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Page 1: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

Materials Requirements PlanningMaterials Requirements Planning

Page 2: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

Collins IndustriesCollins IndustriesLargest manufacturer of ambulances in the world

International competitor

12 major ambulance designs18,000 different inventory items

6,000 manufactured parts12,000 purchased parts

MRP seems to be a good way to manage inventories: IBM’s MAPICS system is used

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Independent and Dependent DemandIndependent 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.

Page 4: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods.

Once the independent demand is known, the dependent demand can be determined.

DependDependeent Demandnt Demand

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Demand CharacteristicsDemand Characteristics

11 22 33 44 55WeekWeek

400 –

300 –

200 –

100 –No.

of t

able

sN

o. o

f tab

les

Continuous demand

M T W Th F M T W Th FM T W Th F M T W Th F

400 400 –

300 300 –

200 200 –

100 100 –No.

of t

able

sN

o. o

f tab

les

Discrete demand

Independent demand

100 tables

Dependent demand

100 x 1 = 100 tabletops

100 x 4 = 400 table legs

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Dependent vs Independent DemandDependent vs Independent Demand

Time

Time Time

Time

Dem

and

Dem

and

Stable demand“Lumpy” demand

Am

ount

on

hand

Am

ount

on

hand

Safety stock

Page 7: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

Material Requirements PlanningMaterial Requirements PlanningDefinedDefined

Materials requirements planning (MRP)) is a computerized inventory planning and control system for determining when (no earlier and no later) and how many of each of the parts, components, and materials should be ordered or produced.

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

Dependent demand drives MRP

MRP is a software system

Page 8: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

When to Use MRPWhen to Use MRP

Dependent and discrete itemsComplex productsJob shop productionAssemble-to-order environments

Page 9: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

Material Requirements Planning SystemMaterial 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

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10

©The McGraw-Hill Companies, Inc., 2004

Firm orders from knowncustomers

Forecastsof demand

from randomcustomers

Aggregateproduction

plan

Bill ofmaterial

file

Engineeringdesign

changes

Inventoryrecord file

Inventorytransactions

Master productionSchedule (MPS)

Primary reportsSecondary reports

Planned order schedule for inventory and production control (work orders, purchase orders), rescheduling notices

Exception reportsPlanning reportsReports for performance control

Materialplanning(MRP

computer program)

Page 11: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

MRP Inputs MRP Processing MRP Outputs

Masterschedule

Bill ofmaterials

Inventoryrecords

MRP computerprograms

Changes

Order releasesPlanned-orderschedules

Exception reports

Planning reportsPerformance-controlreports

Inventorytransaction

Primaryreports

Secondaryreports

MRP SystemMRP System

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MRP Inputs 1: MRP Inputs 1: Master Production ScheduleMaster Production Schedule

Drives MRP process with a schedule of finished products; states which end items are to be produced, when these are needed, and in what quantities

Quantities may consist of a combination of customer orders & demand forecasts

Quantities represent what needs to be produced, not what can be produced

Page 13: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

Master Production Schedule (MPS)Master Production Schedule (MPS)

Time-phased plan specifying how many and when the firm plans to build each end item

Aggregate PlanAggregate Plan(Product Groups)(Product Groups)

MPSMPS(Specific End Items)(Specific End Items)

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Master Production ScheduleMaster Production Schedule

Item / Week Oct 3 Oct. 10 Oct. 17 Oct.24 Oct. 31Clipboard 85 95 120 100 100Lapdesk 0 50 0 50 0Lapboard 75 120 47 20 17Pencil Case 125 125 125 125 125

Shows items to be producedDerived from aggregate plan

Example:

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MRP Inputs 2: MRP Inputs 2: Bill-of-MaterialsBill-of-Materials

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.

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Product Structure TreeProduct Structure Tree: Example 1: Example 1Chair

Seat

Legs (2) Crossbar

SideRails (2)

Crossbar

BackSupports (3)

LegAssembly

BackAssembly

Level 0

1

2

3

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Bicycle(1)P/N 1000

Handle Bars (1)P/N 1001

Frame Assembly (1)P/N 1002

Wheels (2)P/N 1003

Frame (1)P/N 1004

Product Structure TreeProduct Structure Tree: Example 2: Example 2

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PProduct Drawing: Example 3roduct Drawing: Example 3

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Rivets (2)Finished clipboard Pressboard (1)

Clipboard

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Product Structure TreeProduct Structure Tree ( Example 3) ( Example 3)

Clipboard Level 0Level 0

Level 1Level 1

Level 2Level 2Spring (1)

Bottom Clip (1)

Top Clip (1)

Pivot

(1)

Rivets (2)

Clip Ass’y (1)

Pressboard (1)

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MRP Inputs 3: MRP Inputs 3: Inventory RecordsInventory Records File FileOne of the three primary inputs of MRPIncludes information on the inventory status of

each item by time periodGross requirementsScheduled receiptsAmount on handLead timesLot sizesAnd more....

