Heizer om10 ch14-mrp

10/16/2010

Material Requirements Outline
14 Planning (MRP) and ERP Global Company Profile: Wheeled
Coach
Dependent Demand
Dependent Inventory Model
PowerPoint presentation to accompany Requirements
Heizer and Render
Operations Management, 10e Master Production Schedule
Principles of Operations Management, 8e
Bills of Material
PowerPoint slides by Jeff Heyl
Accurate Inventory Records
Purchase Orders Outstanding
Lead Times for Components
© 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 1 © 2011 Pearson Education, Inc. publishing as Prentice Hall 14 - 2

Outline – Continued Outline – Continued

MRP Structure Extensions of MRP
Material Requirements Planning II
MRP Management (MRP II)
MRP Dynamics Closed-Loop
Closed Loop MRP
MRP and JIT Capacity Planning
Lot-Sizing Techniques MRP In Services
Distribution Resource Planning
(DRP)


Outline – Continued Learning Objectives
When you complete this chapter you
Enterprise Resource Planning (ERP)
should be able to:
Advantages and Disadvantages of
ERP Systems
1. Develop a product structure
ERP in the Service Sector
2. Build a gross requirements plan
3. Build a net requirements plan
4. Determine lot sizes for lot-for-lot,
EOQ, and PPB


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10/16/2010

Learning Objectives Wheeled Coach
When you complete this chapter you
should be able to: Largest manufacturer of
ambulances in the world
5. Describe MRP II p
International competitor
6. Describe closed-loop MRP 12 major ambulance designs
7. Describe ERP 18,000 different inventory items
6,000 manufactured parts
12,000 purchased parts


Wheeled Coach Dependent Demand

Four Key Tasks
For any product for which a schedule
Material plan must meet both the can be established, dependent
requirements of the master schedule
q demand techniques should be used
and the capabilities of the
production facility
Plan must be executed as designed
Minimize inventory investment
Maintain excellent record integrity


Dependent Demand Dependent Demand
The demand for one item is related
Benefits of MRP
to the demand for another item
1. Better response to customer
Given a quantity for the end item,
orders
the demand for all parts and
2. Faster response to market changes components can be calculated
3. Improved utilization of facilities In general, used whenever a
and labor schedule can be established for an
4. Reduced inventory levels item
MRP is the common technique

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10/16/2010

Dependent Demand Master Production Schedule
(MPS)
Effective use of dependent demand Specifies what is to be made and when
inventory models requires the Must be in accordance with the aggregate
following production plan
1. Master
1 M t production schedule
d ti h d l Inputs from financial plans customer
plans,
demand, engineering, supplier performance
2. Specifications or bill of material
As the process moves from planning to
3. Inventory availability execution, each step must be tested for
4. Purchase orders outstanding feasibility
5. Lead times The MPS is the result of the production
planning process

Master Production Schedule The Planning Process
(MPS)
Production Marketing Finance
Capacity Customer Cash flow
MPS is established in terms of specific Inventory demand

products
Procurement Human resources
Schedule must be followed for a Supplier
performance
Manpower
planning
reasonable length of time
The MPS is quite often fixed or frozen in Management
Aggregate
Engineering
Return on Design
the near term part of the plan investment
Capital
production
plan
completion

The MPS is a rolling schedule Change
production
The MPS is a statement of what is to be Master production
schedule
plan?

produced, not a forecast of demand
Figure 14.1

The Planning Process Aggregate
Master production
Production Plan
schedule Change
master
Change production Months January February
requirements? Material schedule?
requirements plan
Aggregate Production Plan 1,500 1,200
(Shows the total
Change quantity of amplifiers)
capacity? Capacity
p y
requirements plan Weeks 1 2 3 4 5 6 7 8
Master Production Schedule
No Is capacity Is execution (Shows the specific type and
Realistic? plan being meeting the quantity of amplifier to be
met? plan?
Yes produced
Execute capacity 240-watt amplifier 100 100 100 100
plans
150-watt amplifier 500 500 450 450
75-watt amplifier 300 100
Execute
material plans

