mrp

13 - Manufacturing Resource Planning

Dr. Ron Tibben-Lembke

Historical Perspective

mrp – material requirements

planning

MRP II – ManufacturingResource Planning

ERP- Enterprise Resource Planning

MRP Crusade (1975)

Material Requirements PlanningMake sure you have enough parts when

you need themTake future demands, factor in lead times

(time phase), compare to on hand, orderDetermine order size and timingControl and plan purchasing vs. OSWO

inventory management

Closed-Loop MRP

Capacity Consideration:Part routingsCalculate loads on each work stationSee if scheduled load exceeds capacityLead-time long enough to allow some

shuffling to make plan feasible

MRP II -- Manufacturing Resource Planning

“A method for the effective planning of all resources of a manufacturing company” (APICS def.)

Financial accounting incorporated Sales Operations Planning Simulate capacity requirements of different possible

Master Production Schedules 1989, $1.2B MRPII sales in U.S., one third of total software sales

Success? MRP CrusadeBegins

Electronic Data Interchange

My computer talks to yours, tells you exactly what I want to order, when

You fill out a form, very compressed message sent, viewed as form

Software, hardware expensive to implement

Sample Purchase TransactionST88850*1 Transaction Set identifierBEG*00*NE*00498765**010698 Beginning of SegmentPID*X*08*MC**Large Widget Description of ProductP01**5*DZ*4.55*TD Baseline Item DataCTT*1 Transaction TotalsSE*1*1 End of Segment

XML

eXtensible Markup Language

XML provides self-describing information. Much easier, faster to implement or modify

than EDI. Expected to replace EDI. Standardization through RosettaNet efforts

ERP differences

Material planningCapacity planningProduct designInformation warehousing

All functions in the entire company operate off of one common set of data

Instantaneous updating, visibility

Historical Perspective

DatabaseServer(s)

ApplicationServer(s)

User PCs

ERP Sales

Worldwide sales of top 10 vendors1995 $2.8 B1996 $4.2 B1997 $5.8 B $3.2 B SAP

Fortune survey: 44% reported spending at least 4 times as much on implementation as on software

ERP Challenges

Modules assume “best practices:”Change software to reflect company ($)Change company to follow software (?)

Accuracy of dataDrives entire systemOwnership of / responsibility for

Ability to follow structure

ERP Novel?

“Goal-like” novel Hero learns more about ERP,

deciding if it is right for his company

Company rushes through installation

General introduction to ERP systems, what they do, how different from MRP

SAP R/3 screen shots

3 Reasons for ERP

1. Legacy systems outdated and need replacing anyway

2. Desire for greater communication between locations

3. Reconfigure business to take advantage of current and future communications and computing breakthroughs

Why ERP?

Common ClientMultiple Processes

Multiple ClientsMultiple Processes

Common Client“Best Practices”

Multiple ClientsMostly “Best Practices”

High LowCentralization

High

LowFlexib

ility

ERP Considerations

1. Control: how much centralization, drill-down visibility?2. Structure: How large & dispersed, how tightly

integrated does it need to be?3. Database: desired structure, accessibility4. Customization: out/in source, how willing? Ability to

modify in real time. Creating in-house experts vs. continued consulting dependence

5. Best practices: how willing to embrace?Source: Carol A. Ptak “ERP: Tools, Techniques and Applications for

Integrating the Supply Chain,” St. Lucie Press, APICS Series on Resource Management, 1999, p. 252.

How do we

System for organizing WIP releasesConsider LT for each itemLook at BOM to see what parts neededRelease so they will arrive just as needed

Example – Snow ShovelOrder quantity is 50 unitsLT is one week

MRP Table

1 2 3 4 5

Gross Requirements 10 40 10

Scheduled receipts (begin) 50

Projected Available Balance (ending) 4

54

44

44

4

Net Requirements 6

Planned Order Receipts

Planned Order Releases

6 units short

MRP Table

1 2 3 4 5




54

44

44

4

Net Requirements 6

Planned Order Receipts 50

Planned Order Releases 50

Order 50 units week earlier

Ending Inventory

1 2 3 4 5




54

44

44

4

44

Net Requirements 6

Planned Order Receipts 50

Planned Order Releases 50

Ending inventory

Terminology

Projected Available balance Not on-hand (that may be greater) Tells how many will be available (in ATP sense)

