Operations Management

BBA
Academic Year 2021-22

Dr. Hasanuzzaman
Assistant Professor
Operations & Information Technology
ICFAI Business School Hyderabad
 MRP
■ Stands for Material requirements planning
– Planning and scheduling technique used for batch production of assembled items
■ A computer-based information system that translates master schedule requirements for
end items into time-phased requirements for subassemblies, components, and raw
materials.
■ Thus, MRP is designed to answer three questions
– What is needed?
– How much is needed? and
– When is it needed?
 Demand Pattern
■ A major distinction in the way inventories are managed results from the nature of
demand for those items.
■ Dependent Demand
– Demand for items that are subassemblies or component parts to be used in the
production of finished goods.
■ Independent Demand
– Independent demand is fairly stable once allowances are made for seasonal
variations, but dependent demand can be sporadic or “lumpy”.
Demand Pattern
Inventory Pattern
MRP
 MRP Inputs – Master Production Schedule
■ MPS states
– which end items are to be produced?
– when they are needed? and
– In what quantities ?
 MRP Inputs – Master Production Schedule
■ Cumulative Lead Time
– The sum of the lead times that sequential phases of a process require, from
ordering of parts or raw materials to completion of final assembly.
– Lead times include move and wait times in addition to setup and run times.
 MRP Inputs – Bill of Materials
■ Bill of Materials
– A listing of all of the raw materials, parts, subassemblies, and assemblies needed
to produce one unit of a product.
 MRP Inputs – Bill of Materials
■ Product Structure Tree
– A visual depiction of the requirements in a bill of materials, where all components
are listed by levels.
 Bill of Materials – Types
■ Components BOM
– The standard Bill of Material
■ Modular BOM
– Choices instead of components
■ Alternative BOM
– Interchangeable components
■ Phantom BOM's
– An intermediate assembly not stocked
■ Variable BOM's
– A variable quantity for a component
■ Kit BOM's
– Prepackaged items for repair or build
 Bill of Materials – Example
■ Use the information given in the image
– Determine the quantities of B, C, D, E, and F needed to assemble one X.

■ Low-level coding Restructuring the bill of materials so that multiple occurrences of a

component all coincide with the lowest level at which the component occurs.
 Bill of Materials – Example
■ Determine the quantities of these
components that will be required to assemble
10 Xs, taking into account the quantities on
hand (i.e., in inventory) of various
components
Component On Hand
B 4
C 10
D 8
E 60
 MRP Inputs – Inventory Records
■ Includes information on the status of each item by time period
■ This includes
– Gross requirements
– Scheduled receipts, and
– Expected amount on hand.
■ It also includes other details for each item, such as
– Supplier
– Lead time, and
– Lot size policy
 MRP Inputs – Inventory Records
■ Gross Requirements
– Total expected demand for an item or raw material in a time period.
■ Scheduled Receipts
– Open orders scheduled to arrive from vendors or elsewhere in the pipeline.
■ Projected on Hand
– Expected amount of inventory that will be on hand at the beginning of each time
period.
 MRP Inputs – Inventory Records
■ Net Requirements
– The actual amount needed in each time period.

𝑁𝑒𝑡 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡𝑠 = 𝐺𝑟𝑜𝑠𝑠 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡𝑠 − 𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

𝐴𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = 𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝑜𝑛 ℎ𝑎𝑛𝑑 − 𝑆𝑎𝑓𝑒𝑡𝑦 𝑠𝑡𝑜𝑐𝑘 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑎𝑙𝑙𝑜𝑐𝑎𝑡𝑒𝑑 𝑡𝑜 𝑜𝑡ℎ𝑒𝑟 𝑖𝑡𝑒𝑚𝑠

𝑁𝑒𝑡 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡𝑠 = 𝐺𝑟𝑜𝑠𝑠 𝑟𝑒𝑞𝑢𝑖𝑟𝑒𝑚𝑒𝑛𝑡𝑠 − 𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑 𝑜𝑛 ℎ𝑎𝑛𝑑 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

