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Operations Operations ManagementManagementChapter 4 –Chapter 4 –Material Requirements Planning (MRP)Material Requirements Planning (MRP)Planning (MRP)Planning (MRP)

PowerPoint presentation to accompanyPowerPoint presentation to accompanyPowerPoint presentation to accompanyPowerPoint presentation to accompanyHeizer/Render Heizer/Render Principles of Operations Management, Principles of Operations Management, 66eeOperations Management,Operations Management, 88ee

© 2006 Prentice Hall, Inc. 14 – 1© 2006 Prentice Hall, Inc.

Operations Management, Operations Management, 88e e

O tlineO tlineOutlineOutline D d t I t M d lD d t I t M d l Dependent Inventory Model Dependent Inventory Model

RequirementsRequirementsMaster Production ScheduleMaster Production ScheduleBills of MaterialBills of MaterialBills of MaterialBills of MaterialAccurate Inventory RecordsAccurate Inventory RecordsP h O d O t t diP h O d O t t diPurchase Orders OutstandingPurchase Orders OutstandingLead Times for Each ComponentLead Times for Each Component

© 2006 Prentice Hall, Inc. 14 – 2

O tlineO tline Contin edContin edOutline Outline –– ContinuedContinued

MRP StructureMRP Structure MRP ManagementMRP Management

MRP DynamicsMRP DynamicsMRP DynamicsMRP DynamicsMRP and JITMRP and JIT

LotLot--Sizing TechniquesSizing Techniques


O tlineO tline Contin edContin edOutline Outline –– ContinuedContinued Extensions Of MRPExtensions Of MRP

ClosedClosed--Loop MRPLoop MRPClosedClosed Loop MRPLoop MRPCapacity PlanningCapacity PlanningMaterial Requirements Planning II Material Requirements Planning II

(MRP II)(MRP II)

MRP In ServicesMRP In Services Di t ib ti R Pl iDi t ib ti R Pl i Distribution Resource Planning Distribution Resource Planning

(DRP)(DRP)


O tlineO tline Contin edContin edOutline Outline –– ContinuedContinued Enterprise Resource Planning (ERP)Enterprise Resource Planning (ERP)

Advantages and Disadvantages ofAdvantages and Disadvantages ofAdvantages and Disadvantages of Advantages and Disadvantages of ERP SystemsERP Systems

ERP in the Service SectorERP in the Service SectorERP in the Service SectorERP in the Service Sector


B fit f MRPB fit f MRPBenefits of MRPBenefits of MRP

1.1. Better response to customer Better response to customer ddordersorders

2.2. Faster response to marketFaster response to market2.2. Faster response to market Faster response to market changeschanges

33 I d tili ti f f ilitiI d tili ti f f iliti3.3. Improved utilization of facilities Improved utilization of facilities and laborand labor

4.4. Reduced inventory levelsReduced inventory levels


D d t D dD d t D dDependent DemandDependent Demand The demand for one item is related The demand for one item is related

to the demand for another itemto the demand for another item Given a quantity for the end item, Given a quantity for the end item,

the demand for all parts andthe demand for all parts andthe demand for all parts and the demand for all parts and components can be calculatedcomponents can be calculated

In general, used whenever a In general, used whenever a schedule can be established for an schedule can be established for an itemitem

MRP is the common techniqueMRP is the common technique© 2006 Prentice Hall, Inc. 14 – 7

MRP is the common techniqueMRP is the common technique

D d t D dD d t D dDependent DemandDependent Demand

Effective use of dependent demand Effective use of dependent demand inventory models requires theinventory models requires theinventory models requires the inventory models requires the followingfollowing

1.1. Master production scheduleMaster production schedule22 Specifications or bill of materialSpecifications or bill of material2.2. Specifications or bill of materialSpecifications or bill of material3.3. Inventory availabilityInventory availability4.4. Purchase orders outstandingPurchase orders outstanding5.5. Lead timesLead times


Master Production ScheduleMaster Production ScheduleMaster Production Schedule Master Production Schedule (MPS)(MPS)

Specifies what is to be made and whenSpecifies what is to be made and when Must be in accordance with the aggregate Must be in accordance with the aggregate

production planproduction plan Aggregate production plan sets the Aggregate production plan sets the

overall level of output in broad termsoverall level of output in broad terms As the process moves from planning to As the process moves from planning to

execution, each step must be tested for execution, each step must be tested for f ibilif ibilifeasibilityfeasibility

The MPS is the result of the production The MPS is the result of the production


planning processplanning process


MPS is established in terms of specific MPS is established in terms of specific productsproductsproductsproducts

Schedule must be followed for a Schedule must be followed for a reasonable length of timereasonable length of timereasonable length of timereasonable length of time

