Material Requirements Planning Chapter 14 Material Requirements Planning

Independent demand is uncertain. Dependent demand is certain. (Chapter 13) A Dependent Demand (Chapter 14) B(4) C(2) D(2) E(1) D(3) F(2) Independent demand is uncertain. Dependent demand is certain. MTSU Management 362

Dependent Demand vs Independent Demand Figure 14-1 Dependent Demand vs Independent Demand Time Demand Stable demand “Lumpy” demand Amount on hand Safety stock MTSU Management 362

Figure 14-2 MRP Inputs MRP Processing MRP Outputs Master schedule Bill of materials file Inventory records MRP computer programs Changes Order releases Planned-order schedules Exception reports Planning reports Performance- control reports transaction Primary Secondary MTSU Management 362

Inventory Records File A computerized file with a complete record of each material (part number) held in inventory Provides current status and planning factors used by MRP quantity currently on hand (perpetual inventory) quantities on order and delivery dates customer orders (service parts) lot size lead time safety stock level scrap rate MTSU Management 362

Master Schedule States which end items (finished goods) are to be produced, when these are needed, and in what quantities MTSU Management 362

Bill-of-Materials A listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a finished product Typically shown a product tree structure where all components and their relationships are listed by levels MTSU Management 362

Product Structure Tree Figure 14-5 Product Structure Tree Level Chair Seat Legs (2) Cross bar Side Rails (2) Back Supports (3) Leg Assembly 1 2 3 MTSU Management 362

Netting Process Assume the following on-hand amounts for each item Chair Leg Assembly Seat Back Assembly Leg Cross Bar Side Rail Back Support Amount on hand 10 5 7 2 8 14 12 20 MTSU Management 362

Planning Horizon 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. Time fences: Series of time intervals during which order changes are allowed or restricted (see Figure 12-12, page 548). MTSU Management 362

Netting Process Assume the following lead times for each item Item Chair Leg Assembly Seat Back Assembly Leg Cross Bar Side Rail Back Support Lead time 1 2 MTSU Management 362

Assembly Time Chart 1 2 3 4 5 Place order with supplier Release order Procurement of back supports Procurement of cross bar Back assembly Procurement of side rails Final assembly and inspection of chair Procurement of seat Procurement of cross bar Leg assembly Procurement of front legs 1 2 3 4 5 Place order with supplier Release order to department MTSU Management 362

1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item MRP Logic 10 15 20 12 5 The MPS is converted into the gross requirements for each component for each time period (time bucket) in the planning horizon using the bill of materials. MTSU Management 362

1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 The scheduled receipts are orders that have been placed and are on the way. It is assumed that receipts arrive and are available at the beginning of a time period. MTSU Management 362

1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 23 The initial inventory is added to period 1’s scheduled receipts and placed in period 1 of the projected on hand line. In this case, assume that the initial inventory is 16. Add period 1’s scheduled receipt (7) and initial inventory (16) to obtain the projected on hand amount for period 1 (23). MTSU Management 362

1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 23 -13 Subtract the projected on hand amount for period 1 (23) from period 1’s gross requirement (10) to find the net requirement (-13). MTSU Management 362

1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 23 22 -13 If the net requirement is negative or zero, that amount (13) is added to the period 2’s scheduled receipt (9) to find the period 2’s projected on hand amount (22). MTSU Management 362

1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 23 22 -13 -7 Subtract the projected on hand amount for period 2 (22) from period 2’s gross requirement (15) to find the net requirement (-7). MTSU Management 362

1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 23 22 7 -13 -7 If the net requirement is negative or zero, that amount (7) is added to the period 3’s scheduled receipt (0) to find the period 3’s projected on hand amount (7). MTSU Management 362

1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 23 22 7 -13 -7 13 Subtract the projected on hand amount for period 3 (7) from period 3’s gross requirement (20) to find the net requirement (13). If the net requirement is positive, an order receipt must be planned to cover that amount. MTSU Management 362

1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 23 22 7 -13 -7 13 13 If lot-for-lot lot sizing is being used, the planned order receipt is equal to period 3’s net requirement. MTSU Management 362

1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 23 22 7 -13 -7 13 13 13 The planned order receipt is then offset (moved forward in time) to allow for the lead time. This is the planned order release. MTSU Management 362

Repeat the steps for period 4. 1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 23 22 7 -13 -7 13 12 13 12 13 12 Repeat the steps for period 4. MTSU Management 362

Repeat the steps for period 5 1 2 3 4 5 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases Item 10 15 20 12 5 7 9 23 22 7 -13 -7 13 12 5 13 12 5 13 12 5 Repeat the steps for period 5 MTSU Management 362

Bill of Materials A B(2) C(3) MTSU Management 362

Master production schedule: 100 in week 5 Assumptions Master production schedule: 100 in week 5 Item On hand Lead Time Scheduled Receipts A 15 1 0 B 20 2 0 C 10 1 15 in wk 2 MTSU Management 362

MRP Dynamics Modes of operation regenerative - batch mode net change - on-line, real time mode System nervousness - frequent changes of inputs to a net change MRP system Pegging - tracing upward in the BOM from the component to all of the parent items MTSU Management 362

Order releases - authorization for the execution of planned orders. MRP 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. MTSU Management 362

Performance-control reports Planning reports Exception reports MRP Secondary Reports Performance-control reports Planning reports Exception reports MTSU Management 362

Other Considerations Safety Stock Lot sizing Lot-for-lot ordering Economic order quantity Fixed-period ordering Part-period model MTSU Management 362

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. MTSU Management 362

resource requirements Figure 14-17 MRP Planning Develop a tentative master production schedule Use MRP to simulate material requirements Convert material requirements to resource requirements Firm up a portion of the MPS Is shop capacity adequate? Can capacity be changed to meet Revise tentative Change Yes No MTSU Management 362

Low levels of in-process inventories Benefits of MRP Low levels of in-process inventories Ability to track material requirements Ability to evaluate capacity requirements Means of allocating production time MTSU Management 362

Desirable Characteristics for MRP Implementation (1 of 2) An effective computer system Accurate computerized bills of material and inventory status files Manufactures discrete products that are processed through many production steps Processes requiring long processing times MTSU Management 362

Desirable Characteristics for MRP Implementation (2 of 2) Relatively reliable and stable lead times Master schedule frozen for a period of time sufficient to procure materials without expediting and confusion Top management support and commitment MTSU Management 362

Expanded MRP with and emphasis placed on integration MRP II Expanded MRP with and emphasis placed on integration Financial planning Marketing Engineering Purchasing Manufacturing MTSU Management 362

Figure 14-19 Market Demand Finance Manufacturing Marketing Production Master production schedule Finance Manufacturing Marketing Production plan MRP Adjust master schedule Rough-cut capacity planning Capacity planning Adjust production plan Problems? No Yes No Requirements schedules Yes Problems? MTSU Management 362

M R P WOW!!! MTSU Management 362