adeyl khan, faculty, bba, nsu. material requirements planning (mrp) computer-based information...

Adeyl Khan, Faculty, BBA, NSU

Chapter 13MRP and ERP


Material requirements planning (MRP)Computer-based information system that

translates master schedule requirements for end items into time-phased requirements for subassemblies, components, and raw materials.

BOM

MRP

MPS

Current Availabilities

PlannedOrder Releases

PriorityPlanning

LeadTimes

Lot SizingPolicies


Glossary

Bill of materials (BOM): One of the three primary inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.Low-level coding: Restructuring the bill of materials so that multiple occurrences of a component all coincide with the lowest level the component occurs

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Adeyl Khan, Faculty, BBA, NSU14-4

Independent and Dependent DemandIndependent Demand

A

B(4) C(2)

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

Dependent Demand

Independent demand is uncertain. Dependent demand is certain.


Dependent vs Independent Demand

14-5Time

Time Time

Time

Dem

and

Dem

and

Stable demand“Lumpy” demand

Am

ou

nt

on

han

d

Am

ou

nt

on

han

d

Safety stock

Figure 14.1


MRP Inputs

Master Production ScheduleTime-phased plan specifying timing and quantity of production for each end item.Material Requirement Planning ProcessProduct Structure TreeLead Times

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Bill of MaterialsBill of Materials – Parent-child diagram that

shows what goes into what.

Bike

FrameAssy

Wheel Assy

Components Wheel Tires

Hubs & Rims

Spokes

Frame

Used to make sure enough parts for production plan

Each part has LT, ordering policy

One BOM for every end product


Product Structure Tree

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Chair

Seat

Legs (2)Cross

barSide

Rails (2)Cross

barBack

Supports (3)

LegAssembly

BackAssembly

Level 0

1

2

3

Figure 14.5


MRP Processing

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MRP computerprograms

Masterschedule

MRP Inputs MRP Processing MRP Outputs

Bill ofmaterials

Inventoryrecords

Changes

Order releases

Planned-orderschedules

Exception reports

Planning reports

Performance-controlreports

Inventorytransaction

Primaryreports

Secondaryreports

Figure 14.2


Master Schedule- A primary input

Master schedule States which end items are to be produced, when these are needed, and in what quantities.

Cumulative lead time The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly.

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Planning Horizon

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1 2 3 4 5 6 7 8 9 10

Procurement

Fabrication

Subassembly

Assembly

Figure 14.4

Time Period (weeks)


Inventory Records

One of the three primary inputs in MRPIncludes information on the status of each item by time period

Gross requirements Scheduled receipts Amount on hand Lead times Lot sizes And more …

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Inventory Requirements Calculation

Net requirements: Net Requirements = Gross Requirements – Available Inventory

Available Inventory: Available Inventory = Projected on hand – Safety stock – Inventory allocated to other items

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Assembly Time Chart

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1 2 3 4 5 6 7 8 9 10 11

Procurement ofraw material D

Procurement ofraw material F

Procurement ofpart C

Procurement ofpart H

Procurement ofraw material I

Fabricationof part G

Fabricationof part E

Subassembly A

Subassembly B

Final assemblyand inspection

Figure 14.7


MRP Processing- OutputsGross requirements

Total expected demandScheduled receipts

Open orders scheduled to arrive

Planned on hand Expected inventory on

hand at the beginning of each time period

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Net requirements Actual amount needed in

each time periodPlanned-order receipts

Quantity expected to received at the beginning of the period

Offset by lead timePlanned-order releases

Planned amount to order in each time period


MRP Primary ReportsPlanned 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.

MRP Secondary Reports Performance-control reports Planning reports Exception reports

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Updating the System

• Regenerative system• Updates MRP records periodically

• Net-change system• Updates MPR records continuously


Other Considerations

Safety StockLot sizing

Lot-for-lot ordering Economic order quantity Fixed-period ordering

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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

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Benefits of MRP

Low levels of in-process inventoriesAbility to track material requirementsAbility to evaluate capacity requirementsMeans of allocating production timeAbility to easily determine inventory usage by backflushing

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Requirements of MRP

Computer and necessary softwareAccurate and up-to-date

Master schedules Bills of materials Inventory records

Integrity of data

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Example 2Plant produces

Wood Shutter Book Cases

21

1 2 3 4 5 6 7 8Quantity

100 150

ShutterAssembly LT = 1

Frames (2)Order LT =2

Wood Section (4)

Fabrication LT = 1

Schedule Re. W 1 = 70

Adeyl Khan, Faculty, BBA, NSU22

Shutter

1 2 3 4 5 6 7 8

Quantity

100 150

Shutter

1 2 3 4 5 6 7 8

Gross Req. 100 150

Scheduled Receipts

Projected on hand

Net requirement

100 150

Planned order receipts

100 150

Planned order release

100 150


Shutter

1 2 3 4 5 6 7 8


100 150

Frames 1 2 3 4 5 6 7 8Gross Req. 200 300

Scheduled Receipts

Projected on hand

Net requirement

200 300

Planned order receipts

200 300


200 300


SAMPLE MRP Report

A

B

DC

[2]

FE


Computing the item Scheduled ReleasesItem CPeriod 1 2 3 4 5 6 7 8 9 10 11 12Gross Requirements 12 10 90 75Scheduled Receipts 20Inventory Position: 20 20 40 40 40 40 28 18 18 -72 0 -75 0Net Requirements 72 75Planned Sched. Receipts 72 75Planned Sched. Releases 72 75

Synthesizingitem demand

series

ProjectingInv. Positions

andNet Reqs.

