Material Requirements

Planning (MRP)

14 - 1
The Planning Process

Figure 14.1
14 - 2
 Master Production Schedule (MPS)
▶The master schedule deals with end items and is a major input to
the MRP process
▶All production systems have limited capacity and limited
resources
▶The aggregate plan provides the general range of operation;
the master scheduler must specify exactly what is to be
produced and when
▶Inputs from financial plans, customer demand, engineering,
supplier performance
▶As the process moves from planning to execution, each step
must be tested for feasibility
▶The MPS is the result of the production planning process 14 - 3
 The Aggregate Plan and the Master
Production Schedule
▶Aggregate production plan shows overall quantities to produce
▶Does not specify type
▶Master production schedule shows quantities of each type, with
information about the production time frame

14 - 4
 Time Fences
▶Flexibility within a master production schedule depends
on several factors
▶Production lead time
▶Commitment of parts and components to an end item
▶Relationship between customer and vendor
▶Amount of excess capacity
▶How willing management is to make changes
▶Time fences maintain a controlled flow
▶Time fences: periods of time having some specified level
of opportunity for customer to make changes 14 - 5
 Master Production Schedule Time Fences
▶Frozen: Changes to production plan not allowed
▶Slushy: Limited changes to production plan allowed
▶Liquid: Any changes to production plan allowed

14 - 6
Overall View of the Inputs to and Reports
from an MRP Program

14 - 7
 Dependent Demand
Benefits of MRP
1. Better response to customer orders
2. Faster response to market changes
3. Improved utilization of facilities and labor
4. Reduced inventory levels

14 - 8
 Dependent Demand
▶The demand for one item is related to the demand for
another item
▶Given a quantity for the end item, the demand for all
parts and components can be calculated
▶Cars need tires
▶Planes need wings
▶In general, used whenever a schedule can be
established for an item
▶MRP is the common technique
14 - 9
 Where MRP Can Be Used
▶MRP is most valuable in industries where a number of
products are made in batches using the same productive
equipment
▶MRP is most valuable to companies involved in
assembly operations and least valuable to those in
fabrication
▶MRP does not work well in companies that produce a
low number of units annually
▶Better handled using project management
14 - 10
Industry Applications and Expected Benefits
of MRP

14 - 11
Dependent Inventory Model Requirements

Effective use of dependent demand

inventory models requires the following

1. Master production schedule

2. Specifications or bill of material
3. Inventory availability
4. Purchase orders outstanding
5. Lead times

14 - 12
 Bill of Material (BOM)
• Phantom Bills are created for components, usually
• Contains the complete product description, listing the
materials, parts, and components along with the sequence subassemblies, that exist only temporarily
in which the product is created • The components go directly into another assembly and
are never inventoried
• Often called the product structure file or product tree
• They are handled as an integral part of their parent
because it shows how a product is put together
item.
• Transmission shaft with gears and bearings are
placed directly into transmission
The BOM shows how
the product is put
together
• Modular bill of materials is a buildable item (module) that • Planning bills (Super bill or “pseudo”) are created to
is not a final product but components can be produced assign an artificial parent to the BOM
and stocked as a subassembly • Used to group subassemblies to reduce the number of
• Can significantly simplify planning and scheduling items to be scheduled
• A firm may make 138,000 different final products but • Used to create standard “kits” for production
may have only 40 modules that are mixed and • Not efficient to issue inexpensive items such as
matched. So, firm can build AP and prepare MPS for washers and pins with each subassembly, so they
40 modules can be termed as kit and generate a planning bill.
14 - 13
• Also known as Kitted material or kit
 Bill of Material (BOM)
▶BOM exists in various formats

▶Single level BOM

▶Indented BOM

▶Modular BOM

14 - 14
 Dependency relationship

Basic Telephone

Hand Set

Cover Plate

A fastener secures a
Handset pair of the cover plates Basic
in the handset Telephone

14 - 15
 Level-by-Level computation
Method A An illustration Method B
Basic Telephone Basic Telephone
Required :100 Required :100
On hand Inventory : 30 On hand Inventory : 30
Planned Quantity : 70 Planned Quantity : 70
Handset Hand set
Required :100 Required : 70
On hand Inventory : 27 On hand Inventory : 27
Planned Quantity : 73 Planned Quantity : 43
Cover plate* Cover plate*
Required :200 Required : 86
On hand Inventory : 16 On hand Inventory : 16
Planned Quantity :184 Planned Quantity : 70
* (Each handset requires 2 cover plates) *(Each handset requires 2 cover plates)

