MRP and Dependent Inventory Models

Inventory

Process stage

Demand Type

Number & Value Other

Raw Material WIP

Finished Goods

Independent Dependent

A Items B Items C Items

Maintenance Dependent Operating

Inventory Classifications

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

Inputs to the Production Plan

ProductionPlan

MarketingCustomerDemand

EngineeringDesign

Completion

ManagementReturn onInvestment

Capital

HumanResourcesManpowerPlanning

ProcurementSupplier

Performance

FinanceCash Flow

ProductionCapacityInventory

Bicycle(1)P/N 1000

Handle Bars (1)P/N 1001

Frame Assy (1)P/N 1002

Wheels (2)P/N 1003

Frame (1)P/N 1004

Bill-of-Material Product Structure Tree

Time-Phased Product Structure

1 2 3 4 5 6 7 8

D

GF

E

C

E

D

B

A

2 weeks

1 week

3 weeks

2 weeks

1 week

1 week

2 weeks

1 week 2 weeks to produce

Start production of D

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

• Mainly discrete products

• Accurate bill-of-material

• Accurate inventory status– 99% inventory accuracy

• Stable lead times

MRP Requirements

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

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

Lot-Sizing Techniques

• Lot-for-lot

• Economic Order Quantity

• Part Period Balancing

• Wagner-Whitin Algorithm

Extensions of MRP

• Closed loop MRP

• MRP II - Material Resource Planning

• Enterprise Resource Planning

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.

The MRP Woorksheet

• Usually computerized

• Understanding provides for problem solution

• Relationship to cycle counts

DefinitionsTerm MeansGross Requirements The total expected demand for the time

period (bucket). Comes from the masterproduction schedule for the finalproduct.

Scheduled Receipts Number expected from previous orders.These are purchased products.

Projected Available Balance Units available at the beginning of thetime period (bucket). Equals previousinventory (ending) plus scheduledreceipts.

Net Requirements What is needed beyond what is on hand(or projected to be on hand).

Planned Order Receipts Scheduled deliveries at the beginning ofthe period.

Planned Order Releases Scheduled orders for the beginning ofthe period. Matches planned receipts(net requirements) for this period plusthe lead-time.