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Material Requirements Planning
8 - 1
Section Objectives
After completing this section, you should be able to:
1. Describe the conditions under which MRP is most appropriate. 2. Describe the inputs, outputs and nature of MRP processing. 3. Explain how requirements in a master schedule are translated into
material requirements for lower level items. 4. Discuss possible uses of safety stock and safety time. 5. Explain how an MRP system is useful in capacity requirements
planning. 6. Outline benefits and difficulties of MRP. 7. Describe MRP II and how it relates to MRP.
Material Requirements Planning
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MRP: Whazzit a computer-based information system designed to handle ordering
and scheduling of of dependent-demand inventories (i.e. raw materials, component parts and subassemblies).
MRP Inputs
Master Production Schedule (MPS) Based on customers orders and demand forecasts, the MPS details exactly what end products must be manufactured or assembled, when they must be manufactured and what quantities are needed.
Bill of Materials File (BOM) Specifies amount of raw materials, components and subassemblies needed to manufacture or assemble the end product. Tells both the requirements and when they will be needed.
Inventory Status File Maintains inventory records so that the company may subtract the amount on hand from the gross requirements, thus identifying net requirements at any time.
MRP Program Explodes end product demand into gross requirements for individual parts and other materials. Then the program calculates net requirements based on the inventory status file and places orders for the inputs necessary to the production / assembly process.
Material Requirements Planning
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Changes Order releases
Planned-order schedules
Exception reports Planning reports
Performance- control reports
MRP Computer Program
Inventory status
file
Bill-of- materials
file
Master production schedule
Orders Forecast Design Changes Receipts Withdrawals Inventory
transaction
MRP Inputs MRP Processing MRP Outputs
Primary Reports
Secondary Reports
Material Requirements Planning
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MRP Outputs:
Outputs and Reports Records and information related to:
(i) quantities the company should order and when
(ii) any need to expedite or reschedule arrival dates or needed product quantities
(iii) cancelled need for product
(iv) MRP system status
Material Requirements Planning
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Master Schedule
Item X
Quantity
1 2 3 4 5 6 7 8
100 150
Week Number
1 2 3 4 5 6 7 8 9 10
Procurement
Fabrication
Subassembly
Assembly
A master schedule for end item X
Planning horizon for cumulative lead time
Material Requirements Planning
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Bill of Materials File X
B C
D E
E
(2)
(3)
(4)
E F (2) (2)
Level
0
1
2
3
Product structure tree for end item X
Material Requirements Planning
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Using the information presented in the product structure tree:
a. Determine the quantities of B, C, D, E and F needed to assemble one X.
b. Determine the quantities of these components necessary to assemble 200 Xs.
Solution to a & b:
Quantity Quantity to make to make
Component 1 X 200 X B.....2 Bs per X = 2 = 400 D.....3 Ds per B * 2 Bs per X = 6 = 1200 E.....1 E per B * 2 Bs per X = 2 = 400 E.....4 Es per D * 3 Ds per B * 2 Bs per X = 24 = 4800 C.....1 C per X = 1 = 200 E.....2 Es per C * 1C per X = 2 = 400 F.....2 Fs per C * 1 C per X = 2 = 400
Material Requirements Planning
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Inventory Records File
Stores information on the status of each item by time period. Includes: 1. Gross Requirements. The total expected demand for an item or raw
material during each time period. 2. Scheduled Receipts. Open orders scheduled to arrive from vendors or
elsewhere. 3. Projected on Hand. Expected amount of inventory that will be on hand
at the beginning of each time period. = scheduled receipts + available from last period. 4. Supplier. The name(s) and address(es) of the item’s supplier(s). 5. Lead Time. The average length of time, in days or weeks, between
placing and receiving an order from the supplier. 6. Lot Size. Standard order size. This may be determined by techniques
such as lot-for-lot ordering, EOQ, part period balancing, etc.
Material Requirements Planning
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MRP processing involves taking end item requirements and “exploding” them into time-phased requirements for assemblies, parts and raw materials.
1 2 3 4 5 6 7 8 9 10 11
Week number Available
for delivery
Procurement of RM D
Procurement of RM F
Procurement of RM I
Procurement of part C
Fabrication of part E
Fabrication of part G
Subassembly A
Subassembly B
Order point
Final assembly and inspection
MRP Processing
Material Requirements Planning
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1 2 3 4 5 6 7 8
Item:
Gross requirements
Scheduled receipts
Projected on hand
Net requirements
Planned-order receipts
Planned-order releases
Week number:
MRP Processing
Material Requirements Planning
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MRP Processing Problem Illustration A firm that produces wood shutters and bookcases has received two orders
for shutters: one for 100 shutters and one for 150 shutters. The 100-unit order is due at the start of week 4 of the current schedule, and the 150-unit order is due for delivery at the start of week 8.
Each shutter consists of four slated wood sections and two frames. The
wood sections are made by the firm, and fabrication takes one week. The frames are ordered, and lead time is two weeks. There is a scheduled receipt of 70 wood sections in week 1 (i.e. at the beginning of week 1).
Determine the size and timing of planned-order releases necessary to meet
delivery requirements under each of the following conditions:
1. Lot-for-lot ordering (i.e. order size equal to net requirements). 2. Lot-size ordering with a lot size of 320 units for frames and 70 units
for wood sections.
