14 - 1© 2014 Pearson Education, Inc. Material Requirements Planning (MRP) and ERP PowerPoint...

14 - 1© 2014 Pearson Education, Inc.

Material Requirements Planning (MRP)

and ERP

PowerPoint presentation to accompany Heizer and Render Operations Management, Eleventh EditionPrinciples of Operations Management, Ninth Edition

PowerPoint slides by Jeff Heyl

1414

© 2014 Pearson Education, Inc.


Outline

► Dependent Demand► Dependent Inventory Model

Requirements► MRP Structure► Lot Size Techniques


DEPEND DEMAND


Dependent Demand

▶The demand for one item is related to the demand for another item

▶Given a quantity for the end item, the demand for all parts and components can be calculated

▶In general, used whenever a schedule can be established for an item

▶MRP is the common technique


Independent Demand(final product)

Product A

Part B(4) Part C(2)

Material D(2) Material E(1) Material D(3) Material F(2)

Dependent Demand (Components)

Independent demand is uncertain. Dependent demand is certain.

EOQ

MRP

Dependent Demand


DEPENDENT INVENTORY MODEL REQUIREMENTS

► MPS

► BOM

► Inventory Availability

►Phase Orders Outstanding

►Lead time


Dependent Inventory Model Requirements

Effective use of dependent demand inventory models requires the following

1. Master production schedule (MPS)

2. Specifications or bill of material (BOM)

3. Inventory availability

4. Purchase orders outstanding

5. Lead times


Master Production Schedule (MPS)

▶Specifies what is to be made and when, not a forecast of demand

▶MPS is established in terms of specific products

▶ The MPS is quite often fixed or frozen in the near term part of the plan

TABLE 14.1Master Production Schedule for Chef John’s Buffalo Chicken Mac & Cheese

GROSS REQUIREMENTS FOR CHEF JOHN’S BUFFALO MAC & CHEESE

Day 6 7 8 9 10 11 12 13 14 And so on

Quantity 450 200 350 525 235 375


Bills of Material (BOM)

▶List of components, ingredients, and materials needed to make product

▶Provides product structure▶Items above given level are called parents

▶Items below given level are called components or children


BOM Example

Question: If we want to produce 50 chairs, how many back supports do we need?

Chair

Seat

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)

LegAssembly

BackAssembly

Level 0

1

2

Chair

Seat

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)

LegAssembly

BackAssembly

Level 0

1

2


Chair

Seat

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)

LegAssembly

BackAssembly

Level 0

1

2

Chair

Seat

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)

LegAssembly

BackAssembly

Level 0

1

2

Question: If we want to produce 50 chairs, how many cross bars do we need?

BOM Example


Accurate Inventory Records

▶Accurate inventory records are absolutely required for MRP

▶Generally MRP systems require more than 99% accuracy


Product A

B (2) C (3)

D (2) E D (4) F

G (3) D

Question: If we want to produce 10 A, how many D do we need?

Accurate Inventory Records


Product A

B (2) C (3)

D (2) E D (4) F

G (3) DQuestion: we want to produce 10 A,Inventory of B is 3,Inventory of F is 10, how many D do we need?


Purchase Orders Outstanding

▶What is on order

▶Outstanding purchase orders must accurately reflect quantities and scheduled receipts


Lead Times for Components

▶The time required to purchase, produce, or assemble an item▶For production – the sum of the move, setup,

and assembly or run times

▶For purchased items – the time between the recognition of a need and when its available for production


| | | | | | | |

1 2 3 4 5 6 7 8Time in weeks

F

2 weeks

3 weeks

1 week

A

2 weeks

1 weekD

E

2 weeks

D

G

1 week

Start production of DMust have D and E completed here so

production can begin on B

1 week

2 weeks to produce

B

C

E

Product A

B C

D E(2) E(3) F

G D

Lead Time


A1 week

D (2)3 weeks

E (4)2 weeks

C (1)1 week

E (2)2 weeks

F (2)3 weeks

C (1)1 week

B (2)2 weeks

Lead Time▶ Cumulative Lead Time: the longest lead time path in the

BOM

1 week (A) + 2 weeks (B) + 3 weeks (F) = 6 weeks

1 week (A) + 3 weeks (D) + 2 weeks (E) = 6 weeks

1 week (A) + 1 weeks (C) = 2 weeks

So, cumulative lead time is 6 weeks.