Page 21: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

MRP MRP Terminology (1 of 3)Terminology (1 of 3)Gross requirementsScheduled receiptsProjected on handNet requirementsPlanned-order receiptsPlanned-order releases

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MPR MPR Terminology (2 of 3)Terminology (2 of 3)

Gross requirements

Total expected demand

Scheduled receipts

Open orders scheduled to arrive

Projected on hand

Expected inventory on hand at the beginning of each time period

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MRMRPP Processing Processing Terminology (3 of 3) Terminology (3 of 3)Net requirements

Actual amount needed in each time period

Gross requirements – available inventory

Planned-order receipts

Quantity expected to be received at the beginning of the period

Offset by lead time

Planned-order releases

Planned amount to be ordered in each time period

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MRP Processing Logic: MRP Processing Logic: Assembly Time ChartAssembly Time Chart

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

WeeksWeeks

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Calculation of Gross RequirementsCalculation of Gross Requirements

Therefore, these are the gross

requirements for B

Periods10 101 2 3

Master schedule for S sold directly

40 50 15

A

CB

5 6 7 8 9 10 11

Lead time = 4 for AMaster schedule for A

40 20 30

S

B C

8 9 10 1211 13

Lead time = 6 for SMaster schedule for S

10 40+10 = 50 40 50 20 15+30

= 45

1 2 3 4 5 6 7 8Periods

Gross requirements: B

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Basic MRP ProcessesBasic MRP Processes

1. Exploding the bill of material2. Netting out inventory3. Lot sizing4. Time-phasing requirements

Page 27: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

The MRP MatrixThe MRP Matrix

Gross Requirements Derived from MPS or planned order releases of the

parentScheduled Receipts On order and scheduled to

be receivedProjected on Hand Beg Inv Anticipated quantity on hand

at the end of the periodNet Requirements Gross requirements net of

inventory and scheduled receipts

Planned Order Receipts

When orders need to be received

Planned Order Releases

When orders need to be placed to be received on time

ITEM NAME OR NO. LLC - LOW LEVEL CODE PERIODLOT SIZE QTY MADE IN LY - LEAD TIME 1 2 3 4 5

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MRP Processing:MRP Processing:Example 1-Example 1-School Mate ProductsSchool Mate Products

Master Production Schedule

1 2 3 4 5

Clipboard 85 95 120 100 100Lapdesk 0 60 0 60 0

Item Master File (ınventory record file

CLIPBOARD LAPDESK PRESSBOARDOn hand 25 20 150On order 175 (Period 1) 0 0 (sch receipt)LLC 0 0 1Lot size L4L Mult 50 Min 100Lead time 1 1 1

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School Mate ProductsSchool Mate ProductsProduct Structure RecordProduct Structure Record

Clipboard

Lapdesk

Pressboard(2)

Trim(3’)

Beanbag(1)

Glue(4 oz)

Level 0Level 0

Level 0Level 0

Pressboard(1)

Clip Ass’y(1)

Rivets(2) Level 1Level 1

Level 1Level 1

Page 30: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

School Mate ProductsSchool Mate Products

ITEM: CLIPBOARD LLC: 0 PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100Scheduled Receipts 175Projected on Hand 25Net RequirementsPlanned Order ReceiptsPlanned Order Releases

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School Mate ProductsSchool Mate Products

ITEM: CLIPBOARD LLC: 0 PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100Scheduled Receipts 175Projected on Hand 25 115Net Requirements 0Planned Order ReceiptsPlanned Order Releases

(25 + 175) = 200 units available(200 - 85) = 115 on hand at the end of Period 1

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School Mate ProductsSchool Mate Products

ITEM: CLIPBOARD LLC: 0 PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100Scheduled Receipts 175Projected on Hand 25 115 20Net Requirements 0 0Planned Order ReceiptsPlanned Order Releases

