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Operations ManagementMaterial Requirements
Planning (MRP)Chapter 14 Objectives 1.Distinguish
dependent from independent demand
inventory 2.Define material requirements
planning 3.Explain the benefits of MRP 4.Identify
the requirements of MRP, DRP, and ERP 5.Explain
the inputs outputs of MRP 6.Compute order
releases
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Inventory Classifications
Inventory
Process stage
Demand Type
Number Value
Other
Raw Material WIP Finished Goods
A Items B Items C Items
Maintenance Dependent Operating
Independent Dependent
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Dependent versus Independent Demand
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Inputs to the Production Plan
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Requirements for Effective Use of Dependent
Demand Inventory Models

• Effective use of dependent demand inventory
  models requires that the operations manager know
  the
• master production schedule
• specifications or bills-of-material
• inventory availability
• purchase orders outstanding
• lead times

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The Planning Process
Production Plan
Master Production Schedule
Material Requirements Plan
Capacity Requirements Plan
No
Realistic??
Yes
Execute Capacity Plans
Execute Material Plans
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Typical Level for the Master Schedule

• 1.A customer order in a job shop
  (process focused/make to order) company
• 2. Modules in a repetitive (assemble-to-stock)
  company
• 3. An end item in a continuous (product focused/ma
  ke to stock) company

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Bill-of-Material

• 1. List of components quantities needed to make
  product
• 2. Provides product structure (tree)
• Parents Items above given level
• Children Items below given level
• 3. Shows low-level coding
• Lowest level in structure item occurs
• Top level is 0 next level is 1 etc.

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Special Bills-of-Material

• 1. Modular bills
• Modules are final components used to make
  assemble-to-stock end items
• 2. Planning bills
• Used to assign artificial parent
• Reduces number of items scheduled
• 3. Phantom bills
• Used for subassemblies that exist temporarily

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Bill-of-Material Product Structure Tree
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Time-Phased Product Structure
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Material Requirements Planning (MRP)

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

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MRP Requirements

• 1. Computer system
• 2. Mainly discrete products
• 3. Accurate bill-of-material
• 4. Accurate inventory status
• 99 inventory accuracy
• 5. Stable lead times

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MRP Benefits

• 1. Increased customer satisfaction due to meeting
  delivery schedules
• 2. Faster response to market changes
• 3. Improved labor equipment utilization
• 4. Better inventory planning scheduling
• 5. Reduced inventory levels without reduced
  customer service

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Structure of the MRP System
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MRP and The Production Planning Process
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MRP Systems - Input and Output
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Master Production Schedule

• 1. Shows items to be produced
• End item, customer order, module
• 2. Derived from aggregate plan

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Master Production Schedule

• 1. Shows items to be produced
• End item, customer order, module
• 2. Derived from aggregate plan
• Example

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MRP Dynamics

• 1. Supports replanning
• Problem with ststem nervousness
• 2. Time fence - allows a segment of the master
  schedule to be designated as not to be
  rescheduled
• 3. Pegging - tracing upward in the
  bill-of-materials from the component to the
  parent item
• 4. Manager can react to changes, doesnt mean
  he/she should

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MRP and JIT

• MRP - a planning and scheduling technique with
  fixed lead times
• JIT - a way to move material expeditiously
• Integrating the two
• Small bucket approach and back flushing
• balanced flow approach

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Lot-Sizing Techniques

• 1. Lot-for-lot
• 2. Economic Order Quantity
• 3. Part Period Balancing
• 4. Wagner-Whitin Algorithm

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Extensions of MRP

• 1. Closed loop MRP
• 2. Capacity planning - load reports
• 3. MRP II - Material Resource Planning
• 4. Enterprise Resource Planning

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Extensions of MRP Closed Loop MRP
Production Plan
Capacity Planning
Priority Planning
Desired Master Production Schedule Realistic?
Resource Planning First Cut Capacity
No
Material Requirements (detailed)
Capacity Requirements (detailed)
Capacity Control
Priority Control
Input/Output
Dispatch List
Is average capacity adequate?
Is specific capacity adequate?
No
No
Yes
Yes
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Extensions of MRP Capacity Planning

• Tactics for smoothing the load and minimizing the
  impact of changed lead time include
• Overlapping - reduces the lead time, entails
  sending pieces to the second operation before the
  entire lot has completed the first operation
• Operations splitting - sends the lot to two
  different machines for the same operation
• Lot splitting - breaking up the order and running
  part of it ahead of the schedule

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Extensions to MRPEnterprise Resource Planning

• MRP II with ties to customers and suppliers

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MRP in Services

• Can be used when demand for service or service
  items is directly related to or derived from
  demand for other services
• restaurant - rolls required for each meal
• hospitals - implements for surgery
• etc.

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Distribution Resource Planning

• DRP requires
• Gross requirements, which are the same as
  expected demand or sales forecasts
• Minimum levels of inventory to meet customer
  service levels
• Accurate lead times
• Definition of the distribution structure