Lot SizingTime-

Phasing

ParentSched. Rel.

Item ExternalDemand

Gross Reqs

ScheduledReceipts

InitialInventory

Safety StockRequirements

NetReqs

Lot SizingPolicy

Planned OrderReceipts

Lead Time

Planned OrderReleases


Lot Sizing If affordable, a lot-for-lot (L4L) policy will incur the lowest

inventory holding costs and it will maintain a smoother production flow.

Possible reasons for departure from a L4L policy: High set up times and costs => need for serial process batching to

control the capacity losses Processes that require a large production volume in order to

maintain a high utilization (e.g., fermentors, furnaces, etc.) => need for parallel process batching

Selection of a pertinent process batch size It must be large enough to maintain feasibility of the production

requirements It must control the incurred

inventory holding costs, and/or part delays (this is a measure of disruption to the production

flow caused by batching) Move or transfer batches: The quantities in which parts are

moved between the successive processing stations. They should be as small as possible to maintain a smooth process

flow


Some Lot Sizing Methods employed in the traditional MRP frameworkMain focus: Balance set-up and holding

costsWagner-Whitin Algorithm for dynamic Lot

SizingEconomic Order Quantity (EOQ): Compute

a lot size using the EOQ formula with the demand rate D set equal to the average of the net requirements observed over the considered planning horizon.

Periodic Order Quantity (POQ): Compute T = round(EOQ/D), and every time you schedule a new lot, size it to cover the net requirements for the subsequent T periods.


Some Lot Sizing Methods employed in the traditional MRP framework …Silver-Meal (SM): Every time you start a new

lot, keep adding the net requirements of the subsequent periods, as long as the average (setup plus holding) cost per period decreases.

Least Unit Cost (LUC): Every time you start a new lot, keep adding the net requirements of the subsequent periods, as long as the average (setup plus holding) cost per unit decreases.

Part Period Balancing (PPB): Every time you start a new lot, add a number of subsequent periods such that the total holding cost matches the lot set up cost as much as possible.


MRP IIExpanded MRP with emphasis

placed on integration

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Financial planning

Marketing

Engineering

Purchasing


MRP II

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MarketDemand

Productionplan

Problems?

Rough-cutcapacity planning

Yes No YesNo

Finance

Marketing

Manufacturing

Adjustproduction plan

Masterproduction schedule

MRP

Capacityplanning

Problems?Requirements

schedules

Adj

ust

mas

ter

sche

dule

Figure 14.14


Capacity Planning

Capacity requirements planning: The process of determining short-range capacity requirements.Load reports

Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.Time fences

Series of time intervals during which order changes are allowed or restricted.

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Capacity Planning

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Develop a tentativemaster production

schedule

Use MRP tosimulate material

requirements

Rough-cutcapacity planning

Firm up a portionof the MPS

Is shopcapacity

adequate?

Cancapacity be

changed to meetrequirements

Revise tentativemaster production

schedule

Changecapacity

Yes

No

Yes

No

Figure 14.15


Solved Problem 3

Std. Times Prod. Schedule

Labor 0.5hrs/unit Week 1 2 3 4

Machines 1hrs/unit Quantity 200 300 100 150

Labor hr 100 150 50 75

Av. Capacity Machine hrs 200 300 100 150

Labor 200hrs Labor Util. 50.00% 75.00% 25.00% 37.50%

Machines 250hrs Machine Util. 80.00%120.00

% 40.00% 60.00%

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MRP in Services

Service applications such as: Professional services Postal services Retail Banking Healthcare Higher education Engineering Logistical services Real estate

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Enterprise resource planning (ERP)MRP >> MRPII >> ERP

Integration of financial, manufacturing, and human resources on a single

computer system.

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ERP Software

ERP software provides a system to capture and make data available in real time to decision makers and other users in the organization Provides tools for planning and monitoring various business processes Includes

Production planning and scheduling Inventory management Product costing Distribution

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ERP Strategy Considerations

High initial costHigh cost to maintainFuture upgradesTraining

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Learning Objectives

Describe the conditions under which MRP is most appropriate. Describe the inputs, outputs, and nature of MRP processing. Explain how requirements in a master production schedule are translated into material requirements for lower-level items. Discuss the benefits and requirements of MRP.

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Learning Objectives

Explain how an MRP system is useful in capacity requirements planning. Outline the potential benefits and some of the difficulties users have encountered with MRP. Describe MRP II and its benefits. Describe ERP, what it provides, and its hidden costs.

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adeyl khan, faculty, bba, nsu. material requirements planning (mrp) computer-based information...

Documents

nsu slide

adeyl khan

nsu master schedule

end product slide

nsu mrp processing

master schedule requirements

nsu inventory records

nsu planning horizon