115 units available(115 - 85) = 20 on hand at the end of Period 2

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School Mate ProductsSchool Mate Products

ITEM: CLIPBOARD LLC: 0 PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100Scheduled Receipts 175Projected on Hand 25 115 20 0Net Requirements 0 0 100Planned Order Receipts 100Planned Order Releases 100

20 units available(20 - 120) = -100 — 100 additional Clipboards are requiredOrder must be placed in Period 2 to be received in Period 3

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School Mate ProductsSchool Mate Products

ITEM: CLIPBOARD LLC: 0 PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5

Gross Requirements 85 95 120 100 100Scheduled Receipts 175Projected on Hand 25 115 20 0 0 0Net Requirements 0 0 100 100 100Planned Order Receipts 100 100 100Planned Order Releases 100 100 100

Following the same logic Gross Requirements in Periods 4 and 5 develop Net Requirements, Planned Order Receipts, and Planned Order Releases

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School Mate ProductsSchool Mate Products

ITEM: LAPDESK LLC: 0 PERIOD

LOT SIZE: MULT 50 LT: 1 1 2 3 4 5

Gross Requirements 0 60 0 60 0Scheduled ReceiptsProjected on Hand 20Net RequirementsPlanned Order ReceiptsPlanned Order Releases

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School Mate ProductsSchool Mate Products

ITEM: LAPDESK LLC: 0 PERIOD

LOT SIZE: MULT 50 LT: 1 1 2 3 4 5

Gross Requirements 0 60 0 60 0Scheduled ReceiptsProjected on Hand 20 20 10 10 0 0Net Requirements 0 40 50Planned Order Receipts 50 50Planned Order Releases 50 50

Following the same logic, the Lapdesk MRP matrix is completed as shown

Page 37: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

School Mate ProductsSchool Mate Products

ITEM: PRESSBOARD LLC: 0 PERIODLOT SIZE: MIN 100 LT: 1 1 2 3 4 5Gross RequirementsScheduled ReceiptsProjected on Hand 150Net RequirementsPlanned Order ReceiptsPlanned Order Releases

ITEM: CLIPBOARD LLC: 0 PERIODLOT SIZE: L4L LT: 1 1 2 3 4 5Planned Order Releases 100 100 100

ITEM: LAPDESK LLC: 0 PERIODLOT SIZE: MULT 50 LT: 1 1 2 3 4 5Planned Order Releases 50 50

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School Mate ProductsSchool Mate Products

ITEM: PRESSBOARD LLC: 0 PERIODLOT SIZE: MIN 100 LT: 1 1 2 3 4 5Gross Requirements 100 100 200 100 0Scheduled ReceiptsProjected on Hand 150Net RequirementsPlanned Order ReceiptsPlanned Order Releases

ITEM: CLIPBOARD LLC: 0 PERIODLOT SIZE: L4L LT: 1 1 2 3 4 5Planned Order Releases 100 100 100

ITEM: LAPDESK LLC: 0 PERIODLOT SIZE: MULT 50 LT: 1 1 2 3 4 5Planned Order Releases 50 50

x2x2 x2x2

x1x1 x1x1x1x1

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School Mate ProductsSchool Mate Products

ITEM: PRESSBOARD LLC: 0 PERIODLOT SIZE: MIN 100 LT: 1 1 2 3 4 5Gross Requirements 100 100 200 100 0Scheduled ReceiptsProjected on Hand 150 50 50 0 0 0Net Requirements 50 150 100Planned Order Receipts 100 150 100Planned Order Releases 100 150 100

ITEM: CLIPBOARD LLC: 0 PERIODLOT SIZE: L4L LT: 1 1 2 3 4 5Planned Order Releases 100 100 100

ITEM: LAPDESK LLC: 0 PERIODLOT SIZE: MULT 50 LT: 1 1 2 3 4 5Planned Order Releases 50 50

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School Mate ProductsSchool Mate Products

Planned Order Report

PERIOD

ITEM 1 2 3 4 5

Clipboard 100 100 100Lapdesk 50 50Pressboard 100 150 100

Page 41: [PPT]PRODUCTIONS/OPERATIONS MANAGEMENT - …sureten/MRP.ppt · Web viewIndependent and Dependent Demand Dependent Demand Dependent demand: Demand for items that are subassemblies

MRP MRP Processing:Processing: ExampleExample 2 2

A(2) B(1)

D(5)C(2)

X

C(3)