14 - 16
 Single level BOM
Qty. per
Item Code Item Description UOM
product
1000 Basic Telephone Each 1
1010 Base unit Assembly Each 1
1020 Handset Assembly Each 1
1030 Connecting Cable Metre 1
1040 Connecting Jack Each 2
1050 Speaker Each 1
1060 Microphone Each 1
1070 Receiver cover plate Each 2
1080 Panel Board Assembly Each 1
1090 Operating Unit Each 1
1100 Lug Each 4
1110 Base Cover Plate Each 2
1120 Button Assembly Each 1
1130 Control Panel Assembly Each 1
1140 Buttons Each 12
1150 Control Dials Each 3
1160 Screw Each 21
14 - 17
 Indented BOM
Qty. per
Level Item Code Item Description UOM
product
0---- 1000 Basic Telephone Each 1
-1--- 1010 Base unit Assembly Each 1
--2-- 1080 Panel Board Assembly Each 1
---3- 1120 Button Assembly Each 1
----4 1140 Buttons Each 12
----4 1160 Screw Each 12
---3- 1130 Control Panel Assembly Each 1
----4 1150 Control Dials Each 3
----4 1160 Screw Each 3
--2-- 1090 Operating Unit Each 1
--2-- 1100 Lug Each 4
--2-- 1110 Base Cover Plate Each 2
--2-- 1160 Screw Each 4
-1--- 1020 Handset Assembly Each 1
--2-- 1050 Speaker Each 1
--2-- 1060 Microphone Each 1
--2-- 1070 Receiver cover plate Each 2
--2-- 1160 Screw Each 2
-1--- 1030 Connecting Cable Metre 1
-1--- 1040 Connecting Jack Each 2
14 - 18
 Qty. per
Item Code Item Description UOM
product
1000 Basic Telephone Each 1
1010 Base unit Assembly Each 1

Modular BOM
1020 Handset Assembly Each 1
1030 Connecting Cable Metre 1
1040 Connecting Jack Each 2
1050 Speaker Each 1
1060 Microphone Each 1
107X Receiver cover plate
1071 Receiver cover plate - Grey Each 2
1072 Receiver cover plate - Blue Each 2
1073 Receiver cover plate - Black Each 2
1074 Receiver cover plate - Beige Each 2
1080 Panel Board Assembly Each 1
109X Operating Unit
1091 Operating Unit - 20 calls
1092 Operating Unit - 50 calls
1093 Operating Unit - 100 calls
1094 Operating Unit - 200 calls
1100 Lug Each 4
111X Base cover plate
1111 Base cover plate - Grey Each 2
1112 Base cover plate - Blue Each 2
1113 Base cover plate - Black Each 2
1114 Base cover plate - Beige Each 2
1120 Button Assembly Each 1
113X Control Panel Assembly
1131 Control Panel Assy. - Simple Each 1
1132 Control Panel Assy. - Deluxe Each 1
1133 Control Panel Assy. - Elegant Each 1
1140 Buttons Each 12
1150 Control Dials Each 3
1160 Screw Each 21 14 - 19
 Low-Level Coding
▶Level 0 in the independent demand item
▶Lower levels (higher numbers) refer to components and
raw materials
▶In low-level coding, all identical items are placed at the
same level of the Bill of material
▶This makes it a simple matter for the computer to scan across
each level and summarize the number of units of each item
required

14 - 20
Product L Hierarchy in (A) Expanded to the
Lowest Level of Each Item in (B)

14 - 21
Bill-of-Materials (Product Structure Tree) for
Product A

14 - 22
Parts List in an Indented Format and in a
Single-Level List

14 - 23
 BOM Example
▪ Items above given level are called parents
▪ Items below given level are called components or children

Level Product structure for (A)

0 A

1 B(2) C(3)

2 E(2) E(2) F(2)

3 D(2) G(1) D(2)

14 - 24
 BOM Example
For an order of 50 Awesome speaker kits

Level Product structure for “Awesome” (A)

