Material Requirements Planning

Dr. Everette S. Gardner, Jr.

End item

R LT LT Time

Component

R LT Time

Raw material

R
LT Time

Order point system with dependent demand
MRP 2

End item R Time Component Time Raw material Time The MRP approach MRP 3 .

of stockout on one order cycle for component i Then Pn = S1 x S2 x S3 … Sn MRP 4 . the probability that all will be in stock at the same time is much lower than the probabilities for individual components • Computation: Let Pn = Prob. that n components are in stock simultaneously Si = Prob.The simultaneous probability problem • When components are ordered independently with an order point system.

9 x .9 = .729 S2 = .) • Example: End Item 1 2 3 S1 = . that all 3 components will be available at any given time to build the end item MRP 5 .9 S3 = .9 x .The simultaneous probability problem (cont.9 P3 = .9 = Prob.

630 .729 .698 .478 .950 .387 .531 .735 .590 .599 .348 .206 .656 .358 .900 .663 .Probabilities of simultaneous availability of components Number of component items 1 2 3 4 5 6 7 8 9 10 15 20 25 Service level 90% 95% .774 .071 .430 .902 .121 .463 .814 .277 MRP 6 .810 .857 .

MRP inputs and outputs MRP 7 .Demand forecasts and customer orders Aggregate planning/ master scheduling Product design changes Bill of materials Mfg. orders Purchase orders Detailed scheduling system Inventory transactions MRP system Inventory records Capacity report Performance/ exceptions Purchasing dept.

indented parts list • Product tree A Level 0 B(2) C(4) Level 1 D(1) E(3) D(2) F(1) G(3) Level 2 MRP 8 .Product tree vs.

Product tree vs.) • Indented parts list ● A ● B(2) ● D(1) ● E(3) ● C(4) ● D(2) ● F(1) ● G(3) MRP 9 . indented parts list (cont.

Planned order rls.Week 1 A 2 3 4 5 6 7 8 9 Lead time 1 Gross Rqmts. Planned order rls. Planned order rls. Planned order rls. B C 2 3 D 3 E 2 F G 3 Gross Rqmts. Gross Rqmts. Gross Rqmts. Planned order rls. Gross Rqmts. Gross Rqmts. Quiz: MRP plan to produce 10 units of A — due in week 9 MRP 4 10 . Gross Rqmts. Planned order rls. Planned order rls.

Problems in requirements computations • Product structure • Recurring requirements within the planning horizon • Multilevel items • Rescheduling open orders MRP 11 .

processing all requirements at one level before starting another MRP 12 .Product structure • Bills of material are hierarchical with distinct levels • To compute requirements. always proceed down bill of materials.

Transmission (1) B.Product structure (cont. What are the net requirements for each component? MRP 13 . Gearbox (1) C. Forging Blank (1) Level 0 1 2 3 4 Inventory O.) • Example: Truck A. Gear (1) D.H. 0 2 15 7 46 Suppose we are to produce 100 trucks.

Recurrence of requirements within the planning horizon • The same item may be required for several different lots within the planning horizon – always process one lot entirely. level by level. followed by 2nd lot of 100 Lot 1 Lot 2 Level 1: Gross requirements 12 100 MRP 14 . • Example: One lot of 12 trucks. before starting the next.

Multilevel items The same item may appear at different levels on one or more BOMs – result is multiple retrievals of same record to update system. Examples: 1 2 3 4 A A X Y A Z A MRP 15 .

1 X Y Z 2 3 4 A A A A MRP 16 .) Solution: Low-level coding. record. Lowest level an item appears is coded on inv. Processing delayed until that level reached.Multilevel items (cont.

Is an open order scheduled for a period in which gross requirement ≤ inv. H. O. Is lead-time sufficient? MRP 17 .Rescheduling open orders • Tests for open order misalignment: 1. at end of preceding period? 3. Are open orders scheduled for periods following the period in which a net requirement appears? 2.

Rescheduling open orders (cont. MRP 18 .) • Example: 1 Gross requirements Scheduled receipts On hand 27 -3 30 2 5 20 12 12 Week 3 4 10 20 22 12 2 5 10 6 10 ● Most MRP systems make such schedule changes automatically.

net change • Lot sizing • Safety stocks MRP 19 .Tactical questions in MRP • Regeneration vs.

net change • Regeneration • Complete replanning of requirements and update of inventory status for all items • High data processing efficiency • Usually initiated by weekly update of master schedule • Net change • Daily update based on inventory transactions • More responsive to changing conditions • Requires more discipline in file maintenance MRP 20 .Regeneration vs.

) MRP 21 . Demand Rule 1 Rule 2 1 5 5 20 2 15 15 0 3 15 15 20 4 5 5 0 (Assume 1 unit requires 1 machine hour.Lot sizing implications in MRP • The load profiles at work centers in the system depend on the lot sizing rules used • Load profiles determine: undertime / overtime leadtimes • Example: Lot size Lot size Pd.

) 20 20 15 10 5 1 2 3 4 0 1 2 3 4 Machine hrs.Lot sizing implications in MRP (cont. 15 10 5 0 Load profile – Rule 1 Load profile – Rule 2 MRP 22 .

Lot sizing techniques used in MRP systems • Lot-for-lot (L4L) – most used • Economic order quantity (EOQ) • Period order quantity (POQ) MRP 23 .

expensive purchased items MRP MRP1.highly discontinuous demand .xls 24 . Planned order (Assume Ø LT) 1 35 35 2 10 10 3 4 40 40 5 6 20 20 7 5 5 8 9 Total 150 150 10 30 10 30 The L4L technique: Minimizes carrying costs Is certainly the best method for .Lot-for-lot (L4L) example Period Net rqmts.

D = 200 Q = (2DS / CHR)1/2 = 58 Period Net rqmts. S = $100 Unit price.EOQ example Setup cost. Planned orders Remnants 1 35 58 23 13 13 MRP 2 10 3 4 40 58 31 5 6 20 7 5 8 10 58 9 30 10 31 11 6 54 24 24 25 . C = $50 Holding costs.02 per period Annual demand. HR = .24 per annum HP = .

5 (ordering interval) Period Net rqmts.4 (orders per year) 12 / 3. Compute EOQ to determine number of orders per year 2.4 = 3.Period order quantity example Technique: 1. Divide number of periods in one year by number of orders to get ordering interval EOQ = 58 Number of periods in one year = 12 D = 200 200 / 58 = 3. Planned orders 1 35 85 2 10 3 4 40 5 6 20 35 7 5 8 9 30 Total 150 10 30 MRP 26 .

• Options to provide safety factors: • Fixed quantity buffer stocks • Safety lead-time • Increase gross requirements MRP 27 .Safety stocks in MRP systems • Need for safety stocks: • Variations in demand due to end-item forecast errors and inventory errors • Variations in supply – both lead-times and quantities • Since demand is not random. traditional statistical techniques do not apply.

demand likely in a single period • Never generate order solely to replenish buffer stocks • Safety time method • • • • Simply order early Distorts LTs and priorities Better than buffer stocks for items with infrequent demand Also better for purchases outside company • Increase in gross requirements • Should be done at end item level only so that » Components available in matched sets » Safety stocks are not duplicated at different levels MRP 28 .Safety stocks in MRP systems (cont.) • Fixed quantity buffer stocks • Good rule of thumb: Set buffer = max.

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