MRP and Related Concepts

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MRP and Related Concepts

• TLA (Three Letter Acronym) Definitions
• ATP Available to Promise
• BOM Bill of Materials
• DRP Distribution Requirements Planning
• MPS Master Production Schedule
• MRP Materials Requirements Planning
• PAC Production Activity Control
• SOP Sales and Operations Planning

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Where Does MRP Fit?
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Master Scheduling I

• Controls the timing and quantity of production
  for products or product families
• Primary interface point for actual customer
  orders
• Coordinates forecasted demand and actual orders
  with production activity
• Serves as tool for agreement between marketing
  and operations (but at a different level than SOP)

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Master Scheduling II

• Feeds more detailed material planning
• Indicates the quantity and timing (i.e., delivery
  times) for a product or group of products
• More detailed than SOP
• weekly versus monthly
• specific products versus average
• must satisfy the needs of marketing
• must be feasible for operations

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Link between SOP and MPS
Month January February March Output 200 300 4
00
SOP
January (weeks)
1 2 3 4
Push Mowers 25 25 25 25 Self-propelled 35 40 R
iding 12 13
MPS
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MPS Formulas Definitions

• ATPt Available to promise in period t
• EIt Ending Inventory for period t (same as
  projected on-hand inventory for next period)
• Ft Forecasted demand for period t
• MPSt MPS quantity available in period t
• OBt orders booked for period t

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MPS Formulas
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Detailed MPS for Widgets
On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October 100
Month November November November November December December December December
Week 45 46 47 48 49 50 51 52
Forecast Demand 150 150 150 150 125 125 125 125
Orders Booked 170 165 140 120 85 45 20 0
Master Schedule 300 0 300 0 250 0 250 0

• Notes
• Planning time fence ? cumulative lead time for
  product
• What seems to be the lot-sizing rule here?

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Projected On-Hand Inventory
On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October 100
Month November November November November December December December December
Week 45 46 47 48 49 50 51 52
Forecast Demand 150 150 150 150 125 125 125 125
Orders Booked 170 165 140 120 85 45 20 0
Projected On-Hand Inventory 230 65 215 65 190 65 190 65
Master Schedule 300 0 300 0 250 0 250 0
i.e. Projected on-hand inventory for week 47
65 300 150 215
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Available-to-Promise
On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October 100
Month November November November November December December December December
Week 45 46 47 48 49 50 51 52
Forecast Demand 150 150 150 150 125 125 125 125
Orders Booked 170 165 140 120 85 45 20 0
Projected On-Hand Inventory 230 65 215 65 190 65 190 65
Master schedule 300 0 300 0 250 0 250 0
Available-to-Promise 65   40   70   230  
120
ATP(45) 100 300 (170 165)
65 ATP(47) 300 (140120) 40 ATP(49)
250 (85 45) 120
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Change in Forecast Demand
On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October 100
Month November November November November December December December December
Week 45 46 47 48 49 50 51 52
Forecast Demand 150 150 150 150 150 150 150 150
Orders Booked 170 165 140 120 85 45 20 0
Projected On-Hand Inventory 230 65 215 65 165 15 115 (35)
Master schedule 300 0 300 0 250 0 250 0
Available-to-Promise 65   40   120   230  
Are we in trouble yet?
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Change in Orders Booked
On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October On-hand inventory at end of October 100
Month November November November November December December December December
Week 45 46 47 48 49 50 51 52
Forecast Demand 150 150 150 150 125 125 125 125
Orders Booked 170 230 140 120 85 45 20 0
Projected On-Hand Inventory 230 0 150 0 125 0 125 0
Master schedule 300 0 300 0 250 0 250 0
Available-to-Promise 0   40   120   230  
Note impact of ATP(45) and on-hand inventory
projections
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Key Points about MPS

• Provides more detail than SOP
• Tracks the following information
• Actual versus forecasted demand
• Available-to-Promise
• This gives sales information for accepting or not
  accepting new orders for delivery in a given week