Part B: 2 x number of As = (2)(50) = 100
0 C:
Part 3 x number of As = A (3)(50) = 150
Part D: 2 x number of Bs
1 B(2) + 2 x number of Fs = (2)(100) + (2)(300)
C(3) = 800
Part E: 2 x number of Bs
+ 2 x number of Cs = (2)(100) + (2)(150) = 500
Part
2 F: 2 x number
E(2) of Cs = (2)(150) =
E(2) F(2)300
Part G: 1 x number of Fs = (1)(300) = 300

14 - 25
 Accurate Inventory Records

▶Accurate inventory records are absolutely required

for MRP (or any dependent demand system) to
operate correctly

▶Generally MRP systems require more than 99%

accuracy

14 - 26
The Inventory Status Record for an Item in
Inventory
Basic
information
describing the
item

Information
about part
availability

Additional
information
that may be
useful

14 - 27
 Purchase Orders Outstanding

▶A by-product of well-managed purchasing and

inventory control department

▶Outstanding purchase orders must accurately

reflect quantities and scheduled receipts

14 - 28
 Lead Times for Components
▶The time required to purchase, produce, or
assemble an item
▶For production – the sum Lead Times for Speaker Kits (As)
of the move, setup, and
assembly or run times COMPONENT LEAD TIME
A 1 week
▶For purchased items – B 2 weeks

the time between the C 1 week

D 1 week
recognition of a need E 2 week
and when its available F 3 weeks
for production G 2 weeks

14 - 29
 Time-Phased Product
Structure Figure 14.3
Must have D and E
Start production of D completed here so
production can begin
on B
1 week
2 weeks to
D produce
B
2 weeks
E
A
2 weeks 1 week
E
2 weeks 1 week
G C
3 weeks
F
1 week
D
| | | | | | | |

1 2 3 4 5 6 7 8
Time in weeks
14 - 30
 MRP: Core Logic
Inventory
MPS Net Status

Explode Lot
Lot sizing
BOM rule
Offset
Lead
Shop Procurement Time
Orders Notices
14 - 31
MRP Planning Sheet

14 - 32
 MRP Structure
Figure 14.4

Data Files Output Reports

MRP by
BOM Master period report
production schedule
MRP by
date report

Lead times
(Item master file) Planned order
report

Inventory data
Purchase advice
Material
requirement
planning
programs
(computer and Exception reports
Purchasing data software)
Order early or late
or not needed

Order quantity too

small or too large

14 - 33
 Gross Requirements Schedule
A S

B C B C
Master schedule
Lead time = 4 for A Lead time = 6 for S for B
Master schedule for A Master schedule for S sold directly

Periods 5 6 7 8 9 10 11 8 9 10 11 12 13 1 2 3
40 50 15 40 20 30 10 10

Periods 1 2 3 4 5 6 7 8
Therefore, these are
40+10 15+30
Gross requirements: B 10 40 50 20 the gross
=50 =45
requirements for B

Planned order release of the parent = PORt

Quantity required to assemble one unit of the parent = BOMQt
Independent demand of the component as spares = IDt
14 - 34
Gross requirements of a component = GRt = (PORt * BOMQt )+ IDt
 Example

Level Product structure for (A) Lead Times for Speaker Kits (As)
0 A
COMPONENT LEAD TIME

B(2) C(3) A 1 week

1
B 2 weeks
C 1 week
2 E(2) E(2) F(2) D 1 week
E 2 week
F 3 weeks
3 D(2) G(1) D(2) G 2 weeks

14 - 35
 Gross Requirements Plan
Gross Material Requirements Plan for 50 Awesome Speaker Kits (As)
TABLE 14.3
with Order Release Dates Also Shown
WEEK
LEAD
1 2 3 4 5 6 7 8 TIME
A. Required date 50
Order release date 50 1 week
B. Required date 100
Order release date 100 2 weeks
C. Required date 150
Order release date 150 1 week
E. Required date 200 300
Order release date 200 300 2 weeks
F. Required date 300
Order release date 300 3 weeks
D. Required date 600 200
Order release date 600 200 1 week
G. Required date 300
Order release date 300 2 weeks

14 - 36
 Net Requirements Plan
The logic of net requirements

Gross + Allocations
requirements

Total requirements

On Scheduled Net
– + = requirements
hand receipts

Available inventory

14 - 37
* On hand data pertains to the inventory at the end of the period
 ITEM ON HAND ITEM ON HAND
A 10 E 10
Net Requirements B 15 F 5
Plan C 20 G 0
D 10

