Material Requirements Planning Distribution Requirements Planning MRP DRP

Material Requirements Planning & Distribution Requirements Planning ( MRP & DRP ) MRP - 1

Supply Chain Revisited Manufacturer (Campbell’s ) Customer (Park’n Shop DC, Stores) Consumers Customer places an order n what happens in a supply chain? MRP - 2

Chain Reaction Customer order Campbell’s Soup Issuing orders + producing (1 wk) Can Chicken Order to farms wk ) (1. . . Orders to Metal Processor Order to Steel Maker . . . Chicken raising (30 wks) . . . Hatching eggs(4 wks) MRP - 3 Waiting hens to lay eggs ( 3 mos)

Material Requirements Planning (MRP) n Mfg. computer information system n Determines quantity & timing of dependent demand items MRP - 4

MRP Requirements n Computer system n Mainly discrete products n Accurate bill-of-material n Accurate inventory status l n 99% inventory accuracy Stable lead times MRP - 5

MRP & Production Planning Process Forecast & Firm Orders APP Material Requirements Planning Master Production Scheduling Resource Availability How many and When for FG? MRP - 6

MRP System Input & Output MRP - 7

MRP System Input & Output MRP - 8

Master Production Schedule MRP - 9

Master Production Schedule n Shows items to be produced l End item, customer order, module n Derived from aggregate plan n Example MRP - 10

Bill-of-Material MRP - 11

Bill-of-Material n List of components & quantities needed to make product n Provides product structure (tree) Parents: Items above given level l Children: Items below given level l n Shows low-level coding l MRP - 12 Top level is 0; next level is 1 etc.

Bill-of-Material Product Structure Tree MRP - 13

Bill of Material Example MRP - 14

DVD Players A CM/OED MRP - 15

About 10 pages MRP - 16

Product Structure Thinking Challenge The demand for product A is 50. How many of each component is needed to satisfy demand? MRP - 17

Product Structure Solution* 50 50 x 2 = 100 50 x 3 = 150 x 2 = 300 100 x 3 = 300 100 x 2 = 200 MRP - 18 150 x 1 = 150 Note: D: 200 + 600 = 800 E: 300 + 150 = 450 300 x 1 = 300 x 2 = 600

Item Master MRP - 19

Lead Time Input MRP - 20 Wait Time Move Time Queue Setup Run Time Output

Lead Times & Product Structure Handle Bars 2 wk. 1 wk. Frame 2 wk. 3 wk. Wheels MRP - 21 Lead time 1 wk. Bicycle Frame Assy Time (weeks)

Li Fung Trading 香港利丰贸易行 Inside fabrics： Taiwan Cover 外套： S. Korea Staffing Materials： China Label 标签， Deco. 装饰， Strings 带子， Buttons纽扣 等等： HK Zips拉链： Japan Assembly：China MRP - 22 Made-in-HK？ Shipped thru HK => USA, EC

MRP Output MRP - 23

MRP Report (Week #, beg. of Nov. ) 20 MRP - 24 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Report Total quantity required 20 by all parents MRP - 25 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Report 20 Quantity & estimated completion date of in-process orders MRP - 26 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Report 20 Actual & projected inventory available for use (excludes safety stock ) MRP - 27 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Report ‘Gross Requirements’ less ‘Available’ inventory 20 MRP - 28 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Report 20 MRP - 29 Quantity & due date of orders should be received Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Report 20 MRP - 30 Quantity & planned start date of orders Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

n Someone once asked me if there was any real difference between engineers, scientists, and managers in today's high tech companies. n Although the differences are often subtle to an outsider, you can tell one from another simply by the questions they ask. l l l MRP - 31 Engineering: "How will this work? " Science: "Why will this work? " Management: "When will this work? "

MRP Program Logic Computing Gross Requirements MRP - 32

MRP Example Component B A master schedule calls for starting (planned order release) 2 units of product X in week 1, 20 in week 2, & 10 in week 4. The planned order releases for product Y are 15 in week 4, and 15 in week 5. Determine the gross requirements for component B. MRP - 33 X A(1) B(1) Y A(1) C(3)

Component B Solution Planned Order Releases X Planned Order Releases Y Gross Requirements B MRP - 34

Thinking Challenge Component C A master schedule calls for starting (planned order release) 2 units of product X in week 1, 20 in week 2, & 10 in week 4. The planned order releases for product Y are 15 in week 4, and 15 in week 5. Determine the gross requirements for component C. MRP - 35 X A(1) B(1) Y A(1) C(3)

