material requirements planning defined materials requirements planning (mrp) is the logic for...
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Material Requirements PlanningDefined
• Materials requirements planning (MRP) is the logic for determining the number of parts, components, and materials needed to produce a product.
• MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced.
• Dependent demand drives MRP.
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Material Requirements Planning System
• Based on a master production schedule, a material requirements planning system:– Creates schedules identifying the
specific parts and materials required to produce end items.
– Determines exact unit numbers needed.
– Determines the dates when orders for those materials should be released, based on lead times.
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Firm orders from knowncustomers
Forecastsof demand
from randomcustomers
Aggregateproduct
plan
Masterproductionschedule
(MPS)
Materialplanning(MRP)
Engineeringdesign
changes
Bill ofmaterial
file
Inventorytransactions
Inventoryrecord
file
Reports
3
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Product Structure Thinking Challenge
The demand for product A is 50. How many of each component is needed to satisfy demand?
A
B(2) C(3)
D(2)
E(1)E(3) F(2)
D(2)G(1)
A
B(2) C(3)
D(2)
E(1)E(3) F(2)
D(2)G(1)
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Product Structure Solution
A
B(2) C(3)
D(2)
E(1)E(3) F(2)
D(2)G(1)
A
B(2) C(3)
D(2)
E(1)E(3) F(2)
D(2)G(1)
50
50 x 3 = 15050 x 2 = 100
150 x 2 = 300
150 x 1 = 150
300 x 1 = 300
300 x 2 = 600
100 x 3 = 300
100 x 2 = 200
Note: D: 200 + 600 = 800 E: 300 + 150 = 450
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MRP Scheduling Terminology
• Net requirements – the amount needed to meet gross requirements in a particular period.
• Planned order receipt - amount of the item that you are planning to receive in a particular period
• Planned order release - an order that you are planning to release in a particular period
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MRP Example - One item’s complete record
Starting information 1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
On-Hand 20 20
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.
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MRP Example - Period 1
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
On-Hand 20 20 23
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.
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MRP Example - Period 2
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
On-Hand 20 20 23 3
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.
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MRP Example - Period 3
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
On-Hand 20 20 23 3 33
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.
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MRP Example - Period 4
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
On-Hand 20 20 23 3 33 8
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.
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MRP Example - Period 5
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
On-Hand 20 20 23 3 33 8
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.
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Low Level Coding
• What about this?
A
B C
D C E
E
Level 0
Level 1
Level 3
Level 2
Won’t having the same part at different levels make it harder to do level by level
calculations?
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Low Level Coding - “How to”• Place each item at same level - it simplifies the calculations
A
B C
D C E
E
Level 0
Level 1
Level 3
Level 2
A
B
CD C
EE
Before: After:
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Another MRP ExampleAn end item (A) is assembled from 1 sub-component C, 2 part D’s, and 1 sub-component B
Each sub-component C is assembled from 1 part D and 1 part E
Each sub-component B is assembled from 1 part C and 2 part E’s
The master production schedule calls for 250 units of A in week 6, 140 in week 8, and 200 in week 9.
The following information is available from the inventory status file:
Part/Sub-component BeginningAvailable
ScheduledReceipts
Lead Time SafetyStock
Lot Size
A 5 0 1 week 0 L4LB 5 0 1 week 5 10'sC 0 0 2 weeks 0 L4LD 0 5 in week 1 1 week 0 150 min.E 5 5 in week 2 1 week 0 10's
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Types of Time Fences• Frozen
– No schedule changes allowed within this window.
• Moderately Firm– Specific changes allowed within product groups
as long as parts are available.
• Flexible– Significant variation allowed as long as overall
capacity requirements remain at the same levels.
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Example of Time Fences
8 15 26
Weeks
FrozenModerately
Firm Flexible
Firm Customer Orders
Forecast and availablecapacity
Capacity
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Work-Center Scheduling Objectives
• Meet due dates
• Minimize lead time
• Minimize setup time or cost
• Minimize work-in-process inventory
• Maximize machine utilization
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Priority Rules for Job Sequencing
1. First-come, first-served (FCFS)
2. Shortest operating time (SOT)
3. Last-come, first served (LCFS)
4. Earliest due date first (EDD)
Many other possible rules...
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Example of Job Sequencing: First-Come First-Served
Jobs (in order Processing Due Date Flow Timeof arrival) Time (days) (days hence) (days)
Answer: FCFS Schedule
Jobs (in order Processing Due Dateof arrival) Time (days) (days hence)
A 4 5B 7 10C 3 6D 1 4
Suppose you have the four jobs to the right arrive for processing on one machine.
