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P/OM
SESSION VII B
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Managing production system includes
materials management, sourcing, follow up,
controlling productivity
Complexities of producing numerous
different products can causeconfusion, inefficiencies & inferior
customer service
MATERIAL REQUIREMENT PLANNING
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To control such an environment, timely
and accurate information is required
MRP system can provide this vital info
MATERIAL REQUIREMENT PLANNING
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Managers using reactive systems
ask, What should I do now?
Managers using planning
systems ask, What will I need in
the future? How much and
when?
MATERIAL REQUIREMENT PLANNING
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simple to manage
high inventory cost OR ordering cost
unreliable delivery performance
Reactive systems
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complex to manage
reduced inventory cost (it carries only those
items & components that are needed no
more/no less)
Reduces order processing delays => reduced LT=> better deliveries => better customer service
accurate information required
Planning system
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requires a lot of discipline
Commitment by scheduler, supervisor, managers,
etc.
Planning system
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It is the degree to which demand of an item is
dependent on demand for another item
E.g. demand for tea/coffee will determine the
quantity of sugar/milk, etc. required
MRP obviates the need of large safety stocks for
dependent demand items
Demand Dependency
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It is a software based production, planning and
inventory control system used to manage the
manufacturing process
It generates time-phased materials requirements
for production operations (provides due dates for
components)
MRP : a scheduling & ordering system
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Operations Planning & Scheduling System
Aggregate output
planning
Master production
scheduling
Material requirements
planning
Loading
Sequencing
Detailed
Scheduling
Expediting
Aggregate capacity
planning
Rough-cut capacity
planning
Detailed capacity
planning
Short-term
capacity control
Operations
Output planning Capacity planning
Shop
floor control
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MRP enables to estimate dept.-wise
capacity requirement
Operations Planning & Scheduling System
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Inventoryreduction how much of what and
when? No extra inventory
Reductionin production & delivery LT priorities
production activities. Ensures smooth production
due to efficient inventory management
MRP : Objective & Methods
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Realisticcommitments WYSIWYG better
customer satisfaction. New orders are added to the
system and revised total load plan is generated andgiven to production manager.
Increasedefficiency MRP ensures close
coordination among various departments as
products progress through them. Fewer unplanned
interruptions, better production efficiency.
MRP : Objective & Methods
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Mainsourcesofinformation (input)are:
1. Master Production Schedule
2. Inventory Status File
3. BOM
4. Purchase orders outstanding
5. Lead times
MRP : System Components
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3 kinds of information
1. Order release requirements (ordersto
bereleasednow)
2. Order re-scheduling (expedite,de-
expedite,cancelopenorders)
3. Planned orders (future)
MRP provides
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MRP system
Master
production
schedule (MPS)
BOMfileInventory
statusfile
MRP
processing
logic
Planned
orders
(future)
Orderrelease
requirements (orders
to bereleasednow)
Ordersrescheduling
(expedite,de-expedite,
cancelopenorders)
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Initially developed from (a) existing orders OR
(b) demand forecast
MPS provides input to MRP system
MPS includes replacement (service) components
for customers
MPS ultimately governs MRP on sourcing plan &
producing sub-components, to meet deliveries
MPS (master production schedule)
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Itcontainsthefollowing:
identification number,
quantity on hand,
safety stock level,
quantity disbursed and
sourcing LT for every item
Inventory Status File
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Identifies manufacturing process (sequence of
build up)
Identifies quantities of finished unit & the
departments performing the build up sequence
*PrimaryinfotoMRPfromBOMisthe product
structure
BOM
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Product structures for 2 assembled products
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Product structures for 2 assembled products
A&D are upper level end itemsComponents are lower-level items
Each item is given unique identification number
MRP schedules & time-phases the orders for lower
level component items
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MRP processing logic
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It accepts the Master Production Schedule
Determines components schedules
Calculates for each item in each product for eachtime period (normally 1 week) in the planning
horizon
How much is required Vs. how much is already
available in-house
MRP processing logic
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Data processing determines the overall
requirements to meet deliveries
MRP processing logic
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Bicycle components
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The report clearly identifies the sourcing actions required for on-schedule
production
Can notify the suppliers in advance
Weekly updating expedite, de-expedite, cancel
**Information system is valuable when thousands of sub-components must
be coordinated among numerous suppliers & work centers
Management info from MRP
MRP report for one item
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Terminology of MRP
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1. Allocated quantity : in-house quantity but already
allocated to some other order
2. Gross requirements : overall quantity neededto
meet planned output levels. *Planned output for end
items come from MIS. *Planned output for
components come from MRP
3. Scheduled receipts : quantity that will be received at
the start of time period against previously placed
orders
Terminology of MRP
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4. Available quantity : quantity expected to be available
at the end of a time period for production in
subsequent periods
Terminology of MRP
Available qty = qty available from the previous period +
schedule receipts + planned order receipts gross
requirement
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5. Net requirements : net quantity to be acquired to
meet production requirements for the period
6. Planned order receipts quantity that is planned to
be ordered for receiving at the start of the period.