A

2 weeks

D (3)2 weeks

E (1)1 week

C (1) 1 week

G (5)1 weekF(2)

2 weeksG (2)

1 week

B (2)1 week

J (4)1 week

I (2)1 week

J (2)1 week

I (2)1 week

J (2)1 week

Discussion Question

What is the cumulative lead time?


MPS STRUCTURE


MRP StructureFigure 14.4

Output Reports

MRP by period report

MRP by date report

Planned order report

Purchase advice

Exception reports

Order early or late or not needed

Order quantity too small or too large

Data Files

Purchasing data

BOM

Lead times

(Item master file)

Inventory data

Masterproduction schedule

Material requirement

planning programs

(computer and software)


MRP Structure


▶ Gross Requirements: total amount of an item that is required

▶ Net Requirements: amount needed in a time period

▶ Planned Order Receipt: amount of an item planned to arrive in a time period

▶ Planned Order Release: amount of an item planned to be ordered in time period

NetRequirements

= GrossRequirements

_ ScheduledReceipts

_ AvailableInventory

MRP Structure


LOT SIZING TECHNIQUES► Lot-for-Lot► EOQ


Lot-Sizing Techniques

▶ Lot-sizing decision: how much to order

▶ Techniques to determine lot sizes▶Lot-for-lot techniques

▶Economic order quantity (EOQ)


Lot-sizing Techniques

1. Process all BOM items level by level following a top-down approach.

2. For each item at each level,

1) compute the gross requirement for each period

2) calculate the net requirement for each time period

3) apply a lot-sizing technique to determine the order quantities

4) offset each order for the lead time to yield a time-phased planned order release (POR).

NetRequirements

= GrossRequirements

_ ScheduledReceipts

_ AvailableInventory



▶ Lot-for-lot techniques order just what is required for production based on net requirements▶May not always be feasible

▶ If setup costs are high, lot-for-lot can be expensive

▶When frequent orders are economical and just-in-time (JIT) inventory techniques implemented, Lot-for-Lot can be very efficient

© 2014 Pearson Education, Inc. 14 - 28

Item: X 1 2 3 4 5 6 7 8 9 10

Gross requirements

35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand

35

Net requirements

Planned order receipts

Planned order releases

(LT = 1 week)

0 40 0 10 40 30 0 30 5530

30 40 10 40 30 30 55

30 40 10 40 30 30 55

0 0 0 0 0 0 0 0 035

Lot-for-Lot (L4L) Example 14.1: Use L4L to fill out the following MRP table


Item: X 1 2 3 4 5 6 7 8 9 10

Gross requirements

35 30 40 0 10 40 30 0 30 55

Scheduled receipts

90 10

Projected on hand

35

Net requirements



(LT = 1 week)

0 0 0 0 0 20 0 30 5530

30 20 30 55

30 20 30 55

0 0 50 50 40 0 0 0 035

Lot-for-Lot (L4L) Example 14.2: Use L4L to fill out the following MRP table


Children's scissors are made from four items:

two identical blades – two weeks lead time

one screw – one week lead time

one nut – one week lead time

The assembly process for one gross of scissors takes one week.

Screw NutBlade(2)

Level 1

ScissorsLevel 0

Lot-for-Lot (L4L) Example 14.3:

(1) Construct a product structure tree for the scissors.


Level 0 – Scissors: lead time (LT) = 1 week

1 2 3 4 5 6 7 8 9

Gross requirements

Scheduled receipts

Projected on hand

Net requirements



144

432

432

144

144 432

144 432

Screw NutBlade(2)Level 1

ScissorsLevel 0

Screw NutNutBlade(2)Level 1

ScissorsLevel 0


Level 1 – Blade: lead time (LT) = 2 weeks

1 2 3 4 5 6 7 8 9

Gross requirements

Scheduled receipts

Projected on hand

Net requirements



792

792

288 864

Project on hand > Requirements,

So, Net requirements =0

360 360 360 360 360 72

360 – 288 = 72

72

792

864 – 72 = 792360


ScissorsLevel 0


ScissorsLevel 0

Same as the row “Planned order release” of the upper level table


Level 1 – Screw: lead time (LT) = 1 week

1 2 3 4 5 6 7 8 9

Gross requirements

Scheduled receipts

Projected on hand

Net requirements



144 432

Project on hand > Requirements,

So, Net requirements =0

600 600 600 600 600 600 456

600 – 144 = 456

456

456 – 432 = 24

24


ScissorsLevel 0


ScissorsLevel 0

Same as the row “Planned order release” of the upper level table


Level 1 – Nut: lead time (LT) = 1 week

1 2 3 4 5 6 7 8 9

Gross requirements

Scheduled receipts

Projected on hand

Net requirements



432

432

144 432

43244

44

44

100 100 100 100 100100


ScissorsLevel 0


ScissorsLevel 0

0 0


EX 1 in class

LEVEL PART # ITEM QUANTITY LEAD TIME0 - - - - 11001 A 1 4 weeks- 1 - - - 21001 B 1 3 weeks- 1 - - - 21002 C 2 2 week- - 2 - - 31001 D 1 1 week- - 2 - - 31002 E 2 1 week