The MPS is quite often fixed or frozen in The MPS is quite often fixed or frozen in th t t f th lth t t f th lthe near term part of the planthe near term part of the plan

The MPS is a rolling scheduleThe MPS is a rolling schedule The MPS is a statement of what is to be The MPS is a statement of what is to be

produced, not a forecast of demandproduced, not a forecast of demand



Can be expressed in any of the Can be expressed in any of the f ll i tf ll i t A customer order in a job shop (makeA customer order in a job shop (make--

following terms:following terms: A customer order in a job shop (makeA customer order in a job shop (make--

toto--order) companyorder) company M d l i titi ( blM d l i titi ( bl tt Modules in a repetitive (assembleModules in a repetitive (assemble--toto--

stock) companystock) company An end item in a continuous (makeAn end item in a continuous (make--toto--

stock) companystock) company


AggregateAggregateAggregateAggregateProduction PlanProduction Plan

Months January FebruaryAggregate Production Plan 1,500 1,200(shows the totalquantity of amplifiers)Weeks 1 2 3 4 5 6 7 8Master Production Schedule(shows the specific type and

i f lifi bquantity of amplifier to beproduced240 watt amplifier 100 100 100 100150 watt amplifier 500 500 450 45075 watt amplifier 300 100


Figure Figure 1414..22

The Planning ProcessThe Planning ProcessThe Planning ProcessThe Planning ProcessProduction

CapacityInventory

MarketingCustomerdemand

FinanceCash flow

ProcurementSupplierperformance

Human resourcesManpowerplanning

Management EngineeringAggregate

performance planning

gReturn oninvestmentCapital

g gDesigncompletion

Aggregate production

plan

Change production

plan?Master production schedule



The Planning ProcessThe Planning ProcessThe Planning ProcessThe Planning Process

Change master

production Change i t ?

Master production schedule

pschedule?

Change capacity?

requirements?

C it

Material requirements plan

Is capacity Is execution

capacity?

NoNo

Capacity requirements plan

plan being met?

meeting the plan?

Execute capacity

Yes

Realistic?

Execute material plans

plans



material plans

Focus for DifferentFocus for DifferentFocus for Different Focus for Different Process StrategiesProcess Strategies

Stock to ForecastStock to Forecast

(Product Focus)(Product Focus)

Assemble to Order Assemble to Order or Forecastor Forecast(Repetitive)(Repetitive)

Make to OrderMake to Order

(Process Focus)(Process Focus) (Product Focus)(Product Focus)

Schedule finished product

(Repetitive)(Repetitive)(Process Focus)(Process Focus)Number of Number of end itemsend items

Schedule modulesTypical focus of the Typical focus of the master production master production

scheduleschedule

Schedule orders

scheduleschedule

Number of Number of inputsinputs

Examples: Print shop Motorcycles Steel, Beer, BreadMachine shop Autos TVs Lightbulbs

inputsinputs


Machine shop Autos, TVs LightbulbsFine-dining restaurant Fast-food restaurant PaperFigure Figure 1414..33

MPS ExamplesMPS ExamplesMPS ExamplesMPS Examples

For Nancy’s Specialty FoodsFor Nancy’s Specialty Foods

Gross Requirements for Crabmeat QuicheGross Requirements for Crabmeat Quiche

DayDay 66 77 88 99 1010 1111 1212 1313 1414 and so onand so on

Gross Requirements for Spinach QuicheGross Requirements for Spinach Quiche

DayDay 66 77 88 99 1010 1111 1212 1313 1414 and so onand so onAmountAmount 5050 100100 4747 6060 110110 7575

DayDay 77 88 99 1010 1111 1212 1313 1414 1515 1616 and so onand so onAmountAmount 100100 200200 150150 6060 7575 100100

Table Table 1414..11


Bills of MaterialBills of MaterialBills of MaterialBills of Material

List of components, ingredients, List of components, ingredients, and materials needed to makeand materials needed to makeand materials needed to make and materials needed to make product product

Provides product structureProvides product structure Items above given level are calledItems above given level are called Items above given level are called Items above given level are called

parentsparents Items below given level are calledItems below given level are called Items below given level are called Items below given level are called

childrenchildren


BOM ExampleBOM ExampleBOM ExampleBOM ExampleProduct structure for “Awesome” Product structure for “Awesome” ((AA))

AALevelLevel

00

BB((22)) Std. Std. 1212” Speaker kit” Speaker kit CC((33))Std. Std. 1212” Speaker kit w/ ” Speaker kit w/ ampamp--boosterbooster11

EE((22))EE((22)) FF((22)) Std. Std. 1212” Speaker ” Speaker booster assemblybooster assembly

