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Operations Management

MRPLecture 22 (Chapter 14)

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Item Materials WithIndependent Demand

Materials WithDependent Demand

DemandSource Company Customers Parent Items

MaterialType Finished Goods WIP & Raw Materials

Method ofEstimatingDemand

Forecast & BookedCustomer Orders

Calculated

PlanningMethod EOQ & ROP MRP

Dependent versus Independent Demand

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Plans and their relationship

MPS

APP

MRP

SHORT TERM SCHEDULING

HIGH

LOW

SHORT MEDIUM LONGTIME FRAME

APP = Aggregate Production Planning: 3 – 18 months (medium/intermediate term)MPS = Master Production Schedule: 1 – 12 weeks MRP = Material Requirements Planning: Daily or weekly (short term)Short term scheduling: hourly (very short).

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MRP

Dependent demand technique that uses MPS, BOM, inventory, expected receipts and lead times to determine materials requirements

Basis for ERP

More preferable to EOQ models if relationship is known between items i.e. dependency occurs for the items under consideration

Precisely determines feasibility of a schedule within capacity constraints

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Dependent Inventory Model (MRP) Requirements

MPS (what is to be made and when)

Specifications or Bill of Materials (BOM)

Inventory availability (what is in stock)

PO’s outstanding (what is on order)

Lead times (how long it takes to get

various components)

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Master Production Schedule (MPS)

Timetable that specifies what is to be made and when

Result of Aggregate/Production Planning process

Disaggregates the AP (expressed in gross terms) into specific terms

AP sets upper and lower bounds on the MPS

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Aggregate Production Plan MPS

1,2001,500

Aggregate Production Plan shows the total quantity of bicycles

100

300Mountain bike

450

450500500

Hybrid bike

100

100

100100Road bike

Master Production Schedule Shows the specific type and quantity of bike to be produced

87654321Weeks

FebruaryJanuaryMonths

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Typical Focus of the Master Production Schedule

Make to Order

(Process Focus)

Assemble to Order or Forecast

(Repetitive)

Stock to Forecast(Product Focus)

Schedule finished product

Steel, Beer, Bread Light bulbs, Paper

Print shopMachine shop

Fine dining restaurant

Examples:

Number of end items

Number of inputs

Typical focus of the master production

schedule Schedule orders

Schedule modules

Motorcycles, autos, TVs, fast-food

restaurant

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Bill of Materials (BOM)

Listing of components, their description

and qty of each, required to make one unit

of a product

Due to rush to get product into market,

BOM may be incomplete or non-existent

Adequate to provide product structure and

explode it to reveal requirements

Low level coding done for items occurring

at several levels

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Bill Of Material Product Structure Tree

Bicycle (1)P/N 1000

Handle Bars (1)P/N 1001

Frame Assembly (1)P/N 1002

Wheels (2)P/N 1003

Frame (1)P/N 1004

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Purchase Orders Outstanding

By-product of well managed

purchasing and inventory control

depts

Prodn personnel should be well-

informed about the orders placed

and their scheduled deliveries

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Lead times

Time reqd to acquire (purchase, produce or assemble) an item For manufactured item, lead time =

move time + setup time + assembly/run time

For purchased item lead time = time between order placement and order receipt

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Time-Phased Product Structure

0 1 2 3 4 5 6 7

3 weeksF

2 weeksE

A

1 week1 week

CG2 weeks

D1 week

E2 weeks

Start production of D

D1 week

B

2 weeks to produce

Must have D and E completed here so production can begin on B

Time in weeks

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Example

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Item: B

Description: Frame assemblyLot Size: 1000 unitsLead Time: 2 weeks

Gross requirements 100100

1

10001000

500500

2

00

400400

3

00

500500

4

00

5

00

150150

6

00

450450

7

00

8

00Scheduled receipts

Projected on-hand inventory

Planned receipts

Planned order releases

115

Week

200200100100

MRP – Inventory Record

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MRP – Planned OrdersItem: B

Description: Frame assemblyLot Size: 1000 unitsLead Time: 2 weeks

Gross requirements 100100

1

10001000

500500

2

00

400400

3

00

500500

4 5

00

150150

6

00

450450

7 8

00Scheduled receipts

Projected on-hand inventory

Planned receipts

Planned order releases

115

Week

200200100100

10151015 515515615615115115515515

10001000

915915365365

10001000

715715

0000

10001000 10001000

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Item: B

Description: Frame assemblyLot Size: 1000 unitsLead Time: 2 weeks

Gross requirements 100100

1

10001000

500500

2

00

400400

3

00

500500

4

00

5

00

150150

6

00

450450

7

00

8

00Scheduled receipts

Projected on-hand inventory

Planned receipts

Planned order releases

115

Week

200200100100

MRP – Inventory Record

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MRP – Planned OrdersItem: B

Description: Frame assemblyLot Size: 1000 unitsLead Time: 2 weeks

Gross requirements 100100

1

10001000

500500

2

00

400400

3

00

500500

4 5

00

150150

6

00

450450

7 8

00Scheduled receipts

Projected on-hand inventory

Planned receipts

Planned order releases

115

Week

200200100100

10151015 515515615615115115515515

10001000

915915365365

10001000

715715

0000

10001000 10001000

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Structure of the MRP System

MRP by period report

MRP by date report

Planned orders report

Purchase requirements

Exception reports

MRPPrograms

Master ProductionSchedule

BOM

Lead Times

(Item Master File)

(Bill-of-Material)

Inventory Data

Purchasing data

Data Files O/p reports

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Lot-Sizing Techniques

Techniques used in determining order qty’s or lot sizes

Lot-for-lot

Economic Order Quantity

Part Period Balancing

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Lot-for-lot

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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EOQ

Preferable when demand is relatively

constant and independent

Not preferable for dependent demand

Operations managers should take

advantage of demand info when it is

available rather than assuming

constant demand

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PPB

Dynamic approach that balances setup / ordering and holding costs by changing the lot size to reflect requirements of next lot size in the future

Develops an EPP – ratio of setup to holding cost

Adds requirements until the part periods/holding costs approximate EPP

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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 – demand for vegetables is

dependent on demand for meals

hospitals – equipment, materials and supply

dependent on demand for surgeries

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MRP in services