Manufacturing Planning and Control MPC 6th Edition Chapter 6 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Material Requirements Planning (MRP) Material Requirements Planning (MRP) has the managerial objective of providing “the right part at the right time” to meet the schedules for completed products. MRP provides a formal plan for each part number–raw materials, components, and finished products. 6-2 Agenda What is Material Requirements Planning (MRP)? MRP and Manufacturing Planning & Control MRP Record Processing MRP Technical Issues Using the MRP System MRP System Dynamics 6-3 Manufacturing Planning and Control System Sales and operations planning Master production scheduling Routing file Bills of material Detailed capacity planning Detailed material planning Demand management Front End Inventory status data Time-phased requirement (MRP) records Engine Material and capacity plans Shop-floor systems Supplier systems Enterprise Resource Planning (ERP) System Resource planning Back End 6-4 Basic MRP Record Gross Requirements Scheduled Receipts MRP Record Projected Available Balance Planned Order Releases 6-5 Basic MRP Record A previously released order due in period 1 Requirements from all sources On hand 1 Gross requirements 4 5 40 10 4 44 50 4 54 Planned order releases Lead time = 1 period Lot size = 50 3 10 Scheduled receipts Projected available balance 2 Period 44 44 50 A unreleased order due in period 5 6-6 Bill of Materials The BOM shows the components and sub-assemblies required to produce a product 6-7 Product Structure Diagram Finished product is located at the top, components below Sub-assemblies are represented by separate levels 6-8 Indented Bill of Materials Finished item is not indented Level 2 sub-assemblies Level 1 sub-assemblies Level 1 components Components and sub-assemblies are indented relative to their order of usage 6-9 Explosion Explosion–the process of translating product requirements into component part requirements Considers existing inventories and scheduled receipts Calculating the quantities of all components needed to satisfy requirements for any given part. Continued until all parts have been considered, leading to exact requirements for all purchased and/or raw material parts 6-10 Gross and Net Requirements Gross requirements represent the total planned usage for the part Net requirements account for existing inventory and/or scheduled receipts 100 req’d – 25 inventory = 75 net req’d Net req’d for assembly becomes gross req’d for component 75 req’d – 22 inventory – 25 sched. rec. = 28 net req’d 6-11 Demand Types in MRP Dependent–component or sub-assembly demand driven by net requirements from the next higher level (e.g. scoop demand caused by net requirements for scoop assemblies) Independent–demand driven by requirements from outside the firm (e.g. customer orders) 6-12 Lead Time Offsetting Gross to net explosion shows how much of each part is required, but not when Timing requires consideration of two factors Lead times–how long does it take to obtain the component or sub-assembly Precedent relationships–the order in which parts must be assembled MRP considers both factors when developing the plan 6-13 Scheduling Logic Two common approaches to scheduling exist Front schedule–schedule each step as early as possible Back schedule–schedule each step as late as possible MRP combines back scheduling and gross to net explosion Reduced inventories Minimized storage time 6-14 Back Scheduling Top handle assembly has the longest duration of any sub-assembly Scoop assembly must be complete before final assembly can begin Only when all subassemblies and components are available can final assembly begin 6-15 MRP Records Planned order release for top handle assembly becomes gross requirement for top handle component and nail (note 2 nails required per assembly) Lot-for-lot order policy exactly matches supply to net requirements Fixed lot size order policy requires orders in multiples of lot size 6-16 MRP Technical Issues Processing frequency–recalculating all records and requirements is called regeneration This is a computationally intensive process so it is often run in the background and during periods of low system demand Net change approach only recalculates those records that have experienced changes Less frequent processing results in an out-of-date picture More frequent processing increases computer costs and may lead to system nervousness 6-17 Safety Stock and Safety Lead Time Safety stock is buffer stock over and above the quantity needed to satisfy gross requirements Used when quantity uncertainty is the issue Safety lead time changes both the release and due date of shop and/or purchase orders to provide a margin for error Used when timing of orders is the issue Safety lead time is not just an inflated lead time 6-18 Pegging Pegging provides a link between demand (order releases, customer orders, etc.) and the gross requirements for parts Pegging records include the specific part numbers associated with a gross requirement Pegging information can track the impact of a problem (e.g. material shortage) back to the order(s) it will affect 6-19 Firm Planned Orders Regeneration of the MRP records can lead to large numbers of planned order changes To avoid this, a planned order can be converted to a firm planned order (FPO) An FPO is not the same as a scheduled delivery, but can’t be changed by the MRP system Temporarily overrides the MRP system to provide stability or to solve problems 6-20 Planning Horizon Total amount of time included in MRP calculations Longer planning horizon increases computational requirements Shorter planning horizon may result in lesseffective plans if significant future demand is not visible At a minimum, should cover the cumulative lead time for all finished goods items 6-21 Scheduled Receipts vs. Planned Order Releases Scheduled receipts represent an actual commitment (purchase order, production order, etc.) Planned orders are only the current plan and can be changed more easily Scheduled receipts for production orders already have component materials assigned Scheduled receipts do not impact gross requirements Planned order releases do not have component materials assigned Planned order releases do impact gross requirements 6-22 Using the MRP System MRP Planner Exception Codes MRP Aspects Bottom-Up Replanning MRP System Output 6-23 MRP Planner Tasks Release Reschedule Analyze and Update Reconcile Identify Problems Solve Shortages Enhance • Purchase orders • Shop floor (production) orders • Change due dates of existing orders (when desirable) • Set lot sizes and lead times • Adjust scrap allowances and safety stocks • Identify errors and inconsistencies and eliminate their root causes • Take action now to prevent future crises • Adjust records and system parameters to prevent recurrence • Identify system enhancements to improve performance 6-24 Exception Codes Separating the vital few from the trivial many Requirements that cannot be Part numbers Orders with satisfied with planned unsatisfactory orders in the within system timing or parameters immediate quantity period (management input needed) 6-25 Bottom-Up Replanning Using pegging data to guide efforts to solve material shortages Pegging data allows the planner to take action only when actual customer orders are impacted 6-26 MRP System Output Part number and description MRP system data MRP planning data Exception messages 6-27 MRP System Dynamics MRP System Issues Transactions during a period– unexpected changes Rescheduling– moving the due date of an order to an earlier or later date Complex transactions– inventory adjustments, service parts, etc. Procedural inadequacies– situations the system wasn’t designed to handle 6-28 Principles Effective use of an MRP system allows development of a forward-looking approach to managing material flows. The MRP system provides a coordinated set of linked product relationships, which permits decentralized decision making for individual part numbers. All decisions made to solve problems must be implemented within the system, and transactions must be processed to reflect the resultant changes. Effective use of exception messages allows attention to be focused on the “vital few” rather than the “trivial many.” 6-29 Quiz – Chapter 6 Material Requirements Planning (MRP) takes place in the front end systems of the manufacturing planning and control system? (True/False) In a Material Requirements Planning (MRP) system, what does time-phasing of gross requirements mean? Front scheduling logic starts each step of the process as late as possible? (True/False) A lot-for-lot order policy generates orders for a fixed quantity, independent of actual requirements? (True/False) Processing all Material Requirements Planning (MRP) records in a single computer run is called ___________? Safety lead time involves inflating lead times to ensure stock 6-30 availability? (True/False)