General Scenario. Automobile Parts Explosion. Types of Demand. Example Dependent Relationships. Non-integrated Appliance Mfgr.

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1 General Scenario Material Requirements Planning (MRP) for Dependent Demand Systems General Scenario A manufacturing company is making several products Products are made up of components Some of which are purchased from outside Some are produced in batches Different products may use the same components 1 2 Types of Demand Automobile Parts Explosion Independent demand Demand for an item generated by forces outside the firm's control Example: finished goods Dependent demand Demand for parts, raw materials, and subassemblies dependent on finished-goods demand Example: demand for 4 tires for each manufactured car 3 4 Example Dependent Relationships Non-integrated Appliance Mfgr. Process industry Paper manufacturing Finished product Semi-finished product (slurry) All parts bought and assembled Finished product (Dishwashers) Raw material (timber) Material A (Sheet metal stampings) Material B (Porcelain paint) Part 1 (r) Part 2 (Motor) 6

2 Material Requirements Planning Integrated Fabrication-Assembly Engine Parts Explosion Makes and assembles parts Finished product Subassembly A Part X Part Y Part Z Subassembly B Raw material 1 Part Y Part U Part T Part V Raw material 1 Raw material 3 Raw material 4 Part S Part W RM 6 RM 7 Raw material 7 Helistar Parts Explosion Novair Aerosolnebulizer 9 1 LEGO Parts List Managing Inventories with Dependent Demands mrp-2

3 Demand Patterns How to Manage Inventories? Demand Amount on hand Independent Stable demand Safety stock Demand Amount on hand Dependent Lumpy demand Two types of systems for planning and controlling parts and materials with demand dependent on finished goods Type 1: Reorder-point systems Example: EOQ Type 2: Explosion-based Also called: Requirements planning Example: MRP Type 1: Re-order Point Systems In dependent-demand setting: Advantages Simple planning and control Data collection and decision-making easy Straightforward execution No computation costs Disadvantages Treats demand as independent of production "Lumpy" demand leads to excess inventories, poor service, high costs Decisions decoupled from aggregate plans Type 2: Requirements Planning Planning and controlling the inputs to the production of finished goods All such planning efforts begin with the Aggregate Scheduling Plan 16 Review: Aggregate Scheduling Aggregate Scheduling Forecast by individual product Aggregate demand, in standard units Aggregate planning model Aggregate production plan: Outputs, inventories by time period In standard units Disaggregate to create: MASTER PRODUCTION SCHEDULE Individual product production, by period Capacity requirements 17 Provides a central focus for manufacturing control Concerns how factory output, inventory, and workforce levels should vary over time Is based on standard units Focuses on end-products Disregards elements of finished goods that must be managed to create end products: Raw materials Components Subassemblies 1

4 Marking Machine Parts Explosion Output: Master Production Schedule Marking Machine Master Schedule Period Item Machine no. 114 Machine no. 2 1 Manufacturing inventory system's function: Translate the Master Production Schedule into detailed component material requirements and orders Materials Requirements Planning (MRP) system A generic term for such a system Usually computer-based Type 2: Explosion-Based Systems MRP System Organization An MRP System: Is a management information system Uses little mathematics, primarily bookkeeping Is concerned with coordinating and timing purchases of components for manufacturing finished goods Considers the dependent demands, across product lines Takes into account lead times for each part Attempts to meet Master Production Schedule's demands by Scheduling orders Using inventories to cope with "lumpy" demand MRP Inputs MRP Processing MRP Outputs Master schedule Bill of materials Inventory records MRP System Changes Order releases Planned-order schedules Inventory transaction MRP System Inputs Partial Bill of Materials File Bill of Materials File Shows each product s structure Shows relationship of components to assembled products Cross-referenced to inventory file Independent Demand Forecasts Master Production Schedule Individual product production by time period Inventory Status Records File Current on-hand, on-order Lead times Standard order quantities, if used Item master file Material Requirements Planning (MRP) System Outside demands and service parts 23 1 Marking machine # 2: 1 Treadle subassembly... 1 Treadle pivot... 1 Casting... 1 Treadle bracket... 4 Caps... 1 Air cylinder subassembly Basic 2 subassembly... 1 # 2 # 271 # 271 # 2719 # 1112 # 2272 # 13 24

