Material Requirements Planning (MRP) : Assumptions

Material Requirements Planning (MRP)
Assumptions
1. Known deterministic demands.
Unlike many other approaches and techniques, material requirements planning works which is its best recommendation. Joseph Orlicky , 1974
2. Fixed, known production leadtimes. 3. Infinite capacity.
Idea is to back out demand for components by using leadtimes and bills of material.
1
Wallace J. Hopp, Mark L. Spearman, 1996, 2000
2
http://www.factory -physics.com
Key Insight
Independent Demand --- finished products Dependent Demand --- components
Lot Sizing: Wagner Whitin
It makes no sense to independently forecast dependent demands.
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Capacity Constraints
Where We Have Been

Before 1960s - Scientific Management Techniques (EOQ, ROP) 1960s - Advent of MRP 1970s - APICS MRP II Crusade 1980s and 90s - JIT/TQM Revolution 1990s to present - ERP/MES/APS/???
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Conclusions
Insight: distinction between independent and dependent demands Advantages:
General approach Supports planning hierarchy (MRP II)
Manufacturing Resource Planning (MRP II)

Sometimes called MRP, in contrast with mrp (little mrp); more recent implementations are called ERP (Enterprise Resource Planning). Extended MRP into:
Master Production Scheduling (MPS) Rough Cut Capacity Planning (RCCP) Capacity Requirements Planning (CRP) Production Activity Control (PAC)
Problems:
Assumptions --- especially infinite capacity Cultural factors --- e.g., data accuracy, training, etc. Focus --- authority delegated to computer
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MRP II MRP II Planning Hierarchy

Demand Forecast Resource Planning Rough-cut Capacity Planning Bills of Material Inventory Status Aggregate Production Planning Master Production Scheduling
Demand Forecast Long-range planning Resource planning Rough-cut capacity planning BOM Aggregate planning Master production scheduling MRP Job Pool Job Release Job Dispatching
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Material Requirements Planning Job Pool Job Release Job Dispatching Capacity Requirements Planning Routing Data
Intermediate-range planning Capacity requirements planning
Inventory status
Routing Data Short-term control
Components Master Production Scheduling (MPS)

Resource planning : determines capacity requirements over the long term Aggregate planning : determines levels of production, staffing, inventory, overtime, and so on over the long term Rough-cut capacity planning : provides a quick capacity check of a few critical resources to ensure feasibility (uses a bill of resources) Capacity requirements planning : estimates job completion times for each process center using fixed lead times and computes a predicted loading over time
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MPS drives MRP Should be accurate in near term (firm orders) May be inaccurate in long term (forecasts) Software supports
forecasting order entry netting against inventory
Frequently establishes a frozen zone in MPS

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Rough Cut Capacity Planning (RCCP)

Quick check on capacity of key resources Use Bill of Resource (BOR) for each item in MPS Generates usage of resources by exploding MPS against BOR (offset by leadtimes ) Infeasibilities addressed by altering MPS or adding capacity (e.g., overtime)
Rough Cut Capacity Planning

Use output from master production scheduler (quantity and due dates) Use a bill of resources which has times for each part type on each resource Compare with resource time capacity over planning period
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Example
MPS 1 2 A 1000 1000 B 500 C 1500 1500 D 600 3 4 1000 1000 500 1500 1500 600
Solution
Week (hr) 1 2 3 1133 1083 1333 107 104 128
Bill of Resources (min) Assemble Inspect A 20 2.0 B 24 2.5 C 22 2.0 D 25 2.4
assemble inspect
4 883 83
Resource Capacity assemble = 1200 hr inspection = 110 hr

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Capacity infeasibility in week 3! What can we do to correct this?
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Capacity Requirements Planning (CRP)

Uses routing data (work centers and times) for all items Explodes orders against routing information Generates usage profile of all work centers Identifies overload conditions More detailed than RCCP No provision for fixing problems Leadtimes remain fixed despite queueing
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Example
Data 3 day lead time 400 parts capacity per day Parts in the system: 400 just released, 500 for 1 day, 300 for 2 days
Days Planned Order Releases
1 300
2 350
3 400
4 350
5 300
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CRP Load Profile

CRP Load Profile
600 500
Production Activity Control (PAC)

Sometimes called shop floor control Provides routing/standard time information Sets planned start times
400 Load 300 200 100 0 1 2 3 4 Days 5 6 7 8
Can be used for prioritizing/expediting Can perform input-output control (compare planned with actual throughput) Modern term is MES (Manufacturing Execution System), which represents functions between Planning and Control.
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Bottleneck Approach
Many systems focus on the bottleneck (theory of constraints).
Theory of Constraint Steps

Identify the systems constraints Decide how to exploit the systems constraint Subordinate everything else to Step 2 Elevate the systems constraint If a constraint is broken, go to Step 1
Note: This is a bottleneck approach
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Goldratt Product Mix Problem

(Theory of Constraints Scheduling)
A Cost Approach
Unit Profit
Product P : $45
15 D 10 15 5 15
Q
C B 5 15 C B
D 15 10
C A
B A
Product Q : $60
Maximum Production of Q : 50 units Available Capacity for Producing P