Item On-Hand Lead Time (Weeks)X 50 2A 75 3B 25 1C 10 2D 20 2

Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

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A(2)

X

Day: 1 2 3 4 5 6 7 8 9 10X Gross requirements 95

LT=2 Scheduled receipts Proj. avail. balance 50 50 50 50 50 50 50 50 50 50

On- Net requirements 45hand Planned order receipt 4550 Planner order release 45A Gross requirements 90

LT=3 Scheduled receipts Proj. avail. balance 75 75 75 75 75 75 75 75

On- Net requirements 15 hand Planned order receipt 15 75 Planner order release 15 B Gross requirements 45

LT=1 Scheduled receipts Proj. avail. balance 25 25 25 25 25 25 25 25

On- Net requirements 20 hand Planned order receipt 20 25 Planner order release 20 C Gross requirements 45 40

LT=2 Scheduled receipts Proj. avail. balance 10 10 10 10 10

On- Net requirements 35 40 hand Planned order receipt 35 40 10 Planner order release 35 40 D Gross requirements 100

LT=2 Scheduled receipts Proj. avail. balance 20 20 20 20 20 20 20

On- Net requirements 80 hand Planned order receipt 80 20 Planner order release 80

It takes 2 A’s for each X

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Day: 1 2 3 4 5 6 7 8 9 10X Gross requirements 95

LT=2 Scheduled receipts Proj. avail. balance 50 50 50 50 50 50 50 50 50 50

On- Net requirements 45hand Planned order receipt 4550 Planner order release 45A Gross requirements 90

LT=3 Scheduled receipts Proj. avail. balance 75 75 75 75 75 75 75 75

On- Net requirements 15 hand Planned order receipt 15 75 Planner order release 15 B Gross requirements 45

LT=1 Scheduled receipts Proj. avail. balance 25 25 25 25 25 25 25 25

On- Net requirements 20 hand Planned order receipt 20 25 Planner order release 20 C Gross requirements 45 40

LT=2 Scheduled receipts Proj. avail. balance 10 10 10 10 10

On- Net requirements 35 40 hand Planned order receipt 35 40 10 Planner order release 35 40 D Gross requirements 100

LT=2 Scheduled receipts Proj. avail. balance 20 20 20 20 20 20 20

On- Net requirements 80 hand Planned order receipt 80 20 Planner order release 80

B(1)A(2)

X

It takes 1 B for each X

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A(2) B(1)

X

C(3)

Day: 1 2 3 4 5 6 7 8 9 10X Gross requirements 95

LT=2 Scheduled receipts Proj. avail. balance 50 50 50 50 50 50 50 50 50 50

On- Net requirements 45hand Planned order receipt 4550 Planner order release 45A Gross requirements 90

LT=3 Scheduled receipts Proj. avail. balance 75 75 75 75 75 75 75 75

On- Net requirements 15 hand Planned order receipt 15 75 Planner order release 15 B Gross requirements 45

LT=1 Scheduled receipts Proj. avail. balance 25 25 25 25 25 25 25 25

On- Net requirements 20 hand Planned order receipt 20 25 Planner order release 20 C Gross requirements 45 40

LT=2 Scheduled receipts Proj. avail. balance 10 10 10 10 10

On- Net requirements 35 40 hand Planned order receipt 35 40 10 Planner order release 35 40 D Gross requirements 100

LT=2 Scheduled receipts Proj. avail. balance 20 20 20 20 20 20 20

On- Net requirements 80 hand Planned order receipt 80 20 Planner order release 80

It takes 3 C’s for each A

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A(2) B(1)

C(2)

X

C(3)

Day: 1 2 3 4 5 6 7 8 9 10X Gross requirements 95

LT=2 Scheduled receipts Proj. avail. balance 50 50 50 50 50 50 50 50 50 50

On- Net requirements 45hand Planned order receipt 4550 Planner order release 45A Gross requirements 90

LT=3 Scheduled receipts Proj. avail. balance 75 75 75 75 75 75 75 75

On- Net requirements 15 hand Planned order receipt 15 75 Planner order release 15 B Gross requirements 45

LT=1 Scheduled receipts Proj. avail. balance 25 25 25 25 25 25 25 25

On- Net requirements 20 hand Planned order receipt 20 25 Planner order release 20 C Gross requirements 45 40

LT=2 Scheduled receipts Proj. avail. balance 10 10 10 10 10

On- Net requirements 35 40 hand Planned order receipt 35 40 10 Planner order release 35 40 D Gross requirements 100

