adeyl khan, faculty, bba, nsu. material requirements planning (mrp) computer-based information...
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Adeyl Khan, Faculty, BBA, NSU
Material requirements planning (MRP)Computer-based information system that
translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.
BOM
MRP
MPS
Current Availabilities
PlannedOrder Releases
PriorityPlanning
LeadTimes
Lot SizingPolicies
Adeyl Khan, Faculty, BBA, NSU
Glossary
Bill of materials (BOM): One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.Low-level coding: Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level the component occurs
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Independent and Dependent DemandIndependent Demand
A
B(4) C(2)
D(2) E(1) D(3) F(2)
Dependent Demand
Independent demand is uncertain. Dependent demand is certain.
Adeyl Khan, Faculty, BBA, NSU
Dependent vs Independent Demand
14-5Time
Time Time
Time
Dem
and
Dem
and
Stable demand“Lumpy” demand
Am
ou
nt
on
han
d
Am
ou
nt
on
han
d
Safety stock
Figure 14.1
Adeyl Khan, Faculty, BBA, NSU
MRP Inputs
Master Production ScheduleTime-phased plan specifying timing and quantity of production for each end item.Material Requirement Planning ProcessProduct Structure TreeLead Times
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Adeyl Khan, Faculty, BBA, NSU
Bill of MaterialsBill of Materials – Parent-child diagram that
shows what goes into what.
Bike
FrameAssy
Wheel Assy
Components Wheel Tires
Hubs & Rims
Spokes
Frame
Used to make sure enough parts for production plan
Each part has LT, ordering policy
One BOM for every end product
Adeyl Khan, Faculty, BBA, NSU
Product Structure Tree
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Chair
Seat
Legs (2)Cross
barSide
Rails (2)Cross
barBack
Supports (3)
LegAssembly
BackAssembly
Level 0
1
2
3
Figure 14.5
Adeyl Khan, Faculty, BBA, NSU
MRP Processing
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MRP computerprograms
Masterschedule
MRP Inputs MRP Processing MRP Outputs
Bill ofmaterials
Inventoryrecords
Changes
Order releases
Planned-orderschedules
Exception reports
Planning reports
Performance-controlreports
Inventorytransaction
Primaryreports
Secondaryreports
Figure 14.2
Adeyl Khan, Faculty, BBA, NSU
Master Schedule- A primary input
Master schedule States which end items are to be produced, when these are needed, and in what quantities.
Cumulative lead time The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly.
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Adeyl Khan, Faculty, BBA, NSU
Planning Horizon
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1 2 3 4 5 6 7 8 9 10
Procurement
Fabrication
Subassembly
Assembly
Figure 14.4
Time Period (weeks)
Adeyl Khan, Faculty, BBA, NSU
Inventory Records
One of the three primary inputs in MRPIncludes information on the status of each item by time period
Gross requirements Scheduled receipts Amount on hand Lead times Lot sizes And more …
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Adeyl Khan, Faculty, BBA, NSU
Inventory Requirements Calculation
Net requirements: Net Requirements = Gross Requirements – Available Inventory
Available Inventory: Available Inventory = Projected on hand – Safety stock – Inventory allocated to other items
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Adeyl Khan, Faculty, BBA, NSU
Assembly Time Chart
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1 2 3 4 5 6 7 8 9 10 11
Procurement ofraw material D
Procurement ofraw material F
Procurement ofpart C
Procurement ofpart H
Procurement ofraw material I
Fabricationof part G
Fabricationof part E
Subassembly A
Subassembly B
Final assemblyand inspection
Figure 14.7
Adeyl Khan, Faculty, BBA, NSU
MRP Processing- OutputsGross requirements
Total expected demandScheduled receipts
Open orders scheduled to arrive
Planned on hand Expected inventory on
hand at the beginning of each time period
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Net requirements Actual amount needed in
each time periodPlanned-order receipts
Quantity expected to received at the beginning of the period
Offset by lead timePlanned-order releases
Planned amount to order in each time period
Adeyl Khan, Faculty, BBA, NSU
MRP Primary ReportsPlanned orders - schedule indicating the
amount and timing of future orders.Order releases - Authorization for the
execution of planned orders.Changes - revisions of due dates or order
quantities, or cancellations of orders.
