Lesson 18 Material Requirements Planning MRP End Product

Lesson 18 Material Requirements Planning (MRP) End Product MRP is a computer based information system for ordering, scheduling, and managing dependent demand inventory requirements E(1) 1

Independent Versus Dependent Demand Independent Demand demand at the customer end product level Dependent Demand demand for items that are subassemblies, component parts or raw materials to be used in the production of end products End Product E(1) 2

Independent Versus Dependent Demand Independent Demand Dependent Demand A C(2) B(4) D(2) E(1) D(3) F(2) Independent demand is uncertain Dependent demand is certain 3

Positive View Of MRP “ I don’t know how we managed to get along without MRP for as long as we did. Our scheduling has gone from a state of turmoil to relative calm. We have achieved a substantial reduction in inventory size and cost while increasing our customer service. We are more than satisfied with MRP; it allows to plan rather than spend all our time trying to meet one crisis after another. I would strongly recommend that all manufacturing firms adopt MRP or some similar approach”. 4

Negative View Of MRP “We had heard so many good things about MRP that we couldn’t wait to get started, but so far, it seems like we’ve just been spinning our wheels. We’re not even close to going online with it, and yet we’ve already exceeded our original time estimates and costs are out of sight. Everyone is discouraged, especially the brass. There is even some talk of just scrapping the whole idea” 5

Materials Requirement Planning MRP Materials Requirements Planning is a a computer based information system designed to handle ordering and scheduling of dependent demand inventory requirements. It. Takes into account lead times, and. Develops a production plan showing quantity and timing for materials, component parts and subassemblies from the first component to the last As you have learned or will learn in your information systems class, information systems are only as good as the input data. Two of the most prevalent reasons for MRP failure are. Lack of planning for implementation. GIGO 6

MRP Inputs & Outputs Changes Order releases Master Schedule Bill of Materials Planned-order schedules Primary reports MRP System Exception reports Planning reports Inventory File Inventory Transactions Performancecontrol reports Secondary reports 7

Master Scheduling Process Recall the Master Production Scheduling Process is a procedure for considering inventories, customer orders, & forecasts to produce a projected inventory, master production schedule & ATP. Projected Inventory Beginning Inventory Forecast Customer Orders Master scheduling Master Production Schedule Available To Promise (uncommitt ed inventory) 8

Master Production Schedule The Master Production Schedule (MPS) is a schedule of how much & when to produce independent (customer end product) demand. It shows when the end product is needed but does not show when raw materials, components, subassemblies or parts are needed. 9

Product Planning Horizon The Product Planning Horizon shows the timing, lead times and steps in the manufacturing process to assure that the end item is manufactured correctly and on-time. Assembly Procureme nt Lead Time Sub-assembly Assembly Lead Time Fabrication Procurement 1 2 3 4 5 6 Subassembly Lead Time 7 8 9 10 Cumulative Lead Time - the sum of the lead times that sequential phases of a process require. 10

Assembly Time Charts show the material order points needed to meet scheduled availability of the end item Procurement of raw material DFabrication of part E Procurement of Subassembly A raw material F Final assembly Procurement and inspection Of part C Procurement of part H Procurement of Subassembly B raw material I Fabrication of part G 1 2 3 4 5 6 7 8 9 10 11 Material D, F and I must be ordered at the beginning of week 2 to meet a delivery at the beginning of week 12 11

Bill Of Materials The Bill of Materials (BOM) is a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of an end product. The Bill of Materials File contains all Bill of Materials for each end product the company produces. A Product Structure Tree - a visual depiction of the requirements in a bill of materials, where all components are listed by levels. 12

Bill Of Materials – Chair Example Back Supports Cross Bar Side Rails Seat Legs Cross Bar 13

Product Structure Tree - Chair Example Chair Leg Assembly Legs (2) Cross Bar Seat Side Rails (2) Back Assembly Cross Bar Back Supports ( 14

Product Structure Tree - Example 1: Use the information presented below to answer the following? Determine the quantities of B, C, D, E and F to complete one X. Determine the quantities of each of these components to produce 200 X’s. Level 0 X 2 3 C B(2) 1 D(3) B-2 B - 400 C-1 C - 200 E D - 3 x 2 = 6 D - 1200 E(2) F(2) E - 4 x 3 x 2+1 x 2+2 = 28 E - 5600 E(4) F-2 F - 400 15