What is the FCFS schedule?
Average Lateness = (0 +1 + 8 + 11)/4
= 5 days
Average Flow Time = (4+11+14+15)/4
= 11 days
Total Flow Time
Late
A 4 5 4 0B 7 10 11 1C 3 6 14 8D 1 4 15 11
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PriorityRule
AverageFlow Time
AverageLateness
TotalFlow Time
FCFS 11 days 5 days 15SOT 7 days 2 days 15LCFS 7.75 days 2.75 days 15EDD 7.25 days 1.75 days 15
Summary:
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Characteristics of Location Decisions
• Long-term decisions• Very difficult to reverse• Affect fixed & variable costs
– Transportation cost • As much as 25% of product price
– Other costs: Taxes, wages, rent etc.
• Objective: Maximize benefit of location to firm
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• Cost focus– Revenue varies little
between locations
• Location is a major cost factor– Affects shipping &
production costs (e.g., labor)– Costs vary greatly between
locations
Manufacturing Location Strategies
© 1995 Corel Corp.
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Service Location Strategies
• Revenue focus– Costs differences among
locations are relatively less important
• Location is a major revenue factor– Affects amount of
customer contact– Affects volume of
business © 1995 Corel Corp.
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Location Methods:
Factor Rating Method
• Most widely used location technique• Useful for service & manufacturing
locations• Rates locations using factors
– Qualitative (intangible) factors• Example: Education quality, labor skills
– Quantitative (tangible) factors• Example: Short-run & long-run costs
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Factor Rating Method Solution
Omaha Denver
Factor Weight ScoreWeighted Factor Score
Weighted Factor
Mfg. costs 0.7 8 5.6 6 4.2Cost of living 0.1 7 0.7 6 0.6Labor avail. 0.2 10 2 8 1.6
1 8.3 6.4
Omaha is bestOmaha is best
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Location Methods:
Factor Rating Method +/-+ Easy to understand and compute
- How do you pick weights?
- How do you assign rankings?
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Location Decision Sequence
1. Country1. Country 2. Region/Community2. Region/Community
3. Site3. Site© 1995 Corel Corp.
© 1995 Corel Corp.
© 1995 Corel Corp.
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Plant Location Methodology: Centroid Method Formulas
C = d V
V x
ix i
i
Cx = X coordinate of the centroid
Cy = Y coordinate of the centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith location
C = d V
Vy
iy i
i
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Plant Location Methodology: Example of Centroid Method
Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?
• Centroid method example– Several automobile showrooms are located according to the
following grid which represents coordinate locations for each showroom.
S howroom No o f Z-Mo b ile s s o ld p e r mo nth
A 1250
D 1900
Q 2300X
Y
A(100,200)
D(250,580)
Q(790,900)
(0,0)
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Thinking Challenge Solution
00 3030 6060 9090 120120 150150
3030
6060
9090
00
Seattle(50,60)494k units
Aberdeen (20,35)18k units
Spokane (160,50)171k units
Warehouse at (77, 57): Wenatchee Nat’l Forest!
XX
© 1995 Corel Corp.
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Balancing Supply Chain Capability with Customer
Demands
Information
Supply Chain Capability
Customer Requirements
Increased CostsOvertimeExpeditingIncreased Inventory
Increased Demand:
Marketing programs
Promotions
Supply Chain Capability
Customer Requirements
Information
Market Demand,New
Products, Promotions
Suppliers, Manufacturers,
Distributors, Carriers
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Formulas for Measuring Internal Supply-Chain
Performance
• Inventory Turnover = Cost of goods sold .
Average inventory value
Weeks)(52Sold Goods ofCost
ValueInventory Average Supply of Weeks
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Supply Chain MeasuresCommon practice is to measure within a function:
Supplier Plant DistributionCenter
Customer
Price CostEfficiencyOutput
InventoryStock RotationSpace
CostQualitySpeedFlexibility
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Measure Across Supply Chain Nodes
The correct method is to measure across a node:
Supplier Plant DistributionCenter
Customer
Cycle TimeOn-time DeliveryVendor ManagedInventory
Cycle TimeDelivery ReliabilityProduct Availability
Cycle TimeOrder CompletionPerformance
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The Bullwhip Effect – Cont’d
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What is Outsourcing?Defined
Outsourcing: moving a firm’s internal
activities and decision responsibility to
outside providers.
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Reasons to Outsource
• Organizationally-driven - gain focus
• Improvement-driven - quality, skills, innovation
• Financially-driven - reduce asset investment
• Revenue-driven - gain market access, expand sales
• Cost-driven - supplier has lower cost structure