Figure 14.2
Figure 14.1

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10/16/2010

Master Production Schedule Focus for Different
(MPS) Process Strategies
Make to Order Assemble to Order Stock to Forecast
or Forecast
Can be expressed in any of the (Process Focus) (Repetitive) (Product Focus)
Number of
following terms: inputs

Schedule orders
1.
1 A customer order in a job shop (make-
Typical focus of the
to-order) company master production Schedule modules
schedule
2. Modules in a repetitive (assemble-to-
order or forecast) company Number of
end items Schedule finished
product
3. An end item in a continuous (stock-to-
Examples: Print shop Motorcycles Steel, Beer, Bread
forecast) company Machine shop Autos, TVs Lightbulbs
Fine-dining restaurant Fast-food restaurant Paper
Figure 14.3

MPS Examples Bills of Material
For Nancy’s Specialty Foods List of components, ingredients,
and materials needed to make
Gross Requirements for Crabmeat Quiche product
Day 6 7 8 9 10 11 12 13 14 and so on
Amount 50 100 47 60 110 75 Provides product structure
P id d t t t
Gross Requirements for Spinach Quiche Items above given level are called
Day 7 8 9 10 11 12 13 14 15 16 and so on parents
Amount 100 200 150 60 75 100
Items below given level are called
Table 14.1
children


BOM Example BOM Example
Level Product structure for “Awesome” (A) Level Product structure for “Awesome” (A)
0 A 0 A

Part B: 2 x number of As = (2)(50) =Std. 12” Speaker kit w/
100
1 B(2) Std. 12” Speaker kit C(3) Std. 12” Speaker kit w/
amp-booster 1 B(2) Std. 12” 3 x number of As =
Part C: Speaker kit C(3)
(3)(50) =amp-booster 150
Part D: 2 x number of Bs
+ 2 x number of Fs = (2)(100) + (2)(300) = 800
2 E(2) E(2) F(2) Std. 12” Speaker 2 E
Part E:(2) 2 x number of Bs E(2) F(2) Std. 12” Speaker
booster assembly booster assembly
+ 2 x number of Cs = (2)(100) + (2)(150) = 500
Packing box and Part F: 2 x Packing box and =
number of Cs (2)(150) = 300
3 D(2) installation kit of wire, G(1) D(2) 3 D(2) G(1) D(2)
bolts, and screws Part G: 1installation kit ofFs =
number of wire,
xbolts, and screws (1)(300) = 300

Amp-booster Amp-booster

12” Speaker 12” Speaker 12” Speaker 12” Speaker


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10/16/2010

Bills of Material Bills of Material
Planning Bills
Modular Bills
Also called “pseudo” or super bills
Modules are not final products but
components that can be assembled Created to assign an artificial
into
i t multiple end items
lti l d it parent to the BOM
Can significantly simplify planning Used to group subassemblies to
and scheduling reduce the number of items planned
and scheduled
Used to create standard “kits” for
production


Bills of Material Accurate Records
Phantom Bills Accurate inventory records are
Describe subassemblies that exist absolutely required for MRP (or
only temporarily any dependent demand system) to
Are part of another assembly and operate correctly
p y
never go into inventory Generally MRP systems require
Low-Level Coding more than 99% accuracy
Item is coded at the lowest level at Outstanding purchase orders must
which it occurs accurately reflect quantities and
BOMs are processed one level at a time scheduled receipts

Time-
Time-Phased Product
Lead Times Structure
Must have D and E
Start production of D completed here so
The time required to purchase, production can
begin on B
produce, or assemble an item 1 week
2 weeks to
D produce
For production – the sum of the B
2 weeks
order, wait, move, setup, store,
order wait move setup store E
and run times A
2 weeks 1 week
For purchased items – the time 2 weeks
E
1 week
between the recognition of a need G C
3 weeks
and the availability of the item for F
1 week
production D
| | | | | | | |
1 2 3 4 5 6 7 8 Figure 14.4
Time in weeks