Component C Solution* Planned Order Releases X Planned Order Releases Y Gross Requirements C MRP - 36

Thinking Challenge Component A A master schedule calls for starting (planned order release) 2 units of product X in week 1, 20 in week 2, & 10 in week 4. The planned order releases for product Y are 15 in week 4, and 15 in week 5. Determine the gross requirements for component A. MRP - 37 X A(1) B(1) Y A(1) C(3)

Component A Solution* Planned Order Releases X Planned Order Releases Y Gross Requirements A MRP - 38

MRP Program Logic Computing Planned Orders MRP - 39

MRP Example Prepare a net requirements plan: 20 MRP - 40 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Solution 20 MRP - 41 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Formulas n Available Inv. = On-hand - Safety stock -Allocated On-hand is inventory physically present l Allocated is inventory reserved for special orders l n On-hand = Prior period's on-hand + Scheduled receipts Net requirement = Gross requirement - Available MRP - 42 n

MRP Solution 20 23 = (20 ‘Available’) + (5 ‘Scheduled Receipts’ to be completed in week 1) - (2 ‘Requirement for 2 in week 1’). MRP - 43 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Solution 20 3 = (23 ‘Available Inv. ’) - ( 20 ‘Gross requirements’ in week 2) MRP - 44 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Solution 20 33 = (3 ‘Available Inv. ’) + (30 ‘Scheduled Receipts’ to be completed in week 3) MRP - 45 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Solution 20 8 = (33 ‘Available Inv. ’) (25 Gross Requirements in week 4). MRP - 46 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Solution 20 All 8 units Available Inv. are used up to satisfy the 15 units gross requirements in Lead time = 3; lotweek policy 5. = lot-for-lot (LFL); MRP - 47 on-hand = 20 units; safety stock = 0 units.

MRP Solution 20 15 required but only 8 ‘Available’. ‘Net Requirement’ is 15 - 8 lot=policy 7. Lead time = 3; = lot-for-lot (LFL); MRP - 48 on-hand = 20 units; safety stock = 0 units.

MRP Solution 7 must be completed in week 5 20 (i. e. , received into inventory). MRP - 49 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Solution An order of 7 must be 202. started in week Lead time is 3 weeks. MRP - 50 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

MRP Problem 2 A master schedule calls for 50 units of F in week 6, & 60 in week 8. On-hand levels are F = 0, G = 20, & H = 60. Another 20 units of G are scheduled to be received in week 4. Order quantities are lot-for-lot except for H, which has a lot size of 50 or multiples of 50. MRP - 51

Product F Solution* 1 Gross Req. Net Requirements Planned Ord. Rec. Planned Ord. Rel. MRP - 52 3 4 5 6 50 Scheduled Rec. Available Inv. 2 0 7 8 60

Product F Solution* 0 MRP - 53

Component G Solution* 1 2 3 4 Gross Req. Scheduled Rec. Available Inv. 20 20 Net Requirements Planned Ord. Rec. Planned Ord. Rel. MRP - 54 5 6 7 8

Component G Solution* 1 2 3 4 Gross Req. 50 Scheduled Rec. 20 Available Inv. 20 Net Requirements Planned Ord. Rec. Planned Ord. Rel. MRP - 55 5 6 60 7 8

Component G Solution* 20 MRP - 56

Component H Solution* 1 Gross Req. Scheduled Rec. Available Inv. 60 Net Requirements Planned Ord. Rec. Planned Ord. Rel. MRP - 57 2 3 4 5 6 7 8

Component H Solution* MRP - 58

Component H Solution* 1 2 3 4 5 6 40 50 240 60 Gross Req. (G) (F) Scheduled Rec. Available Inv. 60 Net Requirements Planned Ord. Rec. Planned Ord. Rel. MRP - 59 7 8

Component H Solution* 60 MRP - 60

Summary of MRP n Some important terms Bill of materials l Leadtimes l Master production schedule (MPS: over a planning horizon) l Inventory status l Scheduled deliveries l MRP - 61

Summary of MRP An “Explosion” Part A 1 ……. Part A 6 Component A Part B 1 Component B Product XX MRP - 62 Part B 2

MRP II n MRP II is the extension of MRP to include other resources such as labour hrs, costs, m/c capacities, and other information, not just material quantity n MRP is the core part of MRP II n Additional inputs to MRPII: standard hrs, process “routes”, cost inform. , etc. n MRP II can be used to perform short term cap. Planning and cost evaluation MRP - 63