MRP Secondary Reports Performance-control reports Planning reports Exception reports
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Updating the System
• Regenerative system• Updates MRP records periodically
• Net-change system• Updates MPR records continuously
Adeyl Khan, Faculty, BBA, NSU
Other Considerations
Safety StockLot sizing
Lot-for-lot ordering Economic order quantity Fixed-period ordering
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Adeyl Khan, Faculty, BBA, NSU
MRP in Services
Food catering service End item => catered food Dependent demand => ingredients for each recipe, i.e. bill of materials
Hotel renovation Activities and materials “exploded” into component parts for cost estimation and scheduling
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Adeyl Khan, Faculty, BBA, NSU
Benefits of MRP
Low levels of in-process inventoriesAbility to track material requirementsAbility to evaluate capacity requirementsMeans of allocating production timeAbility to easily determine inventory usage by backflushing
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Adeyl Khan, Faculty, BBA, NSU
Requirements of MRP
Computer and necessary softwareAccurate and up-to-date
Master schedules Bills of materials Inventory records
Integrity of data
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Adeyl Khan, Faculty, BBA, NSU
Example 2Plant produces
Wood Shutter Book Cases
21
1 2 3 4 5 6 7 8Quantity
100 150
ShutterAssembly LT = 1
Frames (2)Order LT =2
Wood Section (4)
Fabrication LT = 1
Schedule Re. W 1 = 70
Adeyl Khan, Faculty, BBA, NSU22
Shutter
1 2 3 4 5 6 7 8
Quantity
100 150
Shutter
1 2 3 4 5 6 7 8
Gross Req. 100 150
Scheduled Receipts
Projected on hand
Net requirement
100 150
Planned order receipts
100 150
Planned order release
100 150
Adeyl Khan, Faculty, BBA, NSU23
Shutter
1 2 3 4 5 6 7 8
Planned order release
100 150
Frames 1 2 3 4 5 6 7 8Gross Req. 200 300
Scheduled Receipts
Projected on hand
Net requirement
200 300
Planned order receipts
200 300
Planned order release
200 300
Adeyl Khan, Faculty, BBA, NSU
Computing the item Scheduled ReleasesItem CPeriod 1 2 3 4 5 6 7 8 9 10 11 12Gross Requirements 12 10 90 75Scheduled Receipts 20Inventory Position: 20 20 40 40 40 40 28 18 18 -72 0 -75 0Net Requirements 72 75Planned Sched. Receipts 72 75Planned Sched. Releases 72 75
Synthesizingitem demand
series
ProjectingInv. Positions
andNet Reqs.
Lot SizingTime-
Phasing
ParentSched. Rel.
Item ExternalDemand
Gross Reqs
ScheduledReceipts
InitialInventory
Safety StockRequirements
NetReqs
Lot SizingPolicy
Planned OrderReceipts
Lead Time
Planned OrderReleases
Adeyl Khan, Faculty, BBA, NSU
Lot Sizing If affordable, a lot-for-lot (L4L) policy will incur the lowest
inventory holding costs and it will maintain a smoother production flow.
Possible reasons for departure from a L4L policy: High set up times and costs => need for serial process batching to
control the capacity losses Processes that require a large production volume in order to
maintain a high utilization (e.g., fermentors, furnaces, etc.) => need for parallel process batching
Selection of a pertinent process batch size It must be large enough to maintain feasibility of the production
requirements It must control the incurred
inventory holding costs, and/or part delays (this is a measure of disruption to the production
flow caused by batching) Move or transfer batches: The quantities in which parts are
moved between the successive processing stations. They should be as small as possible to maintain a smooth process
flow
Adeyl Khan, Faculty, BBA, NSU
Some Lot Sizing Methods employed in the traditional MRP frameworkMain focus: Balance set-up and holding
costsWagner-Whitin Algorithm for dynamic Lot
SizingEconomic Order Quantity (EOQ): Compute
a lot size using the EOQ formula with the demand rate D set equal to the average of the net requirements observed over the considered planning horizon.
