1 Material Requirement Planning (MRP) Chapter 16 Feb 9, 2006

2 Material Requirement Planning (MRP)  ______________________________________ Key Outputs of MRP  Calculate demand for component items  Determine requirements for subassemblies, components, and raw material  Determine when they are needed  Generate work orders and purchase order  Consider lead time

3 When to use MRP  ___________________________________ Dependent / Independent Demand?

4 Demand Characteristics Week – – – – No. of tables Continuous demand M T W Th F M T W Th F – – – – No. of tables Discrete demand Independent demand 100 tables Dependent demand 100 x 1 = 100 tabletops 100 x 4 = 400 table legs Demand Characteristics for Finished Products and Their Components

5 MRP Input & Output Material Requirements Planning (MRP) Work orders Purchase orders Rescheduling notices

6 Major Inputs to MRP Process: 1. Bill of Material  Product structure file  Determines which component items need to be scheduled Product Structure Record Clipboard Level 0 Level 1 Level 2 Sprin g (1) Bottom Clip (1) Top Clip (1) Piv ot (1) Rivet s (2) Clip Assembly (1) Pressboa rd (1)

7 Major Inputs to MRP Process: 2. Master Production Schedule (MPS)  Drives MRP process with a schedule of finished products  Quantities represent production not demand  Quantities may consist of a combination of customer orders & demand forecasts  Quantities represent what needs to be produced, not what can be produced  Example PERIOD MPS ITEM12345 Clipboard Lapdesk Lapboard Pencil Case

8 Major Inputs to MRP Process: 3. Inventory Record  _________________________________________________  Contains an extensive amount of information on every item that is produced, ordered, or inventoried in the system  _________________________________________________ DESCRIPTIONINVENTORY POLICY ItemPressboardLead time1 Item no.734Annual demand5000 Item typePurchHolding cost1 Product/sales classCompOrdering/setup cost50 Value classBSafety stock 0 Buyer/plannerRSRReorder point39 Vendor/drawing07142EOQ316 Phantom codeNMinimum order qty100 Unit price/cost1.25Maximum order qty500 PeggingYMultiple order qty LLC1Policy code3

9 MRP Processes – 4 Basic Steps 1. Exploding the bill of material  ___________________________________ 2. Netting out inventory  ___________________________________ 3. Lot sizing rule – How many units  ___________________________________ 4. Time-phasing requirements  ___________________________________

10 Lot Sizing Rule Comparison  The FOQ rule ___________ _______________________  The POQ rule ___________ _______________________ _______________________  The L4L rule ___________ _______________________ _______________________

11 MRP Matrix Gross Requirement  Derived from planned order releases of the parent  Actual / estimated demand, in case of final product Schedule Receipts  Items on order  Scheduled to arrive in the future time period Projected on hand  Current inventory, or anticipated inventory at the end of period Projected on-hand Inventory at end of period t Projected on-hand Inventory at end of period t Inventory on- hand at end of period t - 1 =+ Scheduled / planned receipts in period t - Gross requirements in period t

12 MRP Matrix Net requirements  Actual quantity to produce based on projected on hand and on-order quantity Planned Order Receipts  Quantity, when orders need to be received  Consider lot sizing rule: Planned Order Release  When order need to be placed to receive on time  Consider lead time

13 MRP Matrix (You can download the template from our class webpage) Gross Requirements Derived from MPS or planned order releases of the parent Scheduled Receipts On order and scheduled to be received Projected on HandBeg Inv Anticipated quantity on hand at the end of the period Net Requirements Gross requirements net of inventory and scheduled receipts Planned Order Receipts When orders need to be received Planned Order Releases When orders need to be placed to be received on time ITEM NAME OR NO.PERIOD LOT SIZE LT12345

14 ITEM: CLIPBOARDLLC: 0PERIOD LOT SIZE: L4LLT: Gross Requirements Scheduled Receipts175 Projected on Hand25 Net Requirements Planned Order Receipts Planned Order Releases Example MRP Matrix

15 MRP Example 1 Given the following information, determine when orders should be released for A, C, and D and the size of those orders PartsOn handScheduled Receipts Lot SizeDemand ACDACD , period 2 L4L Mult 50 Mult , period 8 A LT=3 C(3) LT=4 D(2) LT=2

16 MRP Example 2 Given the following information, determine when orders should be released for A, B, C, and D and the size of those orders. PartsOn handScheduled Receipts Lot SizeDemand ABCDABCD , period 2 L4L Mult 50 Mult , period 8 200, period 6 - A LT=3 C(3) LT=4 D(2) LT=2 B LT=2 D(3) LT=2

17 Evolution of MRP  MRP (material requirements planning) was the precursor to ERP  Primarily a production planning and control system  MRP evolved to MRP II (manufacturing resource planning)  ERP (Enterprise Resource Planning) and ERP II continue to extend the links through all business processes

18 Enterprise Resource Planning (ERP) An Overview  Organizes and manages a company’s business processes by sharing information across functional areas  Connects with supply-chain and customer management applications  ERP in the nutshell*  Client server software  Integrates majority of business processes  Processes majority of transactions  Enterprise wide database  Real time data access * adapted from e-courseware, MIT Sloan

19 ERP Modules [Figure 12.1 Organizational Data Flow]

20 ERP Modules [Figure 12.2 ERP’s Central Database] Finance & Accounting Sales & Marketing Human Resources Production & Materials Management ERP Data Repository

21 ERP Implementation Process  First step is to analyze business processes  Which processes have the biggest impact on customer relations?  Which process would benefit the most from integration?  Which processes should be standardized?  Use of Internet portals can aid implementation