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Asst Prof Arvind GajakoshBE, MBA, NET
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It is a simple system of calculating arithmetically the
requirement of the i/p materials at different points
of time, based on the plan or schedule of production
of finished good. MRP is a computer based information system for
scheduling production and purchase of dependent
demand items.
MRP is a system of planning & scheduling the item
phased materials requirement for production
operations.
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Materials requirements planning (MRP) is a means fordetermining the number of parts, components, andmaterials needed to produce a product
MRP provides time scheduling information specifyingwhen each of the materials, parts, and componentsshould be ordered or produced
Dependent demand drives MRP
MRP is a software system
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Inventory reduction
Reduction in production and delivery lead times
Realistic commitments
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Three major sources of information are mandatory in
the MRP system. (i/p)
A master production schedule (MPS)
An inventory status file A bill of materials (BOM) file
Using these three info sources the MRP processing
logic provides following o/p.
Order release requirement Order rescheduling
Planned orders
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6
The McGraw-Hill Companies, Inc., 2004
Firm orders
from known
customers
Forecasts
of demand
from random
customers
Aggregate
product
plan
Bill of
material
file
Engineering
design
changes
Inventory
record file
Inventory
transactions
Master production
Schedule (MPS)
Primary reports
Secondary reports
Planned order schedule for
inventory and production control
Exception reports
Planning reports
Reports for performance control
aterial
planning
( RP
computer
program)
MRP Model/System
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The MPS is developed from firms customer orders or
from forecasts of demand before the MRP system
begins to operate.
The MPS is designed to meet market demand. Service components for customers are also entered
as end items in the MPS.
The MPS provides the focal info for the MRP system.
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Based on a MPS (master production schedule), amaterial requirements planning system:
Creates schedules identifying the specific parts and
materials required to produce end items
Determines exact unit numbers needed
Determines the dates when orders for those
materials should be released, based on lead times
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It consists the complete documentation of the
inventory status of each item in the product
structure, on hand quantity safety stock level,
quantity allocated and lead time. This file provides accurate info about of every item
controlled by the MRP system.
Pegging
Identify each parent item that created demand
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The BOM identifies how each end product is
manufactured, specifying all sub component items,
their sequence, their quantity in each finished unit.
This info is obtained from product designdocuments, work flow analysis & other stdmanufacturing & industrial engg documentation.
The primary info to the MRP from the BOM is the
product structure.
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B(4)
E(1)D(2)
C(2)
F(2)D(3)
A
Product Structure Tree for Assembly A Lead Times
A 1 day
B 2 days
C 1 day
D 3 days
E 4 days
F 1 day
Given theproduct structure tree for A and the lead time and demandinformation below, provide a materials requirements plan that defines thenumber of units of each component and when they will be needed
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Planned orders to be released at a future time Order release notices to execute the planned
orders
hanges in due dates of open orders due torescheduling
Cancellations or suspensions of open orders dueto cancellation or suspension of orders on themaster production schedule
Inventory status data
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Planning reports, for example, forecasting inventoryrequirements over a period of time
Performance reports used to determine agreement
between actual and programmed usage and costs
Exception reports used to point out seriousdiscrepancies, such as late or overdue orders
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As the MRP system is of dynamic nature, it reacts
well to the changing conditions.
MRP can identify potential bottlenecks and capacity
problems far enough in advance to adapt theschedule to them.
MRP system helps in planning & scheduling the item
phased material requirement for the production
operations.
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A computer is necessary
The product structure must be assembly oriented.
A valid master schedule has to be prepared.
BOM and inventory status info must be assembledand computerized.
Unreliable inventory and transactions data from the
shop floor can ruin a well planned MRP system.
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Goal: Plan and monitor all resources of a
manufacturing firm (closed loop):
manufacturing
marketing
finance
engineering
MRPII
is applicable to any manufacturing orgn,regardless of its size, location, product or process.
It provides info abt inventory investment levels,
plant expansion needs, & work force requirements.
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Enterprise Resource Planning Defined
R/3 System Components
Reasons for Implementing R/3
ERP
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Enterprise Resource Planning Systems is a computer
system that integrates application programs in
accounting, sales, manufacturing, and other functions
in the firm
It is a software package developed for optimum use of
resources of an enterprise in a planned manner.
It integrates entire enterprise starting from the
supplier to the customer, covering logistics, financial
and human resources.
This will enable the enterprise to increase
productivity by reducing costs.
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SAP AG, A German firm, is a world leader in ERPsoftware.
-Designed to operate
in a three-tierclient/serverconfiguration-Applications arefully integrated sothat data are shared
between allapplications
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R/3 SystemFunctional
Components
(ERP)
Sales & Distribution Human Resources
Manufacturing
& Logistics
Financial
Accounting
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Financials (daily transaction costs)
Controlling (working capital mgmt)
Asset management (current assets)
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Payroll
Benefits administration
Applicant data administration
Personnel development planningWorkforce planning
Schedule & shift planning
Time management
Travel expense accounting
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Materials management
Plant maintenance
Quality management
Production planning & control
Project management system
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Prospect & customer management
Sales order management
Configuration management
Distribution
Export controls
Shipping and transportation managementBilling, invoicing, and rebate processing
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Desire to standardize and improve processes
To improve the level of systems integration
To improve information quality
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Once a MPS is complete, we have to focus on
PPC. There are four types of PPC system.