14 - 38
Net Requirements Plan

14 - 39
 Safety Stock
▶BOMs, inventory records, purchase and production quantities
may not be perfect

▶Consideration of safety stock may be prudent

▶Should be minimized and ultimately eliminated

▶Typically built into projected on-hand inventory

14 - 40
 Incorporating Safety Stock
An illustration
Component XX Safety stock Nil Lot size LFL
BOM Qty 3 Lead Time 2

0 1 2 3 4 5 6
Gross Requirement 75 75 0 40 90 60
On hand Inventory 200 125 50 50 10 0 0
Net Requirement 0 0 0 0 80 60
Planned Receipts 0 0 0 0 80 60
Planned Order Releases 0 0 80 60 0 0

Component XX Safety stock 50 Lot size LFL

BOM Qty 3 Lead Time 2

0 1 2 3 4 5 6
Gross Requirement 75 75 0 40 90 60
On hand Inventory 200 125 50 50 10 0 0
On hand Inventory (net of safety
stock) 150 75 0 0 0 0 0
Net Requirement 0 0 0 40 90 60
Planned Receipts 0 0 0 40 90 60
Planned Order Releases 0 40 90 60 0 0

14 - 41
 Incorporating Safety Lead Time
Component XX An illustration
Safety Lead time Nil Lot size LFL
BOM Qty 3 Lead Time 2

0 1 2 3 4 5 6
Gross Requirement 75 75 0 40 90 60
On hand Inventory 200 125 50 50 10 0 0
Net Requirement 0 0 0 0 80 60
Planned Receipts 0 0 0 0 80 60
Planned Order Releases 0 0 80 60 0 0

Component XX Safety Lead time 1 week Lot size LFL

BOM Qty 3 Lead Time 2

0 1 2 3 4 5 6
Gross Requirement 75 75 0 40 90 60
On hand Inventory 200 125 50 50 10 0 0
Net Requirement 0 0 0 0 80 60
Planned receipts (before
incorporating safety LT) 0 0 0 80 60
Planned receipts (after
incorporating safety LT) 80 60
Planned Order Releases 0 80 60 0 0 0
14 - 42
 Lot Sizing in MRP Systems
▶Determination of lot sizes in an MRP system is a
complicated and difficult problem
▶Lot sizes: the part quantities issued in the planned order
receipt and planned order release sections of an MRP
schedule
1. Lot-for-lot (L4L)
2. Economic order quantity (EOQ)
3. Periodic order quantity
4. Fixed order quantity
14 - 43
 Lot-for-Lot
▶Sets planned orders to exactly match the net requirements –
consistent with the objective of dependent demand

▶Produces exactly what is needed each week with none carried over
into future periods

▶When setup costs are low and JIT implemented this can be very
efficient

▶Does not take into account setup costs or capacity limitations (If setup
costs are high, lot-for-lot can be expensive) 14 - 44
 Lot-for-Lot Example
WEEK 1 2 3 4 5 6 7 8 9 10
Gross
35 30 40 0 10 40 30 0 30 55
requirements
Scheduled
receipts
Projected on
35 35 0 0 0 0 0 0 0 0 0
hand
Net
0 30 40 0 10 40 30 0 30 55
requirements
Planned order
30 40 10 40 30 30 55
receipts
Planned order
30 40 10 40 30 30 55
releases

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week

14 - 45
 Lot-for-Lot Example
No on-hand inventory is carried through the system
TotalWEEK
holding cost1 = $0
2 3 4 5 6 7 8 9 10
Gross
There are seven35setups for this
30 40 0 item
10 in this
40 30 plan
0 30 55
requirements
Total ordering cost = 7 x $100 = $700
Scheduled
receipts
Projected on
35 35 0 0 0 0 0 0 0 0 0
hand
Net
0 30 40 0 10 40 30 0 30 55
requirements
Planned order
30 40 10 40 30 30 55
receipts
Planned order
30 40 10 40 30 30 55
releases

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week

14 - 46
 Lot-for-Lot Run Size for an MRP Schedule

Cost per item $10

Order or setup cost $47
Inventory carrying cost/week 0.5%
14 - 47
 Economic Order Quantity
▶EOQ uses an estimate of total annual demand, the setup costs or
order cost, and the annual holding cost. It is not designed for discrete
time period systems
▶ MRP lot sizing techniques assume that part requirements are
satisfied at the start of the period and holding costs are then charged
only to the ending inventory for the period, not to average inventory
like EOQ
▶EOQ does not perform well in MRP
▶EOQ can be a reasonable lot-sizing technique when demand is
relatively constant
14 - 48
Economic Order Quantity Run Size for an
MRP Schedule
▶

