU ERP Strategy Considerations  High initial cost  High cost to maintain  Future upgrades  Training 14-37

38. Adeyl Khan, Faculty, BBA, NSU 38

39. Adeyl Khan, Faculty, BBA, NSU Learning Objectives  Describe the conditions under which MRP is most appropriate.  Describe the inputs, outputs, and nature of MRP processing.  Explain how requirements in a master production schedule are translated into material requirements for lower-level items.  Discuss the benefits and requirements of MRP. 14-39

40. Adeyl Khan, Faculty, BBA, NSU Learning Objectives  Explain how an MRP system is useful in capacity requirements planning.  Outline the potential benefits and some of the difficulties users have encountered with MRP.  Describe MRP II and its benefits.  Describe ERP, what it provides, and its hidden costs. 14-40