IM 322 Inventory Management Chapter 9: Material Requirement Planning -1- Textbook: Donald Waters, Inventory Control and Management, 2 nd ed
Chapter Outline Master Scheduling The use of MRP (Material Requirement Planning) Extension of the basic ERP method Introduction to ERP 2
Resource Planning for Manufacturing Resource Planning for Manufacturing Determine when specific products will be made when specific customer orders will be filled, and what products / capabilities are still available to meet new demand Calculate timing and quantities of material orders needed to support the master schedule 3 Adapted from: Roberta Russell & Bernard W. Taylor, II, Operations ManagementI
Material Requirement Planning (MRP) Computerized inventory control & production planning system Schedules component items when they are needed - no earlier and no later Key Outputs of MRP 4
When to use MRP Dependent and discrete items Complex products Job shop production Assemble-to-order environments Dependent / Independent Demand? Clipboard Top clip (1) Bottom clip (1) Pivot (1) Spring (1) 5 Finished clipboard Pressboard (1) Rivets (2)
Demand Characteristics Demand Characteristics for Finished Products and Their Components Independent demand Dependent demand 100 x 1 = 100 tabletops 100 tables 100 x 4 = 400 table legs No. of tables 400 300 200 100 Continuous demand No. of tables 400 300 200 100 Discrete demand 6 1 2 3 4 5 Week M T W Th F M T W Th F
7 MRP Input & Output
Major Inputs to MRP Process: 1. Bill of Material Product structure file Determines which component items need to be scheduled Product Structure Record Clipboard Clipboard Level 0 Top clip (1) Bottom clip (1) Pivot (1) Spring (1) Pressboa rd (1) Clip Assembly (1) Rivet s (2) Level 1 Finished clipboard Pressboard (1) Rivets (2) Top Clip (1) Bottom Clip (1) Piv ot (1) Sprin g (1) Level 2 8
Major Inputs to MRP Process: 2. Master Production Schedule (MPS) Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders & demand forecasts Quantities represent what needs to be produced, not what can be produced Example 9 PERIOD MPS ITEM 1 2 3 4 5 Clipboard 85 95 120 100 100 Lapdesk 0 50 0 50 0 Lapboard 75 120 47 20 17 Pencil Case 125 125 125 125 125
Major Inputs to MRP Process: 2. Master Production Schedule (MPS) 10
MPS example On-hand inventory at end of week 36: 2,000 Backpack Month September Octobrt Week 37 38 39 40 41 42 43 44 Forecasted demand 1,500 1,500 1,500 1,400 1,400 1,250 1,250 1,250 Booked demand 1,422 1,505 1,471 1,260 980 853 534 209 Projected ending inventory Master Production Schedule 4,500 4,000 3,700 Available-to-promise (ATP) 11
Major Inputs to MRP Process: 3. Inventory Record Inventory file Contains an extensive amount of information on every item that is produced, ordered, or inventoried in the system Includes on-hand quantities, lot sizes, safety stock, lead time, and etc. DESCRIPTION INVENTORY POLICY Item Pressboard Lead time 1 Item no. 734 Annual demand 5000 Item type Purch Holding cost 1 Product/sales class Comp Ordering/setup cost 50 Value class B Safety stock 0 Buyer/planner RSR Reorder point 39 Vendor/drawing 07142 EOQ 316 Phantom code N Minimum order qty 100 Unit price/cost 1.25 Maximum order qty 500 Pegging Y Multiple order qty LLC 1 Policy code 3 12
MRP Processes 4 Basic steps 13
Lot Sizing Rules / Batching Order 14
Lot Sizing Rule / Batching Order Comparison 15
MRP Matrix Gross Requirement Derived from planned order releases of the parent Actual / estimated demand, in case of final product Schedule Receipts Items on order Scheduled to arrive in the future time period Projected on hand Current inventory, or anticipated inventory at the end of period Projected on-hand Inventory at end of period t Inventory onhand at end of = period t -1 + Scheduled / planned receipts in period t - Gross requirements in period t 16
MRP Matrix Net requirements Actual quantity to produce based on projected on hand and on-order quantity Planned Order Receipts Quantity, when orders need to be received Consider lot sizing rule: Planned Order Release When order need to be placed to receive on time Consider lead time 17
Example MRP MRP Matrix Matrix ITEM: CLIPBOARD LLC: 0 PERIOD LOT SIZE: L4L LT: 1 1 2 3 4 5 Gross Requirements 85 95 120 100 100 Scheduled Receipts 175 Projected on Hand 25 Net Requirements Planned Order Receipts Planned Order Releases 18
MRP Matrices
MRP Example 2 A(2) X B(1) Item On-Hand Lead Time (Weeks) X 50 2 A 75 3 B 25 1 C 10 2 D 20 2 C(3) C(2) D(5) Requirements include 95 95 units (80 (80 firm firm orders and and 15 15 forecast) of of X in in week 10 10 20
Testing Lot Sizing Rules X A(2) C(3) C(2) B(1) D(5) 21 Day: 1 2 3 4 5 6 7 8 9 10 X Gross requirements 95 LT=2 Scheduled receipts Proj. avail. balance 50 50 50 50 50 50 50 50 50 50 On- Net requirements 45 hand Planned order receipt 45 50 Planner order release 45 A 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
Testing Lot Sizing Rules Given that lead time = 3 periods, safety stock = 20 units Inventory carrying cost = $5 / unit-period Reordering cost = $150 order 1 2 3 4 5 6 7 8 Gross Requirements 160 160 160 160 160 100 160 100 Scheduled Receipts 130 160 160 Projected on Hand 60 Net Requirements Planned Order Receipts Determine the most appropriate lot sizing rule (a) Lot-for-Lot (b) FOQ = 50 units (c) POQ = 3 periods (d) Use EOQ (e) Use POQ = Q / average d Planned Order Releases 22
Benefits of MRP MRP can generate many different kinds of report, including: Timetable of operations Timetable of orders Changes in previous orders Performance reports Planning reports Records of inventory transactions 23