22

Packing box and Packing box and installation kit of wire, installation kit of wire,

bolts, and screwsbolts, and screwsDD((22)) DD((22))GG((11))33

AmpAmp--boosterbooster


1212” Speaker” Speaker 1212” Speaker” Speaker

BOM ExampleBOM ExampleBOM ExampleBOM ExampleProduct structure for “Awesome” Product structure for “Awesome” ((AA))

AALevelLevel

00P t B 2 b f A (2)(50) 100

BB((22)) Std. Std. 1212” Speaker kit” Speaker kit CC((33))Std. Std. 1212” Speaker kit w/ ” Speaker kit w/ ampamp--boosterbooster11

Part B: 2 x number of As = (2)(50) = 100Part C: 3 x number of As = (3)(50) = 300Part D: 2 x number of Bs

EE((22))EE((22)) FF((22)) Std. Std. 1212” Speaker ” Speaker booster assemblybooster assembly

22+ 2 x number of Fs = (2)(100) + (2)(300) = 800

Part E: 2 x number of Bs + 2 x number of Cs = (2)(100) + (2)(150) = 500

Packing box and Packing box and installation kit of wire, installation kit of wire,

bolts, and screwsbolts, and screwsDD((22)) DD((22))GG((11))33

( )( ) ( )( )Part F: 2 x number of Cs = (2)(150) = 300Part G: 1 x number of Fs = (1)(300) = 300

AmpAmp--boosterbooster


1212” Speaker” Speaker 1212” Speaker” Speaker

Accurate RecordsAccurate RecordsAccurate RecordsAccurate Records

Accurate inventory records are Accurate inventory records are absolutely required for MRP (or absolutely required for MRP (or abso ute y equ ed o (oabso ute y equ ed o (oany dependent demand system) to any dependent demand system) to operate correctlyoperate correctlyoperate correctlyoperate correctly

Generally MRP systems require Generally MRP systems require 9999%%9999% accuracy% accuracy

Outstanding purchase orders mustOutstanding purchase orders must Outstanding purchase orders must Outstanding purchase orders must accurately reflect quantities and accurately reflect quantities and schedule receiptsschedule receipts


schedule receipts schedule receipts

Lead TimesLead TimesLead TimesLead Times

The time required to purchase, The time required to purchase, produce or assemble an itemproduce or assemble an itemproduce, or assemble an itemproduce, or assemble an itemFor purchased items For purchased items –– the time the time

b t th iti f db t th iti f dbetween the recognition of a need between the recognition of a need and the availability of the item for and the availability of the item for productionproductionproductionproduction

For production For production –– the sum of the the sum of the order ait mo e set p store andorder ait mo e set p store andorder, wait, move, setup, store, and order, wait, move, setup, store, and run timesrun times


TimeTime--Phased ProductPhased ProductTimeTime Phased Product Phased Product StructureStructure

Start production of DStart production of DMust have D and E Must have D and E completed here so completed here so

production can production can begin on Bbegin on B

1 1 weekweekDD

2 2 weeks to weeks to produceproduce

BB

begin on Bbegin on B

AA

2 2 weeksweeksEE

BB

2 2 weeksweeks 1 1 weekweek

2 2 weeksweeksGG

1 1 weekweekCC

EE

FF3 3 weeksweeks

DD1 1 weekweek


|| || || || || || || ||

11 22 33 44 55 66 77 88Time in weeksTime in weeks

DDFigure Figure 1414..44

MRP StructureMRP StructureMRP StructureMRP StructureOutput ReportsOutput ReportsData FilesData Files Output ReportsOutput Reports

MRP by period report

Data FilesData Files

BOM Masterproduction schedule

MRP by date report

Lead timesPlanned order

report

P h d i

(Item master file)

Inventory dataPurchase advice

Exception reports

yMaterial

requirement planning programs

(computer and Exception reports

Order early or late or not needed

Order quantity too ll t l

Purchasing data(computer and

software)


Figure Figure 1414..55small or too large

Gross Requirements PlanGross Requirements PlanGross Requirements PlanGross Requirements PlanW kW kWeekWeek

1 2 3 4 5 6 7 8 Lead TimeA. Required date 50

O d l d t 50 1 kOrder release date 50 1 weekB. Required date 100

Order release date 100 2 weeksC R i d d t 150C. Required date 150

Order release date 150 1 weekE. Required date 200 300

Order release date 200 300 1 weekOrder release date 200 300 1 weekF. Required date 300

Order release date 300 3 weeksD. Required date 600 200D. Required date 600 200

Order release date 600 200 1 weekG. Required date 300

Order release date 300 1 week



Determining GrossDetermining GrossDetermining Gross Determining Gross RequirementsRequirements