Planned order releases ≠ scheduled receipts Only when material has been committed to their

production Move to scheduled receipts as late as possible Preserves flexibility

1605 Snow Shovel

1605 Snow Shovel

048Scoop-shaftconnector

13122 Top Handle Assy314 scoop assembly

118 Shaft (wood)

062 Nail (4)

14127 Rivet (4)

314 scoop assembly

314 scoop assembly

14127 Rivet (6)019 Blade (steel)

2142 Scoop (aluminum)

13122 Top Handle Assembly

1118Top handle

Coupling (steel)

11495 WeldedTop handle bracket

Assembly


457 Top handle(wood)

129 Top HandleBracket (steel)

082 Nail (2)

BOM Explosion

Process of translating net requirements into components part requirementsTake into account existing inventoriesConsider also scheduled receipts

BOM Explosion Example

Need to make 100 shovelsWe are responsible for handle

assemblies.


1118Top handle

Coupling (steel)


Assembly




082 Nail (2)

Net Requirements

Sch Gross NetPart Description Inv Rec Req ReqTop handle assy 25 -- 100 75

Top handle 22 25Nail (2 required) 4 50Bracket Assy 27 --

Top bracket 15 --Top coupling 39 15

Net Requirements


Top handle 22 25 75 28Nail (2 required) 4 50 150 96Bracket Assy 27 -- 75 48

Top bracket 15 --Top coupling 39 15


1118Top handle

Coupling (steel)


Assembly




082 Nail (2)

Net Requirements


Top handle 22 25 75 28Nail (2 required) 4 50 150 96Bracket Assy 27 -- 75 48

Top bracket 15 -- 48 33Top coupling 39 15 48 --

Timing of Production

This tells us how many of each we needDoesn’t tell when to startStart as soon as possible?Dependent events (oh no, not that!)Front schedule Cutting approachBack schedule

13122 Top Handle Assy

13122 Top handle LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req 20 10 20 5 35 10

Sch receipts

Proj. Avail Bal (ending)

