Material Requirements Planning
Defined
• Materials requirements planning (MRP) is the
logic for determining the number of parts,
components, and materials needed to
produce a product.
• MRP provides time scheduling information
specifying when each of the materials, parts,
and components should be ordered or
produced.
• Dependent demand drives MRP.
Material Requirements
Planning System
• Based on a master production
schedule, a material requirements
planning system:
– Creates schedules identifying the
specific parts and materials required
to produce end items.
–
Determines exact unit numbers
needed.
–
Determines the dates when orders
for those materials should be
released, based on lead times.
3
Firm orders
from known
customers
Aggregate
product
plan
Forecasts
of demand
from random
customers
Engineering
design
changes
Master
production
schedule
(MPS)
Inventory
transactions
Bill of
material
file
Material
planning
(MRP)
Inventory
record
file
Reports
Product Structure Thinking
Challenge
The demand for product A is 50. How many of
each component is needed to satisfy demand?
A
B(2)
C(3)
E(3)
D(2)
E(1)
F(2)
G(1)
D(2)
Product Structure Solution
A
50
50 x 2 = 100
50 x 3 = 150
B(2)
C(3)
E(3)
D(2)
100 x 2 =
200
100 x 3 =
300
150 x 2 =
F(2)
300
E(1)
150 x 1 =
150
G(1)
Note:
D: 200 + 600 = 800
E: 300 + 150 = 450
300 x 1 =
300
D(2)
300 x 2 =
600
MRP Scheduling Terminology
• Net requirements – the amount needed to
meet gross requirements in a particular
period.
• Planned order receipt - amount of the item
that you are planning to receive in a
particular period
• Planned order release - an order that you
are planning to release in a particular
period
MRP Example - One item’s complete
record
Starting information
1
2
Gross Requirements
2
20
Scheduled Receipts
5
On-Hand
20
3
4
5
25
15
30
20
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lot-for-lot (LFL);
on-hand = 20 units; safety stock = 0 units.
MRP Example - Period 1
1
2
Gross Requirements
2
20
Scheduled Receipts
5
On-Hand
20
20
3
4
5
25
15
30
23
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lot-for-lot (LFL);
on-hand = 20 units; safety stock = 0 units.
MRP Example - Period 2
1
2
Gross Requirements
2
20
Scheduled Receipts
5
On-Hand
20
20
3
4
5
25
15
30
23
3
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lot-for-lot (LFL);
on-hand = 20 units; safety stock = 0 units.
MRP Example - Period 3
1
2
Gross Requirements
2
20
Scheduled Receipts
5
On-Hand
20
20
3
4
5
25
15
30
23
3
33
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lot-for-lot (LFL);
on-hand = 20 units; safety stock = 0 units.
MRP Example - Period 4
1
2
Gross Requirements
2
20
Scheduled Receipts
5
On-Hand
20
20
3
4
5
25
15
33
8
30
23
3
Net Requirements
Planned Order Receipts
Planned Order Releases
Lead time = 3; lot policy = lot-for-lot (LFL);
on-hand = 20 units; safety stock = 0 units.
MRP Example - Period 5
1
2
Gross Requirements
2
20
Scheduled Receipts
5
On-Hand
20
20
3
4
5
25
15
33
8
30
23
3
Net Requirements
7
Planned Order Receipts
7
Planned Order Releases
7
Lead time = 3; lot policy = lot-for-lot (LFL);
on-hand = 20 units; safety stock = 0 units.
Low Level Coding
Won’t having the
• What about this?
A
Level 0
Level 2
Level 3
C
B
Level 1
D
C
E
E
same part at different
levels make it harder
to do level by level
calculations?
Low Level Coding - “How to”
• Place each item at same level - it simplifies
the calculations
Before:
After:
A
A
Level 0
Level 2
Level 3
C
B
Level 1
D
C
E
E
B
D
C
C
E
E
Another MRP Example
An end item (A) is assembled from 1 sub-component C, 2 part D’s, and 1
sub-component B
Each sub-component C is assembled from 1 part D and 1 part E
Each sub-component B is assembled from 1 part C and 2 part E’s
The master production schedule calls for 250 units of A in week 6, 140 in
week 8, and 200 in week 9.
The following information is available from the inventory status file:
Part/Sub-component
A
B
C
D
E
Beginning
Available
5
5
0
0
5
Scheduled
Receipts
0
0
0
5 in week 1
5 in week 2
Lead Time Safety
Stock
1 week
0
1 week
5
2 weeks
0
1 week
0
1 week
0
Lot Size
L4L
10's
L4L
150 min.
10's
Types of Time Fences
• Frozen
–
No schedule changes allowed within this
window.
• Moderately Firm
–
Specific changes allowed within product groups
as long as parts are available.
• Flexible
–
Significant variation allowed as long as overall
capacity requirements remain at the same
levels.
Example of Time
Fences
Moderately
Firm
Frozen
Flexible
Capacity
Forecast and available
capacity
Firm Customer Orders
8
15
Weeks
26
Work-Center Scheduling
Objectives
• Meet due dates
• Minimize lead time
• Minimize setup time or cost
• Minimize work-in-process inventory
• Maximize machine utilization
Priority Rules for Job
Sequencing
1. First-come, first-served (FCFS)
2. Shortest operating time (SOT)
3. Last-come, first served (LCFS)
4. Earliest due date first (EDD)
Many other possible rules...
