Topic 13 - 0
MRP:
is a Planning Procedure through which, the Supply Plan
(Production Plan for Parts that made in-house, or Procurement Plan
for Purchased Materials) for all Materials (RM/Parts/Subassembly.)
that required to produce End Product are Determined, in terms of
Timing and Quantity based on the Information from
MPS/BOM/Inventory to achieve desired objectives.
3. BOM
Objectives of MRP:
1. Satisfying Master Production Scheduling (MPS).
2. Minimizing Inventory Investment Costs.
3. Maximizing System Operating Efficiency (Better Control).
4. Improving Customer Service Level (Reduced Leadtime).
5. Providing Right Parts at Right Quantity on Right Time.
2. From BOM:
Product Structure (Level Coding) with required Quantity and
Parent ship.
Leadtime (Production Leadtime/Purchasing Leadtime).
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Topic 13 - 5
Topic 13 - 6
Scheduled receipts
50
Projected available balance
Net requirements
Planned order receipts
Planned order releases
Gross requirements: the overall quantity on an item needed during each time
period
Scheduled receipts: the quantity of an item that will be received at the
beginning of a time period as a result of manufacturing orders or purchase
orders that have already been placed (open orders)
Projected available balance: the expected quantity of an item in inventory at
the end of each time period. It can be calculated by the following equation:
projected
= projected
+ scheduled
+ planned order gross
available
available
receipts in
receipts in
requirements in
balance in the
balance in
period t
period t
period t
period t
period t-1
Net requirements: the net quantity of an item that must be provided to satisfy
the parent or MPS requirements. It can be calculated by the following
equation:
Net requirements in = gross
+ projected available - scheduled receipts
period t
requirements in
balance in period t-1 in period in period t
period t
Planned order receipts: the size of the planned order (the order has not placed
or released yet) and when it is needed. This appears in the same period as the
Net requirements, but its size is modified by the appropriate lot sizing
policy.
Planned order release: when the order should be placed or released so that the
items are available when needed by the parent. This is the same period as the
Planned order receipts offset for the items lead time. Planned Order
Releases at one level generate the gross requirements at lower levels. When
the order is placed, it is removed from the planned order receipts and
planned order releases row and entered in the scheduled receipts row.
Topic 13 - 7
A
3
1
B
1
2
Master Schedule:
Week
MPS planned order releases for X
1
110
on-hand quantity = 20
Lot size = lot-for-lot
Gross requirements
Scheduled receipts
Projected available balance
Net requirements
Planned order receipts
Planned order releases
200
MRP Exercise
Topic 13 - 8
3
60
5
15
lead time = 1 WK
safety stock = 0
Week
5
6
30
8
10
5
20
D(3)
C(2)
C(1)
Items
A
B
C
D
E
F
Item:
D(1)
E(2)
C(1)
Lead Time
1 week
2
3
1
2
3
Parent item:
Lead Time:
F(3)
E(2)
Inventory On Hand
5
0
10
25
0
70
Order Policy:
Topic 13 - 9
Safety Stock:
Period
1
Gross
requirement
On hand
Net
requirement
Planned
order receipts
Planned
order releases
13
14
Item:
Parent item:
Period
1 2
Gross
requirement
On hand
Net
requirement
Planned
order receipts
Planned
order releases
Lead Time:
Order Policy:
Safety Stock:
3 4 5 6 7 8 9 10 11
12 13
14
Item:
Parent item:
Period
1 2
Gross
requirement
On hand
Net
requirement
Planned
order receipts
Planned
order releases
Lead Time:
Order Policy:
Safety Stock:
3 4 5 6 7 8 9 10 11
12 13
14
Item:
Period
Lead Time:
Order Policy:
Safety Stock:
3 4 5 6 7 8 9 10 11
12 13
14
Parent item:
1 2
Topic 13 - 10
10
11
12
Gross
requirement
On hand
Net
requirement
Planned
order receipts
Planned
order releases
Item:
Parent item:
Period
1 2
Gross
requirement
