OPER 3100 Chapter 21 MRP

Bill of Materials (BOM)

A computer file that contains the complete product description, listing the materials, parts, and components and the sequence in which the product is created. ---Each finished product has its own bill of materials The BOM file is often called the product structure file or product structure tree. • Shows how a product is put together. • Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.

Available to Promise (ATP)

A feature of MRP systems that identifies the difference between the number of units currently included in the master production schedule (MPS) and actual (firm) customer orders. An example: • MPS indicates that 100 units of Model 538 mattress are going to be made in week 7. • Firm customer orders now indicate that 65 of those mattresses have been ordered. • Therefore, the sales group has 35 (=100 - 65) mattresses "available to promise" for delivery during that week. • It is a powerful tool for coordinating sales and production activities.

Which of the following is the net requirement using an MRP program if the gross requirement is 1,250 and the inventory on hand is 50? A. 1,200 B. 1,300 C. 1,150 D. 2,450 E. None of these

A- 1,200

If annual demand is 6,125 units, annual holding cost is $5 per unit, and setup cost per order is $50, which of the following is the EOQ lot size? A. 350 B. 247 C. 23 D. 185 E. 78

A- 350

Which of the following is an input file necessary to run an MRP system? A. Bill of materials (BOM) file B. Quality management report C. Exception reports D. Planned-order schedules E. Purchasing contracts

A- Bill of materials (BOM) file

A product tree can do which of the following? A. Help to compute component usage. B. Reduce product scrap. C. Reduce labor overtime. D. Reduce regular time labor. E. Locate raw material supplies.

A- Help to compute component usage

Which of the following is considered a primary report in an MRP system? A. Planned order schedule B. Peg report C. Planning report D. Inventory accuracy report E. Aggregate production plan report

A- planned order schedule

Which of the following is most closely related to the reason a firm might implement MRP? A. So it can order the right parts B. So it can order parts sufficient for immediate use C. So it can ensure that parts to arrive prior to when they are needed D. To ensure appropriate quality levels E. To keep process costs between the LCL and the UCL

A- so it can order the right parts

Which of the following is an input to the master production schedule (MPS)? A. Inventory records file B. The aggregate plan C. The bill of materials D. The exception report E. Planned order schedules

B- The aggregate plan

Which of the following is considered a secondary report in an MRP system? A. Planned order schedule B. Exceptions reports C. Inventory record D. Firm orders from known customers E. Engineering change reports

B- exceptions reports

Under the lot-for-lot (L4L) lot sizing technique as used in MRP, we would expect which of the following? A. A consistent lag of supply behind demand B. Minimized carrying costs C. Minimized setup costs D. A just-in-time management philosophy E. Minimized quality problems

B- minimized carrying costs

MRP Processing Logic

Based on the master production schedule to determine the components schedules for successively lower-level items throughout the product structures. It calculates schedules for each of the time periods (usually weekly) in the scheduling time horizon • Gross requirements • Schedule receipts • Projected on hand • Net requirements • Planned-order receipts • Planned-order releases

Which of the following is the planned-order release using an MRP program if the gross requirement is 5,000, inventory on hand is 1,200, and planned receipts are 800? A. 7,000 B. 4,200 C. 3,000 D. 2,000 E. 1,200

C- 3,000

Which of the following is the net requirement using an MRP program if the gross requirement is 1,000 and the inventory on hand is 500? A. 1,000 B. 950 C. 500 D. 400 E. 350

C- 500

Which of the following industry types have high expected benefits from the application of MRP? A. Fabricate-to-order B. Hospitals C. Assemble-to-order D. Aircraft manufacturers E. Oil refineries

C- Assemble-to-order

Which of the following industry types have high expected benefits from the application of MRP? A. Fabricate-to-stock B. Fabricate-to-order C. Assemble-to-stock D. Continuous process E. Service and repair parts

C- Assemble-to-stock

Which of the following is an input file necessary to run an MRP system? A. Exception report B. Computer-aided-design files C. Inventory records file D. Personnel files E. Planned order schedule

C- Inventory records file

Which of the following is a dynamic lot-sizing technique that calculates the order quantity by comparing the carrying cost and the setup (or ordering) costs for various lot sizes and then selects the lot in which these are most nearly equal? A. Economic order quantity B. Lot-for-lot C. Least total cost D. Least unit cost E. ABC analysis

C- Least total cost

We would expect to see which of the following in an MRP system's inventory status file? A. End items produced B. Late/early delivery records C. Scrap parts D. Labor efficiency E. Computer errors

C- scrap parts

_______________________________________________________________due to cancellation or suspension of orders on the master production schedule. (MRP Outputs -- Primary Reports)

Cancellations or suspensions of open orders

Industry Applications and Expected Benefits of MRP Industry Type: Assemble-to-stock Examples:? Expected Benefits:?

