Mrp by Mufroni

Material Requirements PlanningMaterial Requirements Planning

Operations Planning & Control for Supply Chain Management

250-450 Dr. Tom Bramorski Slide 2 of 57

Independent Vs. Dependent Demand

A

B(4) C(2)

D(2) E(1) D(3) F(2)

Independent Demand Items

Dependent Demand Items



Only independent demand (level 0) items need to be forecast

Since forecasts are subject to error world-class businesses move toward blanket order arrangements

Dependent (lower level items) should always be calculated using the MRP logic



Dependent demand items are those subassemblies and components that are used internally for manufacturing finished goods

Spare parts that are sold in the market are classified as independent demand items

Dependent demand always comes from the higher level items (parents)


Inventory Systems for Dependent Demand

Master production schedule

Material requirements planning (MRP)System structureExample

MRP II

MRP/JIT


Material Requirements Planning

How much of an item is needed?

When is an item needed to completeA specified number of units.In a specified period of time?

Dependent demand drives MRP


Example - Dependent Demand

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

Product Structure Tree for Assembly A Lead Times

A: 1 dayB: 2 daysC: 1 dayD: 3 daysE: 4 daysF: 1 day

Demand

Day 10: 50 ADay 8: 20 B (Spares)Day 6: 15 D (Spares)Create a production schedule to

satisfy demand


Example - Dependent DemandThe product structure tree is called the bill of

materials (BOM)

BOM indicates how many units of an item are needed to make one unit of a parentIn our example, B(4) means that four units of B are

needed to make one unit of A


Example - Dependent DemandSome items may have multiple parents

In these cases item requirements from all parents have to be pooled

In our example, requirements for item D have to be pooled for parents B and C. The quantities are D(2) for one unit of B and D(3) for one unit of C



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand

Day 10: 50 ADay 8: 20 B (Spares)Day 6: 15 D (Spares)

LT=1 day

Item Day: 1 2 3 4 5 6 7 8 9 10

ARequired 50

Order placement 50



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

ARequired 50

Order placement 50

BRequired 20 200

Order placement 20 200

4 B’s go into an A



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

ARequired 50

Order placement 50

BRequired 20 200


LT=2 days (from A)



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

ARequired 50

Order placement 50

BRequired 20 200


LT=2 days (spares)



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

ARequired 50

Order placement 50

CRequired 100

Order placement 100

2 C’s go into an A



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

ARequired 50

Order placement 50

LT=1 day (from A)

CRequired 100

Order placement 100



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

B Required 20 200


CRequired 100

Order placement 100

DRequired 40 400 300

Order placement 40 400 300

2 D’s go into a B



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

B Required 20 200


CRequired 100

Order placement 100



3 D’s go into a C



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

B Required 20 200


CRequired 100

Order placement 100



Demand for spares: 40+15=55



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

B Required 20 200


CRequired 100

Order placement 100



LT=3 days (from B and C and spares)



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

BRequired 20 200


ERequired 20 200


1 E goes into a B



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

BRequired 20 200


ERequired 20 200


LT=4 days (from B)



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

CRequired 100

Order placement 100

FRequired 200

Order placement

2 F’s go into a C



B(4)

E(1)D(2)

C(2)

F(2)D(3)

ALead Times


Demand


Item Day: 1 2 3 4 5 6 7 8 9 10

CRequired 100

Order placement 100

FRequired 200

Order placement 200

LT=1 day (from C)


Example - Dependent DemandItem Day: 1 2 3 4 5 6 7 8 9 10

ARequired 50

Order placement 50

BRequired 20 200


CRequired 100

Order placement 100



ERequired 20 200


FRequired 200

Order placement 200


Master Production Schedule (MPS)

Time-phased plan specifying how many and when the firm plans to build each end item

Aggregate Plan(product groups)

MPS (specific items)