Starts with a production schedule for the Starts with a production schedule for the ppend item end item –– 5050 units of Item A in week units of Item A in week 88

Using the lead time for the itemUsing the lead time for the item Using the lead time for the item, Using the lead time for the item, determine the week in which the order determine the week in which the order should be released should be released –– a a 11 week lead time week lead time means the order for means the order for 5050 units should be units should be released in week released in week 77

This step is often called “lead time This step is often called “lead time offset” or “time phasing”offset” or “time phasing”


p gp g


From the BOM, every Item A requires From the BOM, every Item A requires 22Item Bs Item Bs –– 100100 Item Bs are required in Item Bs are required in week week 7 7 to satisfy the order release for to satisfy the order release for Item AItem AItem AItem A

The lead time for the Item B is The lead time for the Item B is 22 weeks weeks ––l d fl d f 100100 i f I B ii f I B irelease an order for release an order for 100100 units of Item B in units of Item B in

week week 55 The timing and quantity for component The timing and quantity for component

requirements are determined by the requirements are determined by the order order ll f th t( )f th t( )


releaserelease of the parent(s)of the parent(s)


The process continues through the entire The process continues through the entire p gp gBOM one level at a time BOM one level at a time –– often called often called “explosion”“explosion”

By processing the BOM by level, items By processing the BOM by level, items with multiple parents are only processed with multiple parents are only processed p p y pp p y ponce, saving time and resources and once, saving time and resources and reducing confusionreducing confusion

LowLow--level coding ensures that each item level coding ensures that each item appears at only one level in the BOMappears at only one level in the BOM


pp ypp y

Net Requirements PlanNet Requirements PlanNet Requirements PlanNet Requirements Plan


Net Requirements PlanNet Requirements PlanNet Requirements PlanNet Requirements Plan


Determining NetDetermining NetDetermining Net Determining Net RequirementsRequirements

Starts with a production schedule for the Starts with a production schedule for the d itd it 5050 it f It A i kit f It A i k 88end item end item –– 5050 units of Item A in week units of Item A in week 88

Because there are Because there are 1010 Item As on hand, Item As on hand, only only 4040 are actually required are actually required –– (net (net requirement) = (gross requirement requirement) = (gross requirement -- onon--h d i t )h d i t )hand inventory)hand inventory)

The planned order receipt for Item A in The planned order receipt for Item A in week week 8 8 is is 4040 units units –– 40 40 = = 50 50 -- 1010



Following the lead time offset procedure, Following the lead time offset procedure, th l d d l f It A ith l d d l f It A ithe planned order release for Item A is the planned order release for Item A is now now 40 40 units in week units in week 77

The gross requirement for Item B is now The gross requirement for Item B is now 8080 units in week units in week 77

There are There are 1515 units of Item B on hand, so units of Item B on hand, so the net requirement is the net requirement is 6565 units in week units in week 77

A planned order receipt ofA planned order receipt of 65 65 units in units in weekweek 77 generates a planned order releasegenerates a planned order release


week week 7 7 generates a planned order release generates a planned order release of of 6565 units in week units in week 55


A planned order receipt ofA planned order receipt of 65 65 units in units in kk 77 t l d d lt l d d lweek week 7 7 generates a planned order release generates a planned order release

of of 6565 units in week units in week 55 The onThe on--hand inventory record for Item B hand inventory record for Item B

is updated to reflect the use of theis updated to reflect the use of the 15 15 it i i t d hit i i t d h h dh ditems in inventory and shows no onitems in inventory and shows no on--hand hand inventory in weekinventory in week 88

This is referred to as the GrossThis is referred to as the Gross--toto--Net Net calculation and is the third basic function calculation and is the third basic function

f th MRPf th MRP© 2006 Prentice Hall, Inc. 14 – 32

of the MRP processof the MRP process

Gross Requirements Gross Requirements qqScheduleSchedule

Figure Figure 1414..66 A S

BB CCLead time = Lead time = 4 4 for Afor A

Master schedule for AMaster schedule for A

BB CCLead time = Lead time = 6 6 for Sfor S

Master schedule for SMaster schedule for S

Master scheduleMaster schedulefor for B

sold directlysold directly

5 6 7 8 9 10 11

40 50 15

12 138 9 10 11

20 3040

1 2 3

10 10

PeriodsPeriods

Therefore, these Therefore, these ththG i t BG i t B 1010 4040 5050 202040+10 15+30

