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Transcript of Session 6, 7 MRP
8/14/2019 Session 6, 7 MRP
http://slidepdf.com/reader/full/session-6-7-mrp 1/73
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Managing production system includes
materials management, sourcing, follow up,
controlling productivityComplexities of producing numerous
different products can cause
confusion, inefficiencies & inferior
customer service
MATERIAL REQUIREMENT PLANNING
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To control such an environment, timely
and accurate information is required
MRP system can provide this vital info
MATERIAL REQUIREMENT PLANNING
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Managers using reactive systems
ask, “What should I do now?”
Managers using planning
systems ask, “What will I need in
the future? How much and
when ?”
MATERIAL REQUIREMENT PLANNING
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simple to manage
high inventory cost OR ordering cost
unreliable delivery performance
Reactive systems
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complex to manage
reduced inventory cost (it carries only those
items & components that are needed – no
more/no less)
Reduces order processing delays => reduced LT=> better deliveries => better customer service
accurate information required
Planning system
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requires a lot of discipline
Commitment by scheduler, supervisor, managers,
etc.
Planning system
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It is the degree to which demand of an item is
dependent on demand for another item
E.g. demand for tea/coffee will determine the
quantity of sugar/milk, etc. required
MRP obviates the need of large safety stocks for
dependent demand items
Demand Dependency
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It is a software based production, planning and
inventory control system used to manage the
manufacturing processIt generates time-phased materials requirements
for production operations (provides due dates for
components)
MRP : a scheduling & ordering system
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Operations Planning & Scheduling System
Aggregate outputplanning
Master production
scheduling
Material requirementsplanning
Loading
Sequencing
DetailedScheduling
Expediting
Aggregate capacityplanning
Rough-cut capacity
planning
Detailed capacityplanning
Short-termcapacity control
Operations
Output planning Capacity planning
Shopfloor control
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MRP enables to estimate dept.-wise
capacity requirement
Operations Planning & Scheduling System
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Inventory reduction – how much of what and
when? No extra inventory
Reduction in production & delivery LT – prioritiesproduction activities. Ensures smooth production
due to efficient inventory management
MRP : Objective & Methods
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Realistic commitments – WYSIWYG – better
customer satisfaction. New orders are added to the
system and revised total load plan is generated and
given to production manager.
Increased efficiency – MRP ensures close
coordination among various departments as
products progress through them. Fewer unplanned
interruptions, better production efficiency.
MRP : Objective & Methods
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Main sources of information (input) are:
1. Master Production Schedule
2. Inventory Status File3. BOM
4. Purchase orders outstanding5. Lead times
MRP : System Components
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3 kinds of information
1. Order release requirements (orders to
be released now)
2. Order re-scheduling (expedite, de-
expedite, cancel open orders)
3. Planned orders (future)
MRP provides……
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MRP system
Masterproductionschedule (MPS)
BOM fileInventorystatus file
MRPprocessing
logic
Plannedorders
(future)
Order releaserequirements (ordersto be released now)
Orders rescheduling(expedite, de-expedite,
cancel open orders)
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Initially developed from (a) existing orders OR
(b) demand forecast
MPS provides input to MRP system
MPS includes replacement (service) components
for customers
MPS ultimately governs MRP on sourcing plan &
producing sub-components, to meet deliveries
MPS (master production schedule)
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It contains the following:
identification number,
quantity on hand,
safety stock level,
quantity disbursed and
sourcing LT for every item
Inventory Status File
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Identifies manufacturing process (sequence of
build up)
Identifies quantities of finished unit & thedepartments performing the build up sequence
*Primary info to MRP from BOM is the product
structure
BOM
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Product structures for 2 assembled products
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Product structures for 2 assembled products
A&D are upper level end items Components are lower-level items Each item is given unique identification number MRP schedules & time-phases the orders for lower
level component items 22
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MRP processing logic
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It accepts the Master Production Schedule
Determines components schedules
Calculates for each item in each product for each
time period (normally 1 week) in the planning
horizon
How much is required Vs. how much is already
available in-house
MRP processing logic
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Data processing determines the overall
requirements to meet deliveries
MRP processing logic
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Bicycle components
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The report clearly identifies the sourcing actions required for on-scheduleproduction
Can notify the suppliers in advanceWeekly updating – expedite , de-expedite , cancel
**Information system is valuable when thousands of sub-components mustbe coordinated among numerous suppliers & work centers
Management info from MRP
MRP report for one item
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1. Allocated quantity : in-house quantity but alreadyallocated to some other order
2. Gross requirements : ‘overall quantity needed’ to
meet planned output levels. *Planned output for end
items come from MIS . *Planned output for
components come from MRP
3. Scheduled receipts : quantity that will be received at
the start of time period against previously placed
orders
Terminology of MRP
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4. Available quantity : quantity expected to be availableat the end of a time period for production in
subsequent periods
Terminology of MRP
• Available qty = qty available from the previous period +
schedule receipts + planned order receipts - grossrequirement
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5. Net requirements : net quantity to be acquired to
meet production requirements for the period
6. Planned order receipts – quantity that is planned to
be ordered for receiving at the start of the period.