Cost per item $10

Order or setup cost $47
Inventory carrying cost/week 0.5%

14 - 49
 EOQ Lot Size Example
WEEK 1 2 3 4 5 6 7 8 9 10
Gross
35 30 40 0 10 40 30 0 30 55
requirements
Scheduled
receipts
Projected on
35 35 0 43 3 3 66 26 69 69 39
hand
Net
0 30 0 0 7 0 4 0 0 16
requirements
Planned order
73 73 73 73
receipts
Planned order
73 73 73 73
releases

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week

Average weekly gross requirements = 27; EOQ = 73 units
14 - 50
 EOQ Lot Size Example
WEEK 1 2 3 4 5 6 7 8 9 10
Gross
35 30 40 0 10 40 30 0 30 55
requirements
Annual demand D = 1,404
Scheduled
Holding cost = 375 units x $1
receipts (including 57 units on
hand
hand
Projected on at
end
35 of35week
0 10)
43 3 3 66 26 69 69 39
Ordering cost = 4 x $100 = $400
Net
Total cost = $3750 + $400
requirements
30 0 0
= $775 7 0 4 0 0 16

Planned order
73 73 73 73
receipts
Planned order
73 73 73 73
releases

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week

Average weekly gross requirements = 27; EOQ = 73 units
14 - 51
 Periodic Order Quantity

▶Periodic order quantity (POQ) orders quantity needed

for a predetermined time period (like every three weeks)

▶POQ Interval = EOQ / average demand per period

▶Order quantity set to cover the interval

▶Order quantity is recalculated at the time of order is release

▶No extra inventory is left

14 - 52
 POQ Lot Size Example
WEEK 1 2 3 4 5 6 7 8 9 10
Gross
35 30 40 0 10 40 30 0 30 55
requirements
Scheduled
receipts
Projected on
35 35 0 40 0 0 70 30 0 0 55
hand
Net
0 30 0 0 10 0 0 55 0
requirements
Planned order
70 80 0 85 0
receipts
Planned order
70 80 85
releases

EOQ = 73 units; Average weekly gross requirements = 27;

POQ interval = 73/27 ≅ 3 weeks
14 - 53
 POQ Lot Size Example
Setups = 3 x $100 = $300
WEEK 1 2 3 4 5 6 7 8 9 10
Holding cost = (40 + 70 + 30 + 55) units x $1 = $195
Gross
Total cost = $30035+ $195
requirements
30 = $495
40 0 10 40 30 0 30 55

Scheduled
receipts
Projected on
35 35 0 40 0 0 70 30 0 0 55
hand
Net
0 30 0 0 10 0 0 55 0
requirements
Planned order
70 80 0 85 0
receipts
Planned order
70 80 85
releases

EOQ = 73 units; Average weekly gross requirements = 27;

POQ interval = 73/27 ≅ 3 weeks
14 - 54
 Fixed Order Quantity

Item: Operating Unit Period (Week)

Lot size rule: Fixed Order Qty. 1 2 3 4 5 6 7 8
Gross requirements 200 120 130 150
On hand* 50 50 50
Net Requirements 150 120 130 150
Lot size 300 300

* On hand data pertains to the inventory at the end of the period

14 - 55
 Lot-Sizing Techniques
▶Dynamic lot sizing techniques

▶Balance lot size and setup costs

▶Part period balancing (least total cost)

▶Least unit cost

▶Least period cost (Silver-Meal)

▶Dynamic programming approach

▶Wagner-Whitin 14 - 56
 Least Total Cost

▶Least total cost method (LTC): a dynamic lot-sizing

technique that calculates the order quantity by comparing
the carrying cost and the setup costs for various lot sizes
and then selects the lot in which these are most nearly
equal

▶Influenced by the length of the planning horizon

14 - 57
Least Total Cost
Cost per item $10
Order or setup cost $47
Inventory carrying cost/week 0.5%

14 - 58
 Least Unit Cost

▶Least unit cost method: a dynamic lot-sizing technique

▶It adds ordering and inventory carrying cost for each trial
lot size and divides by the number of units in each lot size