11 22 33 44 55 66 77 88PeriodsPeriods


are the gross are the gross requirements for Brequirements for B

Gross requirements: BGross requirements: B 1010 4040 5050 202040+10 15+30=50 =45

MRP Pl i Sh tMRP Pl i Sh tMRP Planning SheetMRP Planning Sheet



Net Requirements PlanNet Requirements PlanNet Requirements PlanNet Requirements PlanThe logic of net requirementsThe logic of net requirements

gross gross requirementsrequirements allocationsallocations++

total requirementstotal requirements

net net requirementsrequirements

on on handhand

scheduled scheduled receiptsreceipts++–– ==

available inventoryavailable inventory

requirementsrequirementshandhand receiptsreceipts


available inventoryavailable inventory

MRP ManagementMRP ManagementMRP ManagementMRP Management

MRP is a dynamic systemMRP is a dynamic system F ilit t l i h hF ilit t l i h h Facilitates replanning when changes Facilitates replanning when changes

occuroccur System nervousness can result from System nervousness can result from

too many changestoo many changestoo many changestoo many changes Time fences put limits on replanningTime fences put limits on replanning Pegging links each item to its parent Pegging links each item to its parent

allowing effective analysis of changesallowing effective analysis of changes


allowing effective analysis of changesallowing effective analysis of changes

MRP d JITMRP d JITMRP and JITMRP and JIT

MRP is a planning system that MRP is a planning system that d t d d t il d h d lid t d d t il d h d lidoes not do detailed schedulingdoes not do detailed scheduling

MRP requires fixed lead times MRP requires fixed lead times qqwhich might actually vary with which might actually vary with batch sizebatch sizebatch sizebatch size

JIT excels at rapidly moving small JIT excels at rapidly moving small b t h f t i l th h thb t h f t i l th h thbatches of material through the batches of material through the systemsystem


Finite Capacity SchedulingFinite Capacity SchedulingFinite Capacity SchedulingFinite Capacity Scheduling

MRP systems do not consider MRP systems do not consider capacity during normal planning capacity during normal planning p y g p gp y g p gcyclescycles

Finite capacity scheduling (FCS)Finite capacity scheduling (FCS) Finite capacity scheduling (FCS) Finite capacity scheduling (FCS) recognizes actual capacity limitsrecognizes actual capacity limits

By merging MRP and FCS, a finite By merging MRP and FCS, a finite schedule is created with feasible schedule is created with feasible capacities which facilitates rapid capacities which facilitates rapid material movementmaterial movement


LotLot Sizing TechniquesSizing TechniquesLotLot--Sizing TechniquesSizing Techniques LotLot forfor lot techniques order just whatlot techniques order just what LotLot--forfor--lot techniques order just what lot techniques order just what

is required for production based on is required for production based on net req irementsnet req irementsnet requirementsnet requirements May not always be feasibleMay not always be feasible If setup costs are high, costs may be If setup costs are high, costs may be

high as wellhigh as wellhigh as wellhigh as well

Economic order quantity (EOQ)Economic order quantity (EOQ) EOQ expects a known constant EOQ expects a known constant

demand and MRP systems often deal demand and MRP systems often deal ith k d i bl d dith k d i bl d d


with unknown and variable demandwith unknown and variable demand

LotLot forfor Lot ExampleLot ExampleLotLot--forfor--Lot ExampleLot Example11 22 33 44 55 66 77 88 99 1010

Gross Gross requirementsrequirements 3535 3030 4040 00 1010 4040 3030 00 3030 5555qq

Scheduled Scheduled receiptsreceipts

Projected onProjected onProjected on Projected on handhand 3535 3535 00 00 00 00 00 00 00 00 00

Net Net requirementsrequirements 00 3030 4040 00 1010 4040 3030 00 3030 5555qq

Planned order Planned order receiptsreceipts 3030 4040 1010 4040 3030 3030 5555

Planned orderPlanned orderPlanned order Planned order releasesreleases 3030 4040 1010 4040 3030 3030 5555

Holding cost =Holding cost = $$11/week; Setup cost =/week; Setup cost = $$100100


Holding cost = Holding cost = $$11/week; Setup cost = /week; Setup cost = $$100100

LotLot forfor Lot ExampleLot ExampleLotLot--forfor--Lot ExampleLot ExampleNo on-hand inventory is carried through the systemTotal holding cost = $011 22 33 44 55 66 77 88 99 1010

Gross Gross requirementsrequirements 3535 3030 4040 00 1010 4040 3030 00 3030 5555

Total holding cost = $0

There are seven setups for this item in this plan$ $

qq


Projected onProjected on

Total setup cost = 7 x $100 = $700

Projected on Projected on handhand 3535 3535 00 00 00 00 00 00 00 00 00


Planned order Planned order receiptsreceipts 3030 4040 1010 4040 3030 3030 5555

Planned orderPlanned orderPlanned order Planned order releasesreleases 3030 4040 1010 4040 3030 3030 5555

