supplychainmanagement - maciejczak

Material Requirements Planning

Dr Mariusz Maciejczak

Supply Chain Management

On being a supply network manager

Strategy

Concepts

Supply Network Behaviour

Vertical Integration

NetworkdynamicsQuantitativeQualitative

Network ManagementCoordinateDifferentiateReconfigure

Supply Network Relationships

Partnerships Markettrading

What are Supply Networks?

• supply networks vs. supply chains• buyer-supplier relationship• a supply network is a system of

organisations connected by server-client links - upstream/downstream - that service processes & activities (operations) bringing added value to each client and ultimately the end customer.

Flows of products, services & information

second-tiersuppliers

first-tiersuppliers

first-tiercustomers

second-tiercustomers

For Company AInternal supply networkImmediate supply networkTotal supply network

Company B

Company C

X

X

X

XX

Supply side Demand side

Up

stre

am

Dow

n st

ream

Issues

Quality

SpeedReliabiity

Flexibility

Cost

Perf

orm

ance

obj

ectiv

esResource Usage

§make or buy (contract out

§market-based purchasing?

§supply partnerships?

Process

technology

Supply networkrelationships

Capacity Mar

ket c

ompe

titiv

enes

s

Decisions

Inventory

Process stage

Demand Type

Number & Value Other

Raw Material WIP Finished Goods Independent

Dependent

A Items B Items C Items

Maintenance Dependent Operating

Inventory Classifications

Item Materials WithIndependent Demand

Materials WithDependent Demand

DemandSource Company Customers Parent Items

MaterialType Finished Goods WIP & Raw Materials

Method ofEstimatingDemand

Forecast & BookedCustomer Orders

Calculated

PlanningMethod EOQ & ROP MRP

Dependent versus Independent Demand

Inputs to theProduction Plan

Aggregate Production Plan

MarketingCustomerDemand

EngineeringDesign

Completion

ManagementReturn onInvestment

Capital

HumanResourcesManpowerPlanning

ProcurementSupplier

Performance

FinanceCash Flow

ProductionCapacityInventory

Requirements for Effective Use of Dependent Demand Inventory Models

Effective use of dependent demand inventory models requires that the operations manager know the:

– master production schedule– specifications or bills-of-material– inventory availability– purchase orders outstanding– lead times

The Planning Process

Production Plan

Execute MaterialPlans

Master ProductionSchedule

MaterialRequirements

Plan

CapacityRequirements

Plan

Execute CapacityPlans

Realistic??NoYes

Typical Focus of the Master Production Schedule

Make to Order

(Process Focus)

Assemble to Order or Forecast

(Repetitive)

Stock to Forecast(Product Focus)

Schedule finished product

Steel, Beer, Bread Light bulbs, Paper

Print shopMachine shop

Fine dining restaurantExamples:

Number of end items

Number of inputs

Typical focus of the master production

schedule Schedule orders

Schedule modules

Motorcycles, autos, TVs, fast-food

restaurant

• List of components & quantities needed to make product

• Provides product structure (tree)– Parents: Items above given level– Children: Items below given level

• Shows low-level coding– Lowest level in structure item occurs– Top level is 0; next level is 1 etc.

Bill-of-Material

Figure from Example 1

• Modular bills– Modules are final components used to make

assemble-to-stock end items

• Planning bills– Used to assign artificial parent– Reduces number of items scheduled

• Phantom bills– Used for subassemblies that exist temporarily

Special Bills-of-Material

Bicycle(1)P/N 1000

Handle Bars (1)P/N 1001

Frame Assembly (1)P/N 1002

Wheels (2)P/N 1003

Frame (1)P/N 1004

Bill-of-MaterialProduct Structure Tree

Time-Phased Product Structure

1 2 3 4 5 6 7 8

D

G2 weeks

1 weekF

E

3 weeks

2 weeksA

1 week

C1 week

B

2 weeks to produce

E

D

Must have D and E completed here so production can begin

on B

2 weeks

1 week

Start production of D

• Materials requirements planning, referred to by the initials MRP, is a technique which assists a company in the detailed planning of its production. Recall here that the master production schedule sets out an aggregate plan for production. MRP translates that aggregate plan into an extremely detailed plan.

Material Requirements Planning (MRP)

• Increased customer satisfaction due to meeting delivery schedules

• Faster response to market changes• Improved labor & equipment utilization• Better inventory planning & scheduling• Reduced inventory levels without reduced

customer service

MRP Benefits

Structure of the MRP System

MRP by period report

MRP by date report

Planned orders report

Purchase requirements

Exception reports

MRPPrograms

Master ProductionScheduleBOM

Lead Times(Item Master File)

(Bill-of-Material)

Inventory Data

Purchasing data

Table 14.3

Forecast &Firm Orders

MaterialRequirements

Planning

AggregateProductionPlanning

ResourceAvailability

MasterProductionScheduling

ShopFloor

Schedules

CapacityRequirements

PlanningRealistic?

