Ch 9 Material Requirements Planning

MRP system

Using the three sources of information _____ _______ ____________ produces schedules for each item it manages; can be updated in real time or periodically, depending on the application.

Available to Promise (ATP)

a feature of MRP systems that identifies the difference between the number of units currently included in the master schedule and the actual (firm) customer orders.

lot-for-lot (L4L)

-Sets planned orders to exactly match the net requirements -Produces exactly what is needed each week with none carried over into future periods -Minimizes carrying cost -Does not take into account setup costs or capacity limitations.

MRP Explosion Process

1. The requirements for end items are retrieved from the master schedule - These are referred to as "gross requirements" by the MRP program 2. Uses on-hand balance with schedule of orders to calculate the "net requirements" 3. Using net requirements, it calculates when orders should be received to meet these requirements 4. Find a schedule for when orders are actually released to account for manufacturing or shipping lead time 5. Move to next level where gross requirements are calculated from the planned released of the level 0 item. 6. Move to level 1 items and Repeat for all items in the bill of materials.

Projected Available Balance

= projected available balance (t-1) - Gross requirements (t) + scheduled receipts (t) + Planned order receipts (t)

Economic Order Quantity (EOQ)

Balances the setup and holding costs to find the lowest total cost in systems which do not require discrete time periods to place orders.

Scheduled receipts

Represent orders that have already been released and that are scheduled to arrive as of the beginning of the period; once the paperwork on an order has been released, what was prior to that event's "planned" order now becomes a _______ _________

Master Production Schedule (MPS)

A time-phased plan specifying how many and when the firm plans to build each end item.

Material Requirements Planning (MRP)

determines detailed schedules that show exactly what is needed over time; is most useful in industries where standard products are made in batches from common components and parts.

MRP applications and benefits

- Assemble-to-stock, high benefit - Fabricate-to-stock, low benefit - Assemble-to-order, high benefit - Fabricate-to-order, low benefit - Manufacture-to-order, high benefit - Process (includes industries such as foundries, rubber and plastics, paper, chemicals, paint, drug), medium benefit

Economic Order Quantity (EOQ)

- calculate reorder quantity based on EOQ - was not designed for a system with discrete time periods such as MRP - the lot sizes generated by EOQ do not always cover the entire number of periods - EOQ=square root of (2DS/H)

Master Production Schedule (MPS)

deals with the end items and is a major input to the MRP process. Used to determine an acceptable feasible schedule to be released to the shop

Dependent Demand

drives the MRP system

Dependent Demand

is driven from the forecasts

Bill of Materials (BOM)

showing how the product is put together; The complete product description, listing the materials, parts, and components, along with the sequence in which the product is created; Often called product structure file or product tree

Super Bill of Materials

shows how the product is put together and includes items with fractional options

Aggregate plan

shows overall quantities to produce-without specifying type

Master Production Schedule

shows quantities of each type, with information about the production time frame

BOM Hierarchy (Levels)

Higher levels (lower numbers) refer to end products Lower levels (higher numbers) refer to components and raw materials

Lot sizing strategies

Lot-for-lot (L4L) Economic order quantity (EOQ) Least total cost (LTC) Least unit cost (LUC)

Material Requirement Planning (MRP) System Structure

MRP system inputs: Forecasts of demand from customers to Aggregate production plan, adding in firm orders from customers gives us the master production schedule. Engineering design changes are used to make bill-of-material files. Inventory transactions are used to make inventory record files. Then the master production schedule, bill-of-materials file, and inventory records file are used to make the material planning (MRP computer program). MRP system outputs: Production activity reports the primary reports that consist of planned order releases for inventory and production control. Also secondary reports which are exceptions reports, planning reports, and reports for performance control.

