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

The simultaneous probability problem

When components are ordered independently with an order point system, 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. of stockout on one order cycle for component i Then Pn = S1 x S2 x S3 Sn
MRP 4

The simultaneous probability problem (cont.)

Example:

End Item
1 2 3

S1 = .9
P3 = .9 x .9 x .9 = .729

S2 = .9

S3 = .9

= Prob. that all 3 components will be available at any given time to build the end item
MRP 5

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% .900 .950 .810 .902 .729 .857 .656 .814 .590 .774 .531 .735 .478 .698 .430 .663 .387 .630 .348 .599 .206 .463 .121 .358 .071 .277
MRP 6

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.

MRP inputs and outputs

MRP 7

Product tree vs. 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

Product tree vs. indented parts list (cont.)

Indented parts list
A B(2) D(1) E(3) C(4) D(2) F(1) G(3)

MRP

Week

1
A

Lead time
1

Gross Rqmts. Planned order rls. Gross Rqmts. Planned order rls. Gross Rqmts. Planned order rls. Gross Rqmts. Planned order rls. Gross Rqmts. Planned order rls. Gross Rqmts. Planned order rls.

B C

F G

Gross Rqmts. Planned order rls.

Quiz: MRP plan to produce 10 units of A due in week 9
MRP

10

Problems in requirements computations

Product structure Recurring requirements within the planning

horizon

Multilevel items Rescheduling open orders

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

MRP

12

Product structure (cont.)

Example: Truck A. Transmission (1) B. Gearbox (1) C. Gear (1) D. Forging Blank (1) Level 0 1 2 3 4 Inventory O.H. 0 2 15 7 46

Suppose we are to produce 100 trucks. What are the net requirements for each component?
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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, before starting the next. Example: One lot of 12 trucks, followed by 2nd lot of 100 Lot 1 Lot 2 Level 1: Gross requirements 12 100

MRP

14

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

MRP

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Multilevel items (cont.)

Solution: Low-level coding. Lowest level an item appears is coded on inv. record. Processing delayed until that level reached.

2
3

MRP

16

Rescheduling open orders

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

MRP

17

Rescheduling open orders (cont.)

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.

MRP

18

Tactical questions in MRP

Regeneration vs. net change Lot sizing

Safety stocks

MRP

19

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

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. 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.)
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Lot sizing implications in MRP (cont.)

20

20 15 10 5 1 2 3 4 0 1 2 3 4

Machine hrs.

15 10 5 0

Load profile Rule 1

Load profile Rule 2

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22

Lot sizing techniques used in MRP systems

Lot-for-lot (L4L) most used

Economic order quantity (EOQ)

Period order quantity (POQ)

MRP

23

Lot-for-lot (L4L) example

Period Net rqmts. Planned order (Assume 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 - highly discontinuous demand - expensive purchased items
MRP

MRP1.xls

24

EOQ example
Setup cost, S = $100 Unit price, C = $50 Holding costs, HR = .24 per annum HP = .02 per period Annual demand, D = 200 Q = (2DS / CHR)1/2 = 58
Period Net rqmts. Planned orders Remnants 1 35 58 23 13 13
MRP

2 10

4 40 58 31

6 20

7 5

8 10 58

9 30

10

31

11

54

24

24
25

Period order quantity example

Technique:
1. Compute EOQ to determine number of orders per year 2. 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 = 3.4 (orders per year) 12 / 3.4 = 3.5 (ordering interval)
Period Net rqmts. Planned orders 1 35 85 2 10 3 4 40 5 6 20 35 7 5 8 9 30 Total 150

10 30

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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.

Options to provide safety factors: Fixed quantity buffer stocks Safety lead-time Increase gross requirements

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Safety stocks in MRP systems (cont.)

Fixed quantity buffer stocks
Good rule of thumb: Set buffer = max. 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