No, modify CRP, MRP, or MPSNo, modify CRP, MRP, or MPS

YesYes

MRP and The Production Planning Process

MRP Systems - Input and Output

MasterProductionScheduleBill of

MaterialsMaterial

RequirementsPlanning System

InventoryStatus

Planned Order& OtherReports

Item Master PurchasingData

• Shows items to be produced– End item, customer order, module

• Derived from aggregate plan

Master Production Schedule

• Shows items to be produced– End item, customer order, module

• Derived from aggregate plan

Master Production Schedule

Item/Week Oct 3 Oct 10 Oct 17 Oct 24

Drills 300 200 310 300

Saws 300 450 310 330

Example

Derivation of Master Schedule

Therefore, these are the gross requirements

for B10 40+10= 50 40 50 20 15+30

= 45

1 2 3 4 5 6 7 8PeriodsGross requirements: B

Periods10 101 2 3

Master schedule for S sold directly

40 50 15

A

CB

5 6 7 8 9 10 11

Lead time = 4 for AMaster schedule for A

40 20 30

S

B C

8 9 10 1211 13

Lead time = 6 for SMaster schedule for S

MRP Dynamics

• Supports “replanning”– Problem with system “nervousness”

• “Time fence” - allows a segment of the master schedule to be designated as “not to be rescheduled”

• “Pegging” - tracing upward in the bill-of-materials from the component to the parent item

• That a manager can react to changes, doesn’t mean he/she should

MRP and JIT

• MRP - a planning and scheduling technique with fixed lead times

• JIT - a way to move material expeditiously

• Integrating the two:– Small bucket approach and back flushing– Balanced flow approach

Lot-Sizing Techniques

• Lot-for-lot• Economic Order Quantity• Part Period Balancing• Wagner-Whitin Algorithm

Extensions of MRP

• Closed loop MRP• Capacity planning - load reports• MRP II - Material Resource Planning• Enterprise Resource Planning

Figure 14.8

Extensions of MRPCapacity Planning

• Tactics for smoothing the load and minimizing the impact of changed lead time include:– Overlapping - reduces the lead time, entails

sending pieces to the second operation before the entire lot has completed the first operation

– Operations splitting - sends the lot to two different machines for the same operation

– Lot splitting - breaking up the order and running part of it ahead of the schedule

Figure 14.9

Extensions to MRPEnterprise Resource Planning

MRP II with ties to customers and suppliers

Figure 14.10

MRP in Services

• Can be used when demand for service or service items is directly related to or derived from demand for other services– restaurant - rolls required for each meal– hospitals - implements for surgery– etc.

Figure 14.11

Distribution Resource Planning

• DRP requires:– Gross requirements, which are the same as

expected demand or sales forecasts– Minimum levels of inventory to meet customer

service levels– Accurate lead times– Definition of the distribution structure

Another example of MRP

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

Product Structure Tree for Assembly Afrom bill of materials

Lead TimesA 1 weekB 2 wksC 1 wkD 3 wksE 4 wksF 1 wk

Demandwk 10 50 Awk 8 20 B (Spares)wk 6 15 D (Spares)

No. of components for each product + when needed.

Product Structure Tree

LT = 1 week

Week: 1 2 3 4 5 6 7 8 9 10A Required 50

Order Placement 50

Requirements Planning

1. Schedule no. of units of “A” backwards to allow for lead time. 2. place order for 50 of “A” at week 8 to receive in week 10

Lot sizing§ Lot-for-lot (L4L)§ Economic order quantity (EOQ)§ Least total cost (LTC)§ Least unit cost (LUC)

Week: 1 2 3 4 5 6 7 8 9 10A Required 50

Order Placement 50B Required 20 200

Order Placement 20 200

surplus LT = 2

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

MRP

schedule components of “A”. 4 B’s in each A (50x4) = 200Bs. back the schedule up for 2 weeks lead time.

MRPWeek: 1 2 3 4 5 6 7 8 9 10

A Required 50LT=1 Order Placement 50

B Required 20 200LT=2 Order Placement 20 200

C Required 100LT=1 Order Placement 100

D Required 55 400 300LT=3 Order Placement 55 400 300

E Required 20 200LT=4 Order Placement 20 200

F Required 200LT=1 Order Placement 200

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A Part D: Wk 640 + 15 spares

45

Repeat for all components ==> final MRP

• Frozen– No schedule changes allowed

within the time frame• 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

Time Fencing

MRP Reports & Information

• Primary– Planned orders - to release at

a future time.– Order release notices -

execute planned orders– Changes in due dates of

open orders due to rescheduling

– Cancellations or suspensions of open orders due to cancellation or suspension in the MPS.

– Stock status data

§ Gross Requirements§ On-hand§ Net requirements§ Planned order receipt§ Planned order release

§ Gross Requirements§ On-hand§ Net requirements§ Planned order receipt§ Planned order release

MRP Example

A(2) B(1)

D(5)C(2)

X

C(3)

Item On-Hand Lead Time (Weeks)X 50 2A 75 3B 25 1C 10 2D 20 2

Requirements include 95 units (80 firm orders and 15 forecast) of X in wk 10 plus the following spares:

Spares 1 2 3 4 5 6 7 8 9 10A 12B 7C 10D 15

C Gross Requirements 45 36 64LT=2 On-Hand=10 10

Net Requirements 35 36 64Planned Order Receipt 35 36 64Planner Order Release 35 36 64

D Gross Requirements 15 135LT=2 On-Hand=20 15 5

Net Requirements 130Planned Order Receipt 130Planner Order Release 130

A(2) B(1)

D(5)C(2)

X

C(3)

MRP Example

Day: 1 2 3 4 5 6 7 8 9 10X Gross Requirements 95

LT=2 On-Hand=50 50Net Requirements 45Planned Order Receipt 45Planner Order Release 45

A Gross Requirements 90 12LT=3 On-Hand=75 75

Net Requirements 15 12Planned Order Receipt 15 12Planner Order Release 15 12

B Gross Requirements 7 45LT=1 On-Hand=25 7 18


C Gross Requirements 45 36 54 10LT=2 On-Hand=10 10

Net Requirements 35 36 54 10Planned Order Receipt 35 36 54 10Planner Order Release 35 36 54 10

D Gross Requirements 15 135LT=2 On-Hand=20 15 5


supplychainmanagement - maciejczak

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