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Chapter 16

Inventory Systems for Dependent Demand

Master production schedule

Material Requirements Planning (MRP)– System structure– Example

MRP II

MRP/JIT

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Material Requirements Planning

How much of an item is needed?

When is an item needed to complete– a specified number of units...– in a specified period of time?

Dependent demand drives MRP

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Introductory Example - Dependent Demand

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

Product Structure Tree for Assembly A Lead Times

A 1 dayB 2 daysC 1 dayD 3 daysE 4 daysF 1 day

Demand

Day 10 50 ADay 8 20 B (Spares)Day 6 15 D (Spares)

Create a schedule to satisfy demand.

LT = 1 day

Day: 1 2 3 4 5 6 7 8 9 10A Required 50

Order Placement 50

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Day: 1 2 3 4 5 6 7 8 9 10A Required 50

Order Placement 50B Required 20 200

Order Placement 20 200

SparesLT = 2

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

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Day: 1 2 3 4 5 6 7 8 9 10A Required 50

LT=1 Order Placement 50B Required 20 200

LT=2 Order Placement 20 200C Required 100

LT=1 Order Placement 100D Required 55 400 300

LT=3 Order Placement 55 400 300E Required 20 200

LT=4 Order Placement 20 200F Required 200

LT=1 Order Placement 200

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

40 + 15 spares

Part D: Day 6

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Master Production Schedule (MPS)

Time-phased plan specifying how many and when the firm plans to build each end item

Aggregate Plan(Product Groups)

MPS(Specific End Items)

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Time Fences

Frozen– No schedule changes allowed within this window

Moderately Firm– Specific changes allowed within product groups as

long as parts are available Flexible

– Significant variation allowed as long as overall capacity requirements remain at the same levels

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Time Fences

8 15 26

Weeks

FrozenModerately

Firm Flexible

Firm Customer Orders

Forecast and availablecapacity

Capacity

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Material Requirements Planning

Based on a master production schedule, a material requirements planning system:– Creates schedules identifying the specific

parts and materials required to produce end items

– Determines exact numbers needed

– Determines the dates when orders for those materials should be released, based on lead times

Firm orders from knowncustomers

Forecastsof demand

from randomcustomers

Aggregateproduct

plan

Masterproductionschedule(MPS)

Materialplanning(MRP)

Engineeringdesign

changes

Bill ofmaterial

file

Inventorytransactions

Inventoryrecord

file

Reports

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Bill of Materials (BOM) FileA Complete Product Description

Materials Parts Components Production sequence Modular BOM

– Subassemblies Planning BOM

– Fractional options

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Inventory Records File

Each inventory item carried as a separate file– See, for example, Exhibit 16.15– Status according to “time buckets”

Pegging– Identify each parent item that created demand

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Primary MRP Reports

Planned orders – to be released at a future time

Order release notices – to execute the planned orders

Changes in due dates of open orders due to rescheduling

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Primary MRP Reports

Cancellations or suspensions of open orders – due to cancellation or suspension of orders on the

master production schedule.

Inventory status data

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Net Change System

Activity driven Net change schedules Potential for system nervousness

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Another MRP Example

A(2) B(1)

D(5)C(2)

X

C(3)

Item On-Hand Lead Time (Weeks)X 50 2A 75 3B 25 1C 10 2D 20 2

Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10plus the following spares:

Spares 1 2 3 4 5 6 7 8 9 10A 12B 7C 10D 15

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Adding some more terminology

Gross Requirements

On-hand

Net requirements

Planned order receipt

Planned order release

C Gross Requirements 45 36 64LT=2 On-Hand=10 10

Net Requirements 35 36 64Planned Order Receipt 35 36 64Planner Order Release 35 36 64

D Gross Requirements 15 135LT=2 On-Hand=20 15 5

Net Requirements 130Planned Order Receipt 130Planner Order Release 130

A(2) B(1)

D(5)C(2)

X

C(3)

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Day: 1 2 3 4 5 6 7 8 9 10X Gross Requirements 95

LT=2 On-Hand=50 50Net Requirements 45Planned Order Receipt 45Planner Order Release 45

A Gross Requirements 90 12LT=3 On-Hand=75 75

Net Requirements 15 12Planned Order Receipt 15 12Planner Order Release 15 12

B Gross Requirements 7 45LT=1 On-Hand=25 7 18

Net Requirements 27Planned Order Receipt 27Planner Order Release 27

C Gross Requirements 45 36 54 10LT=2 On-Hand=10 10

Net Requirements 35 36 54 10Planned Order Receipt 35 36 54 10Planner Order Release 35 36 54 10

D Gross Requirements 15 135LT=2 On-Hand=20 15 5

Net Requirements 130Planned Order Receipt 130Planner Order Release 130

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Manufacturing Resource Planning (MRP II)

Goal: Plan and monitor all resources of a manufacturing firm (closed loop):– manufacturing– marketing– finance– engineering

Simulate the manufacturing system