1. MGMT 3750 1 Materials Management Systems Materials Requirements Planning Chapter 4

2. MGMT 3750 2 Material Requirements Planning is a system to calculate requirements for dependent demand items It establishes a schedule (priority plan) showing the components required at each level of the assembly and, based on lead times, calculates the time when these components will be needed It is a system to avoid missing parts for the end item Ch.4: Material Requirements Planning Material Requirements Planning

3. MGMT 3750 3 Ch.4: Material Requirements Planning Material Requirements Planning Process We need to determine –What to order –How much to order –When to order This will involve –Lead times –Bills of material –Inventory Status –Planning data

4. MGMT 3750 4 Ch.4: Material Requirements Planning Nature of Demand Two Types of Demand –Independent Is not related to the demand for any other product and must be forecast Master production schedule (MPS) items are independent demand items –Dependent Is directly related to other items or end items Such demand should be calculated and need not and should not be forecast

5. MGMT 3750 5 Ch.4: Material Requirements Planning Nature of Demand Independent Demand (Forecast) Dependent Demand (Calculated) Table Legs (4) Ends (2) Sides (2) Top (1) Hardware Kit (1) Item #206 Item #433 Item #711 Item #025 Item #822 If you have an order for 23 Tables, what components would you need to produce them?

6. MGMT 3750 6 Two Major Objectives –Determine Requirements What to order How much to order When to order When to schedule delivery –Keep Priorities Current It must be able to add and delete, expedite, delay, and change orders based upon present priorities Ch.4: Material Requirements Planning Objectives of MRP

7. MGMT 3750 7 Ch.4: Material Requirements Planning Linkages with Other Manufacturing Planning and Control Functions Business Plan Production Plan MPS PC and Purchasing MRP Planning Execution The MRP is driven by the MPS; it is concerned with the components needed to make the end items. The MRP in turn drives, or is input to, production control (PC) and purchasing

8. MGMT 3750 8 Four Major Inputs: –Master Production Schedule –Inventory Records –Planning Data –Bills of Material Ch.4: Material Requirements Planning Inputs to the MRP System MRP MPS Planning Data Bill of Material Inventory Status

9. MGMT 3750 9 Master Production Schedule (MPS) –The MPS provides information on planned and scheduled orders for end items (how much is wanted and when) Inventory Status –Inventory status provides information on what is already available. Inventory records include the status of each item, including amounts on order and on hand and the location Ch.4: Material Requirements Planning Inputs to the MRP System

10. MGMT 3750 10 Bills of Material –Bills of material describe components and the quantity of each needed to make one unit Planning Data –Planning data include lot size, lead time, scrap factors, yield factors, and safety stock The Computer –Computers are needed because they are fast, accurate, and have the ability to store and manipulate data and produce information rapidly Ch.4: Material Requirements Planning Inputs to the MRP System

11. MGMT 3750 11 Bill of Material “a listing of all the subassemblies, intermediates, parts, and raw materials that go into making the parent assembly showing the quantities of each required to make an assembly” APICS Dictionary, 8th edition, 1995 The bill of material shows all the parts required to make one of the item Each part or item has only one part number Ch.4: Material Requirements Planning Bills of Material

12. MGMT 3750 12 Parent–Component Relationship –An assembly is considered a parent, and the items that comprise it are called its component items. Ch.4: Material Requirements Planning Bills of Material Table Legs (4) Ends (2) Sides (2) Top (1) Hardware Kit (1) Item #206 Item #433 Item #711 Item #025 Item #822 Parent Component

13. MGMT 3750 13 The multilevel bill is made up of subassemblies. The subassemblies reflect the way manufacturing plans to build the product. The lowest items on the bill are usually purchased parts. All parts and subassemblies have unique numbers. By convention, the final assembly is considered level zero. Levels down the bill are numbered consecutively. Ch.4: Material Requirements Planning Bills of Material

14. MGMT 3750 14 The multilevel bill is a collection of single-level bills. Each single-level bill shows the parts to make one parent. To reduce storage space and to make maintenance easier, the computer stores single-level bills only. Items can be both parents of components and components of other parents. Ch.4: Material Requirements Planning Bills of Material

15. MGMT 3750 15 Ch.4: Material Requirements Planning Bills of Material Low-Level Coding and Netting - A component may reside on more than one level in a bill of material –The low-level code is the lowest level on which a part resides in all bills of material. Every part has only one low-level code. –Low-level are determined by starting at the lowest level of a bill of material and, working up, recording the level against the part. If a part occurs on a higher level, its existence on the lower level has already been recorded. –Once the low-level codes are obtained, the net requirements for each part can be calculated.

