MRP-ERP-OM
2-508-97 Production and Operations Management
INVENTORY
Idle stock reqd for Production
Carefully manged to reduce the cost
EOQ MODEL BOM
FAST/SLOW MOVING ITEM
OBSOLETE ITEMS USE OF I T
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From Aggregate to Master Planning
Aggregate Production Plan No
Can we produce 10,000 equivalent units (total for products A, B and C) per month for the next year?
Capacity ?
Yes Master Production Schedule No Feasibility approved? Yes Material Requirement Planning
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Can we produce 500 units of A, 600 of B and 400 of C per week for the next month ?
Production Plan VS Master Production Schedule
Production Plan
Objective Long term capacity decisions
Master Production Schedule
Mid term production planning Order promising
Product
Product families (Equiv. Units)
SKU level
(stock keeping unit)
Horizon
12 to 15 months
About 3 months
Time buckets
1 month
1 week
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The Aggregate Plan and the Master Production Schedule
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When to Order ?
Three approaches
Reorder
REACTIVE SYSTEMS
Point (continuous review system)
Constant amount ordered when inventory declines to predetermined level
Periodic Review System
(fixed time review period)
Order placed for variable amount after fixed passage of time
PROACTIVE SYSTEMS
Time Phased Order Point
Master Production Schedule Material Requirements Planning
Distribution Requirements Planning
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Objectives of the Master Production Schedule
Sales
Establish and meet delivery dates Determine launch dates for orders Optimize the use of available capacity
Purch.
Operations
Operations
Meet the objectives of the aggregate plan
Make trade-off decisions between production and marketing
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Systemic Approach
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Master Production Plan : Inputs
Inputs to the MPS are : Beginning Inventory
Forecasts for each week of the schedule
Customer orders (quantities already committed to customers) Total available capacity for each week of the schedule
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Developing a MPS
Identification of individual products. Development of an MPS grid for each product in real units according to the available data (forecast, committed orders, inventory levels, lot sizes, lead times) and the specified constraints.
Rough cut capacity planning in equivalent units (for all products).
Does the plans meet all constraints? (capacity limits, stock levels, etc.)
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Developing a MPS
Periods
Forecast Customer Orders Proj. on-hand Inv. MPS - Order Receipt MPS - Order Release
1 75 80 200 120
2 3 85 80 60 55 35 55 100 100
Lot size 100 units Lead time: 1 period
Forecast of the demand for the products with independent demand Firm orders received from the customers for period i. Projected on-hand Inventory (i) = Projected on-hand inv. (i - 1) + Planned production (i) - Max (Forecast (i) , Customer orders (i) )
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Developing a MPS
1) 2) Forecast for products with an independant demand Committed customer orders
Product X12DE Lot Size 200 Lead Time 1 Beginning Inventory 410
2a) Identify the Max between forecast and customer orders 3) Planned order receipts for each period:
Period Forecast Customer Orders
1 250 230 160 0 200
2 250 280 80 200 200
3 250 180 30 200 400
4 250 150 180 400
Projected inventory
Planned receipts Planned releases
4) Projected on-hand inventory (i) = beginning inventory (i - 1) + planned order receipts (i) - Max (forecast (i) , customer orders (i) )
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5) Planned order releases shifted back the length of the lead time
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Preliminary Plan : Complete the following MPS
Product A
Periods
Forecast Customer Orders Projected on-hand inv. 100 Planned Order Receipts Planned Order Releases
1 50 25
2 45 60
3 45 15
4 50 55
5 50 25
6 50 35
7 40
8 40
9 40
10 50
Product A Beginning Inventory = 100 Lot Size: 100 units Lead Time: 1 week 1 equivalent unit
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Preliminary Plan : Complete the following MPS
Product B
Periods
Forecast Customer Orders Proj. on-hand inv. 300 Planned Order Receipts Planned Order Releases
1 60 35
2 120 150
3 80 60
4 40 30
5 30 25
6 50 35
7 20
8 20
9 20
10 30
Product B Beginning Inv. = 300 Lot Size : 100 units Lead Time: 1 week 2 equivalent units
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Rough Cut Capacity Planning
Approximate calculation of the capacity required at critical work centers to meet the demand in order to check the feasibility of a Master Production Schedule. When the capacity required exceeds the capacity available the MPS must be adjusted before proceeding to the MRP.