Week 1 2 3 4 5 6 7 8 9 10Quantity 125 150 175

Master Schedule

Bill of Materials

Item Quantity in Inv.A 80B 45C 105D 0E 650

Inventory Availability

11001

A

21001

B (1)

21002

C (2)

31001

D (1)

31002

E (2)

Level 0

Level 1

Level 2

11001

A

21001

B (1)

21002

C (2)

31001

D (1)

31002

E (2)

Level 0

Level 1

Level 2

Develop the MRP tables for each items by using L4L rule.



▶ Lot-sizing decision: how much to order

▶Economic order quantity (EOQ)▶EOQ expects a known constant demand and

MRP systems often deal with unknown and variable demand


1 2 3 4 5 6 7 8 9 10

Gross requirements

35 30 40 0 10 40 30 0 30 55

Scheduled receipts

Projected on hand

35 35

Net requirements



0 30 0 0 7 0 0 0 16

73 73 73

73 73 73 73

0 3 69 69 3943

73 – 30 = 43

3

43 – 40 = 3

73

Net requirement in 2nd week is not zero, so, a planned order should be receipted.

66

73 – 7 = 66

2666 – 40 =26

4

30 – 26 = 4

Economic Order Quantity (EOQ)Example 14.4: Use EOQ=73 to fill out the following MRP table


EX 2 in class

1 2 3 4 5 6 7 8 9 10 11 12

Gross requirements 30 40 30 70 20 10 80 50

Scheduled receipts 20

Projected on-hand

Net requirements


planned order release

Develop the following MRP table by using EOQ = 57. Beginning inventory = 40. Lead time = 1 week


P

A (1)

B (1)

C (1) C (2) D (2)

Level 0

Level 1

Level 2

Item ParentQuantity for1 of Parent

Currently On-Hand

Scheduled Rcpt (in wk)

LeadTime

Order Quantity

P - - - - 1 lot-for-lotA P 1 100 0 1 lot-for-lotB P 1 0 0 1 Multiples

of 450C A,B 1,2 90 100 (wk 2) 2 Multiples

of 600D B 2 50 80 (wk 2) 2 lot-for-lot

1 2 3 4 5 6 7Gross requirements

Schedule receipts

Projected on hand

Net requirements

Planned order receipt

Planned order release

Item P

400

400400

400

Example 14.5Construct a product tree diagram and develop a material requirements plan (MRP) that will yield 400 units of product P at the start of week 7

P

A (1)

B (1)

C (1) C (2) D (2)

Level 0

Level 1

Level 2


Currently On-Hand


LeadTime

Order Quantity

P - - - - 1 lot-for-lotA P 1 100 0 1 lot-for-lotB P 1 0 0 1 Multiple




Schedule receipts

Projected on hand

Net requirements



Item A

400

100 100 100 100 100 100300300

300

Item P 1 2 3 4 5 6 7Gross requirements

Schedule receipts

Projected on hand

Net requirements



400

400400

400

P

A (1)

B (1)

C (1) C (2) D (2)

Level 0

Level 1

Level 2


Currently On-Hand


LeadTime

Order Quantity





Schedule receipts

Projected on hand

Net requirements



Item B

400

400450

450

50

Item P 1 2 3 4 5 6 7Gross requirements

Schedule receipts

Projected on hand

Net requirements



400

400400

400


P

A (1)

B (1)

C (1) C (2) D (2)

Level 0

Level 1

Level 2


Currently On-Hand


LeadTime

Order Quantity





Schedule receipts

Projected on hand

Net requirements



Item C450*2+300 = 1200

1200100

90 90 190 190 190

10101200

190

1200

Since 1010 > 600, Planned order receipt = 600*2 = 1200

From the last row of table for item A: 300 @ week 5From the last row of table for item B: 450*2 = 900 @ week 5

P

A (1)

B (1)

C (1) C (2) D (2)