Lot for lot

The most common technique: - sets planned orders to exactly match the net requirements - produces exactly what is needed each week with none carried over into future periods - minimizes carry cost - does not take into account setup costs or capacity limitations

Modular bill of materials

a buildable item that can be produced and stocked as a subassembly

Least unit cost method

a dynamic lot-sizing technique that adds ordering and inventory carrying cost for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost

Material Requirements Planning (MRP)

a means for determining the number of parts, components, and materials needed to produce a product

Net-change system

An MRP system that calculates the impact of a change in the MRP data (the inventory status, BOM, or master schedule) immediately.

Product Demand Sources

Customers - specific orders placed by either external or internal customers Aggregate production plan - the firm's strategy for meeting demand in the future, implemented through the master production schedule (MPS)

Liquid Time Fence

any changes to production plan allowed; usually 15 weeks and out from completion.

time fences

are used in the MPS to make the schedules calculated by the MRP system stable and ensure their feasibility

Frozen Time Fence

changes to production plan not allowed; usually within 8 weeks of completion

Lot sizing in MRP systems

determination of lot sizes in an MRP system is a complicated and difficult problem

Bill of materials file

identifies the specific materials used to make each item and the correct quantities of each

least unit cost

is a dynamic lot-sizing method that adds the ordering and inventory carrying cost for each trial lot size and divides by the number of units in each lot size, picking the lot size with the lowest unit cost.

Master Production Schedule (MPS)

is a plan that specifies what will be made by a production system in the future.

Independent demand

is identified via forecasting methods

Projected Available Balance

is the amount of inventory expected as of the end of a period.

Material Requirements Planning (MRP)

is the logic that calculates the number of parts, components, and other materials needed to produce a product

Slushy Time Fence

limited changes to production plan allowed; between 8 to 15 weeks of completion

Master Production Schedule

states the number of items to be produced during specific time periods.

Bill of Materials (BOM)

the complete product description, listing the materials, parts, and components, and also the sequence in which the product is created.

The Three sources of information for the MRP system

- demand comes from the master schedule - the bill-of-materials identifies exactly what is needed to make each end items - the current inventory status of the items managed by the system (units currently on-hand, expected receipts in the future, and how long it takes to replenish an item).

data sources for the material requirements program

Master production schedule, bill of materials file, and inventory records file become _____________________ which expends the production schedule into a detailed order scheduling plan for the entire production sequence.

net requirement

The amount needed when the projected available balance plus the scheduled receipts in a period are not sufficient to cover the gross requirement

planned order receipts

The amount of an order that is required to meet a net requirement in the period

inventory status records

These records show: 1) Item master data segment shows basic information describing the item. 2) Inventory status segment shows information about part availability. 3) Subsidiary data segment shows additional information that may be useful.

Enterprise Resource Planning (ERP)

a computer system that integrates application programs in accounting, sales, manufacturing, and the other functions in a firm

Enterprise resource planning (ERP)

a computer system that integrates application programs in accounting, sales, manufacturing, and the other functions in a firm

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

Enterprise Resource Planning (ERP)

a system that integrates application programs in accounting, sales, manufacturing, and other functions in a firm; MRP is typically an application within this system.

inventory records file

contains data such as the number of units on hand and on order

Least total cost

is a dynamic lot-sizing method that calculates the order quantity by comparing the carrying cost and the setup (ordering) costs for various lot sizes and then selects the lot in which these are most nearly equal.

Master Production Schedule

is a plan for meeting all the demands for the end items, including customer demand, the demand for replacements, and any other demands that might exist.

end items

the items scheduled in the MPS are referred to as "_______ _______" and represent the products that drive the requirements for the MRP system.

Material Requirements Planning (MRP)

the logic for determining the number of parts, components, and materials needed to produce a product

Material Requirements Planning (MRP)

the logic that ties production functions together from a material planning and control view; a logical, easily understood approach to the problem of managing the parts, components, and materials needed to produce end items.

Lot sizes

the part quantities issued in the planned order receipt and planned order release sections of an MRP schedule

planned order release

the planned order receipt offset by lead time

gross requirements

the total amount required for a particular item; these requirements can be from external customer demand and also from demand calculated due to manufacturing requirements.