1. Operations Management Material Requirements Planning (MRP) Chapter 14

2. Review of the Production Planning Process

3. SAP R/3 Approach to Production Planning

4. Production Process for the T-W101 Ore Wagon: 1) Two wheels are attached to an axle to make an axle assembly. 2) Two axle assemblies are attached to a wagon bed to make the ore wagon.

5. Bill of Material T-W101(AB&C) Ore Wagon

6. Three General Approaches to Production
Make-to-stock: Items produced in anticipation of orders, often from a sales forecast (DiGiorno frozen pizza, Miller Lite beer)
Make-to-order: Items produced to meet specific customer orders (Boeing 737s for Southwest Airlines)
Assemble to order: Final product assembled from make-to-stock items (Dell desk top computer)
IDES Manufacturing uses a “Make-to-stock” approach. Production of ore wagons will be driven by a sales forecast.

7. Sales and Operations Planning. The “Rough-Cut” Plan screen for the SAP
Sales and Operations Planning The “Rough-Cut” Plan screen for the SAP R/3 system. Sales and Operations Planning Jan Feb Mar Apr May 1) Sales Forecast ) Production Plan   3) Stock Level ) Working Days ) Capacity ) Utilization 55% 70% 73% 91% 78% 7) T-W101 (units) % ) T-W102 (units) % ) T-W103 (units) %                  

8. SAP R/3 Approach to Production Planning MPS/MRP

9. Independent versus Dependent Demand
Independent demand - demand for item is independent of demand for any other item
The TW101A is an example of an independent demand item. It is scheduled for production as a result of a sales forecast.
Dependent demand - demand for item is dependent upon the demand for some other item
The TWB101A is an example of a dependent demand item. It is scheduled to be purchased because of the demand for its parent, the TW101A ore wagon.

10. MRP Systems - Input and Output
Master
Production
Schedule
Bill of
Materials
Material
Requirements
Planning System
Inventory
Status
Planned Order
& Other
Reports
Item Master
Purchasing
Data
It is helpful here to briefly review the “contents” of each of the boxes - i.e., what is contained in an Item Master file, what purchasing data is expected, etc.

11. Structure of the MRP System
MRP by period report
MRP by date report
Planned orders report
Purchase requirements
Exception reports
MRP
Programs
Master Production
Schedule
BOM
Lead Times
(Item Master File)
(Bill-of-Material)
Inventory Data
Purchasing data
Emphasize that this slide illustrates the overall technological structure of MRP - people and process are also extremely important in its actual success.

12. Lead Times and Lot Sizing
The BOM is used to determine how many of each component is required to produce a “parent”. For example, one wagon bed and two axle assemblies are required to produce on ore wagon (parent). Two wheels and one axle are required to produce one axle assembly (parent).
To determine the timing and quantity for the purchase orders for the components requires information about lead-times and lot-sizing. This is found in the Material Master File (Item Master):
 Material Master File for T-W101A (Ore Wagon)
Component Description Vendor Lot Size Lead Time
T-W101A Ore Wagon Internal Fabrication LFL 5 Days
T-WB101A Wagon Bed Minnesota Mfg Days
 T-AA101 Axle Assembly Internal Fabrication Days
 T-AX101 Axle Sooner Milling Days
 T-WH101 Wheel Minnesota Mfg Days

13. Master Production Schedule The production plan starts with the Sales Forecast for the month of April. This is broken down into a Detailed Production Schedule for each week. Earlier, we determined that the total demand in April for model T101A is IDES Marketing Department wants these to be available for shipment at the end of each week as shown below.  Model Week Week Week Week 17 T-W101A Once this has been agreed to, it becomes the Master Production Schedule (MPS).

14. Information from the Material Master File
T-W101A IDES Mfg has determined that the cost effective way to fabricate the ore wagon is to make exactly the number that are required. If 50 are needed, then make 50; If 38 are needed, then make 38. This is called “lot-for-lot” sizing (“Lot Size” = LFL). It takes 5 days to make ore wagons (“Lead-Time” = 5 days).
T-WB101A IDES Mfg has determined that the cost effective way to purchase the wagon bed is to order in quantities of 200 (“Lot Size = 200). It takes 10 days to receive an order after it has been placed (“Lead Time = 10 days).

15. The “MRP Record” for T-W101A
Week 14: Independent Requirements 50
Scheduled Receipts 0
Projected on Hand (BI) 0
Net Requirements 50
Planned Order Receipts 50 (LFL)
Planned Order Release ?
To fabricate wagons in Week 14, a Planned Order Release must be made at the beginning of Week 14 (Lead Time = 5 days)
Week 15: Independent Requirements 25
Projected on Hand (BI)
Net Requirements 25
Planned Order Receipts 25 (LFL)

16. The “MRP Record” for T-WB101A (Wagon Bed)
Week 14: Dependent Requirements 50
Scheduled Receipts 0
Projected on Hand (BI) 0
Net Requirements 50
Planned Order Receipts (Lot Size)
Planned Order Release ?
To receive 200 wagon beds at the beginning of Week 14, a “Planned Order Release” must be made at the beginning of Week 12 (Lead Time = 10 days)
Week 15: Dependent Requirements 25
Projected on Hand (BI)
Net Requirements 0
Planned Order Receipts 0
There are zero (0) net requirements in Week 15. No wagon beds must be received in Week 15. No Planned Order Release is necessary.

17. Homework Assignment
Based on the Master Production Schedule for April 2003, complete the Material Requirements Planning for all materials.
Have this assignment ready to turn in at the beginning of class on Thursday
March 13th.