LT=2 Scheduled receipts Proj. avail. balance 20 20 20 20 20 20 20

On- Net requirements 80 hand Planned order receipt 80 20 Planner order release 80

It takes 2 C’s for each B

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A(2) B(1)

D(5)C(2)

X

C(3)

Day: 1 2 3 4 5 6 7 8 9 10X Gross requirements 95

LT=2 Scheduled receipts Proj. avail. balance 50 50 50 50 50 50 50 50 50 50

On- Net requirements 45hand Planned order receipt 4550 Planner order release 45A Gross requirements 90

LT=3 Scheduled receipts Proj. avail. balance 75 75 75 75 75 75 75 75

On- Net requirements 15 hand Planned order receipt 15 75 Planner order release 15 B Gross requirements 45

LT=1 Scheduled receipts Proj. avail. balance 25 25 25 25 25 25 25 25

On- Net requirements 20 hand Planned order receipt 20 25 Planner order release 20 C Gross requirements 45 40

LT=2 Scheduled receipts Proj. avail. balance 10 10 10 10 10

On- Net requirements 35 40 hand Planned order receipt 35 40 10 Planner order release 35 40 D Gross requirements 100

LT=2 Scheduled receipts Proj. avail. balance 20 20 20 20 20 20 20

On- Net requirements 80 hand Planned order receipt 80 20 Planner order release 80

It takes 5 D’s for each B

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MRP OutputsMRP Outputs Planned orders (schedule indicating the amount and

timing of orders)Work ordersPurchase orders

Order releases (authorization for the execution of planned orders)

Changes to previous plans or existing schedules (revision of due dates or order quantities, or cancellations of orders)

Action noticesRescheduling notices

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Updating the Updating the MRP MRP SystemSystemRegenerative system

Updates MRP records periodically

Net-change system

Updates MPR records continuously

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MRP Secondary ReportsMRP Secondary ReportsPerformance-control reports

Planning reports

Exception reports

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MRP DynamicsMRP Dynamics

Supports “replanning”“Time fence” - allows a segment of the master

schedule to be designated as “not to be rescheduled”

“Pegging” - tracing upward in the bill-of-materials from the component to the parent item

That a manager can react to changes, doesn’t mean he/ he should

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Other ConsiderationsOther ConsiderationsSafety StockLot sizing

Lot-for-lot ordering (L4L)Economic order quantityPart Period BalancingWagner-Whitin algorithm& others

Which one to use? The one that is least costlyWhich one to use? The one that is least costly!

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Can be used when demand for service or service items is directly related to or derived from demand for other services

Food catering serviceEnd item => catered foodDependent demand => ingredients for each recipe, i.e.

bill of materialsHotel renovation

Activities and materials “exploded” into component parts for cost estimation and scheduling

MRP in ServicesMRP in Services

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Benefits of MRPBenefits of MRPReduced inventories without reduced customer serviceAbility to track material requirementsAbility to evaluate capacity requirementsMeans of allocating production timeIncreased customer satisfaction due to meeting delivery schedulesFaster response to market changesImproved labor and equipment utilization.Better inventory planning and scheduling

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Requirements of MRPRequirements of MRP

Computer system and necessary softwareMainly discrete productsStable lead timesAccurate and up-to-date

Master schedulesBills of materialsInventory status records

Integrity of data

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Extensions of MRP Extensions of MRP

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Extensions of MRPExtensions of MRP

Closed loop MRPCapacity planning - load reportsMRP II - Manufacturing Resources PlanningEnterprise Resources Planning

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Forecast &Firm Orders

MaterialRequirements

Planning

AggregateProductionPlanning

ResourceAvailability

MasterProductionScheduling

ShopFloor

Schedules

CapacityRequirements

PlanningRealistic?

No, modify MPS

Yes

MRP and The Production Planning MRP and The Production Planning ProcessProcess

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Closed Loop MRPClosed Loop MRP

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Capacity PlanningCapacity 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 Requirements Planning Capacity Requirements Planning (CRP)(CRP)

Computerized system that projects load from material plan

Creates load profile Identifies underloads and overloads

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CapacityCapacity

Usually expressed as standard machine hours or labor hours

Capacity = (no. machines or workers)x (no. shifts) x (utilization)x (efficiency)

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Capacity TermsCapacity TermsLoad reports Department or work center reports that compare known

and expected future capacity requirements with projected capacity availability.