Time Fences

FrozenNo schedule changes allowed within this window

Moderately firmSpecific changes allowed within product groups as

long as parts are available

FlexibleSignificant variation allowed as long as overall

capacity requirements remain at the same levels


Time Fences

8 15 26Weeks

FrozenModerately

Firm Flexible

Firm Customer Orders

Forecast and availablecapacity

Capacity


Material Requirements Planning

Based on a master production schedule, a material requirements planning (MRP) system:

Creates schedules identifying the specific parts and materials required to produce end items

Determines exact numbers needed

Determines the dates when orders for those materials should be released, based on lead times


Production Planning Hierarchy

Firm orders from knowncustomers

Forecast of demand

from random customers

Aggregate Product Plan

Master Production Schedule

(MPS)

Material Requirements

Planning (MRP)

Engineering design changes

Bill of Materials (BOM) file

Inventory transactions

Inventory records

file

Reports


Order ChangesOrder Changes

Planning ReportsPlanning Reports

MRPMRPSystemSystem

InventoryInventoryTransaction DataTransaction Data

Bill ofBill of Materials FileMaterials File

MasterMasterProductionProductionScheduleSchedule

InventoryInventoryStatus FileStatus File

Service-PartsService-PartsOrders andOrders andForecastsForecasts

Performance ReportsPerformance Reports

Inputs Outputs

Planned OrderPlanned OrderScheduleSchedule

Exception ReportsException Reports

Inputs To and Outputs From MRP


Bill of Materials (BOM) FileA Complete Product Description

MaterialsPartsComponentsProduction sequence

Modular BOM Subassemblies

Planning BOMFractional options


Inventory Records File

Each inventory item carried as a separate fileContains inventory positions of each itemShows status according to “time buckets”

PeggingIdentify each parent item that created demand


Approaches to Processing MRP

Net change approach

Regenerative approach


Net Change Approach

Only products that were active since last review are processed (net change schedules)This mode of processing MRP reduces the amount of

output

Activity drivenPotential for system nervousness


Regenerative Approach

All products are processed irrespective their activity statusThis mode of processing MRP produces large

amounts of output and is hard to use


Primary MRP Reports

Planned orders To be released at a future time

Order release notices To execute the planned orders

Changes in due dates of open orders due to rescheduling


Primary MRP Reports

Cancellations or suspensions of open orders Due to cancellation or suspension of orders on the

master production schedule

Inventory status data


More MRP Terminology

Gross requirementsThese requirements are typically forecast for

independent demand items

Today’s trend is to replace forecasts with blanket orders in order to reduce variability and shorten lead-time

The customer is offered a price discount for placing blanket orders



On-hand inventory

The inventory physically present in the facility

Allocated inventory

The inventory physically present in the facility but allocated to a particular work order or purchase order



Net requirementsA quantity of an item that must be purchased or manufactured

in order to be able to fully deliver independent demand requirements in a timely fashion

Presence of positive net requirements signals that an order must be planned to be received in a given period

Net requirement quantities are subject to adjustments due to lot sizes considerations. This may lead to some orders being received early (inventory is held) or late (order backlog)



Planned order receipts

Quantities that must be planned to be received in some future periods in order to meet the requirements



Planned order released

Quantities that must be planned to be released in some future periods in order to meet the requirements



Scheduled receipts

Quantities that will be received in some future periods as their corresponding orders have been released in the past

Planned order receipts become scheduled receipts at the time when they are released to the shop or to suppliers


Gross to net logic:

Net requirements = Gross requirements

+ Allocated inventory

+ Safety stock

- Inventory on hand

+ backorders



Lot-size is the quantity ordered/produced at one time

Large lots are preferred because: Changeovers cost less and capacity increases Annual cost of purchase orders decreases Price breaks and transportation economies of scale

can be utilized

Lot-Sizing in MRP


Small lots are preferred because of:

Lower inventory carrying costReduced risk of obsolescenceShorter cycle time to produce customer order

Lot-Sizing in MRP


Economic order quantity (EOQ) Does not consider quantity discounts Does not always provide the most economical

approach with lumpy demands

Lot-for-lot (LFL) Accommodates lumpy demand

Period order quantity (POQ)

Lot-Sizing in MRP


The best lot-sizing method, resulting in least cost …

Depends on cost and demand patterns

Lot-Sizing in MRP


Closed Loop MRPProduction Planning

Master Production SchedulingMaterial Requirements PlanningCapacity Requirements Planning

Realistic?

