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Chapter 11Chapter 11Chapter 11Chapter 11

Resource Requirements Planning Systems:Resource Requirements Planning Systems:

Material Requirements Planning (MRP)Material Requirements Planning (MRP)andand

Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP)

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OverviewOverviewOverviewOverview

Resource Requirements PlanningResource Requirements Planning Material Requirements Planning (MRP)Material Requirements Planning (MRP) Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP) Wrap-Up: What World-Class Producers DoWrap-Up: What World-Class Producers Do

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Resource Requirements PlanningResource Requirements PlanningResource Requirements PlanningResource Requirements Planning

Master ProductionMaster ProductionScheduling (MPS)Scheduling (MPS)

Material RequirementsMaterial RequirementsPlanning (MRP)Planning (MRP)

Capacity RequirementsCapacity RequirementsPlanning (CRP)Planning (CRP)

AggregateAggregatePlanningPlanning

ResourceResourceRequirementsRequirements

PlanningPlanning

Chapter 9Chapter 9

Chapter 11Chapter 11

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Material Requirements Planning (MRP)Material Requirements Planning (MRP)

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Materials Requirements Planning (MRP)Materials Requirements Planning (MRP)Materials Requirements Planning (MRP)Materials Requirements Planning (MRP)

Computer based systemComputer based system Explodes Master Schedule (MPS) into required Explodes Master Schedule (MPS) into required

amounts of raw materials and subassemblies to amounts of raw materials and subassemblies to support MPSsupport MPS

Nets against current orders and inventories to develop Nets against current orders and inventories to develop production and purchased material ordering schedulesproduction and purchased material ordering schedules

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Objectives of MRPObjectives of MRPObjectives of MRPObjectives of MRP

Improve customer serviceImprove customer service Reduce inventory investmentReduce inventory investment Improve plant operating efficiencyImprove plant operating efficiency

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Order ChangesOrder ChangesOrderOrder

PlanningPlanningReport Report

Elements of MRPElements of MRPElements of MRPElements of MRP

MRPMRPSystemSystem

Planned OrderPlanned OrderScheduleSchedule

InventoryInventoryTransaction DataTransaction Data

Bill ofBill of Materials FileMaterials File

MasterMasterProductionProductionScheduleSchedule

InventoryInventoryStatus FileStatus File

Service-PartsService-PartsOrders andOrders andForecastsForecasts

PerformancePerformance

ExceptionExceptionReportsReports

Inputs Outputs

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MRP Computer ProgramMRP Computer ProgramMRP Computer ProgramMRP Computer Program

Begins with number of end items neededBegins with number of end items needed Add service parts not included in MPSAdd service parts not included in MPS Explode MPS into gross requirements by consulting Explode MPS into gross requirements by consulting

bill of materials filebill of materials file Modify gross requirements to get net requirements:Modify gross requirements to get net requirements: Net Requirements = Gross RequirementsNet Requirements = Gross Requirements

+ Allocated Inventory+ Allocated Inventory

+ Safety Stock+ Safety Stock

-- Inventory On Hand Inventory On Hand Offset orders to allow for lead timeOffset orders to allow for lead time

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Outputs of MRPOutputs of MRPOutputs of MRPOutputs of MRP

Planned order schedulePlanned order schedule - quantity of material to be - quantity of material to be ordered in each time periodordered in each time period

Changes to planned ordersChanges to planned orders - modifications to - modifications to previous planned ordersprevious planned orders

Secondary outputs:Secondary outputs: Exception reports Exception reports Performance reportsPerformance reports Planning reportsPlanning reports

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Lot-Sizing in MRPLot-Sizing in MRPLot-Sizing in MRPLot-Sizing in MRP

Lot-sizeLot-size is the quantity ordered/produced at one time is the quantity ordered/produced at one time Large lots are preferred because:Large lots are preferred because:

Changeovers cost less and capacity greaterChangeovers cost less and capacity greater Annual cost of purchase orders lessAnnual cost of purchase orders less Price breaks and transportation breaks can be Price breaks and transportation breaks can be

utilizedutilized Small lots are preferred because:Small lots are preferred because:

Lower inventory carrying costLower inventory carrying cost Reduced risk of obsolescenceReduced risk of obsolescence Shorter cycle time to produce customer orderShorter cycle time to produce customer order

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The best method, resulting in least cost,depends on cost and demand patterns.

Lot-Sizing MethodsLot-Sizing MethodsLot-Sizing MethodsLot-Sizing Methods

Economic Order Quantity (EOQ)Economic Order Quantity (EOQ) does not consider quantity discountsdoes not consider quantity discounts does not always provide the most economical does not always provide the most economical

approach with lumpy demandsapproach with lumpy demands Lot-for-Lot (LFL)Lot-for-Lot (LFL)

accommodates lumpy demandaccommodates lumpy demand Period Order Quantity (POQ)Period Order Quantity (POQ)

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Issues in MRPIssues in MRPIssues in MRPIssues in MRP

Lot-SizingLot-Sizing Useful at lower levels but may drive excess Useful at lower levels but may drive excess

inventory when applied at higher levelsinventory when applied at higher levels Net Change versus Regenerative MRPNet Change versus Regenerative MRP

Net change may generate too many action noticesNet change may generate too many action notices Regenerative more costly to run but appears to be Regenerative more costly to run but appears to be

easier to manageeasier to manage . . . more. . . more

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Issues in MRPIssues in MRPIssues in MRPIssues in MRP

Safety StockSafety Stock Use depends on uncertainty of demand..... more Use depends on uncertainty of demand..... more

uncertain the greater the need for safety stockuncertain the greater the need for safety stock Assemble-to-Order FirmsAssemble-to-Order Firms

MPS and MRP treated separately from Final MPS and MRP treated separately from Final Assembly Schedule(FAS)Assembly Schedule(FAS)

Use Modular Bill of MaterialUse Modular Bill of Material

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MRP I to MRP IIMRP I to MRP IIMRP I to MRP IIMRP I to MRP II

MRP I simply exploded demand (MPS) into required MRP I simply exploded demand (MPS) into required materialsmaterials

MRP II became MRP II became Manufacturing Resource PlanningManufacturing Resource Planning which provides a closed-loop business management which provides a closed-loop business management systemsystem Financial managementFinancial management Shop floor controlShop floor control Operations managementOperations management Simulation capabilitySimulation capability

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Evaluation of MRPEvaluation of MRPEvaluation of MRPEvaluation of MRP

Most beneficial to process-focused systems that have Most beneficial to process-focused systems that have long processing times and complex multistage long processing times and complex multistage production stepsproduction steps

Lead times must be reliableLead times must be reliable Must freeze MPS for some time before actual Must freeze MPS for some time before actual

production... certain demandproduction... certain demand Difficult to implementDifficult to implement

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Capacity Requirements Planning (CRP)

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Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP)Capacity Requirements Planning (CRP)

Tests MPS for feasibilityTests MPS for feasibility Utilizes routings to determine labor/machine loadsUtilizes routings to determine labor/machine loads If schedule feasible, recommends freezingIf schedule feasible, recommends freezing If schedule overloads resources, points out processes If schedule overloads resources, points out processes

that are overscheduledthat are overscheduled

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Load SchedulesLoad SchedulesLoad SchedulesLoad Schedules

Compares actual labor and machine hours against Compares actual labor and machine hours against available hoursavailable hours

Offsets schedules between successive stages of Offsets schedules between successive stages of production by lead timesproduction by lead times

Provides feasible MPS and economically loaded work Provides feasible MPS and economically loaded work centerscenters

Promotes system operating efficiency ... lowers costs!Promotes system operating efficiency ... lowers costs!