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Final MPS : Rough Cut Capacity Planning
Products A and B
100 Prod B - Planned Order Releases 0 Total 100
Prod A - Planned Order Releases
0 0 0
100 200 300
0 0 0
100 200 300
0 0 0
0 0 0
100 0 100
0 0 0
0 0 0
Total capacity is 200 equivalent units per period. Establish the final MPS for each product. Because the total planned order releases of products A and B
is superior to 200 units in periods 3 and 5, we must move the release of one of the two articles to periods 2 and 4.
We decide, for example, to move the release of product A to periods 2 and 4. We must then complete the final plan for both products.
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Final MPS : Modifications to the Preliminary Plan
Product A
Periods
Forecast Customer Orders Proj. on-hand inv. 100 Planned Order Receipts Planned Order Releases
1 2 3 4 5 6 50 45 45 50 50 50 25 60 15 55 25 35 50 90 145 90 140 90 100 0 0 100 100 0 100 0 100 0 100 0
7 40
50 0 0
8 40
9 40
10 50
20 0 0
10 70 0 100 100 0
Planned Order Release is moved from period 3 to period 2. Consequently, Planned Order Receipts are moved from period 4 to period 3. Projected on-hand inventories must be recalculated to account for the changes.
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Final MPS : Modifications to the Preliminary Plan
Product B
Periods
Forecast Customer Orders Proj. on-hand inv. 300 Planned Order Receipts Planned Order Releases
1 2 3 4 60 120 80 40 35 150 60 30 240 90 10 70 0 0 0 100 0 0 100 0
5 30 25 40 0 0
6 7 50 20 35 90 70 0 100 100 0
8 20 50 0 0
9 20 30 0 0
10 30 0 0 0
Since weve made no changes to the planned order releases of prodcut B, le preliminary and final plans are identical.
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Demand Characteristics
Independent demand Dependent demand
100 x 1 = 100 tabletops
100 tables
100 x 4 = 400 table legs
Continuous demand
400 No. of tables 400 No. of tables 300 200 100
Discrete demand
300
200 100
1 2 3 Week 4 5
M T W Th F
M T W Th F
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Reorder Point System VS MRP
Demand for the tables Quantity
Time Inventory of tables On-hand inventory Time
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Reorder Point System VS MRP
Demand for the table legs
Quantity
Inventory of the table legs
Quantity
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Objectives of MRP
Calculate with precision the quantities of components, parts and raw material that must be produced or purchased in order to realize the MPS HOW MANY ? To determine when to release production or to place the orders in order to receive the required units at the right moment WHEN ?
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Material Requirements Planning : Information Structure
Aggregate Planning
Forecasts
MPS
Customer Orders
Item Master File
MRP
- Stocks on hand - Safety stocks - Lot sizes - Economic Order Quantities - Lead time
Bill of Material
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Bill of Materials (BOM)
Product Structure Tree
Level 0
X Y (3) Z (2) W (2) Y (1)
Parent Component Parent
Level 1
Level 2
Component
For each product X we need 3 Y and 2 Z For each product Z we need 2 W and 1 Y
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Problems
S&H (2007) p.515 #3 - S&H (2004) p.628 #3
Item
Lead Time
Amount on Hand
Direct Components
End
L C K B J G H
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1
2 3 3 2 3 3 2
0
10 15 20 30 30 5 0
L(2), C(1), K(3)
B(2), J(3) G(2), B(2) H(4), B(2)
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MRP Matrix
Note: The book from Stevenson shows the projected inventory at the beginning of the period, this is not the usual way to do it, so we will always show the projected inventory at the END of the period
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MRP calculation process
Always process the items in the order of their low level code: level 0 level 1 level 2 When an item appears at different levels of the product structure(s), the lowest level (highest number) is the level that we must use. Gross requirements for an item are calculated by:
Multiplying the quantity of the planned order release(s) of the parent(s) of the item by the quantity required as per the BOM for the specific parent-component relationship(s).
