material requirements planning defined materials requirements planning (mrp) is the logic for...

Material Requirements PlanningDefined

• Materials requirements planning (MRP) is the logic for determining the number of parts, components, and materials needed to produce a product.

• MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced.

• Dependent demand drives MRP.

Material Requirements Planning System

• Based on a master production schedule, a material requirements planning system:– Creates schedules identifying the

specific parts and materials required to produce end items.

– Determines exact unit numbers needed.

– Determines the dates when orders for those materials should be released, based on lead times.

Firm orders from knowncustomers

Forecastsof demand

from randomcustomers

Aggregateproduct

plan

Masterproductionschedule

(MPS)

Materialplanning(MRP)

Engineeringdesign

changes

Bill ofmaterial

file

Inventorytransactions

Inventoryrecord

file

Reports

3

Product Structure Thinking Challenge

The demand for product A is 50. How many of each component is needed to satisfy demand?

A

B(2) C(3)

D(2)

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

D(2)G(1)

A

B(2) C(3)

D(2)

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

D(2)G(1)

Product Structure Solution

A

B(2) C(3)

D(2)

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

D(2)G(1)

A

B(2) C(3)

D(2)

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

D(2)G(1)

50

50 x 3 = 15050 x 2 = 100

150 x 2 = 300

150 x 1 = 150

300 x 1 = 300

300 x 2 = 600

100 x 3 = 300

100 x 2 = 200

Note: D: 200 + 600 = 800 E: 300 + 150 = 450

MRP Scheduling Terminology

• Net requirements – the amount needed to meet gross requirements in a particular period.

• Planned order receipt - amount of the item that you are planning to receive in a particular period

• Planned order release - an order that you are planning to release in a particular period

MRP Example - One item’s complete record

Starting information 1 2 3 4 5

Gross Requirements 2 20 25 15

Scheduled Receipts 5 30

On-Hand 20 20

Net Requirements

Planned Order Receipts

Planned Order Releases

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

MRP Example - Period 1

1 2 3 4 5



On-Hand 20 20 23

Net Requirements





1 2 3 4 5



On-Hand 20 20 23 3

Net Requirements





1 2 3 4 5



On-Hand 20 20 23 3 33

Net Requirements





1 2 3 4 5



On-Hand 20 20 23 3 33 8

Net Requirements





1 2 3 4 5



On-Hand 20 20 23 3 33 8

Net Requirements 7

Planned Order Receipts 7

Planned Order Releases 7


Low Level Coding

• What about this?

A

B C

D C E

E

Level 0

Level 1

Level 3

Level 2

Won’t having the same part at different levels make it harder to do level by level

calculations?

Low Level Coding - “How to”• Place each item at same level - it simplifies the calculations

A

B C

D C E

E

Level 0

Level 1

Level 3

Level 2

A

B

CD C

EE

Before: After:

Another MRP ExampleAn end item (A) is assembled from 1 sub-component C, 2 part D’s, and 1 sub-component B

Each sub-component C is assembled from 1 part D and 1 part E

Each sub-component B is assembled from 1 part C and 2 part E’s

The master production schedule calls for 250 units of A in week 6, 140 in week 8, and 200 in week 9.

The following information is available from the inventory status file:

Part/Sub-component BeginningAvailable

ScheduledReceipts

Lead Time SafetyStock

Lot Size

A 5 0 1 week 0 L4LB 5 0 1 week 5 10'sC 0 0 2 weeks 0 L4LD 0 5 in week 1 1 week 0 150 min.E 5 5 in week 2 1 week 0 10's

Types of Time Fences• Frozen

– No schedule changes allowed within this window.

• Moderately Firm– Specific changes allowed within product groups

as long as parts are available.

• Flexible– Significant variation allowed as long as overall

capacity requirements remain at the same levels.

Example of Time Fences

8 15 26

Weeks

FrozenModerately

Firm Flexible

Firm Customer Orders

Forecast and availablecapacity

Capacity

Work-Center Scheduling Objectives

• Meet due dates

• Minimize lead time

• Minimize setup time or cost

• Minimize work-in-process inventory

• Maximize machine utilization

Priority Rules for Job Sequencing

1. First-come, first-served (FCFS)

2. Shortest operating time (SOT)

3. Last-come, first served (LCFS)

4. Earliest due date first (EDD)

Many other possible rules...

Example of Job Sequencing: First-Come First-Served

Jobs (in order Processing Due Date Flow Timeof arrival) Time (days) (days hence) (days)

Answer: FCFS Schedule

Jobs (in order Processing Due Dateof arrival) Time (days) (days hence)

A 4 5B 7 10C 3 6D 1 4

Suppose you have the four jobs to the right arrive for processing on one machine.

What is the FCFS schedule?