Even though this template is provided, manual acuity will be necessary to solve some of the problems. 16

Bill of Material Menu 17

ED Worksheet 1 2 Steps 1. Enter products and components in the columns to the left – this builds the product structure to the right 2. Enter quantities in the product structure tree in the bright green cells 18

EXPLODE Worksheet 2 1 Steps 1. Click the Explode BOM Components Macro 2. Enter the end item quantity and click OK 19

EXPLODE Worksheet The BOM explosion is automatically shown in the product structure tree and the total for all components and subcomponents are shown in the BOM Quantity to the left. 20

EXPLODE Worksheet Here, the BOM explosion is shown for 200 X’s 21

2 1 3 ASSEMBLY Worksheet 3 Steps 1. If the lead times are provided for each component, enter them in the Lead Time column (here we show the lead time is 1 unit of time for each component) 2. Click the Calculate Assembly Paths macro 3. Choose which assembly time paths you wish to show in the Assembly Time Chart. 22

MRP Elements A Material Requirements Plan shows the following time phased elements. . Gross Requirements - total expected demand for an item or raw material in a time period. Scheduled Receipts - open orders scheduled to arrive (from vendors or elsewhere) in the pipeline. Projected on Hand - Expected amount of inventory that will be on hand at the beginning of each time period. Net Requirements - The actual amount needed in each time period. Planned Order Receipts - Quantity expected to be received by the beginning of the period in which it is shown. Planned Order Releases - Planned amount to order in each time period offset by lead time 23

Time Phased MRP These can be shown in a time phased planning chart like the one below: The time phase can be variable (weeks, days, etc). 24

MRP – Example 1 a: A firm that produces wood shutters and bookcases has received two orders for shutters. One for 100 shutters and one for 150 shutters. The 100 unit order is due for delivery a the start of week 4. The 150 unit order is due for delivery at the start of week 8. Each shutter consists of 4 slatted wood sections and two frames. The wood sections are made by the firm and fabrication takes one week. The frames are ordered, and lead time is two weeks. Assembly of the shutters requires one week. There is a scheduled receipt of 70 wood sections in week 1 (at the beginning of). Determine the size and timing of planned orders (MRP) necessary to meet the delivery requirements where there is lot for lot ordering (e. g. order size is equal to net requirements). 25

MRP – Example 1 The product structure tree for a wood shutter Wood Shutter Frames (2) Wood Sections (4) Therefore, we need to develop the MRP for Wood Shutters, Frames, and Wood Sections. 26

MRP – Example 1 27

MRP – Example 1 First, develop a master schedule for the Shutters From delivery requirement 28

MRP – Example 1 Next, calculate the MRP for the Wood Shutters From MPS Order Releases offset for lead time of 1 week 29

MRP – Example 1 Next, calculate the MRP for the Frames Shutter Planned Order Release * 2 becomes Frames Gross Requirement Order Releases offset for lead time of 2 weeks 30

MRP – Example 1 Next, calculate the MRP for the Wood Sections Shutter Planned Order Release * 4 becomes Sections Gross Requirement 70 Scheduled at beginning of Week. Order 1 Releases offset for lead time of 1 we 31

Even though this template is provided, manual acuity will be necessary to solve some of the problems. 32

MRP Menu 33

ED Worksheet 1 2 Step 1: Enter the product components and subcomponents in the table to the left The representation is shown in the product structure tree. Step 2: Enter the component quantity in the product structure tree. 34

ED Worksheet Step 3: Enter the lead time, on hand, and lot ordering rule (lot size if not lot for lot, and 1 for lot ordering) Step 4: Enter the end item demand in the appropriate starting week 3 Step 5: Enter any scheduled receipts in the appropriate week 4 5 35

ASSEMBLY Worksheet 2 1 2 Steps 1. Click the Calculate Assembly Paths macro 2. Choose which assembly time paths you wish to show in the Assembly Time Chart. 36

1 2 3 MRP Worksheet The MRP is automatically calculated for each component and subcomponent in the product structure tree. The levels are color coded according to their position in the product structure tree. Here the MRP is shown for: 1. WS 2. F 3. S 37

