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Supply Management,
MRP 1 & Just-in-time

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Issues

Resource Usage
Performance objectives

Market competitiveness
Quality make or buy (contract out
Speed market-based purchasing?
Reliabiity supply partnerships?
Flexibility
Supply network
Cost relationships Process

Capacity technology

Decisions

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On being a supply network manager

Strategy

Concepts

Supply Network Relationships Supply Network Behaviour

Vertical
Partnerships Market Network Network
Integration
trading dynamics Management
Quantitative Coordinate
Qualitative Differentiate
Reconfigure

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What are Supply Networks?

 supply networks vs. supply chains

 buyer-supplier relationship
 aserver-client
supply network is a system of organisations connected by
links - upstream/downstream - that service
processes & activities (operations) bringing added value to
each client and ultimately the end customer.

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Flows of products, services & information

Supply side Demand side
second-tier first-tier first-tier second-tier
suppliers suppliers customers customers

Company B

Down stream
Up stream

Company C X

X
X X For Company A
Internal supply network
Immediate supply network
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Total supply network
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Measuring Supply Chain Performance

 Delivery
 Quality
 Time
 Cost

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Structural Improvement

Basic Ways to Improve Supply Chain Structure:

 Change structure
 Capacity, Facilities, Process technology, vertical
integration
 Change infrastructure
 People, Information systems, Organization, Production
and inventory control, Quality control systems

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Forms of Structural Change

 Forward and Backward Integration

 Major process simplification
 Changing the configuration of factories, warehouses, or
retail locations
 Major product redesign
 Outsourcing logistics to a third party.

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Supply relationships

 a company can trade with first tier and second tier customers at
the same time - but consider the % balance of each
 immediate suppliers vs suppliers of suppliers in the total network
 relationships between companies in the network need not be
exclusive - multi-sourcing.
 Company C - seems to single source (exclusive supply) item X
 Types of relationship:
 close and intimate? Make or contract in (outsource)? What items:
strategic, trivial? Many suppliers or a few. Keiretsu? Transactional
(arms-length only) or collaborative? Loyalty in buyers and sellers
markets?

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From Aggregate to MPS to MRP1

Aggregate
MRP2
Plan (product groups)

Firm Forecast
orders random
Master orders
production
schedule
Design Time-phased plan
(MPS)
changes how many + when we will
build each end item.

Bill of Inventory
material MRP1
record

Reports Stock
movements
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Material Requirements Planning

 dependent demand
 info. system to determine
 No. of parts, components, materials needed
for a product order
 scheduling information - dates when
 orders for materials should be released,
based on lead times.
 batches of materials, parts, components
should be ordered/produced
 based on a master production schedule (MPS)

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Inventory Records Data

Bill of Materials
 complete product description
 materials
 parts
 components
 production sequence
 modular BOM
 subassemblies
 planning BOM
 fractional options
Inventory record
 status according to “time windows or buckets”
 identify each parent item that created demand

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Product Structure Tree

No. of components for each product + when needed.

Lead Times
A 1 week
B 2 wks
A C 1 wk
D 3 wks
E 4 wks
F 1 wk
B(4) C(2)
Demand
wk 10 50 A
D(2) E(1) D(3) F(2) wk 8
wk 6
20 B (Spares)
15 D (Spares)
Product Structure Tree for Assembly A
from bill of materials

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Material Requirements Planning

1. Schedule no. of units of “A” backwards to allow for lead time.

2. place order for 50 of “A” at week 8 to receive in week 10

Week: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50

Lot sizing
 Lot-for-lot (L4L)
 Economic order quantity (EOQ)
LT = 1 week
 Least total cost (LTC)
 Least unit cost (LUC)

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MRP

Week: 1 2 3 4 5 6 7 8 9 10
A Required 50
Order Placement 50
B Required 20 200
Order Placement 20 200

LT = 2
surplus
schedule components of “A”.
4 B’s in each A (50x4) = 200Bs. A
back the schedule up for 2
weeks lead time.
B(4) C(2)

D(2) E(1) D(3) F(2)

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MRP
Week: 1 2 3 4 5 6 7 8 9 10
A Required 50
LT=1 Order Placement 50
B Required 20 200
LT=2 Order Placement 20 200
C Required 100
LT=1 Order Placement 100
D Required 55 400 300
LT=3 Order Placement 55 400 300
E Required 20 200
LT=4 Order Placement 20 200
F Required 200
LT=1 Order Placement 200

A Part D: Wk 6
40 + 15 spares

B(4) C(2) Repeat for all

components
==> final MRP
D(2) E(1) D(3) F(2) 16
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Time Fencing

 Frozen
 No schedule changes allowed within the time frame
 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.