 MRP Inputs – Inventory Records
■ Planned-order receipts
– Quantity expected to be received by the beginning of the period in which it is shown
■ Under lot-for-lot ordering, this quantity will equal net requirements.
■ Under lot-size ordering, this quantity may exceed net requirements
■ Planned-order releases
– Planned amount to order in each time period; planned-order receipts offset by lead
time.
■ The timing and sizes of orders (i.e., materials ordered from suppliers or work started
within the firm) are determined by planned-order releases.
■ The timing of the receipts of these quantities is indicated by planned-order receipts
■ When an order is executed, it is removed from “planned-order releases” and entered
under “scheduled receipts.”
 MRP Processing
■ MRP processing takes the end item requirements specified by the master schedule and
“explodes” them into time-phased requirements for assemblies, parts, and raw materials
using the bill of materials offset by lead times.
MRP Processing
 MRP Processing – Example
■ A firm that produces wood shutters and bookcases has received two orders for shutters:
one for 100 shutters and one for 150 shutters. The 100-unit order is due for delivery at
the start of week 4 of the current schedule, and the 150-unit order is due for delivery at
the start of week 8. Each shutter consists of two frames and four slatted wood sections.
The wood sections are made by the firm, and fabrication takes one week. The frames are
ordered, and lead time is two weeks. Assembly of the shutters requires one week. There
is a scheduled receipt of 70 wood sections in (i.e., at the beginning of) week 1.
Determine the size and timing of planned- order releases necessary to meet delivery
requirements under each of these conditions
– Lot-for-lot ordering (i.e., planned-order release equal to net requirements)
– Lot-size ordering with a lot size of 320 units for frames and 70 units for wood
sections
MRP Processing – Example
MRP Processing – Example
 MRP Processing – Example
■ A firm that produces wood shutters and bookcases has received two orders for shutters:
one for 100 shutters and one for 150 shutters. The 100-unit order is due for delivery at
the start of week 4 of the current schedule, and the 150-unit order is due for delivery at
the start of week 8. Each shutter consists of two frames and four slatted wood sections.
The wood sections are made by the firm, and fabrication takes one week. The frames are
ordered, and lead time is two weeks. Assembly of the shutters requires one week. There
is a scheduled receipt of 70 wood sections in (i.e., at the beginning of) week 1.
Determine the size and timing of planned- order releases necessary to meet delivery
requirements under each of these conditions
– Lot-for-lot ordering (i.e., planned-order release equal to net requirements)
– Lot-size ordering with a lot size of 320 units for frames and 70 units for wood
sections
– Develop a master schedule
– Develop a product structure tree
– Using the master schedule, determine gross requirements for shutters. Next,
compute net requirements.
– Using lot-for-lot ordering, determine planned-order receipt quantities and the
planned-order release timing to satisfy the master schedule
MRP Processing – Example
MRP Processing – Shutter
MRP Processing – Frames
MRP Processing – Wood Section
 Pegging
■ The process of identifying the parent items that have generated a given set of material
requirements for an item.
 Updating the System
■ Regenerative system
– Approach that updates MRP records periodically.
■ Net-change system
– Approach that updates MRP records continuously.
 MRP Output
■ MRP systems have the ability to provide management with a fairly broad range of
outputs.
– Primary reports, which are the main reports, and
– Secondary reports, which are optional outputs.
 MRP Output – Primary Report
■ Production and inventory planning and control are part of primary reports
■ Planned Orders
– Schedule indicating the amount and timing of future orders.
■ Order Releases
– Authorization for the execution of planned orders.
■ Changes
– Revisions of due dates or order quantities, or cancellations of orders.
 MRP Output – Secondary Report
■ Performance control, planning, and exceptions belong to secondary reports.
■ Performance-control Reports
– Evaluation of system operation, including deviations from plans and cost
information.
■ Planning Reports
– Data useful for assessing future material requirements.
■ Exception Reports
– Data on any major discrepancies encountered.
 MRP in Services
■ These applications may involve material goods that form a part of the product–service
package, or they may involve mainly service components.
■ Example of a product–service package is a food catering service
■ To estimate quantities and costs of an order, the food manager would have to determine
the quantities of the ingredients for each recipe on the menu (i.e., a bill of materials),
which would then be combined with the number of each meal to be prepared to obtain a
material requirements plan for the event.
 MRP – Benefits
■ Enables managers to easily
– Determine the quantities of each component for a given order size
– To know when to release orders for each component
– To be alerted when items need attention
■ Additional benefits
– Low levels of in-process inventories
– The ability to track material requirements
– The ability to evaluate capacity requirements
– A means of allocating production time
– The ability to easily determine inventory usage via backflushing
■ Backflushing
– Exploding an end item’s BOM to determine the quantities of the components that were used
to make the item
 MRP – Difficulties
■ Consequence of Inaccurate Data
– Missing parts
– Ordering incorrect numbers of items
– Inability to stay on schedule
■ Other problems
– Assumptions of constant lead times
– Products being produced differently from the BOM
– Failure to alter a BOM when customizing a product
– Inaccurate forecasts
 Practice
■ The following product structure tree indicates the components needed to assemble one
unit of product W. Determine the quantities of each component needed to assemble 100
units of W
 Practice
■ The product structure tree for end item E follows. The manager wants to know the
material requirements for ordered part R that will be needed to complete 120 units of E
by the start of week 5. Lead times for items are one week for level 0 items, one week for
level 1 items, and two weeks for level 2 items. There is a scheduled receipt of 60 units of
M at the start of week 2 and 100 units of R at the start of week 1. Lot-for-lot ordering is
used.