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MRP Structure Determining Gross
Data Files Output Reports
Requirements
MRP by
BOM Master period report
production schedule Starts with a production schedule for the
MRP by
date report
end item – 50 units of Item A in week 8
Lead times
Using the lead time for the item,
g ,
(Item master file) Planned order
report determine the week in which the order
Inventory data
should be released – a 1 week lead time
Purchase advice
Material
requirement
means the order for 50 units should be
planning
programs
released in week 7
(computer and Exception reports
Purchasing data software)
Order early or late
or not needed
This step is often called “lead time
Order quantity too offset” or “time phasing”
small or too large
Figure 14.5

Determining Gross Determining Gross
Requirements Requirements
From the BOM, every Item A requires 2 The process continues through the entire
Item Bs – 100 Item Bs are required in BOM one level at a time – often called
week 7 to satisfy the order release for “explosion”
Item A
By processing the BOM by level, items
The lead time for the Item B is 2 weeks – with multiple parents are only processed
release an order for 100 units of Item B in once, saving time and resources and
week 5 reducing confusion
The timing and quantity for component Low-level coding ensures that each item
requirements are determined by the order appears at only one level in the BOM
release of the parent(s)

Gross Requirements Plan Net Requirements Plan
Week
1 2 3 4 5 6 7 8 Lead Time
A. Required date 50
Order release date 50 1 week
B. Required date 100
Order release date 100 2 weeks
C. Required date 150
Order release date 150 1 week
E. Required date 200 300
Order release date 200 300 2 weeks
F. Required date 300
D. Required date 600 200
Order release date 600 200 1 week
G. Required date 300

Table 14.3

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10/16/2010

Net Requirements Plan Determining Net
Requirements
Starts with a production schedule for the
end item – 50 units of Item A in week 8
Because there are 10 Item As on hand,
only 40 are actually required – (net
requirement) = (gross requirement - on-
hand inventory)
The planned order receipt for Item A in
week 8 is 40 units – 40 = 50 - 10


Determining Net Determining Net
Requirements Requirements
Following the lead time offset procedure, A planned order receipt of 65 units in
the planned order release for Item A is week 7 generates a planned order release
now 40 units in week 7 of 65 units in week 5
The gross requirement for Item B is now The on-hand inventory record for Item B
on hand
80 units in week 7 is updated to reflect the use of the 15
There are 15 units of Item B on hand, so items in inventory and shows no on-hand
the net requirement is 65 units in week 7 inventory in week 8
A planned order receipt of 65 units in This is referred to as the Gross-to-Net
week 7 generates a planned order release calculation and is the third basic function
of 65 units in week 5 of the MRP process

Gross Requirements Net Requirements Plan
Schedule
Figure 14.6
A S The logic of net requirements
B C B C
Master schedule Gross
Allocations
requirements +
Lead time = 4 for A Lead time = 6 for S for B
Master schedule for A Master schedule for S sold directly

Periods 5 6 7 8 9 10 11 8 9 10 11 12 13 1 2 3
40 50 15 40 20 30 10 10 Total requirements

On Scheduled Net
– hand + receipts = requirements

Periods 1 2 3 4 5 6 7 8
Therefore, these
Gross requirements: B 10 40+10
=50
40 50 20 15+30
=45
are the gross Available inventory
requirements for B


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10/16/2010

MRP Planning Sheet Safety Stock
BOMs, inventory records, purchase and
production quantities may not be perfect
Consideration of safety stock may be
p
prudent
Should be minimized and ultimately
eliminated
Typically built into projected on-hand
inventory
Figure 14.7


MRP Management MRP and JIT
MRP is a dynamic system
MRP is a planning system that
Facilitates replanning when changes occur
does not do detailed scheduling
Regenerating
Net change
MRP requires fixed lead times
which might actually vary with
System nervousness can result from too
many changes
batch size
Time fences put limits on replanning JIT excels at rapidly moving small
batches of material through the
Pegging links each item to its parent
allowing effective analysis of changes system