Holding cost =Holding cost = $1$1/week; Setup cost =/week; Setup cost = $100$100


Holding cost = Holding cost = $1$1/week; Setup cost = /week; Setup cost = $100$100

EOQ Lot Size ExampleEOQ Lot Size ExampleEOQ Lot Size ExampleEOQ Lot Size Example11 22 33 44 55 66 77 88 99 1010

Gross Gross requirementsrequirements 3535 3030 4040 00 1010 4040 3030 00 3030 5555qq


Projected onProjected onProjected on Projected on handhand 3535 3535 00 4343 33 33 6666 2626 6969 6969 3939


Planned order Planned order receiptsreceipts 7373 7373 7373 7373

Planned orderPlanned orderPlanned order Planned order releasesreleases 7373 7373 7373 7373

Holding cost =Holding cost = $1$1/week; Setup cost =/week; Setup cost = $100;$100;


Holding cost = Holding cost = $1$1/week; Setup cost = /week; Setup cost = $100;$100;Average weekly gross requirementsAverage weekly gross requirements = 27; = 27; EOQEOQ = 73 = 73 unitsunits

EOQ Lot Size ExampleEOQ Lot Size ExampleEOQ Lot Size ExampleEOQ Lot Size ExampleAnnual demand = 1,404Total cost = setup cost + holding cost

11 22 33 44 55 66 77 88 99 1010

Gross Gross requirementsrequirements 3535 3030 4040 00 1010 4040 3030 00 3030 5555

Total cost setup cost holding costTotal cost = (1,404/73) x $100 + (73/2) x ($1 x 52 weeks)Total cost = $3,798Cost for 10 weeks = $3 798 x (10 weeks/52 weeks) =qq


Projected onProjected on

Cost for 10 weeks = $3,798 x (10 weeks/52 weeks) = $730

Projected on Projected on handhand 3535 3535 00 4343 33 33 6666 2626 6969 6969 3939


Planned order Planned order receiptsreceipts 7373 7373 7373 7373

Planned orderPlanned orderPlanned order Planned order releasesreleases 7373 7373 7373 7373

Holding cost =Holding cost = $1$1/week; Setup cost =/week; Setup cost = $100;$100;


Holding cost = Holding cost = $1$1/week; Setup cost = /week; Setup cost = $100;$100;Average weekly gross requirementsAverage weekly gross requirements = 27; = 27; EOQEOQ = 73 = 73 unitsunits

LotLot Sizing SummarySizing SummaryLotLot--Sizing SummarySizing Summary

For these examplesFor these examples

LotLot--forfor--lotlot $700$700EOQEOQ $730$730EOQEOQ $730$730EOQ(Actual)EOQ(Actual) $718$718


LotLot Sizing SummarySizing SummaryLotLot--Sizing SummarySizing Summary

In theory, lot sizes should be recomputed In theory, lot sizes should be recomputed whenever there is a lot size or order whenever there is a lot size or order quantity changequantity change

In practice, this results in system In practice, this results in system p , yp , ynervousness and instabilitynervousness and instability

LotLot--forfor--lot should be used whenlot should be used when LotLot forfor lot should be used when lot should be used when economicaleconomical

Lot sizes can be modified to allow forLot sizes can be modified to allow for Lot sizes can be modified to allow for Lot sizes can be modified to allow for scrap, process constraints, and purchase scrap, process constraints, and purchase lotslots


lotslots

Extensions of MRPExtensions of MRPExtensions of MRPExtensions of MRP ClosedClosed--Loop MRPLoop MRP MRP system provides input to the capacity MRP system provides input to the capacity

plan, MPS, and production planning plan, MPS, and production planning processprocess

C it Pl iC it Pl i Capacity PlanningCapacity Planning MRP system generates a load report which MRP system generates a load report which

d t il it i td t il it i tdetails capacity requirementsdetails capacity requirements This is used to drive the capacity planning This is used to drive the capacity planning

processprocessprocessprocess Changes pass back through the MRP Changes pass back through the MRP

system for reschedulingsystem for rescheduling


system for reschedulingsystem for rescheduling

ClosedClosed--Loop MRP SystemLoop MRP SystemClosedClosed--Loop MRP SystemLoop MRP System


Figure 14.8Figure 14.8

Resource Requirements ProfileResource Requirements Profile

Capacity exceeded Capacity exceeded in periods in periods 4 4 & & 66

Lot Lot 6 6 “split”“split”Lot Lot 11 11 movedmoved

200 200 – 200 200 –

Lot6

Lot11

Available Available capacitycapacity Lot

6Lot

Available Available capacitycapacity

150 150 –

or h

ours

or h

ours

150 150 –

or h

ours

or h

ours

LotLot2 Lot

4

Lot7

Lot9 Lot

12

Lot15

LotLot2 Lot

4

Lot7

Lot9 Lot

12Lot15

Lot11100 100 –

ndar

d la

bond

ard

labo

100 100 –

ndar

d la

bond

ard

labo

1 4

Lot8Lot

3Lot5

Lot10 Lot

13

Lot14 Lot

16

1 4

Lot8Lot

3Lot5

Lot10 Lot

13

Lot14 Lot

16

50 50 –St

anSt

an 50 50 –

Stan

Stan

3 5 3 5–11 22 33 44 55 66 77 88

PeriodPeriod(a)(a)

