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MRP 2

E n

d i t e m

C o m p o n e n

t

R a w

m a

t e r i a

l

RTime

LTLT

RTime

LT

R

TimeLT

Order point system with dependent demand

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MRP 3

E n

d i t e m

C o m p o n e n

t

R a w m a

t e r i a

l

R

Time

Time

Time

The MRP approach

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MRP 4

The simultaneous probabilityproblem

When components are ordered independently with an order pointsystem, the probability that all will be in stock at the same time ismuch lower than the probabilities for individual components

Computation:Let P n = Prob. that n components arein stock simultaneously

Si = Prob. of stockout on oneorder cycle for component i

ThenPn = S 1 x S 2 x S 3 Sn

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MRP 5

The simultaneous probabilityproblem (cont.)

Example:

End Item

S1 = .9 S 2 = .9 S 3 = .9

P3 = .9 x .9 x .9 =

= Prob. that all 3 components will be available at any given time tobuild the end item

1 2 3

.729

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MRP 6

Probabilities of simultaneousavailability of components

Number of Service levelcomponent items 90% 95%

1 .900 .9502 .810 .9023 .729 .857

4 .656 .8145 .590 .7746 .531 .7357 .478 .6988 .430 .6639 .387 .63010 .348 .59915 .206 .46320 .121 .35825 .071 .277

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MRP 7

Mfg. orders

Demandforecasts and

customer orders

Aggregateplanning/

masterscheduling

Productdesign

changesInventory

transactions

Bill

ofmaterials

MRPsystem

Inventoryrecords

Purchaseorders

Capacity report

Performance/exceptions

Detailedscheduling

system

Purchasingdept.

MRP inputs and outputs

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MRP 8

Product tree vs. indented parts list

Product tree

A Level 0

B(2) C(4) Level 1

D(1) E(3) D(2) F(1) G(3) Level 2

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MRP 9

Product tree vs. indented parts list(cont.)

Indented parts list

A B(2)

D(1) E(3)

C(4) D(2) F(1)

G(3)

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MRP 10

WeekLead

1 2 3 4 5 6 7 8 9 time

Quiz: MRP plan to produce 10 unitsof A due in week 9

Gross Rqmts.

Planned order rls.1

Gross Rqmts.Planned order rls. 2

Gross Rqmts.Planned order rls.

3

Gross Rqmts.Planned order rls. 3

Gross Rqmts.Planned order rls. 2

Gross Rqmts.Planned order rls. 3

Gross Rqmts.Planned order rls.

4

A

B

C

G

F

E

D

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MRP 11

Problems in requirementscomputations

Product structure

Recurring requirements within the planninghorizon

Multilevel items

Rescheduling open orders

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MRP 12

Product structure

Bills of material are hierarchical with distinct levels

To compute requirements, always proceed down bill ofmaterials, processing all requirements at one level beforestarting another

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MRP 13

Product structure (cont.)

Example:Level Inventory O.H.

Truck 0 0

A. Transmission (1) 1 2

B. Gearbox (1) 2 15

C. Gear (1) 3 7

D. Forging Blank (1) 4 46

Suppose we are to produce 100 trucks. What are the netrequirements for each component?

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MRP 14

Recurrence of requirements withinthe planning horizon The same item may be required for several different lots within

the planning horizon always process one lot entirely, level bylevel, before starting the next.

Example: One lot of 12 trucks, followed by 2nd lot of 100Lot 1 Lot 2

Level 1: Gross requirements 12 100

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MRP 15

Multilevel itemsThe same item may appear at different levels on one or more BOMs result is multiple retrievals of same record to update system.

Examples:

1

2

3

4

X

A

Y

A

Z

A

A

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MRP 16

Multilevel items (cont.)

Solution: Low-level coding. Lowest level an item appears is codedon inv. record. Processing delayed until that level reached .

1

2

3

4

X

A

Y

A

Z

A A

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MRP 18

Rescheduling open orders (cont.)

Example:Week

1 2 3 4 5 6

Most MRP systems make such schedule changes automatically.

Gross requirements 30 5 10 10 10

Scheduled receipts 20 20

On hand 27 -3 12 12 22 12 2

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MRP 19

Tactical questions in MRP

Regeneration vs. net change

Lot sizing

Safety stocks

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MRP 20

Regeneration vs. net change

Regeneration Complete replanning of requirements and update of inventory

status for all items

High data processing efficiency

Usually initiated by weekly update of master schedule

Net change Daily update based on inventory transactions

More responsive to changing conditions

Requires more discipline in file maintenance

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MRP 21

Lot sizing implications in MRP

The load profiles at work centers in the system depend on the lotsizing rules used

Load profiles determine:undertime / overtimeleadtimes

Example:Lot size Lot size

Pd. Demand Rule 1 Rule 21 5 5 20

2 15 15 03 15 15 204 5 5 0

(Assume 1 unit requires 1 machine hour.)

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MRP 22

Lot sizing implications in MRP (cont.)

20 20

15 15

10 10

5 5

0 0

Load profile Load profile Rule 1 Rule 2

M a c h

i n e h r s .

1 2 3 4 1 2 3 4

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MRP 23

Lot sizing techniques used in MRPsystems

Lot-for-lot (L4L) most used

Economic order quantity (EOQ)

Period order quantity (POQ)

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MRP 24

Lot-for-lot (L4L) example

(Assume LT)

The L4L technique:

Minimizes carrying costs

Is certainly the best method for- highly discontinuous demand- expensive purchased items

Period 1 2 3 4 5 6 7 8 9 Total

Net rqmts. 35 10 40 20 5 10 30 150

Planned order 35 10 40 20 5 10 30 150

MRP1.xls

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MRP 25

EOQ example

Setup cost, S = $100Unit price, C = $50Holding costs, H R = .24 per annum

HP = .02 per period

Annual demand, D = 200 Q = (2DS / CH R )1/2 = 58

Period 1 2 3 4 5 6 7 8 9 10

Net rqmts. 35 10 40 20 5 10 30

Planned orders 58 58 58

Remnants 23 13 13 31 31 11 6 54 24 24

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MRP 26

Period order quantity exampleTechnique:1. Compute EOQ to determine number of orders per year

2. Divide number of periods in one year by number of orders to getordering interval

EOQ = 58Number of periods in one year = 12D = 200200 / 58 = 3.4 (orders per year)12 / 3.4 = 3.5 (ordering interval)

Period 1 2 3 4 5 6 7 8 9 Total

Net rqmts. 35 10 40 20 5 10 30 150

Planned orders 85 35 30

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MRP 27

Safety stocks in MRP systems

Need for safety stocks: Variations in demand due to end-item forecast errors and

inventory errors Variations in supply both lead-times and quantities

Since demand is not random, traditional statisticaltechniques do not apply.

Options to provide safety factors: Fixed quantity buffer stocks Safety lead-time Increase gross requirements

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MRP 28

Safety stocks in MRP systems (cont.) Fixed quantity buffer stocks

Good rule of thumb: Set buffer = max. demand likely in a singleperiod

Never generate order solely to replenish buffer stocks

Safety time method

Simply order early Distorts LTs and priorities Better than buffer stocks for items with infrequent demand Also better for purchases outside company

Increase in gross requirements Should be done at end item level only so that

Components available in matched sets Safety stocks are not duplicated at different levels