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POM - J. GalvánPOM - J. Galván 11
PRODUCTION AND PRODUCTION AND OPERATIONS OPERATIONS
MANAGEMENTMANAGEMENT
Ch. 15: Material Requirements Ch. 15: Material Requirements Planning (MRP)Planning (MRP)
POM - J. GalvánPOM - J. Galván 22
Distinguish dependent from Distinguish dependent from independent demand inventoryindependent demand inventory
Define material requirements planningDefine material requirements planning Explain the benefits of MRPExplain the benefits of MRP Identify the requirements of MRP, DRP, Identify the requirements of MRP, DRP,
and ERPand ERP Explain the inputs & outputs of MRPExplain the inputs & outputs of MRP Compute order releasesCompute order releases
Learning ObjectivesLearning Objectives
POM - J. GalvánPOM - J. Galván 33
ItemMaterials With
Independent Demand
Materials With
Dependent Demand
Demand
SourceCompany Customers Parent Items
Material
TypeFinished Goods WIP & Raw Materials
Method of
Estimating
Demand
Forecast & Booked Customer Orders
Calculated
Planning
MethodEOQ & ROP MRP
Dependent versus Independent Dependent versus Independent DemandDemand
POM - J. GalvánPOM - J. Galván 44
Inputs to theInputs to the Production Plan Production Plan
ProductionPlan
MarketingCustomerDemand
EngineeringDesign
Completion
ManagementReturn onInvestment
Capital
HumanResourcesManpowerPlanning
ProcurementSupplier
Performance
FinanceCash Flow
ProductionCapacityInventory
POM - J. GalvánPOM - J. Galván 55
Requirements for Effective Use of Requirements for Effective Use of Dependent Demand Inventory ModelsDependent Demand Inventory Models
Effective use of dependent demand Effective use of dependent demand inventory models requires that the inventory models requires that the operations manager know the:operations manager know the:• master production schedulemaster production schedule• specifications or bills-of-materialspecifications or bills-of-material• inventory availabilityinventory availability• purchase orders outstandingpurchase orders outstanding• lead timeslead times
POM - J. GalvánPOM - J. Galván 66
The Planning ProcessThe Planning ProcessProduction Plan
Execute MaterialPlans
Master ProductionSchedule
MaterialRequirements
Plan
CapacityRequirements
Plan
Execute CapacityPlans
Realistic??No
Yes
POM - J. GalvánPOM - J. Galván 77
Typical Level for the Typical Level for the Master ScheduleMaster Schedule
A A customer ordercustomer order in a job shop in a job shop (process focused/make to order) (process focused/make to order) companycompany
ModulesModules in a repetitive (assemble-to- in a repetitive (assemble-to-stock) companystock) company
An An end itemend item in a continuous (product in a continuous (product focused/make to stock) companyfocused/make to stock) company
POM - J. GalvánPOM - J. Galván 88
List of components & quantities List of components & quantities needed to make product needed to make product
Provides product structure (tree)Provides product structure (tree)• Parents: Items above given levelParents: Items above given level• Children: Items below given levelChildren: Items below given level
Shows low-level codingShows low-level coding• Lowest level in structure item occursLowest level in structure item occurs• Top level is 0; next level is 1 etc.Top level is 0; next level is 1 etc.
Bill-of-MaterialBill-of-Material
POM - J. GalvánPOM - J. Galván 99
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-MaterialBill-of-Material Product Structure Tree Product Structure Tree
POM - J. GalvánPOM - J. Galván 1010
Time-Phased Product StructureTime-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
POM - J. GalvánPOM - J. Galván 1111
1 2 3 4 5
Gross Requirements 2 20 25 15
Scheduled Receipts 5 30
Available 25 23 33 33 8
Net Requirements 7
Planned Order Receipts 7
Planned Order Releases 7
Manufacturing computer information Manufacturing computer information system system
Determines quantity & timing of Determines quantity & timing of dependent demand itemsdependent demand items
Material Requirements Material Requirements Planning (MRP)Planning (MRP)
POM - J. GalvánPOM - J. Galván 1212
Computer systemComputer system Mainly discrete productsMainly discrete products Accurate bill-of-materialAccurate bill-of-material Accurate inventory statusAccurate inventory status
• 99% inventory accuracy99% inventory accuracy Stable lead timesStable lead times
MRP RequirementsMRP Requirements
MRP PURPOSEMRP PURPOSE• Coordination of Production and Inventory Coordination of Production and Inventory
in large, multi-stage production systems in large, multi-stage production systems
• Capacity planning, scheduling, supplier Capacity planning, scheduling, supplier coordination coordination
• Timely dissemination of information Timely dissemination of information
• Synchronized production and procurement Synchronized production and procurement
• Central engineering and logistic database Central engineering and logistic database (Central element of the ERP system)(Central element of the ERP system)
MRP PROBLEMSMRP PROBLEMS
• Deterministic model
• Large data requirements and GIGO (Garbage in garbage out)
• Self-fulfilling lead-times, so then what happens if fulfilment is not accomplished?
