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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