LESSON 5 Introduction to Materials Requirements Planning (MRP) 29 August 2014

Lesson Objectives Upon completion of this lesson, you should be able to: Explain the MRP process as part of Production Planning and Control (PPC) Distinguish the three main sources of input to MRP Contrast key benefits and drawbacks to MRP Demonstrate the use of a time phased MRP record table Given a scenario, evaluate the MRP Records for all the components of a product

Lesson Topics This lesson will cover the following topics: Materials Requirements Planning (MRP) MRP Inputs/Outputs Benefits of MRP Time-Phased MRP Record Table MRP Records for All Components of a Product

What’s In It For Me? Your ability to evaluate a contractor’s MRP allows you to identify possible resource risks and help mitigate their impact on contract deliverables

Lesson Introduction How is Material Requirements Planning (MRP) used to plan parts ordering and finished product manufacture?

Materials Requirements Planning (MRP) Lesson Topics: Materials Requirements Planning (MRP) MRP Inputs/Outputs Benefits of MRP Time-Phased MRP Record Table MRP Records for All Components of a Product

Materials Requirements Planning (MRP) An inventory management system Designed to assist production managers in scheduling and placing orders for dependent demand items Provides formal plans for each part number Objective is to provide the right part at the right time to meet schedules for completed products

PPC System Framework Front End (Strategic) Engine (Tactical) Resource Planning Material and Capacity Plans Detailed Capacity Planning Sales and Operations Planning Demand Management Master Production Scheduling Detailed Material Planning Shop-floor Systems Supplier Systems Enterprise Resource Planning (ERP) Systems Front End (Strategic) Engine (Tactical) Back End (Operational) Material Requirements Planning

Detailed Material Planning and MRP The Engine provides processes and systems for detailed material and capacity planning Detailed Capacity Planning Detailed Material Planning Material Requirements Planning Material and Capacity Plans (Tactical)

Detailed Material Planning and MRP (cont.) Detailed Material Planning process uses Material Requirements Planning (MRP) to determine the period-by-period (time-phased) plans for component parts and raw materials MPS from the Front End feeds directly into the Detailed Material Planning process Detailed Capacity Planning Detailed Material Planning Material Requirements Planning Material and Capacity Plans (Tactical)

MRP Inputs Lesson Topics: Materials Requirements Planning (MRP) MRP Inputs/Outputs Benefits of MRP Time-Phased MRP Record Table MRP Records for All Components of a Product

Inventory Records File MRP Inputs MPS BOM MRP Inventory Records File

MRP Outputs MRP Planned Order Schedules Performance Control Report 3 Primary Reports 3 Secondary Reports Planned Order Schedules Performance Control Report Order Releases Planning Reports Changes to Planned Orders Exception Reports

Exercise 1: MRP Integration Small Group Exercise: Find a partner or work in a trio Refer to Module 2, Lesson 5, Exercise 1 CME130_M2_L5_E1_Exercise_FINAL.docx Read the directions in the exercise Complete the activity; be prepared to share your responses Time allowed: 30 minutes

Exercise 1: MRP Integration SCENARIO Using the cable manufacturer scenario, explain MRP processes. OBJECTIVES Explain the MRP process as part of the PPC. Identify the three main sources of input to the MRP. INSTRUCTIONS Sketch how MRP fits into the PPC engine and relates to the PPC front end. Annotate your illustration to identify MRP inputs and outputs.

Benefits of MRP Lesson Topics: Materials Requirements Planning (MRP) MRP Inputs/Outputs Benefits of MRP Time-Phased MRP Record Table MRP Records for All Components of a Product

Benefits of MRP Increased customer service and satisfaction Improved utilization of facilities and personnel Better inventory planning and scheduling Faster response to market changes and shifts Reduced inventory levels without reduced customer service

MRP Drawbacks Changes must be completed within the system using transactions Transaction errors must be identified and corrected to ensure accurate material plans

Which of the following is an MRP input? Question and Answer Which of the following is an MRP input? MPS Order Releases Planning Reports Planned Order Schedules

Which of the following is a benefit of using MRP? Question and Answer Which of the following is a benefit of using MRP? Better inventory planning and scheduling Changes may be completed using a variety of methods High tolerance for errors within the transaction information Higher inventory levels without increased holding costs

Materials Requirements Planning (MRP) MRP Inputs Lesson Topics: Materials Requirements Planning (MRP) MRP Inputs/Outputs Benefits of MRP Time-Phased MRP Record Table MRP Records for All Components of a Product

Time-Phased MRP Record Table Term Description Gross Requirements Anticipated usage or demand for each period Scheduled Receipts Existing replenishment orders at beginning of period Projected Available Balance Current and projected inventory status at the end of period Net Requirements Projected demand less inventory less the period’s planned order receipts less the period’s scheduled receipts Planned Order Receipts Planned replenishment orders for the beginning of each period Planned Order Release Replenishment orders to be issued each period

Time-Phased MRP Record Table (cont.) End-Item - Chair Wk 0 Wk 1 Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7 Wk 8 Gross Requirements Scheduled Receipts Projected Available Balance Net Requirements Planned Order Receipts Planned Order Release

Example: MPS for an End-Item End-Item - Chair Wk 0 Wk 1 Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7 Wk 8 Gross Requirements 150 70 175 90 60 Scheduled Receipts Projected Available Balance 260 110 40 -135 Net Requirements Planned Order Receipts Planned Order Release The production manager at Aldershot Manufacturing wishes to develop a materials requirements plan for producing chairs over an 8 week period. She estimates that the lead time between releasing an order to the shop floor and producing a finished chair is 2 weeks. The company currently has 260 chairs in stock and no safety stock. The forecast customer demand is for 150 chairs in week 1, 70 in week 3, 175 in week 5, 90 in week 7 and 60 in week 8. Lead Time = 2 Weeks