Application: a Distribution Network Central DC Region A DC DC A 1 MRP - 64 ……. DC A 10 “Implosion” Region B DC DC B 1 DC Bx

A Distribution Network Central DC LTa LTb Region A DC LTa 1 Region B DC LTa 10 LTb 1 DC A 1 MRP - 65 ……. DC A 10 DC B 1 LTbx DC Bx

Local DC Demand Forecasts WK 5 6 7 8 9 10 DC a 1 10 12 0 20 30 15 DC a 2 5 15 5 10 20 12 15 20 25 30 . . . DC bx MRP - 66

Translating into Regional DC n Lead-time information WK 5 6 7 8 9 10 DC a 1 10 12 0 20 30 15 DC a 2 5 15 5 10 20 10 Should be available no later than 5 - LTa 1 MRP - 67

Distribution Resource Planning (DRP) Central DC LTa LTb Region A DC LTa 1 Region B DC LTa 10 LTb 1 DC A 1 MRP - 68 ……. DC A 10 DC B 1 An “implosion” LTbx DC Bx

Backorder(s) or on-hand inventory at t=0; +: onhand, --: shortage Forecast = gross req. In Transit= scheduled receipt End-of-the-period inventory (on-hand) MRP - 69 Beginning-of-theperiod order

MRP - 70

MRP - 71

MRP - 72

MRP - 73

MRP & DRP P#1 LT 1 P#2 Model 1 LT 2 Prod Plan CDC Only a few firms can do so! MRP - 74 MRP: what, when, how much to make or order DRP: what, when & how much needed at CDC

End n No beyond this slide MRP - 75

MRP Program Logic Safety Stock MRP - 76

Using Safety Stock 18 2 units Safety stock decreases ‘Available’ inventory to 18. The amount physically on-hand is still the same (20). MRP - 77 Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 2 units.

MRP Program Logic Lot Sizing MRP - 78

Lot Size n Lot: Batch of material that moves & gets processed together n Reduces setup & handling time & cost n Techniques Lot-for-lot (LFL) l Economic order quantity (EOQ) l Part period balancing l MRP - 79

Lot Size Effects Lot size is 5 or multiples (5, 10, 15 etc. ). The quantities started (i. e. , released) & completed are 20 increased. Lead Time = 3; Lot Size= 5 units (or Multiples); On-Hand = 20 Units; Safety Stock = 0 Units. MRP - 80

MRP Thinking Challenges MRP - 81

MRP Thinking Challenge 1 A master schedule calls for 200 units of product A in period 5. No stock of any components is on -hand or on order. All order sizes are lot-forlot. Determine the amount & timing of all planned order releases. MRP - 82

Product A Solution* 1 2 3 4 Gross Requirements 5 200 Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases MRP - 83 0 0 0

Product A Solution* 0 MRP - 84

Component B Solution* 1 Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases MRP - 85 0 2 3 4 5

Component B Solution* (2 B’s per A)(200 A’s) Gross Requirements 1 2 3 4 5 400 Scheduled Receipts Available Inventory Net Requirements 0 A’s are released in week 4 Planned Order Receipts so B’s are due then. Planned Order Releases MRP - 86

Component B Solution* 1 2 3 Gross Requirements 4 5 400 Scheduled Receipts Available Inventory 0 0 0 Net Requirements 400 Planned Order Receipts 400 Planned Order Releases MRP - 87 400 Lead time is 2 weeks.

Component B Solution* 0 MRP - 88

Component C Solution* 1 Gross Requirements Scheduled Receipts Available Inventory Net Requirements Planned Order Receipts Planned Order Releases MRP - 89 0 2 3 4 5

Component C Solution* (4 C’s per A)(200 A’s) Gross Requirements Net Requirements Planned Order Receipts Planned Order Releases MRP - 90 2 3 4 800 Scheduled Receipts Available Inventory 1 0 5

Component C Solution* 1 2 3 Gross Requirements 4 5 800 Scheduled Receipts Available Inventory 0 0 0 Net Requirements 800 Planned Order Receipts 800 Planned Order Releases MRP - 91 800 Lead time is 3 weeks.

Component C Solution* 0 MRP - 92

Other Applications and MRP Extension n Restaurant - Read pp 359 -360 of Render’s book n ERP - enterprise resource planning systems MRP: a tool for production l ERP: “under which the entire firm operates from the same data” l MRP - 93

Relationships of Aggregate Schedule MRP - 94 MRP II

ERP MRP - 95 + DRP + …. . . MRP II