Pond draining systems
Push systems Pull systems
Bottlenecks systems
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In the pond draining approach to PPC, the
emphasis is on holding reservoirs of materials tosupport production.
Pond draining system can be used in eitherproduct-focusedorprocess focusedproduction.
It requires little info about customers, suppliers
and production.
It may lead to excessive inventories to store RM.
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In push system emphasis shifts to using info
about customers, suppliers & production to
manage material flow.
Batches of RMs are planned to arrive at a factoryabout when needed to make batches of parts.
Push systems have resulted in great reductions
of RMs inventories & in greater worker and
machine utilization when compared to pond
draining systems.
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In pull systems of PPC, the emphasis is on
reducing inventory levels at every stage ofproduction.
In pull systems we look only at t
he next stageof production & determine what is needed there,
and then we produce only that.
RMs and parts are pulled from the back of the
factory toward the front of the factory where
they become FGs.
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Some PPC systems focus on production
bottlenecks that impede (delays) production
because they have less capacity than upstream
or downstream stages.
At bottleneck operations, batches of products
arrive faster than they can be completed.
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It is nothing but deciding future courses of action of
the orgzn well in advance so that executives at
different level will play their role.
PPC has three phases.
Planning phase
Action phase
Control phase
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It has two categories of a planning namely prior
planning & active planning.
Prior planning means pre-production planning.
Active planning means the actual production
planning which includes various activities directly
related to the production at micro level
immediately following the prior planning.
The modules of prior planning are product
development and design, forecasting, aggregateplanning etc.
The modules of active planning are process
planning and routing, loading, scheduling etc.
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This phase has the major step of dispatching.
Dispatching is the transition from planning phase to
action phase.
In this case the worker is ordered to start to
manufacturing the product.
The tasks which are included in dispatching are job
order, inspection order etc.
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This phase has the following two major modules.
Progress reporting: here data regarding what ishappening with the job is collected. Also it helps
to make comparison with the present level of
performance.
Corrective action: the tasks under correctiveaction primarily make provisions for an unexpected
event. Some examples of corrective actions are:
crating schedule flexibility, capacity modificationsetc.
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Determination of plant capacity
Production design is the first level planning for the
inputs, conversion activities & outputs of a
production operation.
Design capacity: it is the rate of o/p of goods or
services under full scale operating conditions.
Ex: a cement factory may be designed to produce
200 tons/day.
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System capacity: the max. o/p of a specific product
that the sys of workers & less equipments is
capable of producing as an integrated whole is
called system capacity.
System capacity may be less than that of the designcapacity.
System efficiency= Actual o/p___
system capacity
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Capacity is a measure of the ability to produce
goods or services.
Capacity planning is the task of determining the LT
& ST capacity needs of an orgzn and then
determining how these needs will be satisfied.
LT capacity strategies:
Develop a new product lines
Expand existing facilities
Construct production plants
ST capacity strategies : capacity decision are takenby considering the fluctuations in demand caused
by seasonal and economic factors.
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Equipment selection is the process of identifying a
set of suitable equipments which are most suitable
for processing a set of products.
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It arranges the sales forecasts & sales orders.
It minimizes the working capital.
It ensures a better control of material.
It utilizes an optimum combination of resources andmethods to bring down production cost.
It ensures an orderly flow of production resulting in
the avoidance of rush orders, & minimizing
overtime.
It gives a better service to the customers by
producing the right product in the right quality and
at the right time.
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It is a selection of path or route over which every
piece is to travel in being transformed from RM into
FP.
Objectives of routing:
To decide the most feasible sequence of operations
and to ensure that the same are followed.
To utilise inputs like machines, materials, men etc.
in the most economical way.
To influence the design of the factory layout,building, machines etc.
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Value analysis is one of the major techniques of
cost prevention.
It is a disciplined approach that necessary functions
at min. cost without compromising on quality,
reliability, performance & appearance.
The society of US Value engineering was found in
1959.
The society of Japan Value engineering was found
in 1967. The society of India Value engineering was found in
1977. (INVEST-Indian Value engineering Society)
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Companys product shows decline in sales.
Companys prices are higher than those of its
competitors.
RM cost has gone up suddenly.
New designs are being introduced.
Rate of return on investment has a falling trend.
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Value analysis is the application of a set of
techniques to an existing product with a view to
improving its value.
Value engg is the application of exactly the same
set of techniques to a new product at the designstage, project concept or preliminary design.
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Cost value (labor, material, OH cost)
Exchange value (money or product)
Use value (price paid by the buyer)
Esteem value (appearance of the product)
Value = Performance (utility)
cost
Value can be increased by increasing the utility for
the same cost or by decreasing the cost for the
same utlity.
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Simplify the product.
Use cheaper and better materials.
Modify product design.
Use efficient processes.
Reduce the product cost.
Increase the utility of the product.
Save money or increase the profit.
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Identify the product
Collect relevant info
Define different functions
Different alternatives
Critically evaluate the alternatives
Develop the best alternative
Implement the alternative.
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It is much faster cost reduction technique.
It is a less expensive technique.
It reduces production costs and adds value to sales
income of the product.
Application of value engg: machine tool industries,
auto industries etc.
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Cost control:
Manufacturing cost is controlled by wastage
reduction, value analysis, inventory control and
efficient utilization of all resources.
Cost reduction:
Here this focuses on how to reduce the existing
cost of the product.