Load profile Compares released and planned orders with work center

capacity Capacity Productive capability; includes utilization and efficiencyUtilization % of available working time spent working

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More Capacity TermsMore Capacity TermsEfficiency

Refers to how well a machine or worker porforms compared to a standard output level

Load The standard hours of work assigned to a facilityLoad percent The ratio of load to capacity

Load % = (load/capacity)x100%

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Capacity Requirements PlanningCapacity Requirements Planning

MRP plannedorder

releases

Routingfile

Capacityrequirements

planning

Openorders

file

Load profile foreach machine center

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Capacity PlanningCapacity Planning

Develop a tentativemaster production

schedule

Use MRP tosimulate material

requirements

Convert materialrequirements to

resource requirements

Firm up a portionof the MPS

Is shopcapacity

adequate?

Cancapacity be

changed to meetrequirements

Revise tentativemaster production

schedule

Changecapacity

Yes

No

Yes

No

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Determining Loads and CapacitiesDetermining Loads and Capacities

2 copiers, 2 operators5 days/wk, 8 hr/day1/2 hr meals, 1/2 hr maintenance per dayThe machines are new, so efficiency is estimated at 100%Utilization = 7/8 = 87.5%Daily capacity = 2 machines x 2 shifts

x 8 hours/shift x 100% efficiencyx 87.5% utilization= 28 hours or 1,680 minutes

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Determining Loads Determining Loads and Capacitiesand Capacities

JOB NO. OF SETUP RUN TIMENO. COPIES TIME (MIN) (MIN/UNIT) TOTAL TIME10 500 5.2 0.08 5.2 + (500 x 0.08) = 45.220 1,000 10.6 0.10 10.6 + (1,000 x 0.10) = 110.630 5,000 3.4 0.12 3.4 + (5,000 x 0.12) = 603.440 10,000 11.2 0.14 11.2 + (10,000 x 0.14) = 1,411.250 2,000 15.3 0.10 15.3 + (2,000 x 0.10) = 215.3

2385.7 minLoad percent = 2,385.7 / 1,680 = 1.42 x 100% = 142%Add another shift:Daily capacity = 2 machines x 3 shifts x 8 hours/shift

x 100% efficiency x 87.5% utilization= 42 hours or 2,520 minutes

Revised load percent = 2,385.7 / 2,520 = 0.9467 x 100% = 94.67%

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Initial Load ProfileInitial Load ProfileH

ours

of c

apac

ityH

ours

of c

apac

ity

11 22 33 44 55 66Time (weeks)Time (weeks)

NormalNormalcapacitycapacity

120 120 –110 110 –100 100 –

90 90 –80 80 –70 70 –60 60 –50 50 –40 40 –30 30 –20 20 –10 10 –

0 0 –

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Remedies for UnderloadsRemedies for Underloads

1. Acquire more work2. Pull work ahead that is scheduled for later time

periods3. Reduce normal capacity

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Remedies for OverloadsRemedies for Overloads Eliminate unnecessary requirements Reroute jobs to alternative machines or work centers Change lot-sizing or safety stock requirements Split lots between two or more machines Send pieces to the second operation before the entire lot has

completed the first operation Increase normal capacity Subcontract Increase the efficiency of the operation Push work back to later time periods Revise master schedule

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Adjusted Load ProfileAdjusted Load Profile

Hou

rs o

f cap

acity

Hou

rs o

f cap

acity

11 22 33 44 55 66Time (weeks)Time (weeks)

NormalNormalcapacitycapacity

120 120 –110 110 –100 100 –

90 90 –80 80 –70 70 –60 60 –50 50 –40 40 –30 30 –20 20 –10 10 –

0 0 –

Pull aheadPull ahead Push backPush back

Push backPush backOvertime

Work an

extra shift

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Relaxing MRP AssumptionsRelaxing MRP Assumptions

Material is not always the constraining resourceLead times can varyNot every transaction needs to be recordedJIT can be used with MRPThe shop floor may require a more sophisticated

scheduling system

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Expanded MRP with emphasis placed on integration of:Financial planningMarketingEngineeringPurchasingManufacturingHuman resources

Manufacturing Resources Planning- Manufacturing Resources Planning- MRP MRP IIII

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Manufacturing ResourceManufacturing Resourcess Planning Planning (MRP II)(MRP II)

Goal: Plan and monitor all resources of a manufacturing firm (closed loop):manufacturingmarketingfinanceengineering

Simulate the manufacturing system

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MarketMarketDemandDemand

ProductionProductionplanplan

Problems?Problems?