Combines multiple component parts into a finished product, which is then stocked in inventory to satisfy customer demand. Examples: watches, tools, appliances. Expected Benefits=High

A BOM file is often called a product structure file or product tree because it shows how a product is put together.

True

A lot-for-lot (L4L) lot-sizing technique does not take into account setup costs or capacity limitations.

True

In a net change MRP system, requirements and schedules are updated whenever a transaction is processed that has an impact on the item.

True

Lot-for-lot (L4L) is the most common lot-sizing technique.

True

MRP is based on dependent demand.

True

MRP provides the schedule specifying when each part and component of an end item should be ordered or produced.

True

Net change MRP systems are "activity" driven.

True

Projected available balance is the amount of inventory that is expected as of the beginning of a period.

True

The least unit cost method of lot-sizing technique 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.

True

The master production schedule states the number of items to be produced during specific time periods.

True

The three main inputs to an MRP system are the bill of materials, the master schedule, and the inventory records file.

True

The time-phased plan specifying how many and when the firm plans to build each end item is called the master production schedule (MPS).

True

Time fences are periods of time having some specified level of opportunity for the customer to make changes.

True

Enterprise Resource Planning (ERP)

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

Least unit cost method (LUC)

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

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

Manufacturing resource planning (MRP II)

an expanded version of MRP that integrate finance, accounting, account payable, and other business processes into production scheduling and inventory control functions that are part of a basic MRP system. Goals: Plan and monitor all resources of a manufacturing firm through a closed-loop system. Simulate the manufacturing system to allow better visibility of future and planning.

Planning Reports (MRP Outputs -- Primary Reports)

data useful in forecasting future inventory requirements, e.g., purchase commitments.

What is the name for demand caused by the demand for a higher-level item? __________________________

dependent demand

The customer grace period is a time span having some specified level of opportunity for the customer to make changes.

false

In MRP, how is demand information for a level 0 (zero) item derived? _________________________

from the master production scheduling process

Where is MRP most valuable?

in industries where a number of products are made in batches using the same productive equipment.

Frozen Time Fence

no schedule changes allowed within this window

BOM - Low-Level Coding

requires that when an identical item occurs at multiple levels, it should be "lowered" to its lowest level for computational reasons. The software will complete all level 0 items first, then all level 1 items, etc.

Super Bill of Materials

s includes items with fractional options. • e.g., 0.3 of a part → 30% of units produced contain the part and 70% do not.

Flexible Time Fence

significant variation allowed as long as overall capacity requirements remain at the same levels

Moderately Firm Time Fence

specific changes allowed within product groups as long as parts are available

What is the name for a bill of materials that includes items with fractional options? __________________________

super bill of materials

Net requirements

the difference between the gross requirements for the period and the total of the scheduled receipts and the projectedon-hand in the period. • Gross requirements - scheduled receipts - projected on-hand • The net requirement is zero if the result of the above calculation is negative.

Material Requirements Planning (MRP)

the logic for determining the number of parts, components, and materials needed to produce a product. Also provides the schedule specifying when each of the materials, parts, and components should be ordered or produced. 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 • How much of each part to obtain? • When to order or produce the parts?

Planned-order receipts

the size of the planned order in the period in which it is needed. This appears in the same time period as the net requirements, but its size is modified by the appropriate lot sizing policy. • With lot sizing, the planned order quantity will generally exceed the net requirements. Any excess beyond the net requirements goes into projected-on-hand inventory of next period. • With lot-for-lot ordering, the planned order receipts are always the same as the net requirements.

Modular Bill of Materials

the term for an item that can be produced and stocked as a subassembly ---Large and expensive end items are better scheduled and controlled as modules (or subassemblies). ---When same subassemblies appear in different end items.

Performance reports (MRP Outputs -- Primary Reports)

used to determine agreement between actual and programmed usage and costs.

Exception reports (MRP Outputs -- Primary Reports)

used to point out serious discrepancies, such as late or overdue orders.

Planned-order releases

when the order should be placed (released) so the items are available when needed by parent. This is the same as the planned order receipts offset for lead times. • Planned-order releases at one level generate material requirements at lower levels.