Level 0

Level 1

Level 2


Currently On-Hand


LeadTime

Order Quantity





Schedule receipts

Projected on hand

Net requirements



Item D 450*2 = 900

90080

50 50 130 130 130

770770

770

Item B 1 2 3 4 5 6 7Gross requirements

Schedule receipts

Projected on hand

Net requirements



400

400450

450

50

EX3 in classDevelop a material requirements plan for end item P and its components. One hundred units of P are needed at the start of each of weeks 4 and 8

Item Lead Time Quantity on Hand Scheduled Receipts Order Quantity

P 1 20 Lot-for-lotA 1 100 Lot-for-lotB 1 0 Lot-for-lotC 1 0 Lot-for-lotD 1 0 Lot-for-lotF 1 200 800 @ week 1 400


Period 8 9 10 11 12A 100 50 150H 100 50

Item On Hand Inventory

Scheduled Receipts

Lead Time

A 0 100 (@ week 2) 1B 100 0 2C 50 150 (@week 3) 2H 0 0 1J 100 0 2K 100 50 (@ week 2) 2

Item A 1 2 3 4 5 6 7 8 9 10 11 12Gross requirements

Schedule receipts

Projected on hand

Net requirements



100 50 150

See “Master Schedule”

100

See “Scheduled Receipts”

100 100 100 100 100 100

50 15050 150

50 150

Master Schedule

Inventory Availability

A

B C(2)

H

J K(2) C

C(2)1st final product

Develop a MRP for Item C by using L4L technique

Example 14.6

Period 8 9 10 11 12A 100 50 150H 100 50


Scheduled Receipts

Lead Time

A 0 100 (@ WK 2)

1

B 100 0 2C 50 150 (@WK3) 2H 0 0 1J 100 0 2K 100 50 (@ WK 2) 2

Item H 1 2 3 4 5 6 7 8 9 10 11 12Gross requirements

Schedule receipts

Projected on hand

Net requirements



100 50

See “Master Schedule”

100 50100 50

100 50

Master Schedule

Inventory AvailabilityA

B C(2)

H

J K(2) C

C(2)

2nd final product

Period 8 9 10 11 12A 100 50 150H 100 50


Scheduled Receipts

Lead Time

A 0 100 (@ week 2) 1B 100 0 2C 50 150 (@week 3) 2H 0 0 1J 100 0 2K 100 50 (@ week 2) 2

Item K 1 2 3 4 5 6 7 8 9 10 11 12Gross requirements

Schedule receipts

Projected on hand

Net requirements



200 100

See “Planned order release” in upper level item “H” & Quantity relationship = 1 ： 2

50 10010050

10050

Master Schedule


B C(2)

H

J K(2) C

C(2)

50100

See “Inventory Availability”

100 150 150 150 150 150 150

Period 8 9 10 11 12A 100 50 150H 100 50


Scheduled Receipts

Lead Time

A 0 100 (@ wk 2) 1B 100 0 2C 50 150 (@wk 3) 2H 0 0 1J 100 0 2K 100 50 (@ wk 2) 2

Item C 1 2 3 4 5 6 7 8 9 10 11 12Gross requirements

Schedule receipts

Projected on hand

Net requirements



200+100 100

200 100

100200

Master Schedule


B C(2)

H

J K(2) C

C(2)

150

50

See “Inventory Availability”

50 50 200 200 200 100 100

100 50 300

50 300

30050

100200 30050

Path A – C (2): see last row of Item “A” 50*2 = 100 @ Week 9 150*2 = 300 @ Week 11

Path H – K(2) – C(2 ): see last row of Item “K” 50*2 = 100 @ Week 6

100*2 = 200 @ Week 8

Path H – C: see last row of Item “H” 100 @ Week 8 50 @ Week 10


EX 4 in classConstruct a material requirements plan which will result in 100 units of P1 at week 6, and 200 units of P2 at week 8

P1

A B(2)

P2

C(3) C(4)

A(2) B

C(3) C(4)

Item Lead Time

Quantity on Hand

Scheduled Receipts

Order Quantity

P1 1 0 L4LP2 1 0 L4LA 1 70 500B 3 50 250C 2 1000 2000 @ WK 2 2000


Lot-Sizing Summary▶ In theory, lot sizes should be recomputed

whenever there is a lot size or order quantity change

▶ Lot-for-lot should be used when low-cost setups can be achieved

▶When setup costs are significant and demand is reasonably smooth, EOQ should give reasonable results

▶Use lot-sizing with care as it can cause considerable distortion of requirements at lower levels of the BOM

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