25

25

5

5

Net Req 5

Pl Order Rec 5

Pl Order Rel 5

13122 Top Handle Assy-2


1

2

3

4

5

6

7

8

9

10

Gross Req 20 10 20 5 35 10

Sch receipts


25

25

5

5

0

0

0

0

0

0

0

Net Req 5 20 35 10

Pl Order Rec 5 20 35 10

Pl Order Rel 5 20 35 10

13122 Top Handle Assy -3


1

2

3

4

5

6

7

8

9

10

Gross Req 20 10 20 5 35 10

Sch receipts


25

25

5

5

0

0

0

0

0

0

0

Net Req 5 20 5 35 10

Pl Order Rec 5 20 5 35 10

Pl Order Rel 5 20 5 35 10

457 Top Handle


1

2

3

4

5

6

7

8

9

10

Gross Req 20 10 20 5 35 10

Sch receipts


25

25

5

5

0

0

0

0

0

0

0

Net Req 5 20 5 35 10



LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req 5 20 5 35 10

Sch receipts 25


22

22

Net Req

Pl Order Rec

Pl Order Rel

One handle forEach assembly

457 Top Handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req 5 20 5 35 10

Sch receipts 25


22

22

17

Net Req

Pl Order Rec

Pl Order Rel

457 Top Handle

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req 5 20 5 35 10

Sch receipts 25


22

22

17

42

22

17

17

Net Req 18 10

Pl Order Rec 18 10

Pl Order Rel 18 10

082 Nail (2 required)

LT = 1 Lot Size = 50

1

2

3

4

5

6

7

8

9

10

Gross Req 10 40 10 70 20

Sch receipts 50


4

54

Net Req

Pl Order Rec

Pl Order Rel


1

2

3

4

5

6

7

8

9

10

Gross Req 20 10 20 5 35 10

Sch receipts


25

25

5

5

0

0

0

0

0

0

0

Net Req 5 20 5 35 10



Two nails forEach assembly



1

2

3

4

5

6

7

8

9

10

Gross Req 10 40 10 70 20

Sch receipts 50


4

54

44

44

4

Net Req 6

Pl Order Rec 50

Pl Order Rel 50



1

2

3

4

5

6

7

8

9

10

Gross Req 10 40 10 70 20

Sch receipts 50


4

54

44

44

4

44

Net Req 6 26 20

Pl Order Rec 50

Pl Order Rel 50



1

2

3

4

5

6

7

8

9

10

Gross Req 10 40 10 70 20

Sch receipts 50


4

54

44

44

4

44

44

24

4

4

4

Net Req 6 26

Pl Order Rec 50 50

Pl Order Rel 50

11495 Bracket Assembly


1

2

3

4

5

6

7

8

9

10

Gross Req 20 10 20 5 35 10

Sch receipts


25

25

5

5

0

0

0

0

0

0

0

Net Req 5 20 5 35 10



LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req

Sch receipts


27

Net Req

Pl Order Rec

Pl Order Rel

One bracket forEach assembly



1

2

3

4

5

6

7

8

9

10

Gross Req 20 10 20 5 35 10

Sch receipts


25

25

5

5

0

0

0

0

0

0

0

Net Req 5 20 5 35 10



LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req 5

Sch receipts


27

Net Req

Pl Order Rec

Pl Order Rel




1

2

3

4

5

6

7

8

9

10

Gross Req 20 10 20 5 35 10

Sch receipts


25

25

5

5

0

0

0

0

0

0

0

Net Req 5 20 5 35 10



LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req 5 20 5 35 10

Sch receipts


27

Net Req

Pl Order Rec

Pl Order Rel



LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req 5 20 5 35 10

Sch receipts


27

22

22

2

Net Req 3 35 10

Pl Order Rec 3 35 10

Pl Order Rel 3 35 10

129 Top Bracket

LT = 1

1

2

3

4

5

6

7

8

9

10

Gross Req 3 35 10

Sch receipts


15

Net Req

Pl Order Rec

Pl Order Rel

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req 5 20 5 35 10

Sch receipts


27

22

22

2

Net Req 3 35 10



129 Top handle bracket

LT = 1

1

2

3

4

5

6

7

8

9

10

Gross Req 3 35 10

Sch receipts


15

15

15

12

12

Net Req 23 10

Pl Order Rec 23 10

Pl Order Rel 23 10

1118 Top handle coupling

LT = 3 Safety Stock = 20

1

2

3

4

5

6

7

8

9

10

Gross Req 3 35 10

Sch receipts


39

Net Req

Pl Order Rec

Pl Order Rel

LT = 2

1

2

3

4

5

6

7

8

9

10

Gross Req 5 20 5 35 10

Sch receipts


27

22

22

2

Net Req 3 35 10





1

2

3

4

5

6

7

8

9

10

Gross Req 3 35 10

Sch receipts 15


39

39

54

51

51

16

Net Req 4

Pl Order Rec 4

Pl Order Rel 4



1

2

3

4

5

6

7

8

9

10

Gross Req 3 35 10

Sch receipts 15


39

39

54

51

51

20

20

20

20

20

20

Net Req 4 10

Pl Order Rec 4 10

Pl Order Rel 4 10

Other considerations

Safety stock if uncertainty in demand or supply quantity Don’t let available go down to 0

Safety LT if uncertainty in arrival time of supplyPlace order earlier than necessary

Order quantitiesEOQ, Lot-For-Lot, Periodic Order quantity,

others

MRP Priorities

First:Get installed, part of ongoing managerial

process, get users trainedUnderstand critical linkages with other areasAchieve high levels of data integrityLink MRP with front end, engine, back end

Then:Determine order quantities more exactlyBuffering conceptsNervousness

Ordering Policies

Dependent DemandNot independent demandDiscrete – not continuousLumpy – may have surges

ComplexityReduces costs – ordering & holdingAnything other than lot-for-lot Increases

lumpiness downstream

Assumptions

All requirements must be available at start of period

All future requirements must be met, and can’t be backordered

System operated on periodic basis (e.g. weekly)

Requirements properly offset for LTsParts used uniformly through a period

Use average inventory levels for holding cost

Example Demands

Try several lot-sizing methods Economic Order Quantity Periodic Order Quantity Part Period Balancing Wagner Within

