CHAPTER 13

Material Requirements Planning (MRP)

Introduction to Operations Management 1

Material Requirements Planning

 Master Production Schedule  Time-phased plan specifying timing and quantity of production for each end item.

 Material Requirement Planning Process Introduction to Operations Management 2

Dependent vs Independent Demand

“Lumpy” demand Stable demand Time Time Safety stock Time Introduction to Operations Management Time 3

Objectives of MRP

 MRP answers the following production decision of a firm – What is needed?

– How much is needed?

– When is it needed?

Introduction to Operations Management 4

Material decision

 Decision on – Quantity (how much) – Time (when) – Type (what)  The first two are same as in inventory management. The last one is needed because it involves more than one type of parts or components.

Introduction to Operations Management 5

MRP Inputs Master schedule Bill of materials file Inventory records file

MRP Overview

MRP Processing MRP Outputs Changes Order releases Planned-order schedules Primary reports MRP computer programs Secondary reports Exception reports Planning reports Performance control reports Inventory transaction Introduction to Operations Management 6

Output from an MRP system

 Generate a feasible schedule of requirements for – subassemblies – component parts – raw materials required  to produce the quantity of items required in the given time frame Introduction to Operations Management 7

Planning Horizon

Assembly Subassembly Procurement 1 2 3 4 Fabrication 5 6 7 8 9 10 Introduction to Operations Management 8

Master Schedule

Master schedule

: One of three primary inputs in MRP; 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.

Time fences

: Series of time intervals during which order changes are allowed or restricted.

Introduction to Operations Management 9

Bill-of-Materials

Bill of materials

: 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.

Introduction to Operations Management 10

BOM

 Accuracy is important since errors may multiply many times Introduction to Operations Management 11

Product Structure Tree

Level 0 1

Leg Assembly Chair Seat Back Assembly

2

Legs (2) Cross bar

3

Side Rails (2) Cross bar Back Supports (3) Introduction to Operations Management 12

Low Level Coding

Level 0 1

A

2

F

3

E E B Y C Introduction to Operations Management D G H E E E 13

MRP Processing

 Gross requirements  Scheduled receipts( orders scheduled to arrive from suppliers at the beginning of the period )  Projected on hand  Net requirements  Planned-order receipts  Planned-order releases Introduction to Operations Management 14

MRP Processing

Net Requirement in period

t

= Gross Requirement in period

t

Projected on hand inventory in period

t

+ ( Safety + stock Allowance ) for waste Introduction to Operations Management 15

Assembly Time Chart

Procurement of raw material D Fabrication of part E Subassembly A 1 Procurement of raw material F Procurement of part C Procurement of raw material I 2 3 Final assembly and inspection Procurement of part H Subassembly B 4 Fabrication of part G 5 6 7 8 9 10 11 Introduction to Operations Management 16

MRP Outputs

 Planned 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.

Introduction to Operations Management 17

Example (p.632)

   A firm that produces wood shutters and bookcases has received two orders for shutters: One for 100 to be due for delivery at the start of week 4 and the other 150 units to be due for delivery at the start of week 8 of the current schedule. Each shutter consists of four slatted wood sections and two frames. The wood sections are made by the firm, and fabrication takes one week. The frames are ordered, and lead time is two weeks. Assembly of the shutters requires one week. There is a scheduled receipt of 70 wood sections at the beginning of week 1. Determine the size and timing of planned-order releases necessary to meet delivery requirements under each of theses conditions: (1). Lot-for-lot ordering (order size equal to net requirement) (2). Lot-size ordering with a lot size of 320 units for frames and 70 units for wood sections. Introduction to Operations Management 18

Solution to example

Develop a master schedule and a product structure tree Wk number 1 2 3 4 5 6 7 8 Quantity 100 150 Shutter Frames (2) Wood sections (4) Introduction to Operations Management 19

Solution to example(lot-for-lot)

Shutters: LT is one week Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases 1 2 3 100 4 100 100 100 5 6 7 150 Introduction to Operations Management 20

Solution to example (lot-for-lot)

times 2 Frames: LT is two weeks 1 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases 200 2 3 200 200 200 4 5 300 6 7 300 300 300 Introduction to Operations Management 21

Solution to example (lot-for-lot)

times 4 1 Wood sections: LT is one week Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases 70 70 2 3 400 70 70 330 330 330 4 5 6 7 600 600 600 600 Introduction to Operations Management 22

Solution to example (fixed lot-size)

times 2 Frames: LT is two weeks 1 Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases 320 2 3 200 200 320 Introduction to Operations Management 4 5 320 6 7 300 120 120 120 120 180 320 23

Solution to example (fixed lot-size)

times 4 Wood sections: LT is one week Gross requirements Scheduled receipts Projected on hand Net requirements Planned-order receipts Planned-order releases 1 70 70 2 70 350 3 400 70 330 350 Introduction to Operations Management 4 20 5 6 7 600 20 20 20 580 630 630 24

MRP Secondary Reports

 Performance-control reports  Planning reports  Exception reports Introduction to Operations Management 25

Other Considerations

 Safety Stock  Lot sizing – Lot-for-lot ordering – Economic order quantity – Fixed-period ordering – Part-period model  Yield rates Introduction to Operations Management 26

MRP Capacity requirement 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.

Introduction to Operations Management 27

MRP Capacity Requirement Planning

Develop a tentative master production schedule Use MRP to simulate material requirements Convert material requirements to resource requirements Is shop capacity adequate?

Yes Firm up a portion of the MPS No Introduction to Operations Management Revise tentative master production schedule No Can capacity be changed to meet requirements Yes Change capacity 28

Benefits of MRP

 Low levels of in-process inventories  Ability to track material requirements  Ability to evaluate capacity requirements  Means of allocating production time Introduction to Operations Management 29

Requirements of MRP

 Computer and necessary software  Accurate and up-to-date – Master schedules – Bills of materials – Inventory records  Integrity of data Introduction to Operations Management 30

MRP II

 Expanded MRP with and emphasis placed on integration – Financial planning – Marketing – Engineering – Purchasing – Manufacturing Introduction to Operations Management 31

Overview of MRP II

Finance Marketing Market Demand Manufacturing Master production schedule Production plan MRP Adjust production plan Yes Rough-cut capacity planning Problems?

No Requirements schedules Introduction to Operations Management No Capacity planning Problems?

Yes 32