On hand
Net
requirement
Planned
order receipts
Planned
order releases
Lead Time:
Order Policy:
Safety Stock:
3 4 5 6 7 8 9 10 11
12 13
14
Item:
Parent item:
Period
1 2
Gross
requirement
On hand
Net
requirement
Planned
order receipts
Planned
order releases
Lead Time:
Order Policy:
Safety Stock:
3 4 5 6 7 8 9 10 11
12 13
14
Topic 13 - 11
Issues in MRP
Topic 13 - 12
Lot-Sizing
Useful at lower levels but may drive excess inventory when
applied at higher levels
Net Change versus Regenerative MRP
Net change may generate too many action notices
Regenerate more costly to run but appears to be easier to
manage
Safety Stock
Use depends on uncertainty of demand more uncertain the
greater the need for safety stock
Assemble-to-order firms
MPS and MRP treated separately from Final Assembly
Schedule (FAS)
Use Modular Bill of Materials
MRP I to MRP II
MRP I simply exploded demand (MPS) into required materials
MRP II became Manufacturing Resource Planning which
provides a closed-loop business management system
o Financial management
o Shop floor control
o Operations management
o Simulation capability
Evaluation of MRP
Most beneficial to process-focused systems that have long
processing times and complex multistage production steps
Lead times must be reliable
Must freeze MPS for some time before actual production certain
demand
Difficult to implement
Why Need CRP: Detailed production plans for all parts and endproducts are developed in MRP/MPS, but Separately. These jobs
may be processed in same work centers (WC). Verification of
capacity: WC-by-WC, period-by-period, thus is necessary to ensure
enough capacity at each WC to meet the plan.
Time period
Planned
capacity
Released load
Planned load
Total load
Load to
capacity ratio
Remaining
capacity
1
80
2
80
3
80
4
80
5
80
6
80
7
80
8
80
60
25
85
1.06
50
20
70
.088
55
20
75
0.94
40
30
70
0.88
20
60
80
1.00
10
85
95
1.19
5
50
55
0.69
0
35
35
0.44
-5
10
10
-15
25
45
Standard
Hours 80
Planned
Capacity
Time
Period
Period
Planned capacity
Released load
Planned load
Total load
Excess capacity
1
80
60
25
2
80
50
20
3
60
55
20
4
80
40
30
5
80
20
60
6
80
10
85
7
80
5
50
8
80
0
35
9
80
0
20
Total Load =
Excess Capacity =
10
80
0
0
Trade-off:
Forward with Infinite Loading: Simple but more Capacity
Imbalance problems.
Backward with Finite Loading: Complex but reduces Capacity
Imbalance problems.
Infinite loading
Finite loading
Planned Orders
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Topic 13 - 21
Week
Gross requirements
Scheduled receipts
Available
Net requirements
Planned order receipts
Planned order releases
1
100
500
2
600
3
400
4
900
5
1,350
6
700
4
900
5
1,850
6
1,400
1
1,100
2,000
2
700
3
1,500
4. Given the following product structure tree and inventory information, complete the MRP
schedule below.
Level Code
Product Structure Tree
0
Topic 13 - 22
A
1
B(2
)
C(4
)
2
D(3
)
Product A
Lot size =LFL
Lead time =1
On hand=650
Safety Stock=100
Allocated=75
Week
Gross requirements
Schedules receipts
Available
Net requirements
Planned order receipts
Planned order releases
1
120
275
2
340
3
310
4
530
5
410
6
380
Product B
Lot size =LFL
Lead time =1
On hand=430
Safety Stock=120
Allocated=80
Week
Gross requirements
Schedules receipts
Available
Net requirements
Planned order receipts
Planned order releases
Product C
Lot size =1500+
Lead time =2
On hand=460
Safety Stock=140
Allocated=160
Week
Gross requirements
Schedules receipts
Available
Net requirements
Planned order receipts
Planned order releases
Product D
Lot size =1000+
Lead time =1
On hand=1,100
Safety Stock=200
Allocated=60
Week
Gross requirements
Schedules receipts
Available
Net requirements
Planned order receipts
Planned order releases
400
1,500
Engineering a Definition
A bill of material expert generates quality information
Topic 13 - 23
"I'm trying to define the engineering bill of material (BOM) for a paper I'm writing ...