16. MGMT 3750 16 Uses for Bills of Material –Product Definition –Engineering Change Control –Service Parts –Planning –Order Entry –Manufacturing –Costing –Etc. Maintaining bills of material and their accuracy is extremely important Ch.4: Material Requirements Planning Bills of Material

17. MGMT 3750 17 Ch.4: Material Requirements Planning Lead Times, Exploding, and Offsetting Lead time: The time from when an order is placed until the part is ready for use. Exploding: Multiplying the parent requirements by the usage quantity through the product tree Offsetting: Placing the requirements in their proper time periods based on lead times A BC D E LT: 1 wk LT: 2 wk LT: 1 wk

18. MGMT 3750 18 Ch.4: Material Requirements Planning Planned Orders Planned Order Receipt –That quantity planned to be received at a future date as a result of a planned order release. Planned Order Release –Planned order releases are just planned; they have not been released. Orders for material should not be released until the planned order release date arrives. The planned order release of the parent becomes the gross requirement of the component.

19. MGMT 3750 19 Ch.4: Material Requirements Planning Releasing Planned Orders Releasing Planned Orders –Check availability of components –Create shop packet or purchase requisition –Allocate components to that order –Release planned order, creating a scheduled receipt

20. MGMT 3750 20 Ch.4: Material Requirements Planning Basic MRP Record The current time is the beginning of the first period. The top row shows time periods, called time buckets. The number of periods in the record is called the planning horizon. An item is considered available at the beginning of the time bucket in which it is required.

21. MGMT 3750 21 Ch.4: Material Requirements Planning Basic MRP Record The quantity shown in the projected available row is the projected available balance at the end of the period; all other quantities are for the beginning of the period. The immediate or most current period is called the action bucket.

22. MGMT 3750 22 Ch.4: Material Requirements Planning Example from Pg. 88 (85 3 rd. Ed.)

23. MGMT 3750 23 Ch.4: Material Requirements Planning Example from Pg. 88

24. MGMT 3750 24 Ch.4: Material Requirements Planning Example from Pg. 88

25. MGMT 3750 25 Ch.4: Material Requirements Planning Example from Pg. 88

26. MGMT 3750 26 Ch.4: Material Requirements Planning Example from Pg. 90 (87 3 rd Ed.)

27. MGMT 3750 27 Ch.4: Material Requirements Planning Example from Pg. 90

28. MGMT 3750 28 Ch.4: Material Requirements Planning Example from Pg. 90

29. MGMT 3750 29 Ch.4: Material Requirements Planning Example from Pg. 90 Release the order for 200 units.

30. MGMT 3750 30 Ch.4: Material Requirements Planning Using the Material Requirements Plan The computer can perform all calculations and create planned order releases, but it does not (usually) issue purchase or manufacturing orders or reschedule open orders. Computer software can create exception messages and suggest types of action.

31. MGMT 3750 31 Ch.4: Material Requirements Planning Using the Material Requirements Plan On the basis of action and exception messages, the planner can release planned orders, reschedule existing orders in or out, or change quantities. In addition, the planner works with other planners, master production schedulers, production activity control, and purchasing to solve problems as they arise.

32. MGMT 3750 32 Ch.4: Material Requirements Planning The Basic Responsibilities of a Planner –Launch (release) orders to purchasing or manufacturing –Reschedule due dates of open (existing) orders as required –Reconcile errors and try to find their cause

33. MGMT 3750 33 Ch.4: Material Requirements Planning The Basic Responsibilities of a Planner –Address critical material shortages by expediting or re-planning –Coordinate with other planners, master production schedulers, production activity control, and purchasing to resolve problems

34. MGMT 3750 34 Ch.4: Material Requirements Planning Material Planner’s 3 Types of Orders –Planned orders - calculated and controlled by the software –Released orders - scheduled receipts; releasing is the responsibility of the planner

35. MGMT 3750 35 Ch.4: Material Requirements Planning Material Planner’s 3 Types of Orders –Firm planned orders - the planner tells the computer that the order is not to be changed; the planner uses firm planned orders to override the software in terms of quantity, time, or both. When re-planning, the software will not change the planner’s decision.

36. MGMT 3750 36 Ch.4: Material Requirements Planning Managing the Material Requirements Plan The planner must consider three important factors when managing the MRP: –Priority - refers to maintaining the correct due dates by constantly evaluating the true due-date need for released orders and, if necessary, expediting or de-expediting. –Bottom-up Re-planning - Action to correct for changed conditions should occur as low in the product structure as possible

37. MGMT 3750 37 Ch.4: Material Requirements Planning Managing the Material Requirements Plan The planner must consider three important factors when managing the MRP: –Reducing System Nervousness - Requirements can change rapidly and by small amounts. The planner must judge whether the changes are important enough to react to and whether an order should be released.

38. MGMT 3750 38 Ch.4: Material Requirements Planning Questions Questions: 2, 3, 5, 6, 9, 18, 19, 21, 23