Chapter 16 Material Requirements Planning How much of an

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Materials Requirements Planning

• Chapter 16

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Material Requirements Planning

• How much of an item is needed?
• When is an item needed to complete
• a specified number of units...
• in a specified period of time?
• Dependent demand drives MRP

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Dependent/Independent Demand

• independent demand
• customer demand for final product (could be
  customer at next work station)
• dependent demand
• demand for component used to build final
  product

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Master Production Schedule (MPS)

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

Master Production Schedule
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Master Production Schedule Functions

• Schedules production and purchases
• Principal input to MRP schedule
• Basis for determining resource requirements
• Provides basis for making delivery promises to
  customers

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Information Inputs to the MPS

• demand data
• Marketing forecasts
• Sales orders
• inventory status
• on hand inventory
• safety stock levels
• production data
• processing times (lead times)

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Terminology

• Parent item An item manufactured from one or
  more components.
• Component An item that goes into one or more
  parent items.
• Bill of Materials (BOM) A diagram or record that
  shows all components going into an item and the
  usage quantities.

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Bill of Materials (BOM) FileA Complete Product
Description

• Materials
• Parts
• Components
• Production sequence
• Modular BOM
• Subassemblies
• Planning BOM
• Fractional options

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Bill-of-Material Product Structure Tree
Bicycle(1)
P/N 1000
Handle Bars (1)
Frame Assy (1)
P/N 1001
P/N 1002
Wheels (2)
Frame (1)
P/N 1003
P/N 1004
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Terminology

• Usage quantity Number of units of components
  needed to make one unit of parent.
• Part commonality Degree to which a part has more
  than one parent.
• End Item A parent, but not a component,typically
  a final product.

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Bill-of-Material Product Structure Tree
Bicycle(1)
P/N 1000
Handle Bars (1)
Frame Assy (1)
P/N 1001
P/N 1002
Wheels (2)
Frame (1)
P/N 1003
P/N 1004
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Terminology

• Intermediate Item An item with at least one
  parent and at least one component.
• Subassembly Special case of intermediate item
  it is assembled from more than one component.
• Purchased Item An item with no components,
  coming from a supplier.

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Time Fences

• Frozen
• No schedule changes allowed within this window
• 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 levels

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Time Fences
Moderately Firm
Frozen
Flexible
Capacity
Forecast and available capacity
Firm Customer Orders
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8
15
Weeks
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Material Requirements Planning

• Manufacturing computer information system
• Determines quantity timing of dependent demand
  items

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MRP Requirements

• Computer system
• Mainly discrete products
• Accurate bill-of-material
• Accurate inventory status
• 99 inventory accuracy
• Stable lead times

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MRP Benefits

• 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

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Structure of the MRP System
Master Production Schedule
BOM
(Bill-of-Material)
MRP by period report
Lead Times
MRP by date report
(Item Master File)
MRP Programs
Planned orders report
Inventory Data
Purchase requirements
Purchasing data
Exception reports
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Material Requirements Planning

• Based on a master production schedule, a 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

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Example - Dependent Demand
Product Structure Tree for Assembly A Bill of
Material (BOM)
A
B(4)
C(2)
E(1)
D(2)
F(2)
D(3)
Create a schedule to satisfy demand.
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LT 1 day
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LT 2
Spares
A
B(4)
C(2)
E(1)
D(2)
F(2)
D(3)
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Part D Day 6
A
40 15 spares
B(4)
C(2)
E(1)
D(2)
F(2)
D(3)
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Inventory Records File

• Each inventory item carried as a separate file
• See, for example, Exhibit 16.15
• Status according to time buckets
• Pegging
• Identify each parent item that created demand

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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

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Primary MRP Reports

• Cancellations or suspensions of open orders
• due to cancellation or suspension of orders on
  the master production schedule.
• Inventory status data

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Net Change System

• Generation of intermediate schedules
• Activity driven
• Net change schedules
• Potential for system nervousness

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Another MRP Example
X
A(2)
B(1)
D(5)
C(2)
C(3)
Requirements include 95 units (80 firm orders
and 15 forecast) of X in week 10.
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Adding some more terminology

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

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Requirements 95 units of X in Week 10
45
15
20
35
80
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Released Planned Order Release
45
45
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Lead Time
Item
On Hand
Required
2
X
50
45
15
3
A
75
1
B
25
20
2
C
10
35/40
80
2
D
20
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45
45
15
15
20
20
40
35
35
40
80
80
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Closed Loop MRP
Production Planning Master Production
Scheduling Material Requirements
Planning Capacity Requirements Planning
Feedback
Realistic?
No
Feedback
Yes
Execute Capacity Plans Material Plans
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Manufacturing Resource Planning (MRP II)

• Goal Plan and monitor all resources of a
  manufacturing firm (closed loop)
• manufacturing
• marketing
• finance
• engineering
• purchasing
• Simulate the manufacturing system

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Enterprise Resource Planning

• SAP - Systems, Applications, and
  Products in Data
  Processing
• incorporates accounts payable, project planning,
  work force planning, etc. into MRP
• Oracle

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Enterprise Resource Planning (ERP) Systems Defined

• Enterprise Resource Planning Systems is a
  computer system that integrates application
  programs in accounting, sales, manufacturing, and
  other functions in the firm.
• This integration is accomplished through a
  database shared by all the application programs.

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Financial Accounting

• Financials
• Controlling
• Asset management

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Human Resources

• Payroll
• Benefits administration
• Applicant data administration
• Personnel development planning
• Workforce planning
• Schedule shift planning
• Time management
• Travel expense accounting

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Manufacturing Logistics

• Materials management
• Plant maintenance
• Quality management
• Production planning control
• Project management system

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Sales and Distribution

• Prospect customer management
• Sales order management
• Configuration management
• Distribution
• Export controls
• Shipping and transportation management
• Billing, invoicing, and rebate processing

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Reasons for Implementing SAP R/3

• Desire to standardize and improve processes
• To improve the level of systems integration
• To improve information quality