1. McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. MRP (Material Requirement Planning) (Method under Dependent Demand)

2. McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.  Raw materials, purchased parts and other components are assembled items are subject to what is called dependent demand.  Example: A firm that produces lawn and garden equipment might have a variety of items: Example : trimmers, lawn mowers and small tractors. Suppose that the various products are produce periodically; in one month, push Mowers; in the next month mulching mowers; and in third month, tractors. Some components may be used in most of the items (e.g nuts,bolts, screws) It makes sense to have a continual inventory of these parts because they are Always needed. On the other hand, some parts might be used for only one item. Consequently, demand for those parts occurs only when that item being produced. INTRODUCTION

3. 14-3 Dependent Demand Dependent demand –Demand for items that are subassemblies or component parts to be used in the production of finished goods. –Dependent demand tends to be sporadic or “lumpy” Large quantities are used at specific points in time with little or no usage at other times

4. 14-4 Dependent vs Independent Demand Demand Stable demand “Lumpy” demand Amount on hand Safety stock

5. 14-5 MRP Material requirements planning (MRP): A computer-based information system that translates the finished product requirements of the master schedule into time-phased requirements for subassemblies, components, and raw materials, working backward from the due date using lead times and other information to determine when and how much to order. –The MRP is designed to answer three questions: 1.What is needed? 2.How much is needed? 3.When is it needed?

6. 14-6 Ordering and scheduling of assembled products suffered from two difficulties. 1.Setting up schedules, keeping track of large numbers of parts and components and coping with schedule and order changes. 2. Lack of differentiation between independent demand and dependent demand. Consequently inventory planning and scheduling presented major problems for manufactures before the development of MRP.

7. 14-7 Overview of MRP

8. 14-8 MRP Inputs: Master Schedule Master schedule: –One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities. –Managers like to plan far enough into the future so they have reasonable estimates of upcoming demands –The master schedule should cover a period that is at least equivalent to the cumulative lead time –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.

9. 14-9 Cumulative Lead Time 12345 67 8910 Procurement Fabrication Subassembly Assembly Figure 14.4

10. 14-10 MRP Inputs: Bill of Materials Bill of Materials (BOM) –A listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product –Product structure tree A visual depiction of the requirements in a bill of materials, where all components are listed by levels

11. 14-11 Product Structure Tree Level 3 Level 2 Level 1 Level 0 XB(2)D(3)E(4)ECE(2)F(2)

12. 14-12 Low-Level Coding Low-level coding –Restructuring the bill of material so that multiple occurrences of a component all coincide (selari) with the lowest level at which the component occurs Level 3 Level 2 Level 1 Level 0 XB(2)D(3)E(4)ECE(2)F(2)

13. 14-13 MRP Inputs: Inventory Records Inventory records –Includes information on the status of each item by time period, called time buckets Information about –Gross requirements –Scheduled receipts –Expected amount on hand Other details for each item such as –Supplier –Lead time –Lot size –Changes due to stock receipts and withdrawals –Canceled orders and similar events

14. 14-14 MRP Processing Takes the end item requirements specified by the master schedule and explodes them into time-phased requirements for assemblies, parts and raw materials using the BOM offset by lead times.

15. 14-15 Assembly Time Chart 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 = Order point Available for Delivery Week Number

16. 14-16 MRP Record Gross requirements Total expected demand Scheduled receipts Open orders scheduled to arrive Projected on hand Expected inventory on hand at the beginning of each time period Week Number123456 Gross Requirements Scheduled Receipts Projected on hand Net requirements Planned-order-receipt Planned-order release

17. 14-17 MRP Record Week Number123456 Gross Requirements Scheduled Receipts Projected on hand Net requirements Planned-order-receipt Planned-order release 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

18. 14-18 A firm produces wood shutters and bookcases; has received two orders for Shutters which is : 100 shutters and 150 shutters. The 100 unit due for delivery at the start of week 4 The 150 unit due for delivery at the start of week 8. Each shutter consists of two frames and four slatted wood sections. The wood Sections are made by firm and fabrication takes one week. The frames are ordered and lead time is two weeks. Assembly of the shutters Requires one week. There is a scheduled receipt of 70 wood sections in week 1. Determine the size and timing of planned order releases necessary to meet Delivery requirements under of below conditions: 1.Lot-for-lot ordering 2.Lot-size ordering with a lot size of 320 units for frames and 70 units for wood sections. Example of problem using MRP

19. 14-19 Example MRP

20. 14-20 Example MRP

21. 14-21 a) Develop master schedule b) Develop a product structure tree Week No. 12345678 Qty100150

22. 14-22 Product structure tree ShutterFrames (2) Wood sections (4)

23. 14-23 MRP Outputs: Primary Primary Outputs –Planned orders A schedule indicating the amount and timing of future orders –Order releases Authorizing the execution of planned orders –Changes Revisions of the dates or quantities, or the cancellation of orders

24. 14-24 MRP Outputs: Secondary Secondary Outputs –Performance-control reports Evaluation of system operation, including deviations from plans and cost information –e.g., missed deliveries and stockouts –Planning reports Data useful for assessing future material requirements –e.g., purchase commitments –Exception reports Data on any major discrepancies encountered –E.g., late and overdue orders, excessive scrap rates, requirements for nonexistent parts

25. 14-25 MRP: Development The MRP is based on the product structure tree diagram Requirements are determined level by level, beginning with the end item and working down the tree –The timing and quantity of each “parent” becomes the basis for determining the timing and quantity of the children items directly below it. –The “children” items then become the “parent” items for the next level, and so on

26. 14-26 MRP Lot Sizing Rules –Lot-for-Lot (L4L) ordering The order or run size is set equal to the demand for that period Minimizes investment in inventory It results in variable order quantities A new setup is required for each run

27. 14-27 Updating the System An MRP is not a static document –As time passes Some orders get completed Other orders are nearing completion New orders will have been entered Existing orders will have been altered –Quantity changes –Delays –Missed deliveries

28. 14-28 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

29. 14-29 MRP Benefits Enables managers to easily –determine the quantities of each component for a given order size –To know when to release orders for each component –To be alerted when items need attention Additional benefits –Low levels of in-process inventories –The ability to track material requirements –The ability to evaluate capacity requirements –A means of allocating production time –The ability to easily determine inventory usage via backflushing

30. 14-30 MRP Requirements To implement an effective MRP system requires: –A computer and the necessary software to handle computations and maintain records –Accurate and up-to-date Master schedules Bills of materials Inventory records –Integrity of data files

31. 14-31 MRP II Manufacturing resources planning (MRP II) –Expanded approach to production resource planning, involving other areas of the firm in the planning process and enabling capacity requirements planning Most MRP II systems have the capability of performing simulation to answer a variety of “what if” questions so they can gain a better appreciation of available options and their consequences

32. 14-32 MRP II: Overview