Finite Capacity Scheduling Small Bucket Approach
1. MRP “buckets” are reduced to daily or hourly
MRP systems do not consider
capacity during normal planning 2. Planned receipts are used internally to
sequence production
cycles
3. Inventory is moved through the plant on a JIT
Finite capacity scheduling (FCS) basis
recognizes actual capacity limits 4. Completed products are moved to finished
goods inventory which reduces required
By merging MRP and FCS, a finite quantities for subsequent planned orders
schedule is created with feasible 5. Back flushing based on the BOM is used to
capacities which facilitates rapid deduct inventory that was used in production
material movement

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10/16/2010

Balanced Flow Supermarket
Used in repetitive operations Items used by many products are
MRP plans are held in a common area often called
executed using a supermarket
JIT techniques Items are withdrawn as needed
based on “pull”
principles Inventory is maintained using JIT
systems and procedures
Flows are carefully
balanced with Common items are not planned by
small lot sizes the MRP system


Lot-
Lot-Sizing Techniques Lot-
Lot-Sizing Techniques
Lot-for-lot techniques order just what
Part Period Balancing (PPB) looks at
is required for production based on
future orders to determine most
net requirements
economic lot size
May not always be feasible
The Wagner-Whitin algorithm is a
If setup costs are high, lot-for-lot can complex dynamic programming
be expensive
technique
Economic order quantity (EOQ) Assumes a finite time horizon
EOQ expects a known constant Effective, but computationally
demand and MRP systems often deal burdensome
with unknown and variable demand

Lot-for-
Lot-for-Lot Example Lot-for-
Lot-for-Lot Example
No on-hand inventory is carried through the system
1 2 3 4 5 6 7 8 9 10
Total holding cost = $0 3 4 5 6 7 8 9 10
1 2
Gross Gross
requirements
35 30 40 0 10 40 30 0 30 55 There are seven 35 30 for this 10 40 this plan
requirements setups 40 0 item in 30 0 30 55

Scheduled Total ordering cost = 7 x $100 = $700
Scheduled
receipts receipts
Projected on Projected on
35 35 0 0 0 0 0 0 0 0 0 35 35 0 0 0 0 0 0 0 0 0
hand hand
Net Net
0 30 40 0 10 40 30 0 30 55 0 30 40 0 10 40 30 0 30 55
requirements requirements
Planned order Planned order
30 40 10 40 30 30 55 30 40 10 40 30 30 55
receipts receipts
30 40 10 40 30 30 55 30 40 10 40 30 30 55
releases releases

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


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10/16/2010

EOQ Lot Size Example EOQ Lot Size Example
Annual demand = 1,404
Total cost = setup cost + holding cost
1 2 3 4 5 6 7 8 9 10
Total cost = (1,404/73) x $1004 + (73/2) x ($1 x852 weeks)
1 2 3 5 6 7 9 10
Gross
requirements
35 30 40 0 10 40 30 0 30 55 Total cost = $3,798 30 40 0 10 40 30 0 30 55
Gross
requirements
35
Cost for 10 weeks = $3,798 x (10 weeks/52 weeks) =
Scheduled Scheduled
receipts $730
receipts
Projected on Projected on
35 35 0 43 3 3 66 26 69 69 39 35 35 0 0 0 0 0 0 0 0 0
hand hand
Net Net
0 30 0 0 7 0 4 0 0 16 0 30 0 0 7 0 4 0 0 16
73 73 73 73 73 73 73 73
receipts receipts
73 73 73 73 73 73 73 73
releases releases

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
Average weekly gross requirements = 27; EOQ = 73 units Average weekly gross requirements = 27; EOQ = 73 units