–11 22 33 44 55 66 77 88

PeriodPeriod(b)(b)


Figure Figure 1414..99(a)(a) (b)(b)

Smoothing TacticsSmoothing TacticsSmoothing TacticsSmoothing Tactics11 OverlappingOverlapping1.1. OverlappingOverlapping Sends part of the work to following Sends part of the work to following

operations before the entire lot is completeoperations before the entire lot is completeoperations before the entire lot is completeoperations before the entire lot is complete Reduces lead timeReduces lead time

22 Operations splittingOperations splitting2.2. Operations splittingOperations splitting Sends the lot to two different machines for Sends the lot to two different machines for

the same operationthe same operationthe same operationthe same operation Shorter throughput time but increased setup Shorter throughput time but increased setup

costscostscostscosts3.3. Lot splittingLot splitting Breaking up the order into smaller lots andBreaking up the order into smaller lots and


Breaking up the order into smaller lots and Breaking up the order into smaller lots and running part ahead of schedulerunning part ahead of schedule

Material RequirementsMaterial RequirementsMaterial Requirements Material Requirements Planning IIPlanning II

Once an MRP system is in place, inventory Once an MRP system is in place, inventory data can be augmented by other usefuldata can be augmented by other usefuldata can be augmented by other useful data can be augmented by other useful informationinformation Labor ho rsLabor ho rs Labor hoursLabor hours Material costsMaterial costs Capital costsCapital costs Virtually any resourceVirtually any resource

System is generally called MRP II or System is generally called MRP II or Material Resource PlanningMaterial Resource Planning


gg

Material Resource PlanningMaterial Resource PlanningMaterial Resource PlanningMaterial Resource PlanningWeekWeek

55 66 77 88A.A. Units (lead time Units (lead time 11 week)week) 100100

Labor: Labor: 1100 hours eachhours each 11,,000000Machine: Machine: 22 hours eachhours each 200200Payable: Payable: $$00 eacheach 00

BB U it (l d tiU it (l d ti 22 kkB.B. Units (lead time Units (lead time 22 weeks, weeks, 22 each required)each required) 200200

Labor: Labor: 1010 hours eachhours each 22,,000000Machine:Machine: 22 hours eachhours each 400400Machine: Machine: 22 hours eachhours each 400400Payable: Raw material at Payable: Raw material at $$55 eacheach 11,,000000

C.C. Units (lead time Units (lead time 44 weeks, weeks, 33 each required)each required) 300300q )q )

Labor: Labor: 22 hours eachhours each 600600Machine: Machine: 11 hour eachhour each 300300Payable: Raw material at Payable: Raw material at $$1010 eacheach 33,,000000



MRP in ServicesMRP in ServicesMRP in ServicesMRP in Services

Some services or service items are Some services or service items are directly linked to demand for other directly linked to demand for other yyservicesservices

These can be treated as dependentThese can be treated as dependent These can be treated as dependent These can be treated as dependent demand services or itemsdemand services or items RestaurantsRestaurants HospitalsHospitals HospitalsHospitals HotelsHotels


MRP in ServicesMRP in ServicesMRP in ServicesMRP in Services(a) PRODUCT STRUCTURE TREE

Veal picante #10001 Chef;

WorkCenter #1

#10001

Cooked linguini #200002

Spinach #20004

Prepared veal and sauce

#20003Helper one;

WorkCenter #2

Asst. Chef;Work

Center #3

#200002 #20004 #20003

Uncooked linguini #30004

Sauce #30006

Veal #30005




(b) BILL OF MATERIALS

Part Part Unit of Unit of Unit Unit NumberNumber DescriptionDescription QuantityQuantity MeasureMeasure costcost1000110001 Veal picanteVeal picante 11 ServingServing ——2000220002 C k d li i iC k d li i i 11 S iS i2000220002 Cooked linguiniCooked linguini 11 ServingServing ——2000320003 Prepared veal and saucePrepared veal and sauce 11 ServingServing ——2000420004 SpinachSpinach 0 10 1 BagBag 0 940 942000420004 SpinachSpinach 0.10.1 BagBag 0.940.943000430004 Uncooked linguiniUncooked linguini 0.50.5 PoundPound ——3000530005 VealVeal 11 ServingServing 2.152.15gg3000630006 SauceSauce 11 ServingServing 0.800.80



