Chapter4 MRP Profesor
Chapter4 MRP Profesor
Chapter4 MRP Profesor
Departamento de Organización de
Empresas y Marketing Dirección de Operaciones II- English teaching
Área de Organización de Empresas
SECTION 2: TACTICAL/OPERATIONAL
DECISIONS
4.1. Introduction
4.2. Dependent Inventory Model Requirements
4.2.1. Master Production Schedule (MPS)
4.2.2. Bills of Material
4.2.3. Lead Times for Each Component
4.3. MRP Structure
4.4. MRP in Services
2
4.1 Introduction
Material Requirements Planning (MRP): a
dependent demand technique that uses bill-of-
material, inventory, expected receipts, and a master
production schedule to determine material
requirements
Dependent demand: demand for one item is related
to the demand for another item
Enterprise Resource Planning (ERP): information
system for identifying and planning the enterprise-
wide resources needed to take, make, ship, and
account for customer orders
3
4.2 Dependent Inventory Model
Requirements
Dependent inventory models require:
Master Production Schedule (MPS): what is to be made
and when
Specifications or bill of material: materials and parts
required to make the product
Inventory availability: what is in stock
Purchase orders outstanding: what is on order
Lead times: how long it takes to get various components
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4.2.1. Master Production
Schedule (MPS)
Months January February
Aggregate Production Plan 1,500 1,200
(shows the total
quantity of amplifiers)
Weeks 1 2 3 4 5 6 7 8
Master Production Schedule
(shows the specific type and
quantity of amplifier to be
produced
240 watt amplifier 100 100 100 100
150 watt amplifier 500 500 450 450
75 watt amplifier 300 100
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The Planning Process
8
The Planning Process
Production Marketing Finance
Capacity Customer Cash flow
Inventory demand
Management Engineering
Return on Aggregate Design
investment production completion
Capital plan
Change
production
Master production plan?
schedule
9
The Planning Process
Master production
schedule Change
master
Change production
requirements? Material schedule?
requirements plan
Change
capacity? Capacity
requirements plan
No Is capacity Is execution
Realistic? plan being meeting the
met? plan?
Yes
Execute capacity
plans
Execute
material plans
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4.2.2. Bills of Material
Bills of Material (BOM): a listing of the
components, their description, and the quantity
of each required to make one unit of product
It provides a product structure (tree):
Items above any level are called parents;
items below any level are called components or
children
Low-Level Coding: is necessary when identical
items exist at various levels in the BOM. It
means that the item is coded at the lowest level
at which it occurs
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Low-Level Coding
Level WRONG Level RIGHT
0 A 0 A
12
BOM Example
Speaker Kits, Inc., packages high-fidelity
components for mail order. Components for the top-
of-the-line speaker kit, “Awesome” (A), include 2
standard 12-inch speaker kits (B) and 3 speaker kits
with amp-boosters (C). Each B consists of 2
speakers (D) and 2 shipping boxes each with an
installation kit (E). Each of the three 300-watt stereo
kits (C) has 2 speaker boosters (F) and 2 installation
kits (E). Each speaker booster (F) includes 2
speakers (D) and 1 amp-booster (G). Given this
information, we can construct the following product
structure:
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BOM Example
Level Product structure for “Awesome” (A)
0 A
1 B(2) Std. 12” Speaker kit C(3) Std. 12” Speaker kit w/
amp-booster
Amp-booster
Amp-booster
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4.2.3. Lead Times for Each
Component
Must have D and E
Start production of D completed here so
production can
begin on B
1 week
2 weeks to
D produce
B
2 weeks
E
A
2 weeks 1 week
E
2 weeks 1 week
G C
3 weeks
F
1 week
D
| | | | | | | |
1 2 3 4 5 6 7 8
Time in weeks 17
4.3. MRP Structure
Gross material requirements plan:
A schedule that shows the total demand for an item
(prior to subtraction of on-hand inventory and
scheduled receipts) and (1)when it must be ordered
from suppliers, or (2)when production must be started
to meet its demand by a particular date
It combines a MPS and the time-phased schedule
It shows when an item must be ordered from
suppliers if there is no inventory on hand or when the
production of an item must be started to satisfy
demand for the finished product by a particular date
Gross material requirements (GRi)
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4.3. MRP Structure
Week
1 2 3 4 5 6 7 8 Lead Time
A. Required date 50
Order release date 50 1 week
B. Required date 100
Order release date 100 2 weeks
C. Required date 150
Order release date 150 1 week
E. Required date 200 300
Order release date 200 300 2 week
F. Required date 300
Order release date 300 3 weeks
D. Required date 600 200
Order release date 600 200 1 week
G. Required date 300
Order release date 300 2 week
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4.3. MRP Structure
Net material requirements plan: the result of adjusting gross
requirements for inventory on hand and scheduled receipts
Planned receipt: the quantity planned to be received at a future
date (PRi)
Planned order receipt: the quantity of a planned order to be
received at a future date (PORi)
Planned order release: the scheduled date for an order to be
released, or, when the order needs to be made. It needs to take into
account the lead time for each product or component to be delivered
or made and the date in which it needs to be received or made
(PORRi)
Availability (Ai): real quantity in stock
Ai+1 = Ai + PRi + PORi -GRi
Security Stock (SSi): inventory that has to be maintained to avoid
lack of inventory. This quantity cannot be used in the planning
process.