The order has not yet been placed
Terminology of MRP
net requirements = gross requirement scheduled receipts
qty. available from previous period
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7. Planned order release : its a release that shows
the order plan of items vis--vis time period.
What, how much & when. When this order isreleased, it becomes a scheduled receipt
Terminology of MRP
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MRP - example
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Chair manufacturing sequence
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Chair manufacturing sequence
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MRP - example
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Determine & plan for end products
Determine and plan for lower level items
Info Processing System (Reverse T&A)
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Q. When must the order be placed so that the item
arrives when it is needed?
A. The processing system responds by offsettingthe length of LT as indicated in the inventory status
file for that item
Lead-time off-setting
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Provides the information regarding relationshipbetween product and its components
Its easy to see how many of which component is
required at which level
Indented BOM
indented BOM for Model H chair
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To produce a product, often multiple units of a
lower level item is required.
E.g.1
unit of H requires 4 units of E.450 units of H requires 450 x 4 = 1800 units of E
This process of multiplication is called Product
Explosion or BOM explosion
Product Explosion
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A single item may be used at several points of
production. E.g. nut-bolts
MRP by convention assigns the item to the lowest
level in which it occurs in the product structure
Low Level Coding
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In order to maintain the schedule, planned order
releases must be acted upon in the relevant weeks
The cells which represent the weeks are the
ACTIONBUCKETS.
*The action is to release the order.
Using MRP outputs for material decisions
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MRP is not static
Changes with (i) new orders (ii) current production
floor conditions (iii) anticipated changes for the
future
MRP must be updated with current information
BUT should also provide stability for production
operations
Keeping MRP current in a changing environment
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(i) Pegging
(ii) Cycle Counting
(iii) Updating
(iv) Time Fences
Four aspects of MRP
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tracing upward in the BOM from the components tothe parent item
In real life material plans get disrupted every now
and then
Pegging identifies which components get affected
by such disruptions
(i) Pegging
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Pegging shows the level-
by-level linkages among
components and their
time-phased status in the
MRP records
(i) Pegging
pegging the MRP records
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(ii) Cycle Counting
Components are counted, deducting defective units at
each stage of production and in storage area on a regular
basisSystem data should be same as actual physical inventory
MRP records are updated, weekly or daily
Updated records highlight excesses or shortages and
thereby indicated how the production schedules need to
be adjusted
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(iii) Updating
Updating is required when new jobs arrive OR
when technology changes the production design
Two updating approaches are used
(a) regenerative
(b) net change
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(iii) Updating
Regenerative completely reprocesses the entire
set of information & recreates the complete MRP
from start to endNet change reprocesses only those portions
that are affected by informational changes
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allows a part of the master schedule to be
designated as notto berescheduled
Dynamics of MRP environment can create
potential confusion => systemnervousness
(iv) Time Fences
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Stability is gained by using timefence
Timefence= shortest LT fromrawmaterialto
finished product
Within the time fence, add longest LT at each level
of product structure + longest LT for sourcing
*frozen part of MPS is called firm plannedorders
(iv) Time Fences
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(iv) Time Fences
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(iv) Time Fences
The longest LT at levels 0, 1 & 2 are 1, 2 and 4 = 7 weeks + sourcing LT
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MRP system generates planned order releases
which triggers P.O. for vendors
Set up costs(cost of ordering) + holding cost
a. LOT-FOR-LOT ORDERING (dynamic)
b. E.O.Q. TECHNIQUE (static)
LOT sizing
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LOT SIZING L4L TECHNIQUE
Lot sizing technique that generates exactly what is
needed
No safety stock or anticipation of further orders
Works most efficiently when
Frequent orders are economical (low set-up or
ordering costs) JIT inventory techniques has been implemented
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Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
50 60 70 60 95 75 60 55