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Lot Sizing in MRP Systems
Lot-for-lot (L4L) ordering policy Minimum order quantity (Ex: Min 250) Multiple order quantity (Ex: X100) Economic order quantity (Ex: 350; annual demand: 4 200) Periodic order quantity (Ex: 2 months)
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Example
A company is manufacturing several office supply items among which we have:
Clipboard Lapdesk etc.
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Product Structure
Clipboard
Top clip (1)
Bottom clip (1)
Pivot (1)
Spring (1)
Rivets (2) Finished clipboard Pressboard (1)
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Product Structure Tree
Clipboard
Level 0
Pressboard (1)
Clip Assy (1)
Rivets (2)
Level 1
Top Clip (1)
Bottom Clip (1)
Pivot (1)
Spring (1)
Level 2
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MRP: Example (cont.)
Product Structure Record
Clipboard
Level 0
Pressboard (1)
Clip Assy (1)
Rivets (2)
Level 1
Lapdesk
Level 0
Pressboard (2)
Trim (3)
Beanbag (1)
Glue (4 oz)
Level 1
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MRP: Example (cont.)
ITEM: CLIPBOARD LOT SIZE: L4L LLC: 0 LT: 1 LLC: 0 LT: 1 1 2 PERIOD 3 4 5
M.P.S.
Planned Order Releases
ITEM: LAPDESK LOT SIZE: MULT 50 1 50 1
100
2
100
PERIOD 3 50 PERIOD 3
100
4 5
Planned Order Releases ITEM: PRESSBOARD LLC: 1 LOT SIZE: MIN 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases
M.R.P.
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MRP: Example (cont.)
ITEM: CLIPBOARD LOT SIZE: L4L LLC: 0 LT: 1 1 2 100 PERIOD 3 100 PERIOD 3 50 4 100 5
M.P.S.
Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50 LLC: 0 LT: 1
x1
1 50 2
x1
4
x1
5
Planned Order Releases ITEM: PRESSBOARD LLC: 1 LOT SIZE: MIN 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases
x2
1 100
x2
PERIOD 2 3 4 100 200 100
5 0
M.R.P.
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MRP: Example (cont.)
ITEM: CLIPBOARD LOT SIZE: L4L LLC: 0 LT: 1 LLC: 0 LT: 1 1 2 100 1 50 1 100 50 2 PERIOD 3 100 PERIOD 3 50 PERIOD 2 3 4 100 200 100 50 50 100 150 0 150 150 100 0 100 100 5 0 0 4 100 4 5 5
M.P.S. M.R.P.
Planned Order Releases ITEM: LAPDESK LOT SIZE: MULT 50
Planned Order Releases ITEM: PRESSBOARD LLC: 1 LOT SIZE: MIN 100 LT: 1 Gross Requirements Scheduled Receipts Projected on Hand 150 Net Requirements Planned Order Receipts Planned Order Releases
100
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MRP: Example (cont.)