5 Partial Item Master File MRP System Output Part no. Item 2 Treadle subassembly 271 Treadle pivot 271 Casting Material Requirements Planning (MRP) System Lead time 3 weeks 3 weeks weeks Std. cost $11 $ $42 Material Requirements Plan Setup cost Order quant Safety stock Where used On hand $2 units Model 2 1 $37 No. 2 2 No Set of Planned Releases (orders) for all components Based on requirements explosions (dependencies) Takes lead times into account Basically, how much of what to order and when On order 1, due period 2 2, due period Dependent Demands MRP Requirements from All Sources Master schedule: Period Marking machine 3 1 #2 Treadle subassembly # 2 Lot size: Lead time: 3 weeks Level: Computer Product A Computer Product B Planned orders 7 7 Planned orders Level : (L=3) 3 1 On hand Planned release Keyboard Independent demand 2, period Level 1: (L=3) Treadle pivot # 271 Lot size: Lead time: 3 weeks Level: 1 On hand On-hand Planned orders Planned release Casting # 271 Lot size: 2 Lead time: 6 weeks Level: 2 Faceplate, 1/kb Mounting brackets, 2/kb Level 2: (L=6) 2 On hand Planned release 27 2 MRP Example: Dellta Computers MASTER PRODUCTION SCHEDULE Volume Out Week A4 A 1 2, 1, 2, - 3-6, 4 1, 2, - 4, 6, - 7, 2, - 2, 9 1, - BILL OF MATERIALS A4 Model A4 ValuLine computer 1 Laptop chassis (1) 22 Motherboard A (1) 22 Circuit board with CPU (1) 3 Memory modules () 4722 Mounting screws () A Model A Towerbox computer 11 Tower chassis (1) 221 Motherboard B (1) 22 Circuit board with CPU (1) 3 Memory modules (24) 4722 Mounting screws () INVENTORY STATUS RECORDS Item Item No. on order On-hand Lead time Order Number Description (due date) units (weeks) Quantity MRP Calculations A4 Model A4 computer, 1 1, A Model A computer 2, 1, 1 Laptop chassis, 2 4, 11 Tower chassis, 2 4, and Example Problem 22 Motherboard A - 1 1, 221 Motherboard B, (wk 2) - 1, 4722 Mounting screws, (wk 3), 1 2, 22 Circuit board 14, 1 1, 29 3 Memory modules, (wk 1) 13, 2, 3

6 MRP Calculations 1. Begin with the master schedule, a) Create a separate schedule for each product b) Fill in headings, requirements, scheduled receipts, and initial units on hand (Level ) 2. For each schedule at this level, do: a) Determine a set of planned releases (orders) based on lead times, requirements, scheduled receipts, and anticipated amounts on hand b) From the Bill of Materials: Create the next level, with separate schedules for each component, Fill in scheduled receipts and initial on-hand Previous level's orders become new level's gross requirements. Repeat step 2 for this new level. Lot-Sizing and Summary Lot-Sizing Rules Rules for determining order quantities: Fixed order quantity Based on EOQ, adjusted for large requirements? Remnants lead to higher inventory levels Periodic order quantity Quantities may vary, but are placed at regular time intervals, rather than as needed Lot-for-lot (L4L) Lot size covers one week s gross requirements Minimizes inventories Can yield a large number of orders Key Functions of MRP Systems Inventory control Priority planning resolving conflicts Basis for capacity planning Translating aggregate plan's standard units into actual components Ensuring sufficient production capacity for individual components Capacity Requirements Planning systems deal with this Prerequisites for MRP A master production schedule The number of end items to produce and when Bill of materials Documents end product to its components Unique identification code for each item Accurate inventory records: current status, planned issues Database integrity Dependable lead times for all items 3