Consider the given lot sizing problem, the netrequirement are given for 8 weeks
Cost per item Rs 10
Order/Setup cost Rs 47
Inventory carrying cost/week 0.5 %
LOT SIZING L4L TECHNIQUE
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Week NetRequirement Production
Quantity
Ending
Quantity
Holding Cost Setup Cost TotalCost
1 50 50 0 Rs 0.00 Rs 47 Rs 47
2 60 60 0 0.00 47 94
3 70 70 0 0.00 47 141
4 60 60 0 0.00 47 188
5 95 95 0 0.00 47 235
6 75 75 0 0.00 47 282
7 60 60 0 0.00 47 329
8 55 55 0 0.00 47 376
Lot-for-Lot Run Size for an MRP schedule
LOT SIZING L4L TECHNIQUE
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Annual demand = D = 525 x 52 = 3412.5 units
8
Annual holding cost =H= 0.5%xRs 10x52 weeks=2.60units
Setup cost = S = Rs 47
EOQ = 2DS = 351unit
s
H
LOT SIZING E.O.Q. TECHNIQUE
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Week NetRequirement Production
Quantity
Ending
Inventory
Holding Cost Setup Cost TotalCost
1 50 351 301 Rs 15.05 Rs 47 Rs 62.05
2 60 0 241 12.05 0 74.10
3 70 0 171 8.55 0 82.65
4 60 0 111 5.55 0 88.20
5 95 0 16 0.80 0 89.00
6 75 351 292 14.60 47 150.60
7 60 0 232 11.60 0 162.20
8 55 0 177 8.85 0 171.05
EOQ Run Size for an MRP schedule
=525
LOT SIZING E.O.Q. TECHNIQUE
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a.k.a. capacity requirements planning
Each time the MRP system is updated, it is
imperative to check whether sufficient capacity is
available
DCP addresses this question
Detailed Capacity Planning (DCP)
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*E.g. detailed capacity analysis for component A
(the front legs)
Step 1:route sheet is developed for component A
Detailed Capacity Planning
route sheet for component A
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Step 2 :construct the operation set-back chart
Detailed Capacity Planning
partial operation set-back chart for chair model H
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A computer is necessary
Product structure must be assembly oriented
BOM + inventory status information must be
recorded & computerised
Valid master schedule must be prepared
Data integrity
Training people else ad hoc methods resurfaces
Limitations of MRP
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Dynamic nature
Reacts well to changing activities (real time
adjustments for thousands of components)
Better PPC
Better inventory management
Shorter delivery LT sourcing
Better deliveries
Advantages of MRP
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Least accurate information is available on
capacity, market forecasts, production control
Most accurate information on BOM, MPS,
inventory records
Managers speak
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closed loopMRP
MRP systems was developed on a segregated
basis
MRPII connects many of the information
subsystems to the MRP system
Synchronises all aspects of the business (sales,
purchasing, manufacturing, finance, engineering) by
adopting a focal production plan
Manufacturing Resource Planning (MRPII)
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MRPII involves developing a production plan from
the business plan to specify monthly projections for
each product line over next 1 to 5 years.
Developed by consensus of all executives
Production dept. produce (PS)
Sales dept. sell (PSFPD)
Finance ??
MRPII
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MRPII: an integrated system for planning & control
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MRPII: an integrated system for planning & control
BUSINESSPLAN
PRODUCTION
PLAN
M.P.S.
ROUGHCUT
CAPACITY
PLAN
M.R.P.
DETAILED
CAPACITYPLAN
SHOP FLOORCONTROL;
PURCHASESCONTROL
MANUFACTURING
(materials, capacity,
production schedules
Purchasing
(vendor orders)
Engineering
(process &
product design)
Marketing (sales
order entry, delivery
projections)
Finance (capital
requirements for
capacity, working capital
requirements)
Accounting (a/c
payable; a/c
receivable)
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1. Purchasing activities related to procuring materials
and supplies consumed during production
2. Materialsmanagement activities relating to
managing the flow of materials into and through the
firm
3. Physicaldistribution activities relating to (2) as
well as to storing & transporting finished products
through distribution system to customers
Purchasing
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1. Goodvalue price & quality combo
2. Reliableschedule on time, JIT
3. Minimisedinvestment depends on economies
of order size, carrying costs, stock out costs
4. Efficientadmin keeping the cost of buying at
low levels, coordinate with other depts.
effectively
Purchasing : objectives
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a. Purchasing requirement description, qty, del.
date, etc.
b. Sourcesofsupply personnel knowledge,
salespersons, ads, trade & industry associations,
peers, company records, etc. (sometimes
vendors must be developed)
c. Costofsupply cost per transaction, inventory
carrying costs, make or buy
Effective purchasing
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d. Prices & Value buy at better prices (common
sources of price lists, quotations, market px.,
competitive bids, direct negotiations)
e. Administering the purchase requisition costs
are evaluated sources identified price & values
established P.O. is raised supplies are received payments
authorised records are kept
Effective purchasing
These admin. functions must be performed efficiently/timely