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MRP Processing Problem Solution - Lot-for-Lot Ordering
Week number:
Quantity
1 2 3 4 5 6 7 8
100 150
1 2 3 4 5 6 7 8
1. Develop a Master Schedule
2. Develop a Product Tree Structure
Shutter
Frames (2) Wood sections (4)
3. Develop an Assembly Time Chart
Procure frames
Make wood sections
Assemble shutters
Make wood sections
Assemble shutters
Procure frames
Material Requirements Planning
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Week number:
Gross requirements
1 2 3 4 5 6 7 8 100 150
4. Master schedule for shutters
Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases
Shutters:
LT = 1 week
100 150
100 100
100
150 150
150
Frames:
LT = 2 week
Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases
times 2
200
times 2
300
200 300 200
200 300
300
Material Requirements Planning
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Week number:
Gross requirements
1 2 3 4 5 6 7 8 100 150
4. Master schedule for shutters
Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases
Shutters:
LT = 1 week
100 150
100 100
100
150 150
150
Wood sections:
LT = 1 week
Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases
70 70 70 70
times 4
400
times 4
600
330 600 330 600
330 600
Material Requirements Planning
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MRP Processing Problem Solution - Lot Size Ordering
Week number:
Quantity
1 2 3 4 5 6 7 8
100 150
1. Develop a Master Schedule
2. Develop a Product Tree Structure
Shutter
Frames (2) Wood sections (4)
3. Develop an Assembly Time Chart
Procure frames
Make wood sections
Assemble shutters
Make wood sections
Assemble shutters
Procure frames
1 2 3 4 5 6 7 8
Material Requirements Planning
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Week number:
Gross requirements
1 2 3 4 5 6 7 8 100 150
4. Master schedule for shutters
Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases
Shutters:
LT = 1 week
100 150
100 100
100
150 150
150
Frames:
LT = 2 week
Lot size = 320
Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases
120
times 2
200
times 2
300
200 180 320
320 320
320
120 120 120 140
Material Requirements Planning
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Week number:
Gross requirements
1 2 3 4 5 6 7 8 100 150
4. Master schedule for shutters
Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases
Shutters:
LT = 1 week
100 150
100 100
100
150 150
150
Wood sections:
LT = 1 week
Lot size = 70
Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases
70 70 70 70
times 4
400
times 4
600
330 580 350 630
350 630
20 20 20 20 50
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MRP Outputs – Primary Reports:
Planned orders - amount and timing of future orders Order releases - authorize the execution of planned orders Changes to planned orders - changes of due dates and/or order
quantities
– Secondary Reports: Performance-control reports - measure deviation from plans, including
missed deliveries and stockouts. Provide information that can be used to assess cost performance.
Planning reports - include purchase commitments and other data that can be used to assess future material requirements. Useful in forecasting future material requirements.
Exception reports - illustrate major discrepancies such as late and overdue orders, excessive scrap rates, reporting errors and requirements for nonexistent parts.
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Capacity Requirements Planning (CRP) Process of determining short-range capacity requirements. The necessary
inputs include planned-order releases for MRP, the current shop load, routing information and job times. Outputs include load reports for each work centre.
Develop a tentative master production schedule
Use MRP to simulate material requirements
Convert material requirements to resource requirements
Shop capacity
adequate?
Develop a tentative master production schedule
Revise tentative master production schedule
Can capacity be changed?
Change capacity
No
No
Yes
Using MRP to assist in planning capacity
requirements
Yes
Material Requirements Planning
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Benefits, Requirements and Limitations of MRP – Benefits:
Low levels of in-process inventories Ability to keep track of material requirements Ability to evaluate capacity requirements generated by the master
schedule A means of allocating production time
– Requirements: Computer and necessary software Accurate and up-to-date:
– master schedules – bills of materials – inventory records
Integrity of file data – Limitations:
Recordkeeping deficiencies Resistance of supervisory staff Time for education, training and convincing of employees - often a
year or more
Material Requirements Planning
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Manufacturing Resource Planning - MRP II Market demand
Problems? Yes
Manufacturing
Production plan
Rough-cut capacity planning
Marketing
Finance
Adjust production
plan
Master production schedule
No
MRP
Capacity requirements planning
Problems?
Requirements schedule
No
Yes Adjust master
schedule
Material Requirements Planning
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Enterprise Resource Planning (ERP)
An extension of the MRP system to tie in customers and suppliers
1. Allows automation and integration of many business processes
2. Shares common data bases and business practices 3. Produces information in real time
Coordinates business from supplier evaluation to customer invoicing
ERP modules include Basic MRP Finance Human resources Supply chain management (SCM) Customer relationship management (CRM)
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ERP can be highly customized to meet specific business requirements
ERP systems can be integrated with Warehouse management Logistics Electronic catalogs Quality management
Enterprise Resource Planning (ERP)
ERP systems have the potential to Reduce transaction costs Increase the speed and accuracy of information
Facilitates a strategic emphasis on JIT systems and integration
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Customer Relationship Management
Invoicing Shipping
Distributors, retailers,
and end users
Sales Order (order entry,
product configuration, sales management)
ERP and MRP
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Figure 14.11
Supply Chain Management
Vendor Communication (schedules, EDI, advanced shipping notice,
e-commerce, etc.)
ERP and MRP
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1. Provides integration of the supply-chain, production, and administration
2. Creates commonality of databases 3. Can incorporate improved best processes 4. Increases communication and collaboration between
business units and sites 5. Has an off-the-shelf software database 6. May provide a strategic advantage
Advantages of ERP Systems
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1. Is very expensive to purchase and even more so to customize
2. Implementation may require major changes in the company and its processes
3. Is so complex that many companies cannot adjust to it 4. Involves an ongoing, possibly never ending, process for
implementation 5. Expertise is limited with ongoing staffing problems
Disadvantages of ERP Systems