One page review of chapter

SCM 304 Supply Chain Management Material Requirements Planning (MRP) 12-2 MRP • Material requirements planning (MRP):

–A computer-based information system that translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.

– The MRP is designed to answer three questions:

1. What is needed?

2. How much is needed?

3. When is it needed? MRP Objectives • Improve customer service • Reduce inventory investment • Improve coordinating production and thus, plant operating efficiency 3 MRP Inputs MRP Processing MRP Output Master Production Schedule Bill- of- Materials File Inventory Records File MRP Computer Programs Changes Order Release Planned-Order Schedules Exception Reports Planning Reports Performance Control Reports Inventory Transactions Order Forecast Design Changes Receipts Withdrawal Primary Report Secondary Report Overview of MRP 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.

5 Electronic Industry (10,000 Items)  Product Group TV (19”, 32”, …, 72”) 1000 Computer 5000 Cell Phone 2000 Others 2000 Total 10,000 6 This is an example of an electronic industry produces 10000 items. We can break them into 4 group of products in creating aggregate plan. 12-7 Master Schedule TV WK1 WK2 WK3 WK4 WK5 WK6 WK7 WK8 19” 10 30 80 0 10 10 0 20 32” 30 10 0 50 5 0 80 40 72” … …. … … … … … … Other Sizes … … … … … … … … Total = 1000 This slide displays one of the groups in our agregate plan (TV) in demand for individual items during 8 weeks and it is called Master Schedule. It showes what to produce, when to make them, and how much. 12-8 Disaggregating the Aggregate Plan • Master schedule:

– The result of disaggregating an aggregate plan – Shows quantity and timing of specific end items for a scheduled horizon From Aggregate plan to MPS • MPS: Time-phased plan specifying how many and when the firm plans to build each end item Aggregate Plan (Product Groups) MPS (Specific End Items) 9 From Aggregate plan to MPS 10 Week Aggregate plan shows overall quantities to produce – without specifying type. MPS shows quantities of each type, with information about the production time frame. 12 -11 MRP: Development • The MRP is based on the product structure tree diagram • Requirements are determined level by level, beginning with the end item and working down the tree – The timing and quantity of each “parent” becomes the basis for determining the timing and quantity of the “children” items directly below it. – The “children” items then become the “parent” items for the next level, and so on 3 – Drawer File Cabinet Case (1) Lock (1) Drawers (3) Drawer Slide (6) Formed Case (1) Formed Drawer (1) Handle (1) Support Rollers (2) Sheet Steel Sheet Steel Level 0 Level 1 Level 2 Level 3 Product Structure File X C (1) B (2) F (2) E (2) E (1) D (2) E (4) 0 1 2 3 Product Structure File X C (1) B (2) F (2) E (2) E (1) D (2) E (4) 0 1 2 3 Product Structure File W F L G I H M P G J 0 1 2 3 Product Structure File 12 -16 Example MRP Shutter Frames (2) Wood sections (4) Example MRP MRP Record 18 Week Number 1 2 3 4 5 6 MRP Responds to Net Requirements, and creating 2 plans: “Planned Order Receipt” and “Planned Order Release” MRP Record 19 Week Number 1 2 3 4 5 6 MRP Responds to Net Requirements, and creating 2 plans: “Planned Order Receipt” and “Planned Order Release” MPR Record • Gross requirements – Total expected demand • Scheduled receipts – Open orders scheduled to arrive • Projected on hand – Expected inventory on hand at the beginning of each time period • Net requirements – Actual amount needed in each time period • Planned -order receipts – Quantity expected to be received at the beginning of a period Offset by lead time • Planned -order releases – Planned amount to order in each time period 20 Calculating Net Requirements • Adjusts gross requirements to account for the quantity already on hand and on order. 21                             - Available Inventory Net Gross On Hand Scheduled Requirements Requirements Inventory Receipt s MRP Primary Outputs • Planned orders – Schedule indicating the amount and timing of future orders. • Order releases – Authorization for the execution of planned orders. • Changes – Revisions of due dates or order quantities, or cancellations of orders. 22 MRP Secondary Reports • Performance -control reports – Evaluation of system operation, including deviations from plans and cost information – e.g., missed deliveries and stockouts • Planning reports – Data useful for assessing future material requirements – e.g., purchase commitments • Exception reports – Data on any major discrepancies encountered – E.g., late and overdue orders, excessive scrap rates, requirements for nonexistent parts 23 • Enables managers to easily – determine the quantities of each component for a given order size – To know when to release orders for each component – To be alerted when items need attention • Additional benefits – Low levels of in -process inventories – The ability to track material requirements – The ability to evaluate capacity requirements – A means of allocating production time – The ability to easily determine inventory usage via backflushing – Exploding an end item’s BOM to determine the quantities of the components that were used to make the item MRP Benefits • Consequence of Inaccurate Data – Missing parts – Ordering incorrect numbers of items – Inability to stay on schedule • Other problems – Assumptions of constant lead times – Products being produced differently from the BOM – Failure to alter a BOM when customizing a product – Inaccurate forecasts MRP Difficulties Develop a tentative MPS Use MRP to simulate material requirements Convert material requirements to resource requirements Firm up a portion of the MPS Is shop capacity adequate? Can capacity be changed to meet requirements Revise tentative master production schedule Change capacity Yes No Yes No Time Fence Capacity Requirement Procedure MRP in Services • Food catering service – End item catered food – Dependent demand ingredients for each recipe, i.e. bill of materials • Hotel renovation – Activities and materials “exploded ” into component parts for cost estimation and scheduling 27 MRP II  Expanded MRP with emphasis placed on integration involving other areas of the firm in the planning process and enabling capacity requirements planning – Financial planning – Marketing – Engineering – Purchasing – Manufacturing 28 MRP II Market Demand Manufacturing Others Finance Marketing MRP II Market Demand Production Plan Manufacturing Others Finance Marketing Rough -cut Capacity Planning Problems ? Yes , Then Adjust Production Plan No MRP II Market Demand Production Plan Manufacturing Others Finance Marketin g Rough -cut Capacity Planning Problems ? Yes , Then Adjust Production Plan No MPS MRP Capacity Requirements Planning Problems? Yes No Requirements Schedule Adjust MPS