2400 - 10 (50) = 1,900 minutes on Workcenter A 2400 - 30 (50) = 2400 900 minutes on Workcenter B
$5
$20
$20
$20
$20
5 (50) = 2,150 minutes on Workcenter C 5 (50) = 2,150 minutes on Workcenter D
Product Price Max Weekly Sales
P Q $90 $100 100 50
Machines A,B,C,D Machines run 2400 min/week fixed expenses of $5000/week
2400 -
Maximum Production of P : 900/15 =60 units Net Weekly Profit: $45 60 +$60 50 -$5,000 = $700
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Weekly Load Product Contribution to Constraint
Process Avail. % (Min) load per time per load per Resource P Q week week week A 1500 500 2000 2400 83 B 1500 1500 3000 2400 125 C 1500 250 1750 2400 73 D 1500 250 1750 2400 73 Resource B is Constraint (bottleneck)!
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Product Selling Price ($) Material Cost ($) Contribution ($) Time (resource B in min) $ per constraint minute
P 90 45 45 15 3
Q 100 40 60 30 2
Produce as much of P as possible (i.e. 100 units of P, which leaves time for 30 units of Q)
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Remaining Steps
Make sure and keep resource B busy (since constraint) Make effort to achieve higher performance of B through things like setup time reduction, preventive maintenance, etc. If at any point, another resource becomes constrained, repeat process Data:
A Modified Example
Changes: in processing times on workcenters B and D.
Product Selling price Raw Material Cost Max Weekly Sales Minutes per unit on Workcenter A Minutes per unit on Workcenter B Minutes per unit on Workcenter C Minutes per unit on Workcenter D
P Q $90 $100 $45 $40 100 50 15 10 15 35 15 5 25 14
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A Bottleneck Approach
Identifying the Bottleneck: Workcenter B, because
15 (100) + 10 (50) = 2,000 minutes on workcenter A 15 (100) + 35 (50) = 3,250 minutes on workcenter B 15 (100) + 5 (50) = 1,750 minutes on workcenter C 25 (100) + 14 (50) = 3,200 minutes on workcenter D
A Bottleneck Approach (cont.)

Bottleneck at D:
$45/25 = $1.80 per minute spent processing P $60/14 = $4.29 per minute spent processing Q
Maximum Production of Q: 2400/35 = 68.57>50, produce 50 Available time on Bottleneck:

2400 - 14(50) = 1,700 minutes on workcenter D
Bottleneck at B:
$45/15 = $3 per minute spent processing P $60/35 = $1.71 per minute spent processing Q
Maximum Production of P: 2400/25 = 96 units Maximum Production of Q: 0 units Net Weekly Profit: $45 96 -$5,000 = -$680
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Maximum Production of P: 1700/25= 68 units Net Weekly Profit: $45 43+$60 50-$5000= -$65
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An LP Approach
Formulation:
max 45 X P + 60 X Q 5000 subject to : 15 X P +10 X Q 2400 15 X P + 35 X Q 2400 15 X P + 5 X Q 2400 25 X P +14 X Q 2400
X* P = 75. 79
* XQ = 36. 09
Conclusions
Insight: distinction between independent and dependent demands Advantages:
General approach Supports planning hierarchy (MRP II, ERP)
Solution:
Optimal Objective = $557.94
Problems:
* XP * XQ
Net Weekly Profit : Round solution down (still feasible) to:

To get
= 75 = 36
Assumptions especially infinite capacity Cultural factors e.g., data accuracy, training, etc. Focus authority delegated to computer
$45 75 + $60 36 -$5,000 = $535.

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Material Requirements Planning (MRP) : Assumptions

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Material Requirements Planning (MRP)

2. Fixed, known production leadtimes. 3. Infinite capacity.

Lot Sizing: Wagner Whitin

It makes no sense to independently forecast dependent demands.

Where We Have Been

Manufacturing Resource Planning (MRP II)

MRP II MRP II Planning Hierarchy

Intermediate-range planning Capacity requirements planning

Routing Data Short-term control

Wallace J. Hopp, Mark L. Spearman, 1996, 2000

Components Master Production Scheduling (MPS)

Frequently establishes a frozen zone in MPS

Rough Cut Capacity Planning (RCCP)

Rough Cut Capacity Planning

Bill of Resources (min) Assemble Inspect A 20 2.0 B 24 2.5 C 22 2.0 D 25 2.4

Resource Capacity assemble = 1200 hr inspection = 110 hr

Capacity infeasibility in week 3! What can we do to correct this?

Capacity Requirements Planning (CRP)

Days Planned Order Releases

CRP Load Profile

Production Activity Control (PAC)

400 Load 300 200 100 0 1 2 3 4 Days 5 6 7 8

Wallace J. Hopp, Mark L. Spearman, 1996, 2000

Theory of Constraint Steps

Note: This is a bottleneck approach

Goldratt Product Mix Problem

Maximum Production of Q : 50 units Available Capacity for Producing P

5 (50) = 2,150 minutes on Workcenter C 5 (50) = 2,150 minutes on Workcenter D

Product Price Max Weekly Sales

P Q $90 $100 100 50

Machines A,B,C,D Machines run 2400 min/week fixed expenses of $5000/week

Weekly Load Product Contribution to Constraint

P Q $90 $100 $45 $40 100 50 15 10 15 35 15 5 25 14

A Bottleneck Approach (cont.)

Maximum Production of Q: 2400/35 = 68.57>50, produce 50 Available time on Bottleneck:

Optimal Objective = $557.94

Net Weekly Profit : Round solution down (still feasible) to:

$45 75 + $60 36 -$5,000 = $535.

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