lab 5 material requirements planning (mrp)

EPT 432 Operation Management PPK Pembuatan Lab 5 Material Requirements Planning (MRP) 2008/2009

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Lab 5 Material Requirements Planning (MRP)

Objectives of this laboratory: 1. Student is able to define and construct a gross material requirements plan. 2. Student is able to define and construct net material requirements plan. 3. Student is able to defined and construct lot-for-lot table. 4. Student is able to define and construct part period balancing table.

Before we start this laboratory exercise, let familiarize our self with several terms that are commonly used in MRP realm.

What is Material Requirements Planning (MRP)? A dependent demand technique that uses a bill-of-material, inventory,

expected receipts, and a master production schedule to determine material requirements.

What is dependent demand? Dependent demand means that the demand for one item is related to the

demand for another item.

What is bill of material (BOM)? A listing of the components, their description, and the quantity of each

required to make one of a product.

So now you already know that is Material Requirements Planning (MRP) in general. How about we go deeper in one of several MRP realms? Lets begin with how the create a gross material requirement plan.

What is gross material requirements plan? A schedule that shows the total demand for an item (prior to subtraction of

on-hand inventory and scheduled receipts) and (1) when it must be ordered from suppliers, or (2) when production must be started to meet its demand by a particular date.

Before we can start constructing the gross material requirements plan we need a case study. How about constructing a gross material requirements plan for 50 units of Awesome Speaker Kit?

First step we must identify all the components and its quantity to produce a single Awesome Speaker Kit. (Refer to figure 5.1 below)


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Figure 5.1: Product structures for Awesome Speaker Kit

To produce a single Awesome Speaker Kit (A) required:-

2 standard 12-inch speaker kits (B) and 3 speaker kits with amp-boosters (C).

Each of (B) consists of 2 12-inch speakers (D) and 2 shipping boxes of an installation kit (E).

Each of (C) consists of 2 booster speaker assembly (F) and 2 shipping boxes of an installation kit (E).

Each booster speaker assembly (F) includes 2 12-inch speaker (D) and 1 amp-booster circuitry (G).

Second steps are to determine the quantity for all items required to produce 50 units of Awesome Speaker Kit. Refer table 5.1 below:

Table 5.1: Total quantity for all items required to produce 50 units of Awesome Speaker Kit (A) Part B 2 x number of A (2)(50) = 100 Part C 3 number of A (3)(50) = 150 Part D 2 x number of B + 2 x number of F (2)(100) + (2)(300) = 800

Part E 2 x number of B + 2 x number of C (2)(100) + (2)(150) = 500 Part F 2 x number of C (2)(150) = 300 Part G 1 x number of F (1)(300) = 300


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Third step is to determine all the lead time for all the items required to produce the Awesome Speaker Kit (A). Refer to table 5.2 below.

Table 5.2:

Than, create a time-phase product structure like shown in figure 5.2 below.

Figure 5.2: Time-phase product structure.

Once all the required information is completed, we can now proceed with constructing the gross material requirements plan for the Awesome Speaker Kit (A).


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To construct the material requirements plan for the Awesome Speaker Kit (A), we just need to transfer all the information such as lead time and quantity for all the items into a table.

The gross material requirements plan for the Awesome Speaker Kit (A) is shown in figure 5.3 below. The table must have the following information such as:

Required date Order release date Week Item quantity Lead Time

Figure 5.3: Material requirements plan for the Awesome Speaker Kit (A).

Now we can start constructing the net material requirement plan for 50 units of Awesome Speaker Kit

What is net material requirements plan? The net material requirements plan is the result of adjusting gross

requirements for inventory on hand and schedule receipts.

Before we can start, we need to know how the quantity for each tem that we currently have on hand. Refer to figure 5.4 below.