PPB Example Periods PPB Example
Trial Lot Size
(cumulative net Costs
Combined requirements) Part Periods Setup Holding Total
2 30 0
1 2 3 4 5 6 7 8 9 10
2, 3 70 1 2
40 = 40 x41 5
3 6 7 8 9 10
Gross 2, 3, 4
Gross 70 40
35 30 40 0 10 40 30 0 30 55 35 30 40 0 10 40 30 0 30 55
2, 3, 4, 5 80 70 = 40 x 1 + 10 x 3 100 + 70 = 170
Scheduled Scheduled 6
2, 3, 4, 5, 120 230 = 40 x 1 + 10 x 3
receipts receipts + 40 x 4
Projected on Projected on e periods
Co b
Combine pe ods 2 - 5 as t s results in t e Part Period
this esu ts the a t e od
35 35
hand hand closest to the EPP
Net 6
Net 40 0
6, 7 70 30 = 30 x 1
Planned order 6, 7, 8
Planned order 70 30 = 30 x 1 + 0 x 2
receipts receipts 9
6, 7, 8, 100 120 = 30 x 1 + 30 x 3 100 + 120 = 220
Combine periods 6 - 9 as this results in the Part Period
releases releases
closest to the EPP
10 55 0 100 + 0 = 100
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week Holding cost = $1/week; Setup cost = 300 + 190 = 490
Total cost $100;
EPP = 100 units EPP = 100 units

PPB Example Lot-
Lot-Sizing Summary
1 2 3 4 5 6 7 8 9 10
For these three examples
Gross
35 30 40 0 10 40 30 0 30 55
requirements
Scheduled
receipts Lot-for-lot $700
Projected on
hand
35 35 0 50 10 10 0 60 30 30 0 EOQ $730
Net
requirements
0 30 0 0 0 40 0 0 0 55 PPB $490
Planned order
80 100 55
receipts
Planned order
80 100 55
releases

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
EPP = 100 units

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10/16/2010

Lot-
Lot-Sizing Summary Lot-
Lot-Sizing Summary
In theory, lot sizes should be recomputed Lot sizes can be modified to allow for
whenever there is a lot size or order scrap, process constraints, and
quantity change purchase lots
In practice, this results in system Use lot-sizing with care as it can cause
nervousness and instability considerable distortion of requirements
Lot-for-lot should at lower levels of the BOM
be used when When setup costs are significant and
low-cost JIT can demand is reasonably smooth, PPB,
be achieved Wagner-Whitin, or EOQ should give
reasonable results


Extensions of MRP Material Requirements
Planning II
MRP II Requirement data can be enriched by
Closed-Loop MRP other resources
MRP system provides input to the capacity Generally called MRP II or Material
plan, MPS, and production planning process Resource Planning
Capacity Planning Outputs include
MRP system generates a load report which Scrap
details capacity requirements
Packaging waste
This is used to drive the capacity planning
process Carbon emissions
Changes pass back through the MRP system Data used by purchasing, production
for rescheduling scheduling, capacity planning, inventory

Material Resource Planning
Closed-
Closed-Loop MRP System
Weeks
LT 5 6 7 8
Computer 1 100 Aggregate Production Plan

Labor Hrs: .2 each 20
OK?
Machine Hrs: .2 each 20 NO Priority Management Capacity Management
Scrap: 1 ounce fiberglass each 6.25 lbs
Payables: $0 each $0 Develop Master Production Evaluate Resource Availability
Schedule (Rough Cut)
PC Board (1 each) 2 100 OK?
NO OK? YES Planning
Labor Hrs: .15 each 15
Machine Hrs: .1 each 10 Prepare Materials Determine Capacity Availability
Requirements Pan
Scrap: .5 ounces copper each 3.125 lb
OK? YES
Payables: raw material at $5 each $500 Execution
Processor (5 each) 4 500 Detailed Production Implement Input/Output Control (in repetitive
Activity Control systems JIT
Labor Hrs: .2 each 100 (Shop Scheduling/Dispatching) techniques
Machine Hrs: .2 each 100 are used)
Scrap: .01 ounces of acid waste each 0.3125 lb
Payables: processors at $10 each $5,000
Figure 14.8
Table 14.4

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