Periodic Order Quantity (POQ): Compute T = round(EOQ/D), and every time you schedule a new lot, size it to cover the net requirements for the subsequent T periods.
Adeyl Khan, Faculty, BBA, NSU
Some Lot Sizing Methods employed in the traditional MRP framework …Silver-Meal (SM): Every time you start a new
lot, keep adding the net requirements of the subsequent periods, as long as the average (setup plus holding) cost per period decreases.
Least Unit Cost (LUC): Every time you start a new lot, keep adding the net requirements of the subsequent periods, as long as the average (setup plus holding) cost per unit decreases.
Part Period Balancing (PPB): Every time you start a new lot, add a number of subsequent periods such that the total holding cost matches the lot set up cost as much as possible.
Adeyl Khan, Faculty, BBA, NSU
MRP IIExpanded MRP with emphasis
placed on integration
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Financial planning
Marketing
Engineering
Purchasing
Adeyl Khan, Faculty, BBA, NSU
MRP II
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MarketDemand
Productionplan
Problems?
Rough-cutcapacity planning
Yes No YesNo
Finance
Marketing
Manufacturing
Adjustproduction plan
Masterproduction schedule
MRP
Capacityplanning
Problems?Requirements
schedules
Adj
ust
mas
ter
sche
dule
Figure 14.14
Adeyl Khan, Faculty, BBA, NSU
Capacity Planning
Capacity requirements planning: The process of determining short-range capacity requirements.Load reports
Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.Time fences
Series of time intervals during which order changes are allowed or restricted.
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Adeyl Khan, Faculty, BBA, NSU
Capacity Planning
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Develop a tentativemaster production
schedule
Use MRP tosimulate material
requirements
Rough-cutcapacity planning
Firm up a portionof the MPS
Is shopcapacity
adequate?
Cancapacity be
changed to meetrequirements
Revise tentativemaster production
schedule
Changecapacity
Yes
No
Yes
No
Figure 14.15
Adeyl Khan, Faculty, BBA, NSU
Solved Problem 3
Std. Times Prod. Schedule
Labor 0.5hrs/unit Week 1 2 3 4
Machines 1hrs/unit Quantity 200 300 100 150
Labor hr 100 150 50 75
Av. Capacity Machine hrs 200 300 100 150
Labor 200hrs Labor Util. 50.00% 75.00% 25.00% 37.50%
Machines 250hrs Machine Util. 80.00%120.00
% 40.00% 60.00%
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Adeyl Khan, Faculty, BBA, NSU
MRP in Services
Service applications such as: Professional services Postal services Retail Banking Healthcare Higher education Engineering Logistical services Real estate
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Adeyl Khan, Faculty, BBA, NSU
Enterprise resource planning (ERP)MRP >> MRPII >> ERP
Integration of financial, manufacturing, and human resources on a single
computer system.
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Adeyl Khan, Faculty, BBA, NSU
ERP Software
ERP software provides a system to capture and make data available in real time to decision makers and other users in the organization Provides tools for planning and monitoring various business processes Includes
Production planning and scheduling Inventory management Product costing Distribution
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Adeyl Khan, Faculty, BBA, NSU
ERP Strategy Considerations
High initial costHigh cost to maintainFuture upgradesTraining
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Adeyl Khan, Faculty, BBA, NSU
Learning Objectives
Describe the conditions under which MRP is most appropriate. Describe the inputs, outputs, and nature of MRP processing. Explain how requirements in a master production schedule are translated into material requirements for lower-level items. Discuss the benefits and requirements of MRP.
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Adeyl Khan, Faculty, BBA, NSU
Learning Objectives
Explain how an MRP system is useful in capacity requirements planning. Outline the potential benefits and some of the difficulties users have encountered with MRP. Describe MRP II and its benefits. Describe ERP, what it provides, and its hidden costs.
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