Order cost = $300 per order = CP

Inventory Carrying cost = $2 / unit/ week = CH

Avg Demand = 92.1 / wk = D

Week number

1

2

3

4

5

6

7

8

9

10

11

12

Requirements 10 10 15 20 70 180 250 270 230 40 0 10

EOQ

Minimizes total ordering & holding costs

Assumes demand same every period Definitely not always

true for this use Avg. demand and

holding cost need same time units (e.g. per week)

Economic Lot Size:

Where: D = avg demand CP = ordering cost

CH = holding cost

H

P

C

DCELS

2

EOQ

Sqrt( 2 * 300 * 92.1 / 2) = 166

Week number

1

2

3

4

5

6

7

8

9

10

11

12

Requirements 10 10 15 20 70 180 250 270 230 40 0 10

Order Quant 166

Begin Inv

Ending Inv

EOQ

Ordering cost = 6 * 300 = $1,800 Inv carry cost = 1,532.5 * 2 = $3,065 Total $4,865

Week number

1

2

3

4

5

6

7

8

9

10

11

12

Requirements 10 10 15 20 70 180 250 270 230 40 0 10

Order Quant 166 166 223 270 230 166

Begin Inv 166 156 146 131 111 207 250 270 230 166 126 126

Ending Inv 156 146 131 111 41 27 0 0 0 126 126 116

Periodic Order Quantities

EOQ Gave good tradeoff between ordering &

holding resulted in a lot of leftovers.

Only order enough to get through a certain number of periods – no leftovers

How many? EOQ / avg. demand166 / 92.1 = 1.805 ~ 2 weeks’ worth

Periodic Order Quantities

Week No. 1 2 3 4 5 6 7 8 9 10 11 12Req. 10 10 15 20 70 180 250 270 230 40 0 10Orders 20 35 250 520 270 10Begin 20 10 35 20 250 180 520 270 270 40 10 10End 10 0 20 0 180 0 270 0 40 0 10 0

Avg Inv 15 5 28 10 215 90 395 135 155 20 10 5

Ordering cost = 6 * 300 = $1,800 Inv carry cost =1,082.5 * 2 = $2,145 Total $3,945

Part Period Balancing(Least Total Cost)

Increase the quantity until holding costs equal the ordering cost

Order 10 – holding = 10/2*2 = 10 Order 20 – holding = 10 + 10*1.5*2 = $40 Order 35 = 40 + 15*2.5*2 = $115 Order 55 = 115 + 20*3.5*2 = $255 Order 125 = 255 + 70*4.5*2 = $85

Week No. 1 2 3 4 5 6 7 8 9 10 11 12Req. 10 10 15 20 70 180 250 270 230 40 0 10

Part Period Balancing

Week 5: Order 70: Holding = 10*0.5*2 = $10 Order 250: 10 + 180*1.5*2 = $550 So I could:

Order 250 units, pay $300 in ordering and $540 holding, for a total of $840,

Order 70 now, 180 next week, and pay $600 in ordering and $10 + 180*0.5*2=180 in holding = $790

Seems like the second option is best.

Week No. 1 2 3 4 5 6 7 8 9 10 11 12Req. 10 10 15 20 70 180 250 270 230 40 0 10Orders 55 0 0 0

Part Period Balancing

When should we place a separate order? If 1.5*$2*D > 300. D>300/3 = 100

Whenever demand is >= 100, we might as well place a separate order.

What about week 9? Order 230: holding = 230*0.5*2 = $230 Order 270: = 230 + 40*1.5*2 = $350 Order 280: = 350 + 10*3.5*2 = $420

Week No. 1 2 3 4 5 6 7 8 9 10 11 12Req. 10 10 15 20 70 180 250 270 230 40 0 10Orders 55 0 0 0 70 180 250 270

Part Period BalancingWeek No. 1 2 3 4 5 6 7 8 9 10 11 12Req. 10 10 15 20 70 180 250 270 230 40 0 10Orders 55 0 0 0 70 180 250 270 280 0 0 0Begin 55 45 35 20 70 180 250 270 280 50 10 10End 45 35 20 0 0 0 0 0 50 10 10 0

Wagner-Within

Mathematically optimal Work back from planning period farthest

in the futureConsider all possibilities:

Order for 5, 4 and 5, 3 and 4, then 5, etc.Uses “dynamic programming” – similar to

linear programming

Simulation Experiments

What is best under real-world conditions?Multiple levels to be concerned aboutReal-time changes

mrp

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