▶It then picks the lot size with the lowest unit cost

14 - 59
Least Unit Cost
Cost per item $10
Order or setup cost $47
Inventory carrying cost/week 0.5%

14 - 60
 Lot-Sizing Summary
▶In theory, lot sizes should be recomputed whenever
there is a lot size or order quantity change

▶In practice, this results in system nervousness and

instability

▶Lot-for-lot should be used when low-cost setups can

be achieved
14 - 61
 Lot-Sizing Summary
▶Lot sizes can be modified to allow for scrap, process constraints,
and purchase lots

▶Use lot-sizing with care as it can cause considerable distortion of

requirements at lower levels of the BOM

▶When setup costs are significant and demand is reasonably

smooth, POQ or EOQ should give reasonable results

14 - 62
 ExampleExample
Master Production Schedule for the next six periods

1 2 3 4 5 6
Product A 100 150 200 100 0 200
Component C 50 60 70

A Component On hand Lead time Lot size

A 150 1 LFL
B 1000 2 LFL
B3 C1 C 300 1 LFL
D 750 2 3 periods
E 700 6 3 periods
E2 D1 D1 F1 F 200 1 400
G 500 3 500

Product Structure
G1

14 - 63
 MRP Management
▶MRP dynamics

▶Facilitates re-planning when changes occur (master schedule,

BOM, lead times, purchasing and inventory – frequently change

▶System nervousness can result from too many changes. OM

personnel reduce such nervousness by evaluating the need and
impact of changes prior to disseminating requests.

▪ Time fences put limits on re-planning

▪ Pegging links each item to its parent allowing effective analysis of changes
14 - 64
 MRP Management
▶MRP limitations
▶MRP does not do detailed scheduling–it plans (m/c?, job? ,time?)
▶Bad data integrity
▶Lack of discipline in updating the required data bases as and
when changes take place elsewhere in the organization
▶Uncertainties associated with issues that lie outside the control of
people and the system
▶Works best in product-focused, repetitive environments
▶Puts work into time units (weeks) without regard to capacity –
infinite scheduling technique 14 - 65
 Extensions of MRP

▶MRP II

▶Closed-Loop MRP

▶Capacity Planning

14 - 66
 Material Requirements Planning II
▶Requirement data can be enriched by other resources
▶Generally called MRP II or Material Resource Planning
▶Outputs can include scrap, packaging waste, effluent,
carbon emissions
▶Data used by purchasing, production scheduling, capacity planning,
inventory, warehouse management
▶Plans all resources needed for running a business
▶Variations include
▶Service Requirements Planning (SRP)
▶Business Requirements Planning (BRP)
▶Distribution Requirements Planning (DRP) 14 - 67
 MRP II Modules
▶Forecasting
▶Customer order entry
▶Production planning / Master Production Scheduling
▶Product structure / Bill-of-Material processor
▶Inventory control
▶Material Requirements Planning
▶Capacity planning
▶Shop floor control
▶Purchasing
▶Accounting
▶Financial analysis
14 - 68
 Material Resource Planning
Material Resource Planning (MRP II)
Weeks
LT 5 6 7 8
Computer 1 100
Labor Hrs: .2 each 20
Machine Hrs: .2 each 20
Scrap: 1 ounce fiberglass each 6.25 lb
Payables: $0 each $0
PC Board (1 each) 2 100
Labor Hrs: .15 each 15
Machine Hrs: .1 each 10
Scrap: .5 ounces copper each 3.125 lb
Payables: raw material at $5 each $500
Processors (5 each) 4 500
Labor Hrs: .2 each 100
Machine Hrs: .2 each 100
Scrap: .01 ounces of acid waste each 0.3125 lb
Payables: processors at $10 each $5,000 14 - 69
 Closed-Loop MRP System
Figure 14.7

Aggregate Plan

OK?
NO Priority Management Capacity Management

Develop Master Production Evaluate Resource Availability

Schedule (Rough Cut)
OK?
NO OK? YES Planning
Prepare Materials Determine Capacity Availability
Requirements Pan
OK? YES
Execution
Detailed Production Implement Input/Output Control (in repetitive
Activity Control systems JIT
(Shop Scheduling/Dispatching) techniques
are used)