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A Final View of Master Scheduling
SOP
Marketing
Operations
MPS
Rough-Cut Capacity Plan
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Material Requirements Planning

• MRP in the planning cycle
• The logic of MRP
• an extended example
• Considerations of MRP

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Assume that weve scheduled 500 chairs to be
ready five weeks from now.
. . . Now what?
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Material Needed for a Chair
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Chair Structure Tree(aka Bill of Materials)
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Graphic Lead-Time
Week 5
Week 4
Week 3
Week 2
Week 1
Back Support (2 weeks)
Back Assembly
Side Rails (2 weeks)
Cross Bar (2 weeks)
(1 week)
Chair Assembly
Seats (2 weeks)
(1 week)
Leg Assembly
Legs (2 weeks)
(1 week)
Cross Bar (2 weeks)
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Lead-Time Key Points

• To have finished chairs at the beginning of Week
  5, we must begin production and order materials
  in Week 1.
• Exploding the bill of materials tells us when
  to order things.
• Not much we can do to adjust output of chairs for
  the next 4 weeks. Why?

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Material Requirements Planning (MRP)

• We need the following inputs
• Bill-of-Materials (BOM)
• Inventory records
• Master production schedule
• Well get the following outputs
• What items should be ordered
• When each item should be ordered
• How much of each should be ordered

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The MRP Process Starts with the MPS
End items are also known as Level 0 items
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The Parent / Child Relationship
Where do the gross requirements come from? Do you
understand the MRP logic?
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Going Deeper
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25
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Moving from Level 1 itemsto Level 2 items .
. .
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25
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Where do the gross requirements for LEGS come
from?
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Combining Requirements Cross Bars
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25
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Note effect of differences in lead times and
order sizes on the gross requirements for each
component
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Impact of Longer Lead Times
We cannot do this since the planned order would
be in the past. Thus the 250 crossbars will be
delivered late one week to back assembly. What
does this do to our chair schedule?
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25
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Do You Understand ...

• Why it is important to have an accurate BOM and
  accurate inventory information?
• Why do we need to freeze production schedules?
• Where do gross requirements come from?
• The is the difference between planned and
  scheduled receipts?

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Other Considerations I
MRP
Feedback
Feedback
Planned Orders
Suppliers
Production
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Other Considerations II

• When do we update the system?
• Capacity requirements planning using MRP output
• Pegging
• Lot sizing issues

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Recall ...
25
25
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Look at the lumpiness of demand for legs
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If we order lot-for-lot
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25
25
Much smoother demand for legs, lower average
inventory
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Distribution Requirements Planning (DRP)

• Anticipates downstream demand
• Uses this information, not predetermined reorder
  points or periodic reviews, to determine when to
  order
• Computer-based software systems needed to deal
  with the added complexity

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DRP Example I
Suppose we forecast demand for Wholesaler A for
the next 8 days (the best time horizon to use
will depend on many factors) Based on this, we
anticipate that Wholesaler A will order on Day 3
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DRP Example II
We extend the analysis to include Wholesaler B
Combined, we expect to see orders on Days 3 and 4
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DRP Example III
The distributor then uses this information to
plan its own orders. In this case, suppose it
takes two days for the supplier to replenish
based on the information, the distributor would
order on Day 1
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DRP Benefits

• Helps improve customer service
• Provides a better and faster understanding of the
  impact of shortages and/or promotions
• Helps reduce costs
• Inventory
• Freight
• Production
• Provides integration between the stages in the
  supply chain

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DRP Constraints

• Accurate forecasts and inventory levels
• Necessary to anticipate correctly when orders
  will be placed
• Consistent and reliable lead times
• To ensure that orders can be placed and arrive by
  the time they are needed
• Nervousness
• Even slight changes in demand for downstream
  partners can have a significant impact on order
  volumes, especially when order sizes are
  relatively high