Rough-cutRough-cutcapacity planningcapacity planning

YesYes NoNo YesYesNoNo

FinanceFinance

MarketingMarketing

ManufacturingManufacturing

AdjustAdjustproduction planproduction plan

MasterMasterproduction scheduleproduction schedule

MRPMRP

CapacityCapacity req. req.planningplanning

Problems?Problems?RequirementsRequirements

schedulesschedules

Adj

ust m

aste

r sch

edul

eA

djus

t mas

ter s

ched

ule

MRP IIMRP II

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MRPMRP II II

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Manufacturing Resource Manufacturing Resource Planning Planning (MRP II)(MRP II)

Forecast Aggregate production

plan

Customer orders

Feasible?

Master production schedule

Material requirements planning

Capacity requirements planning

Feasible?

Purchase orders

Work orders

Inventory Shop floor control

Manufacture

NoNo

YesYes

FeedbackFeedback

NoNo

YesYes

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Manufacturing Manufacturing Resource Planning Resource Planning (MRP II)(MRP II)

Forecast Aggregate production

plan

Customer orders

Feasible?

Master production schedule

Material requirements planning

Capacity requirements planning

Feasible?

Purchase orders

Work orders

Inventory Shop floor control

Manufacture

NoNo

YesYes

FeedbackFeedback

NoNo

YesYesForecast Aggregate

production plan

Customer orders

Feasible?

Master production schedule

NoNo

YesYes

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Manufacturing Manufacturing Resource Planning Resource Planning (MRP II)(MRP II)

Forecast Aggregate production

plan

Customer orders

Feasible?

Master production schedule

Material requirements planning

Capacity requirements planning

Feasible?

Purchase orders

Work orders

Inventory Shop floor control

Manufacture

NoNo

YesYes

FeedbackFeedback

NoNo

YesYes

Master production schedule

Material requirements planning

Capacity requirements planning

Feasible?

YesYes

NoNo

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Forecast Aggregate production

plan

Customer orders

Feasible?

Master production schedule

Material requirements planning

Capacity requirements planning

Feasible?

Purchase orders

Work orders

Inventory Shop floor control

Manufacture

NoNo

YesYes

FeedbackFeedback

NoNo

YesYes

Manufacturing Manufacturing Resource Planning Resource Planning (MRP II)(MRP II)

Inventory Shop floor control

Manufacture

Purchase orders

Work orders

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Manufacturing Manufacturing Resource Planning Resource Planning (MRP II)(MRP II)

Forecast Aggregate production

plan

Customer orders

Feasible?

Master production schedule

Material requirements planning

Capacity requirements planning

Feasible?

Purchase orders

Work orders

Inventory Shop floor control

Manufacture

NoNo

YesYes

FeedbackFeedback

NoNo

YesYes

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Enterprise Resource Planning (ERP)Enterprise Resource Planning (ERP)The next step in the evolution that began with MRP

and evolved into MRP II

ERP system is a computer system that integrates application programs in accounting, sales, manufacturing, human resources and other functions in the firm.

ERP provides a system to capture and make data available in real time do decision makers and other users in the organization

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MRP II with ties to customers and suppliers (connects with supply-chain and customer management applications)

Integrates financial, manufacturing and human resources on a single computer system.

Provides tools for planning and monitoring various business processes

ERPERP

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Enterprise Resource Planning (ERP)Enterprise Resource Planning (ERP)

Attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments’ particular needs

Organizes and manages a company’s business processes by sharing information across functional areas

Standardized record-keeping permit information sharing and communication throughout the organization

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Enterprise Resource PlanningEnterprise Resource Planning - ERP - ERP

Such an integration is accomplished through a database shared by all the application programs

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ERPERP ERP allows companies to:1. Automate and integrate many of their business

processes2. Share a common database and business

practices throughout the enterprise3. Produce information in real time

ERP systems also include:1. Supply Chain Management software and2. Customer Relationship Management software

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ERP ModulesERP Modules

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ERP’s Central DatabaseERP’s Central DatabaseFinance &

Accounting

Sales &

Marketing

Human Resources

Production & Materials

ManagementERP Data

Repository

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ERP Strategy ConsiderationsERP Strategy ConsiderationsHigh initial costHigh cost to maintainFuture upgradesTraining