Average Lateness = (0 +1 + 8 + 11)/4

= 5 days

Average Flow Time = (4+11+14+15)/4

= 11 days

Total Flow Time

Late

A 4 5 4 0B 7 10 11 1C 3 6 14 8D 1 4 15 11

PriorityRule

AverageFlow Time

AverageLateness

TotalFlow Time

FCFS 11 days 5 days 15SOT 7 days 2 days 15LCFS 7.75 days 2.75 days 15EDD 7.25 days 1.75 days 15

Summary:

Characteristics of Location Decisions

• Long-term decisions• Very difficult to reverse• Affect fixed & variable costs

– Transportation cost • As much as 25% of product price

– Other costs: Taxes, wages, rent etc.

• Objective: Maximize benefit of location to firm

• Cost focus– Revenue varies little

between locations

• Location is a major cost factor– Affects shipping &

production costs (e.g., labor)– Costs vary greatly between

locations

Manufacturing Location Strategies

© 1995 Corel Corp.

Service Location Strategies

• Revenue focus– Costs differences among

locations are relatively less important

• Location is a major revenue factor– Affects amount of

customer contact– Affects volume of

business © 1995 Corel Corp.

Location Methods:

Factor Rating Method

• Most widely used location technique• Useful for service & manufacturing

locations• Rates locations using factors

– Qualitative (intangible) factors• Example: Education quality, labor skills

– Quantitative (tangible) factors• Example: Short-run & long-run costs

Factor Rating Method Solution

Omaha Denver

Factor Weight ScoreWeighted Factor Score

Weighted Factor

Mfg. costs 0.7 8 5.6 6 4.2Cost of living 0.1 7 0.7 6 0.6Labor avail. 0.2 10 2 8 1.6

1 8.3 6.4

Omaha is bestOmaha is best

Location Methods:

Factor Rating Method +/-+ Easy to understand and compute

- How do you pick weights?

- How do you assign rankings?

Location Decision Sequence

1. Country1. Country 2. Region/Community2. Region/Community

3. Site3. Site© 1995 Corel Corp.

© 1995 Corel Corp.

© 1995 Corel Corp.

Plant Location Methodology: Centroid Method Formulas

C = d V

V x

ix i

i

Cx = X coordinate of the centroid

Cy = Y coordinate of the centroid

dix = X coordinate of the ith location

diy = Y coordinate of the ith location

Vi = volume of goods moved to or from ith location

C = d V

Vy

iy i

i

Plant Location Methodology: Example of Centroid Method

Question: What is the best location for a new Z-Mobile warehouse/temporary storage facility considering only distances and quantities sold per month?

• Centroid method example– Several automobile showrooms are located according to the

following grid which represents coordinate locations for each showroom.

S howroom No o f Z-Mo b ile s s o ld p e r mo nth

A 1250

D 1900

Q 2300X

Y

A(100,200)

D(250,580)

Q(790,900)

(0,0)

Thinking Challenge Solution

00 3030 6060 9090 120120 150150

3030

6060

9090

00

Seattle(50,60)494k units

Aberdeen (20,35)18k units

Spokane (160,50)171k units

Warehouse at (77, 57): Wenatchee Nat’l Forest!

XX

© 1995 Corel Corp.

Balancing Supply Chain Capability with Customer

Demands

Information

Supply Chain Capability

Customer Requirements

Increased CostsOvertimeExpeditingIncreased Inventory

Increased Demand:

Marketing programs

Promotions

Supply Chain Capability

Customer Requirements

Information

Market Demand,New

Products, Promotions

Suppliers, Manufacturers,

Distributors, Carriers

Formulas for Measuring Internal Supply-Chain

Performance

• Inventory Turnover = Cost of goods sold .

Average inventory value

Weeks)(52Sold Goods ofCost

ValueInventory Average Supply of Weeks

Supply Chain MeasuresCommon practice is to measure within a function:

Supplier Plant DistributionCenter

Customer

Price CostEfficiencyOutput

InventoryStock RotationSpace

CostQualitySpeedFlexibility

Measure Across Supply Chain Nodes

The correct method is to measure across a node:

Supplier Plant DistributionCenter

Customer

Cycle TimeOn-time DeliveryVendor ManagedInventory

Cycle TimeDelivery ReliabilityProduct Availability

Cycle TimeOrder CompletionPerformance

The Bullwhip Effect – Cont’d

What is Outsourcing?Defined

Outsourcing: moving a firm’s internal

activities and decision responsibility to

outside providers.

Reasons to Outsource

• Organizationally-driven - gain focus

• Improvement-driven - quality, skills, innovation

• Financially-driven - reduce asset investment

• Revenue-driven - gain market access, expand sales

• Cost-driven - supplier has lower cost structure

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