Example: MPS for an End-Item (cont.) End-Item - Chair Wk 0 Wk 1 Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7 Wk 8 Gross Requirements 150 70 175 90 60 Scheduled Receipts Projected Available Balance 260 110 40 -90 Net Requirements Planned Order Receipts 135 Planned Order Release Receive Here Order Here Lead Time = 2 Weeks

Example: MPS for an End-Item (cont.) Ordering decisions: Timing – When to order Quantity – How much to order This is a driving principle in MRP; never order before you need to and never plan to stock out With respect to quantity, we always order as little as possible

Gross-to-Net Explosion Explosion is the process of translating product requirements into component part requirements, taking existing inventories and scheduled receipts into account. As the explosion takes place, only the components, net of any inventory, are considered. This way, only the necessary requirements are linked through the system.

Gross-to-Net Explosion (cont.) Translates product requirements into component part requirements Takes existing inventories and scheduled receipts into account Determines the quantities of all components needed to satisfy requirements for every part number so that all purchased and/or raw material requirements are exactly calculated

Lead Time Offset Gross-to-Net Offset tells us how many of each component are needed for a finished product. The “WHEN they are needed” is the Lead Time Offset.

Front and Back Schedule Front Schedule, or Earliest Start, assumes that we will start everything as soon as possible. Back Schedule will start everything as late as possible. MRP uses the benefits of Back Scheduling and the Gross-to-Net Explosion; this is the heart of the system.

Explosion Example Assuming demand for toy wagons is 10 units how many bolts are required? 10 wagons Toy Wagon Handle Assembly (1) Bolts (2) Handle Bar (1) Frame Assembly (1) Axles (2) Wheel Assembly (4) Wagon Body Bolts (4) Wheel (1) 10 frames 10 handles 10 handles × 2 bolts = 20 bolts 10 frames × 4 wheel ass. = 40 wheel ass. 40 wheel ass. × 4 bolts = 160 bolts 20 bolts + 160 bolts = 180 bolts

Which concept is used for MRP? Question and Answer Which concept is used for MRP? Back scheduling Front scheduling Postponed scheduling

Materials Requirements Planning (MRP) MRP Inputs Lesson Topics: Materials Requirements Planning (MRP) MRP Inputs/Outputs Benefits of MRP Time-Phased MRP Record Table MRP Records for All Components of a Product

MRP Records for All Components of a Product The MPS must align with the operations plan Shows scheduling decisions for mixes of end items to produce Hitting the schedule means the agreed-on operations plan will be met

Example: Material Needed for a Chair Chair assembly (Level 0) Must plan for production/ordering of components (Levels 1 and 2) Back supports (3) Side rails (2) Front legs (2) Cross bars (2) Seat (1)

Example: BOM vs. Tree Chart Chair Level L0 L1 L2 1 Leg Assembly 2 Front Legs (2) Cross Bar (1) Seat Back Assembly Side Rails (2) Back Supports (3) Tree Chart* Chair Leg Assembly Back Seat Front Legs (2) Cross Bar (1) Side Rails (2) Back Supports (3) Level 0 Level 1 * Hardware is understood Level 2

Example: End-Item vs. Components Lead times: LT Seat = 2 weeks LT Back Assembly = 2 weeks LT Leg Assembly = 1 week On-hand inventory: 60 seats 40 back assemblies 80 leg assemblies Scheduled receipts are: 50 seats in week 1 Back supports (3) Side rails (2) Front legs (2) Cross bars (2) Seat (1) LT = Lead Time

Example: Chair vs. Seat End Item - Chair 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 Gross Requirements 150 70 175 90 60 Scheduled Receipts Projected Available Balance 260 110 40 Net Requirements 135 Planned Order Receipts Planned Order Release LT Seat = 2 weeks Component - Seat 1 2 3 4 5 6 7 8 Gross Requirements 135 90 60 Scheduled Receipts 50 Projected Available Balance 110 Net Requirements 25 Planned Order Receipts Planned Order Release

Example: Chair vs. Back Assembly End Item - Chair 1 2 3 4 5 6 7 8 Gross Requirements 150 70 175 90 60 Scheduled Receipts Projected Available Balance 260 110 40 Net Requirements 135 Planned Order Receipts Planned Order Release LT Back Assembly = 2 weeks Component - Back Assembly 1 2 3 4 5 6 7 8 Gross Requirements 135 90 60 Scheduled Receipts Projected Available Balance 40 Net Requirements 95 Planned Order Receipts Planned Order Release

Example: Back Assembly vs. Back Components 1 2 3 Gross Requirements 135 Scheduled Receipts Projected Available Balance 40 Net Requirements 95 Planned Order Receipts Planned Order Release 90 Back Supports 1 2 3 Gross Requirements 285 270 Scheduled Receipts 165 Projected Available Balance 120 Net Requirements Planned Order Receipts Planned Order Release 180 LT Back Assembly = 2 weeks

Summary Having completed this lesson, you should now be able to: Explain the MRP process as part of PPC Distinguish the three main sources of input to the MRP Contrast key benefits and drawbacks to MRP Demonstrate the use of a time phased MRP record table Given a scenario, evaluate the MRP Records for all the components of a product

Summary (cont.) Your ability to interpret contractors’ MRP processes allows you to: Verify that components were placed on order in time and in sufficient quantities to meet contract production requirements.

Module 2 Wrap Up Activity Refer to the Module 2 Wrap up Activity As a team, answer the questions in the Module 2 Wrap Up Activity File Each team must answer all the questions. Each Team must be prepared to present their answers. You have the remaining time as directed by the instructor to complete this activity.