Planned Order Report PERIOD ITEM Clipboard Lapdesk Pressboard 1 2 100 50 100 150 3 100 50 100 4 100 5
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Product A
Item Product A MPS Sales Forecast Customer Orders Projected inventory Order Receipts Order releases Item Product Z
Lot size 200
Sub.-Ass. B (2)
Component C (1)
135
LT 1 1 25 30 105
2 25 20 80
3 25 15 55
4 25 10 30
5 25 5 200
6 25 5 180 200
Lot size 500
Component C (3)
Component D (4)
MPS Sales Forecast Customer Orders Projected inventory Order Receipts Order releases
135
LT 2 1 30 35 100
2 30 20 70
3 30 15 40 500
4 30 20 10
5 30 10 480 500
6 30 5 450
Product Z
Item Sub-ass. B MRP Gross Requirements Gross Requirements Gross Req. Tot. Projected inventory Net Requirements Planned Order Receipts Planned Order Releases Item Component C MRP Gross Requirements Gross Requirements Gross Req. Tot. Projected inventory Net Requirements Planned Order Receipts Planned Order Releases Item Component D MRP Gross Requirements Gross Requirements Gross Req. Tot. Projected inventory Net Requirements Planned Order Receipts Planned Order Releases
Lot size 1 500
Prod. A Prod. Z
Sub.-Ass. B (3)
Component D (2)
200
LT 2 1 0 0 0 200
2 0 0 0 200
1 500 Lot size 4 500
Prod. A
3 0 1 500 1 500 200 1 300 1 500 1 500
4 0 0 0 200
5 400 0 400 1 300 200 1 500
6 0 0 0 1 300
Component C (3)
Component D (4)
Sub-ass. B 4 600
LT 1 1 0 4 500 4 500 100
2 0 0 0 100
3 0 4 500 4 500 100 4 400 4 500
4 0 0 0 100
5 200 0 200 4 400 100 4 500
6 0 0 0 4 400
4 500 Lot size 10 000
Prod. Z
4 500
Sub-ass. B 6500
LT 1 1 0 6 000 6 000 500
2 0 0 0 500
3 1 000 6 000 7 000 3 500 6 500 10 000
4 0 0 0 3 500
5 0 0 0 3 500
6 0 0 0 3 500
10 000
Month 0 1 2 3 4 5
Gross Requirements
Lot-for-lot (L4L) ordering policy Net Requirements Planned order receipts Projected on-hand inventory Fixed-size lot ordering policy (Ex: 500) Net Requirements Planned order receipts Projected on-hand inventory Minimum order quantity (Ex: Min 250) Net Requirements Planned order receipts Projected on-hand inventory Multiple order quantity (Ex: X100) Net Requirements Planned order receipts Projected on-hand inventory Economic order quantity (ex: 700; Ann. Dem: 4200) Net Requirements Planned order receipts Projected on-hand inventory Periodic order quantity (2 months) Net Requirements Planned order receipts Projected on-hand inventory
75
75 75 0
350
350 350 0
200
200 200 0
750
750 750 0
1000
1000 1000 0
75 500 425
75
125 500 375
375 500 125
875 1000 125
75 250 175
175 250 75
125 250 125
625 625 0
1000 1000 0
75 100 25
325 400 75
125 200 75
675 700 25
975 1000 25
75 700 625
275
75
675 700 25
975 1400 425
75 425 350
200 950 750
1000 1000 0
Establishing the Minimum Planning Horizon
A
Lead Time = 2 periods
B
Lead Time = 2 periods
C
Lead Time = 3 periods
4 periods
D(2)
Lead Time = 2 periods
E
Lead Time = 4 periods
7 periods 9 periods
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Establishing the Minimum Planning Horizon
LT = 2 periods
LT = 2 periods
LT = 4 periods
D(2)
LT = 3 periods
LT = 2 periods
Periods
A B C D E Assembly Purchase Assembly Purchase Purchase LT 2 2 3 2 4 2 3 4 5 6 7 100 100 8 100 9 100 10 100
100 200 100 100 200
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MPS / MRP PROCESS
Planned Order Receipt
MPS
Level 0
Planned Order Release Gross Requirements Net Requirements Planned Order Receipt Planned Order Release
Bill of materials
Materials Requirement Planning
Level 1
On-hand Inv. Lot Sizing
Lead time
Level 2
Gross Requirements Net Requirements Planned Order Receipt
Minimum Planning Horizon
Planned Order Release Supplier
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Ref.: adapted from D. A. Turbide, MRP+, Industrial Press, 1993.
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ERP
EXTN OF MRP
ENTIRE ORGANIZATION IS USED
IT MUST WASTEFUL WORK IS ELIMINATED
INFORMATION AT FINGER TIP
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