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Net material requirements (NRi): is the result of adjusting the
gross material requirements with the available inventory and the
planned receipts
If the expression is [-], it means that the company does not need to
make an order and therefore NRi = 0
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Lot-sizing techniques
An MRP system is an excellent way to determine production schedules and
net requirements. However, whenever we have a net requirement, a
decision must be made about how much to order (lot-sizing decision)
Lot-sizing decision: the process of, of techniques used in, determining the
lot size
Lot-for-lot: generates exactly what was required to meet the plan
Q = NRi
Optimal Order quantity: we fix the order quantity using the optimal
order quantity model (see annex)
Constant period: the lot is equal to the sum of the net material
requirements for the chosen period
We can fix the interval between orders intuitively
The interval between orders is chosen from a constant period basic model
(see annex)
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Adjustments in the lot size:
After determining the lot size, sometimes that lot size may need to
be adjusted regarding some practical issues, for example:
These adjustments can lead to an excess in the stock that may be used
for future needs.
Example 1 Net Material Requirements Planning
represented in weeks E 10 2
F 5 3
G 0 5 (t=3) 2
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NET MATERIAL REQUIREMENTS PLAN FOR
PRODUCT (A)
– Data: Lot size = lot-for-lot; Security Stock= 20; Level Code = 0;
Item= A
WEEKS
A
1 2 3 4 5 6 7 8
Gross Requirements
50
Planned receipts 10
Availability 20 20 20 20 20 20 20 20 20
Net Requirements 40
WEEKS
B
1 2 3 4 5 6 7 8
Gross Requirements 80A
Planned receipts
10
Availability 15 15 25 25 25 25 25 25 10
Net Requirements 65
WEEKS
C
1 2 3 4 5 6 7 8
Gross Requirements 120A
Planned receipts
Availability 20 20 20 20 20 20 20 20 0
WEEKS
E
1 2 3 4 5 6 7 8
Gross Requirements 130B 200 C
Planned receipts
Availability
10 10 10 10 10 10 0 0 0
Net Requirements 120 200
WEEKS
F
1 2 3 4 5 6 7 8
Gross Requirements 200 C
Planned receipts
Availability 5 5 5 5 5 5 5 0 0
WEEKS
D
1 2 3 4 5 6 7 8
Gross Requirements
390F 130B
Planned receipts
20
Availability
10 10 30 30 15 15 15 15 15
Net Requirements 375 130
WEEKS
G
1 2 3 4 5 6 7 8
Gross Requirements 195F
Planned receipts
5
Availability 0
B C B C
Master schedule
Lead time = 4 for A Lead time = 6 for S for B
Master schedule for A Master schedule for S sold directly
Periods 5 6 7 8 9 10 11 8 9 10 11 12 13 1 2 3
40 50 15 40 20 30 10 10
Periods 1 2 3 4 5 6 7 8
Therefore, these
40+10 15+30
Gross requirements: B 10 40 50 20 are the gross
=50 =45
requirements for B
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4.4 MRP in Services
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Example 2
A company makes chairs as showed in the
B
picture.
D
The final product is a result of the assembly of
A E three components: A, B and C. B requires one
D and three E; C requires four F and four G.
Adapted from FERNÁNDEZ SÁNCHEZ, E.; VÁZQUEZ ORDÁS, C.J. ( 1994 ): Dirección de la Producción II. Métodos Operativos,
Cívitas, Madrid.
Master Production Schedule
DAY
1 2 3 4 5 6
CHAIR
400 250
Bills of Material
Data and on hand inventory
With all this information, please, build the Net Material Requirements Plan
Example 3
Gross material requirement plan:
Days
1 2 3 4 5 6
TIRES
We know that there are availability of 80 units, the security stock is 100
units, there is a planned receipt of 4020 un. for day 1 and the lead time
is 1 day. We also know that the order cost is Co = 2909 m.u. and the
holding cost is Ch = 0.6 m.u./un. and day.
With this information please, elaborate the net requirements plan,
knowing that the lot sizing technique used is the optimal order quantity
calculated with the optimal order quantity technique.
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Item = Tires; Level Code = 0; PRi= 0; Lot size = optimal order quantity; Security Stock =
100; On hand = 80; Planned receipt: 4020 in t=1
DAYS
Tires 1 2 3 4 5 6
Gross requirements 3.000 4.000 3.000 4.000
2 Co D
Q* = Q* =
2 x 2.909 x 10.000
= 4.020 uns.
Ch θ 0,6 x 6
Example 4
Gross material requirement plan:
Days
1 2 3 4 5 6 7 8
TIRES
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Item = Tires; Level Code = 0; PRi= 0; Required quantity = 6.050; Lot size = constant
period; Security Stock = 40; On hand = 90;
Days
Tires 1 2 3 4 5 6 7 8
Gross Requirements 2.040 200 1.200 1.800 810
Planned receipts
Availability 90 90 90 90 40 40 40 40 40
CALCULATION OF THE CONSTANT PERIOD USING THE CONSTANT PERIOD BASIC METHOD:
Planning period: 8 days
Total demand during the planning period = Net requirements = 1.990 + 200 + 1.200 + 1.800 + 810
= 6.000
Co: 1.500 m.u.
Ch : 1 m.u./day
2 x 1.500 x 8
2 Co θ T= T=2
T= 1 x 6.000
Ch D 40
Annex: Optimal order quantity model
AVAILABLE DATA:
Planning period: θ
D
d= d ≡ cnst.
θ
2 × Co × D
Q*=
Ch × θ
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Annex: Constant period basic model
AVAILABLE DATA:
Planning period: θ
D
d= d ≡ cnst.
θ
2 Co θ
T=
Ch D
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