14 - 70
 Capacity Planning

▶Feedback from the MRP system

▶Load reports show resource requirements for work

centers

▶Work can be moved between work centers to

smooth the load or bring it within capacity

14 - 71
 Smoothing Tactics
1. Overlapping
► Sends part of the work to following operations
before the entire lot is complete
► Reduces lead time
2. Operations splitting
► Sends the lot to two different machines for the same
operation
► Shorter throughput time but increased setup costs
3. Order or lot splitting
► Breaking up the order into smaller lots and running
part earlier (or later) in the schedule
14 - 72
 Order Splitting
▶Develop a capacity plan for a work cell at Wiz Products
▶There are 12 hours available each day
▶Each order requires 1 hour

Day 1 2 3 4 5
Orders 10 14 13 10 14

14 - 73
 Order Splitting
UTILIZATION:
CAPACITY CAPACITY OVER/ PRODUCTION NEW
UNITS REQUIRED AVAILABLE (UNDER) PLANNER’S PRODUCTION
DAY ORDERED (HOURS) (HOURS) (HOURS) ACTION SCHEDULE
1 10 10 12 (2) 12
2 14 14 12 2 Split order: 12
move 2 units to
day 1
3 13 13 12 1 Split order: 13
move one unit
to day 6 or
request
overtime
4 10 10 12 (2) 12
5 14 14 12 2 Split order: 12
move 2 units to
day 4
61

14 - 74
 Order Splitting
Figure 14.8
2 orders moved to day 1 from day
Capacity exceeded 2 (a day early)
on days 2, 3, and 5 Available 1 order forced to overtime
capacity or to day 6
2 orders moved to
day 4 (a day early)
14 – 14 –

Standard labor-Hours
Standard labor-Hours

12 – 12 –
10 – 10 –
8– 8–
6– 6–
4– 4–
2– 2–
0– 0–
1 2 3 4 5 1 2 3 4 5
Days Days
(a) (b)

14 - 75
Capacity Requirements Planning (CRP): Logic

MRP planned
order
releases

Capacity
Routing File Capacity
Requirements
(Process Plan) Status
Planning

Loading schedules
for each resource
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 MRP & CRP
Criteria for
A comparative picture
Material Requirements
Capacity Requirements
comparison Planning (MRP) Planning (CRP)
Input Bill of Material (Product Routing Information (Process
Structure) Plan)
MPS MRP Schedules

Lead time Data Lead time Data

Inventory Status Capacity Status

Lot Sizing Rules

Output Purchase Orders Capacity loading schedules

Work Orders Capacity usage profiles

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 MPS – MRP – CRP
Iterative Process

Begin

Modify MPS Modify MPS

Master Production
Scheduling (MPS)

No
Modify MRP
Material Requirements
Feasible?
Planning (MRP)
Yes No
Capacity Requirements
Feasible?
Planning (CRP)
Yes
Finalise
Plan 14 - 78
 MRP in Services
▶Some services or service items are directly linked to demand for
other services

▶These can be treated as dependent demand services or items

▶Restaurants

▶Hospitals

▶Hotels

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Distribution Resource Planning (DRP)

Using dependent demand techniques

through the supply chain

► Expected demand or sales forecasts

become gross requirements
► All other levels are computed
► DRP pulls inventory through the system
► Small and frequent replenishments

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 Enterprise Resource Planning (ERP)
▶An extension of the MRP system to tie in customers and
suppliers
1. Allows automation and integration of many business
processes
2. Shares common data bases and business practices
3. Produces information in real time
▶Coordinates business from supplier evaluation to
customer invoicing

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 Enterprise Resource Planning (ERP)
▶ERP modules include
▶Basic MRP
▶Finance
▶Human resources
▶Supply chain management (SCM)
▶Customer relationship management (CRM)
▶Sustainability

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Enterprise Resource Planning (ERP)
▶ERP systems have the potential to
▶Reduce transaction costs
▶Increase the speed and accuracy of
information
▶Facilitates a strategic emphasis on JIT
systems and supply chain integration
▶Can be expensive and time-consuming
to install

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ERP and MRP

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SAP’s ERP Modules

Figure 14.11 14 - 85
 ERP in the Service Sector
▶ERP systems have been developed for health care,
government, retail stores, hotels, and financial services
▶Also called efficient consumer response (ECR)
systems
▶Objective is to tie sales to buying, inventory, logistics,
and production

14 - 86