21–1

Operations andSupply Chain Management

CHASE | SHANKAR | JACOBS

14e

21–2

Material Requirements Planning

Chapter Twenty-One

Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Learning Objectives

• LO21–1: Explain what material requirements planning (MRP) is.

• LO21–2: Understand how the MRP system is structured.

• LO21–3: Analyze an MRP problem.

• LO21–4: Evaluate and compare MRP lot-sizing techniques.

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Enterprise Resource Planning (ERP) and

Material Requirements Planning (MRP)

ERP – a computer

system that integrates application programs in accounting,

sales, manufacturin

g, and the other

functions in a firm

MRP – a means for

determining the number

of parts, components,

and materials needed to produce a product

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Material Requirements Planning (MRP)

• The logic that ties production functions together from a material planning and control view

• A logical, easily understood approach to the problem of managing the parts, components, and materials needed to produce end items

– How much of each part to obtain?

– When to order or produce the parts?

• Dependent demand drives the MPR system

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.MRP Applications and Benefits

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.Master Production Scheduling

• The master schedule deals with end items and is a major input to the MRP process.

• All production systems have limited capacity and limited resources.– The aggregate plan provides the general range of

operation; the master scheduler must specify exactly what is to be produced.

• To determine an acceptable feasible schedule to be released to the shop, trial master production schedules are tested using the MRP program.

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.Master Production Scheduling

Week

Aggregate plan shows overall quantities to produce – without specifying type.

MPS shows quantities of each type, with information about the production time frame.

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Time Fences

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MRP System Structure

MRP system inputs

MRP system outputs

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.Product Demand Sources

• Customers – specific orders placed by either external or internal customers

• Aggregate production plan – the firm’s strategy for meeting demand in the future, implemented through the master production schedule (MPS)

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Bill of Materials (BOM)Contains the complete product

description, listing the materials, parts, and

components along with the sequence in which the product

is created.

Often called the product structure file or product tree

because it shows how a product is put together.

Modular bill of materials is a buildable item that can be produced and stocked as a

subassembly.

Super bill of materials includes items with fractional options.

The BOM shows how the product is put together.

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BOM ExampleProduct A – the end item

Product A consists of 2 B and 3 C

Product C consists of 2 F, 5 G, and 4 H

Product B consists of 1 D and 4 E

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.Alternate BOM Structures

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.BOM Hierarchy (Levels)

Higher levels (Iower numbers) refer to end products.

Lower levels (higher numbers) refer to components and raw materials.

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.Inventory Status Records

Information about part availability

Additional information that may be useful

Basic information describing the item

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MRP Explosion ProcessThe requirements for end items are retrieved from the master schedule.• These are referred to as “gross requirements” by the MRP

program.

On-hand balance and schedule of orders are used to calculate the “net requirement.”

Net requirements data are used to calculate when orders should be received to meet these requirements.

Planned order releases are generated by offsetting to allow for lead time.

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MRP Explosion Process (Continued)

Move to level 1 items.

Gross requirements for each level 1 item are calculated from the planned-order release schedule for the parents of each level 1 item.

Net requirements, planned-order receipts, and planned-order releases are calculated as described in steps 2–4.

Repeat for all items in bill of materials.

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.MRP Example – Ampere, Inc.

• Ampere, Inc., produces a line of electric meters installed in residential buildings.

• Meters are of two basic types for different voltage and amperage ranges.– Some subassemblies are sold separately for repair or for

changeovers.

• The problem is to determine a production schedule to identify each item, the period it is needed, and the appropriate quantities.

• The schedule is then checked for feasibility, and the schedule is modified if necessary.

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.Future Requirements – Meters A and B and Subassembly D

Assume that required quantity must be available during week 1 of each month.

Trial Master Schedule

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Product Structure and Inventory Data

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.MRP Planning Schedule

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Example 21.1

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Example 21.1

Without an order here, inventory will drop below the safety stock.To accommodate the lead

time, orders must be released ahead of time.

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Example 21.1

Without an order here, inventory will drop below the safety stock.To accommodate the lead

time, orders must be released ahead of time.

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Example 21.1Total demand from planned order releases of parent items

Planned order release offset by 3 periods due to lead time

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.Lot Sizing in MRP Systems

• Determination of lot sizes in an MRP system is a complicated and difficult problem.

• Lot sizes – the part quantities issued in the planned order receipt and planned order release sections of an MRP schedule

Lot-for-lot (L4L)Economic order quantity (EOQ)

Least total cost (LTC)

Least unit cost (LUC)

Lot Sizing

Strategies

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Lot-for-Lot

Sets planned orders to exactly

match the net requirements.

Produces exactly what is needed each week with

none carried over into future periods.

Minimizes carrying cost.

Does not take into account setup

costs or capacity limitations.

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.Economic Order Quantity

Calculate reorder quantity based on

EOQ.

EOQ was not designed for a system with discrete time

periods such as MRP.

The lot sizes generated by EOQ

do not always cover the entire

number of periods.

 

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Comparison – Lot-for-Lot and EOQ

EOQ

Lot-for-Lot

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Least Total Cost

• Least total cost method (LTC) – a dynamic lot-sizing technique that calculates the order quantity by comparing the carrying cost and the setup costs for various lot sizes and then selects the lot in which these are most nearly equal

• Influenced by the length of the planning horizon

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Least Total Cost

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Least Unit Cost

• Least unit cost method – a dynamic lot-sizing technique that adds ordering and inventory carrying cost for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost

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Least Unit Cost