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MRP Reports & Information

 Primary
 Planned orders - to release at a future time.
 Order release notices - execute planned orders
 Changes in due dates of open orders due to
rescheduling  Gross
GrossRequirements
Requirements

 Cancellations or suspensions of open orders  On-hand

On-hand
due to cancellation or suspension in the MPS.  Net
Netrequirements
requirements
 Stock status data  Planned
Plannedorder
receipt
order

 Secondary
 Planning reports e.g. forecasting inventory
receipt
 Planned
Plannedorder
order
release
release
requirements over time.
 Performance reports e.g. actual vs. planned
usage and costs.
 Exception reports e.g. serious discrepancies,
late/overdue orders.

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MRP Example

Item On-Hand Lead Time (Weeks)

X X 50 2
A 75 3
B 25 1
A(2) B(1) C 10 2
D 20 2

Requirements include 95 units (80

C(3) C(2) D(5) firm orders and 15 forecast) of X
in wk 10 plus the following spares:

Spares 1 2 3 4 5 6 7 8 9 10
A 12
B 7
C 10
D 15

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MRP Example

C Gross Requirements 45 36 64
LT=2 On-Hand=10 10
Net Requirements 35 36 64
Planned Order Receipt 35 36 64
Planner Order Release 35 36 64
D Gross Requirements 15 135
LT=2 On-Hand=20 15 5
Net Requirements 130
Planned Order Receipt 130
Planner Order Release 130

A(2) B(1)

C(3) C(2) D(5) 20

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Day: 1 2 3 4 5 6 7 8 9 10
X Gross Requirements 95
LT=2 On-Hand=50 50
Net Requirements 45
Planned Order Receipt 45
Planner Order Release 45
A Gross Requirements 90 12
LT=3 On-Hand=75 75
Net Requirements 15 12
Planned Order Receipt 15 12
Planner Order Release 15 12
B Gross Requirements 7 45
LT=1 On-Hand=25 7 18
Net Requirements 27
Planned Order Receipt 27
Planner Order Release 27
C Gross Requirements 45 36 54 10
LT=2 On-Hand=10 10
Net Requirements 35 36 54 10
Planned Order Receipt 35 36 54 10
Planner Order Release 35 36 54 10
D Gross Requirements 15 135
LT=2 On-Hand=20 15 5
Net Requirements 130
Planned Order Receipt 130 21
Planner Order Release 130
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Operating an MRP System

 Should MRP carry “safety stock”?

 How much “safety stock” should be carried?
 Issue of “safety lead time”
 Danger of “informal” system driving out the “formal” system
 Expansion of MRP to other functions (finance, HRM, etc.)
of business

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Manufacturing Resource Planning - MRP 2

 Goal: Plan & monitor all resources of a manufacturing firm

(closed loop):
 manufacturing
 marketing
 finance
 engineering
 Simulate the manufacturing system

R P
E
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JIT Requirements

Work with suppliers Reduce inventory

 reduce lead times  including
 frequent deliveries  stores
 project usage requirements  WIP + W in transit
 quality standards
 carousels & conveyors
Problem-solving
Problem-solving
 Rootproblem
Root problem
 Long-termsolution
Long-term solution
 Teamcontribution
Team contribution
Product Design Improvement
 Line-specialistcooperation
Line-specialist cooperation
 DFM & process design
 Learning
Learning
 Modules & fewer parts
 Measureperformance
Measure performance
 Quality standards
 CQI
CQI
 Monitor&&report
Monitor report

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