material requirements planning - qualityoperations · pdf filematerial requirements planning 8...

Material Requirements Planning

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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.


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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.


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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


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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


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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


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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


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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


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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.


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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


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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


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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


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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


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Week number:

Gross requirements

1 2 3 4 5 6 7 8 100 150



Shutters:

LT = 1 week

100 150

100 100

100

150 150

150

Wood sections:

LT = 1 week


70 70 70 70

times 4

400

times 4

600

330 600 330 600

330 600


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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


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Week number:

Gross requirements

1 2 3 4 5 6 7 8 100 150



Shutters:

LT = 1 week

100 150

100 100

100

150 150

150

Frames:

LT = 2 week

Lot size = 320


120

times 2

200

times 2

300

200 180 320

320 320

320

120 120 120 140


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Week number:

Gross requirements

1 2 3 4 5 6 7 8 100 150



Shutters:

LT = 1 week

100 150

100 100

100

150 150

150

Wood sections:

LT = 1 week

Lot size = 70


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


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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


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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


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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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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

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