History IE 376 PRODUCTION INFORMATION SYSTEMS. Course Notes Lecture #2.A Material Requirements Planning

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1 IE PRODUCTION INFORMATION SYSTEMS Course Notes Lecture #.A Material Requirements Planning IE Bilkent University Manufacturing Planning and Control System Routing file Resource planning Bills of material Detailed capacity planning Sales and operations planning Master production scheduling Detailed material planning Time-phased requirement (MRP) records Shop-floor systems Material and capacity plans Supplier systems Demand management Front End Inventory status data Engine Back End Enterprise Resource Planning (ERP) System History Begun around 9 as computerized approach to purchasing and production scheduling. Joseph Orlicky, Oliver Wight, and others. APICS launched MRP Crusade in 9 to promote MRP. It has been the most widely implemented large scale production management system since the early 9 s with several thousand MRP systems implemented in industry around the world.

2 Materials Requirements Planning (MRP) Computer based information system to handle ing and scheduling of dependent demand items MRP converts the production plan for final products into for component items and raw materials: What is needed When is needed How much is needed When should procurement, fabrication, assembly start for completing end items on time Procurement of raw material D Procurement of raw material F Procurement of raw material G Fabrication of part E Procurement of part C Procurement of part H Subassembly A Subassembly B Final assembly and inspection 9 Traditional Inventory Control Approaches Two bin policy (re point, fixed batch size) Periodic cycle policy (fixed period, up to target level)

3 Key Insight Independent Demand demand driven by from outside the firm (e.g. customer s) Dependent Demand component or sub-assembly demand driven by net from the next higher level It makes no sense to independently forecast dependent demands. Dependent items are needed just prior to when they are needed for production Demand is lumpy Little or no safety stock Independent Demand Dependent Demand Demand Stable demand Demand Lumpy demand Amount on hand Safety stock Time Time Amount on hand Time Time Inventory Control Part oriented Replenish Supply Independent demand Continuous item demand Random demand pattern Continuous lead time demand Re point ing signal Historical demand base Forecast all items Quantity based system MRP System Product/component oriented Actual Dependent (derived) demand Discrete/lumpy item demand Known lumpy demand pattern No lead time demand Time-phased ing signal Future production base Forecast master schedule items Quantity and time-based system

4 Observations From control of the level of stock to discrete control on the flow of material (MRP s only what components are required to maintain manufacturing flow) Therefore, a planning system lays the basis for both production scheduling and raw material purchasing. MRP tells user what must be done in to meet the master schedule, as opposed to what can be done. Basic structure of an MRP system Master Parts Database Master Production Schedule (MPS) Bill of Materials (BOM) Open Purchase Orders Explosion of Parent Orders into Component Requirements Netting to Generate Net Requirements Lot Sizing and Off-Setting Open Shop Orders Order Releases Purchasing / Manufacturing Assumptions. Known deterministic demands.. Fixed, known production lead times.. Infinite capacity. Idea is to back out demand for components by using lead times and bills of material.

5 MRP Procedure. Netting: Net = + Allocations - Inventory - Receipts. Lot Sizing: Conversion of the net requirement to a planned quantity using a lot size. Time Phasing: Placing a planned by backward scheduling from the required date by the lead time. Generating appropriate action and exception messages. BOM Explosion: Explosion of parent item production gross for all components using the BOM relationships. Inputs Inputs Master Production Schedule (MPS): due dates and quantities for all top level items Bills of Material (BOM): for all parent items Inventory Status: (on hand plus scheduled ) for all items times: for all items

6 MRP Inputs Master Schedule: Which end items are to be produced, when these are needed, and in what quantities. The planning horizon is divided into time periods called time-buckets (typically weeks) WEEK NUMBER Item: A Quantity units of A needed at beginning of week The planning horizon should be long enough to cover the cumulative lead time. (total lead time required from ing of parts or raw materials to completion of final assembly) Master Production Schedule Master Production Schedule April May Ladder-back chair Kitchen chair Desk chair Aggregate production plan for chair family

7 Bill Of Materials (BOM) A formal/systematic representation of the product structure and the assembly steps required for its synthesis from its components and subassemblies. units () 9 () () () 9 () () Subassembly : x(number of ) x Subassembly 9: x(number of ) x Component : x(number of ) x x(number of 9) x Component : x(number of ) x Component 9: x(number of 9) x Bill of Materials Bill of Materials Back slats Seat cushion Leg supports Seat-frame boards Back legs Front legs A Ladder-back chair

Bill of Materials A Ladder-back chair B () Ladder-back subassembly C () Seat subassembly Back slats D () Front legs Seat cushion E () Leg supports F () Back legs Back legs G () Back slats Front legs