• Difficulty and cost of installation and maintenance
• Centralized command and control mindset
POM - J. GalvánPOM - J. Galván 1515
Increased customer satisfaction due to meeting delivery Increased customer satisfaction due to meeting delivery schedules schedules
Faster response to market changesFaster response to market changes Improved labor & equipment utilizationImproved labor & equipment utilization Better inventory planning & schedulingBetter inventory planning & scheduling Reduced inventory levels without reduced customer Reduced inventory levels without reduced customer
serviceservice
MRP BenefitsMRP Benefits
Variables in MRPVariables in MRP
o Master Schedule -WHENMaster Schedule -WHENo Bills of Material -WHATBills of Material -WHATo Stocks & Work in Progress (WIP) – HOW Stocks & Work in Progress (WIP) – HOW
MUCHMUCHo Lead-times – WHEN TO HAVE AVAILABLELead-times – WHEN TO HAVE AVAILABLEo Work orders / schedules – WHAT TO DOWork orders / schedules – WHAT TO DOo Purchase orders / schedules –WHEN TO Purchase orders / schedules –WHEN TO
ORDERORDERo Yields – WHAT IS LOSTYields – WHAT IS LOSTo Working days Working days / times - CALENDAR/ times - CALENDAR
POM - J. GalvánPOM - J. Galván 1717
Structure of the MRP SystemStructure 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
POM - J. GalvánPOM - J. Galván 1818
Forecast & Firm Orders
MaterialRequirements
Planning
Aggregate Production
Planning
Resource Availability
MasterProductionScheduling
Shop Floor
Schedules
CapacityRequirements
PlanningRealistic?
modify CRP, MRP, or MPSmodify CRP, MRP, or MPS
YesYes
MRP and The Production MRP and The Production Planning ProcessPlanning Process
NoNo
POM - J. GalvánPOM - J. Galván 2020
Shows items to be producedShows items to be produced• End item, customer order, moduleEnd item, customer order, module
Derived from aggregate planDerived from aggregate plan
Master Production ScheduleMaster Production Schedule
POM - J. GalvánPOM - J. Galván 2121
Item/Week Oct 3 Oct 10 Oct 17 Oct 24
Drills 300 200 310 300
Saws 300 450 310 330
Shows items to be producedShows items to be produced• End item, customer order, moduleEnd item, customer order, module
Derived from aggregate planDerived from aggregate plan ExampleExample
Master Production ScheduleMaster Production Schedule
POM - J. GalvánPOM - J. Galván 2222
MRP DynamicsMRP Dynamics Supports “replanning”Supports “replanning”
• Problem with system “nervousness”Problem with system “nervousness” ““Time fence” - allows a segment of the master Time fence” - allows a segment of the master
schedule to be designated as “not to be schedule to be designated as “not to be rescheduled”rescheduled”
““Pegging” - tracing upward in the bill-of-Pegging” - tracing upward in the bill-of-materials from the component to the parent materials from the component to the parent itemitem
Manager Manager cancan react to changes, doesn’t mean react to changes, doesn’t mean he/she shouldhe/she should
POM - J. GalvánPOM - J. Galván 2323
MRP and JITMRP and JIT
MRP - a planning and scheduling MRP - a planning and scheduling technique with fixed lead timestechnique with fixed lead times
JIT - a way to move material JIT - a way to move material expeditiouslyexpeditiously
Integrating the two:Integrating the two:• Small bucket approach and back flushingSmall bucket approach and back flushing• balanced flow approachbalanced flow approach
POM - J. GalvánPOM - J. Galván 2424
Extensions of MRPExtensions of MRP
Closed loop MRPClosed loop MRP Capacity planning - load reportsCapacity planning - load reports MRP II - Material MRP II - Material ResourceResource Planning Planning Enterprise Resource PlanningEnterprise Resource Planning
POM - J. GalvánPOM - J. Galván 2525
Extensions of MRPExtensions of MRPClosed Loop MRPClosed Loop MRP
Dispatch List
Isspecific capacity
adequate?
Isaverage capacity
adequate?
MaterialRequirements
(detailed)
CapacityRequirements
(detailed)
Input/Output
Desired MasterProductionScheduleRealistic?
Priority Control
Capacity PlanningPriority Planning
Capacity Control
ResourcePlanning
First CutCapacity
Production Plan
NoNo
No
Yes Yes
POM - J. GalvánPOM - J. Galván 2626
Extensions of MRPExtensions of MRPCapacity PlanningCapacity Planning
Tactics for smoothing the load and minimizing the impact Tactics for smoothing the load and minimizing the impact of changed lead time include:of changed lead time include:• Overlapping - reduces the lead time, entails sending Overlapping - reduces the lead time, entails sending
pieces to the second operation before the entire lot has pieces to the second operation before the entire lot has completed the first operationcompleted the first operation
• Operations splitting - sends the lot to two different Operations splitting - sends the lot to two different machines for the same operationmachines for the same operation
• Lot splitting - breaking up the order and running part of it Lot splitting - breaking up the order and running part of it ahead of the scheduleahead of the schedule
POM - J. GalvánPOM - J. Galván 2727
Extensions to MRPExtensions to MRPEnterprise Resource PlanningEnterprise Resource Planning
MRP II with ties to customers and MRP II with ties to customers and supplierssuppliers
POM - J. GalvánPOM - J. Galván 2828
MRP in ServicesMRP in Services
Can be used when demand for Can be used when demand for service or service items is directly service or service items is directly related to or derived from demand related to or derived from demand for other servicesfor other services• restaurant - rolls required for each mealrestaurant - rolls required for each meal• hospitals - implements for surgeryhospitals - implements for surgery• etc.etc.
POM - J. GalvánPOM - J. Galván 2929
Distribution Resource PlanningDistribution Resource Planning
DRP requires:DRP requires:• Gross requirements, which are the same Gross requirements, which are the same
as expected demand or sales forecastsas expected demand or sales forecasts• Minimum levels of inventory to meet Minimum levels of inventory to meet
customer service levelscustomer service levels• Accurate lead timesAccurate lead times• Definition of the distribution structureDefinition of the distribution structure