The order has not yet been placed
Terminology of MRP
net requirements = gross requirement – scheduled receipts –
qty. available from previous period
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7. Planned order release : it’s a release that shows
the order plan of items vis-à-vis time period.
What, how much & when. When this order is
released, it becomes a ‘scheduled receipt’
Terminology of MRP
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MRP - example
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Chair – manufacturing sequence
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Chair – manufacturing sequence
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MRP - example
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Determine & plan for end products
Determine and plan for lower level items
Info Processing System (Reverse T&A)
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Q. When must the order be placed so that the
item arrives when it is needed?
A. The processing system responds by ‘offsetting ’
the length of LT as indicated in the inventory
status file for that item
Lead-time off-setting
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Provides the information regarding relationshipbetween product and its components
It’s easy to see how many of which component isrequired at which level
Indented BOM
indented BOM for Model ‘H’ chair
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To produce a product, often multiple units of a
lower level item is required.
E.g. 1 unit of H requires 4 units of E.450 units of H requires 450 x 4 = 1800 units of E
This process of multiplication is called Product
Explosion or BOM explosion
Product Explosion
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A single item may be used at several points of
production. E.g. nut-bolts
MRP by convention assigns the item to thelowest level in which it occurs in the product
structure
Low Level Coding
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In order to maintain the schedule, planned order
releases must be acted upon in the relevant weeks
The cells which represent the weeks are theACTION BUCKETS.
*The ‘action’ is to release the order.
Using MRP outputs for material decisions
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MRP is not staticChanges with (i) new orders (ii) current production
floor conditions (iii) anticipated changes for the
future
MRP must be updated with current information
BUT should also provide stability for productionoperations
Keeping MRP ‘current’ in a changing environment
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(i) Pegging
(ii) Cycle Counting
(iii) Updating
(iv) Time Fences
Four aspects of MRP
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“tracing upward in the BOM from the components tothe parent item”
In real life material plans get disrupted every now
and then
Pegging identifies which components get affected
by such disruptions
(i) Pegging
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Pegging shows the level-by-level linkages among
components and their
time-phased status in the
MRP records
(i) Pegging
pegging the MRP records 46
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(ii) Cycle Counting
Components are counted, deducting defective units at
each stage of production and in storage area on a regular
basis
System data should be same as actual physical inventory
MRP records are updated, weekly or daily
Updated records highlight excesses or shortages andthereby indicated how the production schedules need to
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(iii) Updating
Updating is required when new jobs arrive OR
when technology changes the production design
Two updating approaches are used
(a) regenerative
(b) net change
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(iii) Updating
Regenerative completely reprocesses the
entire set of information & recreates the complete
MRP from start to end
Net change reprocesses only those portions
that are affected by informational changes
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allows a part of the master schedule to be
designated as ‘not to be rescheduled’
Dynamics of MRP environment can create
potential confusion => system nervousness
(iv) Time Fences
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Stability is gained by using ‘time fence’
Time fence = shortest LT from raw material to
finished productWithin the time fence, add longest LT at each
level of product structure + longest LT for sourcing
*frozen part of MPS is called firm planned orders
(iv) Time Fences
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(iv) Time Fences
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(iv) Time Fences
The longest LT at levels 0, 1 & 2 are 1, 2 and 4 = 7 weeks + sourcing LT 53
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MRP system generates planned order releases
which triggers P.O. for vendors
Set up costs(cost of ordering) + holding costa. LOT-FOR-LOT ORDERING (dynamic)
b. E.O.Q. TECHNIQUE (static)
LOT sizing
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LOT SIZING L4L TECHNIQUE
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LOT SIZING – L4L TECHNIQUE
Lot sizing technique that generates exactly what is
needed
No safety stock or anticipation of further orders
Works most efficiently when
– Frequent orders are economical (low set-up or
ordering costs)
– JIT inventory techniques has been implemented
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LOT SIZING L4L TECHNIQUE
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Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
50 60 70 60 95 75 60 55
Consider the given lot sizing problem, the netrequirement are given for 8 weeks
Cost per item Rs 10
Order/Setup cost Rs 47
Inventory carrying cost/week 0.5 %
LOT SIZING – L4L TECHNIQUE
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LOT SIZING L4L TECHNIQUE
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Week Net Requirement ProductionQuantity
EndingQuantity
Holding Cost Set up Cost Total Cost
1 50 50 0 Rs 0.00 Rs 47 Rs 47
2 60 60 0 0.00 47 94
3 70 70 0 0.00 47 141
4 60 60 0 0.00 47 188
5 95 95 0 0.00 47 235
6 75 75 0 0.00 47 282
7 60 60 0 0.00 47 329
8 55 55 0 0.00 47 376
Lot-for-Lot Run Size for an MRP schedule