Example of Job Sequencing:
First-Come First-Served
Suppose you have the four
jobs to the right arrive for
processing on one machine.
What is the FCFS schedule?
Jobs (in order
of arrival)
A
B
C
D
Processing
Due Date
Time (days) (days hence)
4
5
7
10
3
6
1
4
Average Lateness
= (0 +1 + 8 + 11)/4
Answer: FCFS Schedule
Jobs (in order
of arrival)
A
B
C
D
Processing
Time (days)
4
7
3
1
Due Date Flow Time
(days hence)
(days)
5
4
10
11
6
14
4
15
= 5 days
Late
0
1
8
11
Average Flow Time
= (4+11+14+15)/4
= 11 days
Total Flow Time
Summary:
Priority
Rule
FCFS
SOT
LCFS
EDD
Average
Flow Time
11 days
7 days
7.75 days
7.25 days
Average
Lateness
5 days
2 days
2.75 days
1.75 days
Total
Flow Time
15
15
15
15
Characteristics of Location
Decisions
•
•
•
Long-term decisions
Very difficult to reverse
Affect fixed & variable costs
– Transportation cost
• As much as 25% of product price
– Other costs: Taxes, wages, rent etc.
•
Objective: Maximize benefit of location to
firm
Manufacturing Location
Strategies
•
Cost focus
– Revenue varies little
between locations
•
Location is a major
cost factor
– Affects shipping &
production costs (e.g.,
labor)
– Costs vary greatly between
locations
© 1995 Corel Corp.
Service Location Strategies
•
Revenue focus
– Costs differences
among locations are
relatively less important
•
Location is a major
revenue factor
– Affects amount of
customer contact
– Affects volume of
business
© 1995 Corel Corp.
Location Methods:
Factor Rating Method
•
•
•
Most widely used location technique
Useful for service & manufacturing
locations
Rates locations using factors
– Qualitative (intangible) factors
• Example: Education quality, labor skills
– Quantitative (tangible) factors
• Example: Short-run & long-run costs
Factor Rating Method Solution
Factor
Weight Score
Mfg. costs
0.7
8
Cost of living
0.1
7
Labor avail.
0.2
10
1
Omaha is best
Omaha
Denver
Weighted
Weighted
Factor
Score Factor
5.6
6
4.2
0.7
6
0.6
2
8
1.6
8.3
6.4
Location Methods:
Factor Rating Method +/+ Easy to understand and compute
- How do you pick weights?
- How do you assign rankings?
Location Decision Sequence
1. Country
2. Region/Community
3. Site
© 1995
Corel Corp.
© 1995 Corel Corp.
© 1995
Corel Corp.
Plant Location Methodology:
Centroid Method Formulas
Cx =
d V
V
ix
i
Cy =
i
d V
V
iy
i
i
Cx = X coordinate of the centroid
Cy = Y coordinate of the centroid
dix = X coordinate of the ith location
diy = Y coordinate of the ith location
Vi = volume of goods moved to or from ith
location
Plant Location Methodology:
Example of Centroid Method
• Centroid method example
– Several automobile showrooms are located according to the
following grid which represents coordinate locations for each
showroom.
S ho wro o m
Y
Q
No o f Z-Mo b ile s
s o ld p e r mo nth
(790,900)
D
A
1250
D
1900
Q
2300
(250,580)
A
(100,200)
(0,0)
X
Question: What is the best location for a new Z-Mobile
warehouse/temporary storage facility considering only distances
and quantities sold per month?
Thinking Challenge Solution
Warehouse at (77, 57):
Wenatchee Nat’l Forest!
Seattle
(50,60)
494k units
90
60
X
30
Aberdeen (20,35)
18k units
Spokane
(160,50)
171k units
0
© 1995 Corel Corp.
0
30
60
90
120
150
Balancing Supply Chain
Capability with Customer
Demands
Increased Demand:
Marketing programs
Promotions
Customer
Requirements
Supply Chain
Capability
Customer
Requirements
Supply Chain
Capability
Suppliers,
Manufacturers,
Distributors,
Carriers
Market
Demand,New
Products,
Promotions
Increased
Costs
Overtime
Expediting
Increased
Inventory
Information
Information
Internal Supply-Chain
Performance
• Inventory Turnover =
Cost of goods sold
Average inventory value
.
 Average Inventory Value 
Weeks of Supply  
(52 Weeks)
 Cost of Goods Sold 
Supply Chain Measures
Common practice is to measure within a function:
Supplier
Price
Plant
Cost
Efficiency
Output
Distribution Customer
Center
Inventory
Stock Rotation
Space
Cost
Quality
Speed
Flexibility
Measure Across Supply Chain
Nodes
The correct method is to measure across a node:
Supplier
Plant
Cycle Time
On-time Delivery
Vendor Managed
Inventory
Distribution
Center
Cycle Time
Delivery Reliability
Product Availability
Customer
Cycle Time
Order Completion
Performance
The Bullwhip Effect – Cont’d
What is Outsourcing?
Defined
Outsourcing: moving a firm’s internal
activities and decision responsibility to
outside providers.
Reasons to Outsource
• Organizationally-driven - gain focus
• Improvement-driven - quality, skills, innovation
• Financially-driven - reduce asset investment
• Revenue-driven - gain market access, expand sales
• Cost-driven - supplier has lower cost structure