(c) BILL OF LABOR FOR VEAL PICANTE

LaborLabor HoursHoursWork CenterWork Center OperationOperation Labor TypeLabor Type Setup TimeSetup Time Run TimeRun Time

11 Assemble dishAssemble dish ChefChef .0069.0069 .0041.004122 Cook linguiniCook linguini Helper oneHelper one .0005.0005 .0022.002233 C k lC k l A i t t Ch fA i t t Ch f33 Cook veal Cook veal

and sauceand sauceAssistant ChefAssistant Chef

.0125.0125 .0500.0500


Distribution Resource PlanningDistribution Resource PlanningDistribution Resource Planning Distribution Resource Planning (DRP)(DRP)

Using dependent demand techniques Using dependent demand techniques th h th l h ith h th l h ithrough the supply chainthrough the supply chain Gross requirements which are theGross requirements which are the Gross requirements, which are the Gross requirements, which are the

same as expected demand or sales same as expected demand or sales forecastsforecasts

Minimum levels of inventory to meet Minimum levels of inventory to meet customer service levelscustomer service levelscustomer service levelscustomer service levels

Accurate lead timesAccurate lead times


Definition of the distribution structureDefinition of the distribution structure

Enterprise Resource PlanningEnterprise Resource PlanningEnterprise Resource Planning Enterprise Resource Planning (ERP)(ERP)

An extension of the MRP system to An extension of the MRP system to ti i t d liti i t d litie in customers and supplierstie in customers and suppliers1.1. Allows automation and integration of Allows automation and integration of gg

many business processesmany business processes2.2. Shares common data bases andShares common data bases and2.2. Shares common data bases and Shares common data bases and

business practicesbusiness practices33 Produces information in real timeProduces information in real time3.3. Produces information in real timeProduces information in real time

Coordinates business from supplier Coordinates business from supplier


evaluation to customer invoicingevaluation to customer invoicing


ERP modules includeERP modules include ERP modules includeERP modules include Basic MRPBasic MRP FinanceFinance Human resourcesHuman resources Supply chain management (SCM)Supply chain management (SCM) C t l ti hi tC t l ti hi t Customer relationship management Customer relationship management

(CRM)(CRM)



ERP can be highly customized toERP can be highly customized to ERP can be highly customized to ERP can be highly customized to meet specific business requirementsmeet specific business requirements

ERP t b i t t d ithERP t b i t t d ith ERP systems can be integrated withERP systems can be integrated with Warehouse managementWarehouse managementgg LogisticsLogistics El t i t lEl t i t l Electronic catalogsElectronic catalogs Quality managementQuality management



ERP systems have the potential toERP systems have the potential to ERP systems have the potential toERP systems have the potential to Reduce transaction costsReduce transaction costs Increase the speed and accuracy of Increase the speed and accuracy of

informationinformation

Facilitates a strategic emphasis on Facilitates a strategic emphasis on JIT systems and integrationJIT systems and integrationJIT systems and integration JIT systems and integration


ERP and MRPERP and MRPERP and MRPERP and MRP


Figure 14.11

Advantages of ERP SystemsAdvantages of ERP SystemsAdvantages of ERP SystemsAdvantages of ERP Systems

1.1. Provides integration of the supplyProvides integration of the supply--chain, chain, production, and administrationproduction, and administrationp ,p ,

2.2. Creates commonality of databasesCreates commonality of databases33 C i t i d b tC i t i d b t3.3. Can incorporate improved best processesCan incorporate improved best processes4.4. Increases communication and Increases communication and

collaboration between business units and collaboration between business units and sitessites

5.5. Has an offHas an off--thethe--shelf software databaseshelf software database66 May provide a strategic advantageMay provide a strategic advantage


6.6. May provide a strategic advantageMay provide a strategic advantage

Disadvantages of ERPDisadvantages of ERPDisadvantages of ERP Disadvantages of ERP SystemsSystems

1.1. Is very expensive to purchase and even Is very expensive to purchase and even more so to customizemore so to customize

2.2. Implementation may require major changes Implementation may require major changes in the company and its processesin the company and its processesin the company and its processesin the company and its processes

3.3. Is so complex that many companies cannot Is so complex that many companies cannot adjust to itadjust to itadjust to itadjust to it

4.4. Involves an ongoing, possibly never Involves an ongoing, possibly never di f i l t tidi f i l t tiending, process for implementationending, process for implementation

5.5. Expertise is limited with ongoing staffing Expertise is limited with ongoing staffing


problemsproblems

operations management requirements · operations management ... master production schedule ... the...

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