Figure 5.4: Quantity of item on hand


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The net material requirements plan for the Awesome Speaker Kit (A) is shown in figure 5.5 below. The table must have the following information such as:

On hand quantity Gross requirements Schedule Receipts Projected on hand Net requirement Planned Order Receipts Planned Order Release Lead Time

Figure 5.4: Net material requirements plan for the Awesome Speaker Kit (A)


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Now we move on to Lot Sizing Techniques. Lot sizing techniques is a process or a techniques used in determining the order lot size.

If the lot size is too big, the inventory will be charged a holding cost for each item per week. For each time production runs, there will be a setup cost. The lot sizing techniques try to minimize the total operation cost by determine the order lot size.

There are two lot sizing techniques that we will learn in the laboratory exercise. First is Lot-for-lot technique and the other is part period balancing (PPB) technique.

What is Lot-for-lot technique? A lot-sizing technique that generates exactly what is required to meet the

plan.

Let say the company that produce the Awesome Speaker Kit (A) received orders from distributors that required the company to produce a certain quantity of Awesome Speaker Kit per week as shown in figure 5.5 below:

Figure 5.5: Total quantity of Awesome Speaker Kit to produce

The lot-for-lot sizing technique fixed the order lot size exactly the same quantity required to meet the plan as shown in figure 5.6 below.

Figure 5.5: Lot Size Order based on lot-for-lot technique

The total operation cost is only for setup cost where seven separate setups needed associated with each order (7)(100) = $700.

The next lot sizing technique is the part period balancing (PPB) technique.

What is Part period balancing (PPB)? An inventory ordering technique that balances setup and holding costs by

changing the lot size to reflect requirement of the next lot size in the future.

Week


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Before we can start, we need to understand how to calculate the lot size using the part period balancing technique.

First we need to combine the net requirements for several periods and calculate the ratio between holding cost and setup cost. The optimum lot size is then the ratio between holding cost and setup cost is around 1. Refer to figure 5.6 below.

Figure 5.6: Determining the ordering lot size based on part period balancing technique

Now we know that the company need to place an order only three times during 10 week of operation, 80 units in 2nd week and 80 units in 5th week and 55 units in 9th week. Refer to figure 5.7 below.

Figure 5.7: Ordering lot size and the week of placing order

The total operation cost using this technique is Setup cost where three separate setups needed associated with each order

(3)(100) = $300. Holding cost (70) + (120) = $190

So, the total operation cost for part period balancing technique is $490 whereby the total operation cost for lot-for-lot technique is $700. This mean that the part period balancing technique is better compared to lot-for-lot technique for this case study.


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Exercises:

1) The demand for subassembly S is 95 units in week 7. Each unit of S requires 1 unit of T and 2 units of U. Each unit of T requires 1 unit of V, 2 units of W, and 1 unit of X. Finally, each unit of U requires 2 units of Y and 3 units of Z. One firm manufactures all items. It takes 2 weeks to make S, 1 week to make T, 2 weeks to make U, 2 weeks to make V, 3 week to make W, 1 week to make X, 2 week to make Y, and 1 week to make Z.

Item On-Hand Inventory Item On-Hand Inventory Item

On-Hand Inventory

S 20 W 30

T 20 X 25

U 40 Y 240

V 30 Z 40

Using the information above, a) Construct a gross material requirements plan. [5 marks] b) Construct a net material requirements plan using the on-hand inventory. [5 marks]

Note: All the plans must be constructed using Microsoft Excel program.

2) Gross Requirement Period for item X

Period 1 2 3 4 5 6 7 8 9 10 11 12 Gross

requirements 30 - 40 - 30 70 20 - 10 80 - 50

*Holding cost = $2.50/unit/week; setup cost = $150; lead time = 1 week; beginning inventory = 40

Using the information above, a) Develop a lot-for-lot solution and calculate total relevant cost for the data

above. [5 marks] b) Develop a part period balancing (PPB) solution and calculate total relevant

cost for the data above. [5 marks] Note: All the solutions must be constructed using Microsoft Excel program.

Total marks = _______ / 20 marks

GOOD LUCK

lab 5 material requirements planning (mrp)

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