8 Bill of Materials A Ladder-back chair B () Ladder-back subassembly C () Seat subassembly Back slats D () Front legs Seat cushion E () Leg supports F () Back legs Back legs G () Back slats Front legs Leg supports H () Seat frame J () Seat-frame boards I () Seat cushion A Ladder-back chair Seat-frame boards MRP Inputs Inventory Records File: Info on the status of each item by time period. Requirements levels time information Other details (supplier, lot size, etc) Transactions are recorded and updates done every time period (Production) Times The expected time interval between the time that the for a new production lot is released, and the time that the lot is available (to be used in the fabrication of its parent component). times incorporate: set-up times, processing times, transfer time, and waiting times. week () weeks 9() weeks () week () weeks 9() week () week

9 Time Offsetting to net explosion shows how much of each part is required, but not when Timing requires consideration of two factors times how long does it take to obtain the component or sub-assembly Precedent relationships the in which parts must be assembled MRP considers both factors when developing the plan Time-Phased Product Structure [] [] [] 9 () () [] () () [] [] () [] 9 () Time in weeks Part No. 9 9 Ord. Rec. Ord. Rel. Ord. Rec. Ord. Rel. Ord. Rec. Ord. Rel. Ord. Rec. Ord. Rel. Ord. Rec. Ord. Rel. Ord. Rec. Ord. Rel. Example: Time-Phased Production Requirements Time week weeks weeks week weeks week

10 Requirements The cumulative time-phased demand for a certain part, integrating the part demand generated from the production plans of its parent items, and also, additional external demand, arising, for instance, from the need for spare parts, inter-plant shipments, etc. A B C() D() C() E() Item A Period 9. Ord. Rel. Item B Period 9 Ord. Rel. Item C Period 9 Requirements 9 Interplant Shipment Service MRP Processing (Explosion Calculus) Time-phased requirement of all items using BOM and lead times. For every item and for every time period calculate: : Total demand : Orders scheduled to arrive at the beginning of the period on hand: Expected Inventory at the beginning of the period Net : Actual amount needed - : amount to in the period (P.O.R. offset by lead time) Example (Chair Assembly) Bill-of-Materials (BOM) File: List of all raw materials, parts, subassemblies needed to produce the product. Illustrated using a product-structure tree: Level Chair Leg Assembly Seat Back Assembly Legs () Cross bar Side Cross Back Rails () bar Supports ()

11 Example (Chair Assembly) Suppose that a -unit delivery of chairs is scheduled at the start of week. Determine the size and the timing of back-support parts to meet this delivery. Final Assembly Back Assembly Back Support Procur. LEADTIME week week weeks The firm has back support units available and more is scheduled to arrive at the beginning of. Number Part: Chair Requirements LT: Receipts On-hand Net Requirements Order Releases Number Part: Back Requirements Assembly Receipts LT: On-hand Net Requirements Order Releases Number Part: Back Requirements Support Receipts LT: On-hand Net Requirements Order Releases Should Net Requirements = Order Releases? Lot-for-lot production Other common lot sizing rules: Economic Order Quantity (EOQ) Fixed Period Ordering (Order to cover a fixed # of coming periods) Extra production is carried into future periods as

12 Number Part: Back Requirements Support Receipts LT: On-hand Net Requirements Order Releases Suppose that the lot-size of back support units is. Can only produce at multiples of. Number Part: Back Requirements Support Receipts LT: On-hand Net Requirements Order Releases BOM Levels Level : End Items (SKU s) Level : Items that constitute components (are children) of level- item(s) only Level : Items that are children of level, and, potentially, some level items only Level i: Items that are children of level i-, and, potentially, some level to i- item(s) only A B C D F D H E F E C G E C G E F E F Level : A, B Level : D, H Level : C, G Level : E, F Inventory Record

13 Inventory Record Item: C Description: Seat subassembly Lot Size: units Time: weeks Inventory Record Item: C Description: Seat subassembly Lot Size: units Time: weeks Explanation: are the total demand for the two chairs. in week is + Inventory Record Item: C Description: Seat subassembly Lot Size: units Time: weeks Explanation: are the total demand for the two chairs. in week is + = units.