I cannot find a common definition, [although] there are many phrases in use such as `product
structure,' `indentured parts list,' and 'as designed.' However, it is not clear if we are talking
about the same things. Do we have a definition of BOM?"
Product structure, planning BOMs, indentured parts list, indented parts list, and
engineering BOMs all refer to an arrangement of parts to make an assembly. The difference
is in the scope, depth, details, and application.
While it is very similar to the bill required by manufacturing, the BOM created by
production design engineering often is void of data, such as the necessary process levels
required by manufacturing-including subassemblies, intermediates or semi-finished items,
and a specific identification of shape and size of raw materials required to make compo nents. In addition, levels sometimes are included in engineering BOMs that are not required
by manufacturing, especially when manufacturing processes have been "leaned."
Modularizing the DOM
Our reader also asked us about modular BOMs. Modularizing the BOM is one
way of dealing with options and multiple end items. It is a means of grouping parts in a
product by the options to which they are sensitive. We create BOMs for each option, not
each end item, giving the advantage of fewer BOMs, less maintenance, and more
efficient order entry. After modularizing the BOM, we then develop a planning BOM,
which is basically a sorting of the master BOM for planning purposes. We can plan and
schedule using the historical information.
As an example of this concept, consider a company making telephones and
switching equipment. The telephones come in many different varieties: with ringers,
without ringers, single lines, multiple lines, desk sets, wall sets, and so on. The housing
and hand sets come in a variety of colors, including black, red, and ivory. Instead of
planning each configuration separately, one would use a planning or pseudo BOM to
reflect the components with the "quantity per" in the ratio of past usage of, for example,
the colors.
For each hand set, the quantity per of black was 0.3, for red, 0.2, for ivory 0.4, and
so forth, adding up to 100 percent. Therefore, for each 1,000 phones planned, the BOMs
would explode by the ratios of use, thus allowing planners to order the plastic and color
compounds accordingly. This same philosophy would be used with regard to all other
options.
The concept of a planning BOM serves to satisfy one of the ongoing
controversies concerning BOMs: Who owns the BOM-the production department, the
planning department, or the engineering department? To solve this dilemma, some
organizations allow each to have its own.
More on phantoms and pseudos
The term "phantom" was first used as part numbers were put into computer
records for enterprise resources planning. The exploded requirements were again
Topic 13 - 24
exploded against the residual inventory of the phantoms, and the engineering BOMs
included some subassemblies that manufacturing never made.
The term "pseudo" was introduced when forecasting and master scheduling
options created the need to identify groups of parts common to the product or as options.
There is really no difference between the way pseudos and phantoms are handled, so
there is no need to distinguish between the two.
Questions:
Q-1: Do you have a better understanding about BOM and MRP now?
(1) What is a Material Requirements Planning system? Is it used for products under assumptions
of dependent demand or independent demand?
(2) What are the primary inputs and outputs in MRP analysis? What are the objectives of an
MRP system?
(3) What is the meaning of "planned order release" and "planned order receipt" in an MRP
system?
(4) What is meant by low level coding of the product structure tree? How is it used in the MRP
calculation procedure?
(5) What is the information from the Master Production Schedule used in the MRP calculation?
(6) Be prepared to go through the calculations involved in the MRP analysis of a simple product.
(7) Assume that a company has a computerized MRP system. What information would typically
be found in the inventory records file and the product structure tree file (or bill of materials
file)?
(8) Ignoring cost considerations, are there other reasons why it is impractical or not advisable to
update the computerized MRP system on a daily basis?
(9) Is it likely that an MRP system will be justified on a quantifiable quantifiable cost
effectiveness" basis (or economic "payback" basis) or is it more likely that such a system will
be justified on more of a "non-quantifiable" basis?
10) Is "independent demand" more likely to apply to "final" products or sub-components? What
about "dependent demand ?demand? "
11) Explain the logic in using EOQ for final products and MRP for all sub-components. Start by
drawing a typical demand function for final products vs. a typical demand function for subcomponents. Provide a brief explanation.
12) How does MRP II differ from MRP?
13) Discuss the development from the original MRP, MRP II, Enterprise Resource Planning,
and Supply Chain Management.
Topic 13 - 26