MRP – Example 2 Example 1 b: A firm that produces wood shutters and bookcases has received two orders for shutters. One for 100 shutters and one for 150 shutters. The 100 unit order is due for delivery a the start of week 4. The 150 unit order is due for delivery at the start of week 8. Each shutter consists of 4 slatted wood sections and two frames. The wood sections are made by the firm and fabrication takes one week. The frames are ordered, and lead time is two weeks. Assembly of the shutters requires one week. There is a scheduled receipt of 70 wood sections in week 1 (at the beginning of). Determine the size and timing of planned orders (MRP) necessary to meet the delivery requirements with lot size ordering of 320 units for frames 70 units for wood sections 38

MRP – Example 2 39

MRP – Example 2 The MRP for Wood Shutters is the same as in Example 1. From MPS Order Releases offset for lead time of 1 week 40

MRP – Example 2 Next, calculate the MRP for the Frames On hand after meeting requirements Lot size order quantity for frames 41

MRP – Example 2 Next, calculate the MRP for the Wood Sections On hand after meeting requirements Lot size order quantity for sections (increments of lot size of 70) 42

ED Worksheet Note the changes in the lot sizing rules. 43

MRP Worksheet Note the changes in the MRP for each component. 44

MRP Outputs include Primary & Secondary Reports and Inventory transactions. Primary Reports. Planned Orders - amount and timing of future orders. Order Releases - authorizing the execution of planned orders. Changes - to planned orders, including revisions of due dates or order quantities and cancellations of orders Secondary Reports. Performance control reports - evaluate system operations including deviations from plans and cost information. Planning reports - data assessing future material requirements. Exception reports - data on any major discrepancies 45

MRP Updates to the system are necessary any time changes occur to make sure that planners are always aware of the latest occurrences. These updates primarily involve inventory updates regarding number produced, number received, quality fallout, etc. (e. g. if you were supposed to receive 70 units and only received 65 your MRP would be inaccurate. It must be updated to show the latest information) Depending on the business urgency or situation these updates may occur either periodically or on a continuous basis. . Periodic update systems are called “regenerative”. Continuous update systems are called “net-change” 46

Other MRP Considerations Other considerations include. Safety stock. Lot sizing (lot for lot, EOQ, fixed period ordering, partperiod ordering). Capacity Requirements Planning - the process of determining the short range capacity requirements. . Once the MRP is completed for all items that a company produces it has visibility of all the requirements for assemblies, subassemblies, materials, etc. At this point, the company can evaluate its ability to meet the requirements based on equipment and labor availability. Plans may be adjusted as a result of the capacity planning procedure. 47

Capacity Planning Develop a tentative master production schedule Use MRP to simulate material requirements Convert material requirements to resource requirements Revise tentative master production schedule No Is shop capacity adequate? Yes Firm up a portion of the MPS No Can capacity be changed to meet requirements Yes Change capacity 48

Benefits Of MRP When MRP implementations are made successfully, benefits have been seen in the areas of. Lower levels of in-process inventories. Ability to keep track of material requirements. Ability to keep up with the results of day to day operational effects with respect to the Master Production Schedule. Ability to evaluate capacity requirements generated by the Master Production Schedule. A means of prioritizing and allocating production resources 49

Requirements For Successful MRP Requirements for successful MRP implementations include but are not limited to of a . Proper planning for implementation. A computer system with software to handle the nuances business. Accurate and up-to-date. . Master Schedules. . Bills of Materials. . Inventory Records. Integrity of data transactions 50

MRP II is an expanded approach to MRP to include other areas of the company in the planning process. The MRP II system is integrated with other management information systems in the company to provide a consolidated view of all company operations. MRP II Modules include. Forecasting. MRP. Customer Order Entry. Capacity Planning. Production Planning/ MPS. Shop Floor Control. Product Structure/BOM. Purchasing. Inventory Control. Accounting. Financial Analysis 51

MRP II Master production schedule Business Plan Marketing Plan Material requirements Feedback planning Financial Plan Capacity requirements planning No Production Plan No Feasible? Yes Purchase Work orders Inventory Shop floor control Manufacture 52

Enterprise Resource Planning ERP software is marketed by many vendors. It includes the same modules as MRP II as well as financial and distribution modules. 53

Homework Read and understand all material in the chapter. Discussion and Review Questions Recreate and understand all classroom examples 54