14 Inventory Record Item: C Description: Seat subassembly Lot Size: units Time: weeks Inventory Record Item: C Description: Seat subassembly Lot Size: units Time: weeks balance at end of week t Inventory on hand at end of week t - or planned in week t = + in week t Inventory Record Item: C Description: Seat subassembly Lot Size: units Time: weeks balance at end of week t Inventory on hand at end of week t - or planned in week t = + in week t

15 Orders Explanation: Item: C Without Description: a new Seat subassembly in week, there will be a shortage of three units: + + = units. Lot Size: units Time: weeks Orders Item: C Description: Seat subassembly Lot Size: units Time: weeks Orders Explanation: Item: C Adding Description: the planned Seat subassembly receipt brings the balance to + + = units. Lot Size: units Time: weeks

16 Orders Explanation: Item: C Adding Description: the planned Seat subassembly receipt brings the balance to + + = units. Lot Size: units Time: weeks Orders Explanation: Item: C Offsetting Description: for Seat a two-week subassembly lead time puts the corresponding planned release back to week. Lot Size: units Time: weeks Orders Explanation: Item: C Offsetting Description: for Seat a two-week subassembly lead time puts the corresponding planned release back to week. Lot Size: units Time: weeks

17 Orders Explanation: Item: C The Description: first planned Seat subassembly lasts until week, when projected would drop to. Lot Size: units Time: weeks Orders Explanation: Item: C Adding Description: the second Seat subassembly planned receipt brings the balance to + + =. Lot Size: units Time: weeks Orders Explanation: Item: C Adding Description: the second Seat subassembly planned receipt brings the balance to + + =. Lot Size: units Time: weeks

18 Orders Explanation: Item: C The Description: corresponding Seat subassembly planned release is for week. Lot Size: units Time: weeks Orders Item: C Description: Seat subassembly Lot Size: units Time: weeks Explosion Explosion the process of translating product into component part Considers existing inventories and scheduled Calculating the quantities of all components needed to satisfy for any given part. Continued until all parts have been considered, leading to exact for all purchased and/or raw material parts

19 The MRP Explosion Calculus External Demand Level Initial Inventories Level Capacity Planning Level Receipts Requirements Level N Order Releases MRP Explosion MRP Explosion Item: Seat subassembly Lot size: units time: weeks

20 Item: Seat subassembly MRP Explosion Lot size: units time: weeks Item: Seat subassembly MRP Explosion Lot size: units time: weeks Item: Seat frames Lot size: units Item: Seat cushion Lot size: LL time: week time: week Item: Seat subassembly MRP Explosion Lot size: units time: weeks Usage quantity: Usage quantity: Item: Seat frames Lot size: units Item: Seat cushion Lot size: LL time: week time: week

21 Item: Seat subassembly MRP Explosion Lot size: units time: weeks Usage quantity: Usage quantity: Item: Seat frames Lot size: units Item: Seat cushion Lot size: LL time: week time: week Item: Seat subassembly MRP Explosion Lot size: units time: weeks Item: Seat frames Lot size: units Item: Seat cushion Lot size: LL time: week time: week MRP Explosion Item: Seat frames Lot size: units Item: Seat cushion Lot size: LL time: week time: week

22 Item: Seat frames MRP Explosion Lot size: units Item: Seat cushion Lot size: LL time: week time: week Item: Seat-frame boards Lot size: units time: week Item: Seat frames MRP Lot size: units Explosion time: week Item: Seat cushion Lot size: LL time: week Usage quantity: Item: Seat-frame boards Lot size: units time: week Item: Seat frames MRP Lot size: units Explosion time: week Item: Seat cushion Lot size: LL time: week Item: Seat-frame boards Lot size: units time: week

23 Example: The (complete) MRP Explosion Calculus Item BOM: D() B() Alpha C() E() C() F() Item Time Current Inv. Pos. Alpha B C D E F E() F() Reqs for Alpha Period 9 Reqs. Item Levels: Level : Alpha Level : B Level : C, D Level : E, F Receipts vs. Order Releases represent an actual commitment (purchase, production, etc.) s are only the current plan and can be changed more easily for production s already have component materials assigned do not impact gross do not have component materials assigned do impact gross

24 MRP Terminology Requirements (GR): anticipated future usage of an item during each period GR(demand) are time phased, which means they are stated on a unique period-by-period basis, rather than aggregated or averaged. Receipts(SR): existing/released s for an item due at the beginning of a period Receipts(PR): planned s for an item due at the beginning of a period Available Balance (PAB): projected status for an item at the end of a period MRP Terminology Order Releases (POR): planned replenishment s for an item which are scheduled to be released at the beginning of a period Net Requirements(NR): net anticipated usage of an item during each period The period of the MRP time-phased record is also calledtimebucket Number of periods in the record is called planning horizon When a planned is created for the most immediate or current period, it is in the action bucket Inputs Service-Parts Orders and Forecasts Inventory Status File Master Production Schedule Bill of Materials File Elements of MRP MRP System Outputs Inventory Transaction Data Order Changes Order Order Schedule Planning Performance Report Exception Reports

7/14/2010. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

7/14/2010. Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall. 15 Resource Planning PowerPoint Slides by Jeff Heyl For Operations Management, 9e by Krajewski/Ritzman/Malhotra 21 Pearson Education 15 1 Resource Planning At the heart of any organization Starts t with