No

Feedback

Execute:Capacity PlansMaterial Plans

Yes

Feedback


Manufacturing Resource Planning (MRP II)

Goal: plan and monitor all resources of a manufacturing firm (closed loop):Manufacturing Marketing Finance EngineeringShop-floor control

Simulation capability of the manufacturing system


Enterprise Resource Planning (ERP)

ERP systems available today integrate manufacturing with other functional areas in an organization

ERP systems make it easier for management to obtain local information about performance of specific processes, bottlenecks resources, and products (or product groups), etc.

Class I ERP software packages (for large companies) include PeopleSoft, SAP, and Oracle


MRP Example #2

A(2)

C(3)

B(1)

D(5)C(2)

X

Product Structure Tree for X

ItemLead-time

(weeks)

On-hand quantity

X 2 50

A 3 75

B 1 25

C 2 10

D 2 20


MRP Example #2

Create a planned order release schedule

The requirements for product X include 95 units (80 firm orders and 15 forecast) for X in week 10. In addition, there is independent demand for other items (spares), as shown in the MPS below:

Week

Item 1 2 3 4 5 6 7 8 9 10

X 95

A 12

B 7

C 10

D 15


Solution: MRP Example #2Item Level Code Lot Size Lead Time On Hand Safety Stock Allocated 1 2 3 4 5 6 7 8 9 10

Gross Requirements 95

Scheduled Receipts

X 0 LFL 2 50 0 0 Av ailable 50 50 50 50 50 50 50 50 50 50

Net Requirements 45

Planned Order Receipts 45

Planned Order Releases 45

Item Level Code Lot Size Lead Time On Hand Safety Stock Allocated 1 2 3 4 5 6 7 8 9 10

Gross Requirements 90 12

Scheduled Receipts

A 1 LFL 3 75 0 0 Av ailable 75 75 75 75 75 75 75 75

Net Requirements 15 12

Planned Order Receipts 15 12

Planned Order Releases 15 12



Scheduled Receipts

B 1 LFL 1 25 0 0 Av ailable 25 25 25 25 25 25 25 18 18 18

Net Requirements 27




Gross Requirements 45 36 54 10

Scheduled Receipts

C 2 LFL 2 10 0 0 Av ailable 10 10 10 10 10

Net Requirements 35 36 54 10

Planned Order Receipts 35 36 54 10

Planned Order Releases 35 36 54 10



Scheduled Receipts

D 2 LFL 2 20 0 0 Av ailable 20 20 20 20 20 20 5

Net Requirements 130



MRP Example #3What if we made the following changes to the previous example:

•There are positive quantities for safety stock and allocated inventory

•A firm order for 10 units of X is placed in period 7•A minimum order size is imposed on all items•There are quantities scheduled to be received•There is an added gross requirement for item X of 50 units due in period 7

Create a planned order release schedule


Solution: MRP Example #3Item Level Code Lot Size Lead Time On Hand Safety Stock Allocated 1 2 3 4 5 6 7 8 9 10


Scheduled Receipts 60

X 0 60+ 2 50 30 25 Av ailable 55 55 55 55 55 55 55 45 45 45

Net Requirements 50





Scheduled Receipts 100

A 1 100+ 3 75 40 60 Av ailable 75 75 75 75 75 75 75 75 43 43

Net Requirements 45





Scheduled Receipts 10 10 10 10 10

B 1 10+ 1 25 20 10 Av ailable 5 5 15 15 25 25 28 28 10 10

Net Requirements 48




Gross Requirements 300 96 10

Scheduled Receipts 200 200

C 2 25+ 2 10 5 10 Av ailable 195 395 395 395 395 95 95 24 14 14

Net Requirements 1





Scheduled Receipts

D 2 300+ 2 20 10 5 Av ailable 5 5 5 5 5 5 290 50 50 50

Net Requirements 10



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