Supply Chain Management

Supply Chain Management
Maggie 00000005033
Material Requirements Planning (MRP)
1. Definition
MRP is a computerized inventory control and production planning
system. The objective of MRP is to maintain the lowest possible level of
inventory. It does this by determining when the component items are needed
and scheduling them to be ready at that time. It planned the purchasing
activities, manufacturing activities, and delivery schedules. Its not only an
inventory control system, but a production scheduling system as well.
2. When to use MRP
MRP is useful for,
- Dependent demand items
Find out the demand for component parts product by looking from the
finished product. For example, if we want to manufacture a table, then we
would know right away that we would need to manufacture four table
legs. The demand of the table legs, is totally dependent on the demand
-
for tables.
Discrete demand items
With component items, demand does not necessarily occur on a
continuous basis. It is discrete, not continuous.

Complex products
A complex product may have hundreds of component parts, dozens of
assemblies, and several levels of assembly. MRP ensure that multiple
components of an assembly are ready at the same time so that they can
be assembled together.
Erratic orders
When customer orders are erratic (unpredictable), MRP could keep track of
the different jobs and coordinate their schedules.

Assemble to order
MRP systems are very useful in industries in which the customer is
allowed to choose among different options. These products have many
common components that are inventoried in some form before the
customer order is received.
3. Three major inputs for the MRP process

- Master Production Schedule
Specifies which end items or finished products a firm is to produce,

how many are needed, and when they are needed. It works within the
constraints of aggregate production plan but produces a more specific
schedule by individual products with more specific time frame.
The master production schedule drives the MRP process. The
schedule of finished products provided by MPS is needed before the MRP
system can do its job of generating product schedules for component
-
items.
Product Structure File
Once the MPS is set, the MRP system accesses the product structure file to
determine which component items need to be scheduled. The product
structure file contains a bill of material (BOM) for every item produced.
BOM list the items that go into the product. An assembled item referred to
as a parent, and a component as a child. Several specialized BOM have
been
designed
to
simplify
the
information
requirements,
clarify
relationships, and reduce computer processing time, which consists of:

1. Phantom Bills
Phantom bills are used for transient subassemblies that never see a
stockroom because they are immediately consumed by the next stage
of manufacture.
2. K-Bills
K-bills group small, loose parts such as fasteners, nuts, and bolts
together under one pseudo-item number. In this way, requirements for
the items are processed only once (for the group) rather than for each
individual item.
3. Modular Bills
It is only appropriate when the product is manufactured in major
subassemblies or muddles that are later assembled into the final
product with customer-designated options. The end item in the master
production schedule is not a finished product, but a major option or
module. Thus, reduces the number of BOM that need to be input,
maintained, and processed by the MRP system.
4. Time-Phased Bills
A horizontal product structure diagram that graphically shows the lead
time required to purchase or manufacture an item. An MRP system can
forward
schedule
or
backward
schedule
production.
Forward
scheduling starts at todays date and schedules forward to determine
the earliest date a job can be finished. Backward scheduling starts at

the due date and schedules backwards to determine when to begin
-
work.
Item Master File
Contains an extensive amount of information on every item that is
produced, ordered, or inventoried in the system. The item master file is
updated whenever items are withdraw from or added to inventory or
whenever an order is released, revised, or completed.

4. The MRP Process
- The MRP process
Exploding the bill of material
Netting out inventory
Lot sizing (Lot size: the quantities in which an items is usually made
or purchased)
Time-phasing requirements
Entries in the matrix include:
Gross requirements: begin the MRP process
Scheduled receipts: items on order that are scheduled to arrive in
future time periods
Projected on hand: inventory currently on hand
Net requirements: what actually needs to be produced after onhand and on-order quantities have been taken into account
Planned order receipts: represent the quantities that will be ordered
and when they must be received.

Lot sizing in MRP systems
Several lot sizing techniques available in the MRP systems are the
Economic Order Quantity (EOQ) and the Periodic Order Quantity (POQ).
EOQ can be adapted for use in MRP if it is treated as a minimum order
quantity. The EOQ is only used sparingly, usually at the finished product or
raw material level, and does not perform well when demand is highly
variable. POQ is more suited to variable demand.

5. MRP outputs
The output of MRP process are planned orders. MRP output can recommend
changes in previous plans or existing schedules. The MRP ensures that
material requirements are met.
Capacity Requirements Planning (CRP)

1. Definition
Capacity Requirements Planning is the next step in the planning process. It is

the process to verify that the MRP plan is feasible by checking for the
availability of labor and/or machine hours. It is a computerized system that
projects the load from a given material plan onto the capacity of a system
and identifies underloads and overloads.
2. Three inputs to CRP:
- The planned order releases from the MRP process
- A routing file which specifies which machines or workers are required to
complete an order from the MRP plan, in what order the operations are to
-
be conducted, and the length of time each operation should take.

As open orders file, which contains information on the status of jobs that
have already been released but have not yet been completed.
3. Calculating Capacity
Capacity is the maximum capability to produce. It can be measured as units
of output, dollars of output, hours of work, or number of customers processed
over a specific period of time. Capacity is affected by the mix of products and
services, the choice of technology, the size of a facility, and the resources
allocated.
Effective daily capacity = (number of machines or workers) x (hours per
shift) x (number of shifts) x (utilization) x (efficiency)
Utilization refers to the percentage of available working time that a worker
actually works or a machine actually runs.
Efficiency refers to how well a machine or worker performs compared to a
standard output level
4. Load Profiles
Load profiles are a graphical comparison of load versus capacity.
- Underload conditions can be leveled by:
1. Acquiring more work
2. Pulling work ahead that is scheduled for later periods
3. Reducing normal capacity

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Supply Chain Management

continuous basis. It is discrete, not continuous.

the different jobs and coordinate their schedules.

3. Three major inputs for the MRP process

Specifies which end items or finished products a firm is to produce,

relationships, and reduce computer processing time, which consists of:

scheduling starts at todays date and schedules forward to determine

the earliest date a job can be finished. Backward scheduling starts at

whenever an order is released, revised, or completed.

and when they must be received.

variable. POQ is more suited to variable demand.

Capacity Requirements Planning (CRP)

Capacity Requirements Planning is the next step in the planning process. It is

be conducted, and the length of time each operation should take.

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