LOT SIZING – L4L TECHNIQUE
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LOT SIZING E O Q TECHNIQUE
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Annual demand = D = 525 x 52 = 3412.5 units8
Annual holding cost =H= 0.5%xRs 10x52 weeks=2.60units
Setup cost = S = Rs 47
EOQ = √2DS = 351 units√ H
LOT SIZING – E.O.Q. TECHNIQUE
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LOT SIZING E O Q TECHNIQUE
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Week Net Requirement ProductionQuantity
EndingInventory
Holding Cost Set up Cost Total Cost
1 50 351 301 Rs 15.05 Rs 47 Rs 62.05
2 60 0 241 12.05 0 74.10
3 70 0 171 8.55 0 82.65
4 60 0 111 5.55 0 88.20
5 95 0 16 0.80 0 89.00
6 75 351 292 14.60 47 150.60
7 60 0 232 11.60 0 162.20
8 55 0 177 8.85 0 171.05
EOQ Run Size for an MRP schedule
∑=525
LOT SIZING – E.O.Q. TECHNIQUE
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D il d C i Pl i (DCP)
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a.k.a. capacity requirements planning
Each time the MRP system is updated, it is
imperative to check whether sufficient capacity isavailable
DCP addresses this question
Detailed Capacity Planning (DCP)
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D il d C i Pl i
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*E.g. detailed capacity analysis for component A(the front legs)Step 1: route sheet is developed for component A
Detailed Capacity Planning
route sheet for component A
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D t il d C it Pl i
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Step 2 : construct the operation set-back chart
Detailed Capacity Planning
partial operation set-back chart for chair model H
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Li it ti f MRP
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A computer is necessary Product structure must be assembly oriented
BOM + inventory status information must be
recorded & computerised
Valid master schedule must be prepared
Data integrity Training people else ad hoc methods resurfaces
Limitations of MRP
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Ad t g f MRP
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Dynamic nature Reacts well to changing activities (real time
adjustments for thousands of components)
Better PPC
Better inventory management
Shorter delivery LT – sourcing Better deliveries
Advantages of MRP
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M k
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Least accurate information is available on
capacity, market forecasts, production control
Most accurate information on BOM, MPS,
inventory records
Managers speak……
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Man fact ring Reso rce Planning (MRPII)
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‘closed loop’ MRPMRP systems was developed on a segregated
basis
MRPII connects many of the information
subsystems to the MRP system
Synchronises all aspects of the business ( sales ,purchasing , manufacturing , finance , engineering ) by
adopting a focal production plan
Manufacturing Resource Planning (MRPII)
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MRPII
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MRPII involves developing a production plan fromthe business plan to specify monthly projections for
each product line over next 1 to 5 years.
Developed by consensus of all executives
Production dept. produce (PS)
Sales dept. sell (PSFPD)Finance ??
MRPII
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Rough Cut Capacity Planning (RCCP)
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Used to evaluate capacity with availability
A repeating occurrence of an abundance amount
of inventory being created or pulled through a
supply chain is a big problem
RCCP prevents over production and determines
the appropriate amount of capacity that should be
used in the system
Rough Cut Capacity Planning (RCCP)
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MRPII: an integrated system for planning & control
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BUSINESS PLAN
PRODUCTIONPLAN
M.P.S.
ROUGH CUTCAPACITY
PLAN
M.R.P.
DETAILED
CAPACITYPLAN
SHOP FLOOR CONTROL;PURCHASES CONTROL
MANUFACTURING(materials, capacity,
production schedules
Purchasing(vendor orders)
Engineering(process &
product design)
Marketing (salesorder entry, delivery
projections)
Finance (capitalrequirements for
capacity, working capitalrequirements)
Accounting (a/cpayable; a/creceivable) 69
Purchasing
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1. Purchasing activities related to procuringmaterials and supplies consumed during production
2. Materials management activities relating to
managing the flow of materials into and through the
firm
3. Physical distribution activities relating to (2) aswell as to storing & transporting finished products
through distribution system to customers
Purchasing
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Purchasing : objectives
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1. Good value – price & quality combo2. Reliable schedule – on time, JIT
3. Minimised investment – depends on economies
of order size, carrying costs, stock out costs
4. Efficient admin – keeping the cost of buying at
low levels, coordinate with other depts.effectively
Purchasing : objectives
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Effective purchasing
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a. Purchasing requirement – description, qty, del.date, etc.
b. Sources of supply – personnel knowledge,
salespersons, ads, trade & industry associations,
peers, company records, etc. (sometimes
vendors must be developed)c. Cost of supply – cost per transaction, inventory
carrying costs, make or buy
Effective purchasing
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Effective purchasing
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d. Prices & Value – buy at better prices (commonsources of price – lists , quotations , market px. ,
competitive bids , direct negotiations )
e. Administering the purchase – requisition costs are
evaluated sources identified price & values
established P.O. is raised supplies are receivedpayments
authorised records are kept
Effective purchasing