Scheduled receipts

(also known as on-order, open orders, or scheduled orders) material that is already ordered (orders already released) and is expected to arrive at beginning of the period.

Planned Orders (MRP Outputs -- Primary Reports)

- Schedule indicating the amount and timing of future orders.

Dependent Demand

-Drives the MPR system -Caused by the demand for a higher-level item ---Cars need tires ---Planes need wings -Determining the number of depended demand items needed is essentially a straightforward multiplication process ---If one Part A takes five parts of B to make it, then five parts of A require 25 parts of B

Types of Time Fences

-Frozen -Moderately Firm -Flexible

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

MRP Outputs -- Primary Reports

-Planned Orders -Order release notices -Changes -Cancellations or suspensions of open orders -Inventory Status data -Planning Reports -Performance reports -Exception reports

What is the planned-order release using an MRP program if the gross requirement is 1,600 and the inventory on hand is 600?

1,000

Three Primary Inputs in MRP

1. A master production schedule 2. A Bill of Materials 3. An inventory records file

If annual demand is 1,000 units, annual holding cost is $0.50 per unit, and the cost per order is $10, what is the EOQ?

200

Projected on hand

: the expected quantity in inventory at the beginning of the period. This is calculated by adding the projected-onhand from the previous period to the scheduled receipts for the period and subtracting the gross requirements for the same period. • On-hand (t) = On-hand(t-1) + Scheduled Receipts (t-1) + Planned-order receipts (t-1) - Gross Requirements (t-1)

Industry Applications and Expected Benefits of MRP Industry Type: Assemble-to-order Examples:? Expected Benefits:?

A final assembly is made from standard options that the customer chooses. Examples: trucks, generators, motors. Expected Benefits=High

Closed-Loop MRP

A material requirements planning (MRP) system with information feedback from its module outputs is termed a "_______________" system. -Questions and output data are looped back up the system for verification and, if necessary, modification

Master Production Schedule (MPS)

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

Which of the following industry types will not benefit greatly from the application of MRP? A. Fabricate-to-order B. Assemble-to-stock C. Assemble-to-order D. Manufacture-to-order E. None of these

A- Fabricate-to-order

A BOM file is also called which of the following? A. Product tree B. Stocking plan C. Inventory usage record D. Production parts plan E. Time bucket schedule

A- Product tree

Order release notices (MRP Outputs -- Primary Reports)

Authorization for the execution of planned orders.

Which of the following is one of the main purposes of an MRP system? A. Educate personnel in basic work rules. B. Determine the amount of materials needed to produce each end item. C. Stimulate the work force. D. Decrease labor requirements. E. Increase inventory accuracy.

B- Determine the amount of materials needed to produce each end item

MRP systems seek to achieve which of the following? A. Minimize lot sizes. B. Determine the number of dependent demand items needed. C. Relieve capacity bottlenecks. D. Provide a yardstick for future improvements. E. Improve on JIT methods.

B- Determine the number of dependent demand items needed

In an MRP program, the program accesses the status segment of an inventory record according to specific periods called which of the following? A. Cubed time units B. Time buckets C. BOM units D. Time modules E. Time lines

B- time buckets

The ___ file is often called the product structure file or product structure tree

BOM

Which of the following can be used for lot sizing in an MRP system? A. Low-level coding B. Time bucket size C. Least unit cost D. Inventory record file E. Peg inventory

C- least unit cost

_______ in due dates of open orders due to rescheduling. (MRP Outputs -- Primary Reports)

Changes

Certain

Dependent Demand

If annual demand is 12,000 units, annual holding cost is $15 per unit, and setup cost per order is $25, which of the following is the EOQ lot size? A. 2,000 B. 1,200 C. 1,000 D. 300 E. 200

E- 200

Which of the following is not a production activity report generated by MRP? A. Exception report B. Planning report C. Performance control report D. Planned-order schedules E. Bill of materials report

E- Bill of materials report

Which of the following is not a lot-sizing technique used in MRP systems? A. Lot-for-lot (L4L) B. Economic order quantity (EOQ) C. Least total cost (LTC) D. Least unit cost (LUC) E. Warehouse loading factor (WLF)

E- warehouse loading factor (WLF)

Generally, determining lot sizes in MRP systems is simple.

False

MRP stands for manufacturing requirements planning

False

The deeper one looks into the product creation sequence, the more the requirements of dependent demand items tend to smooth out and become even over time.

False

The economic order quantity (EOQ) lot-sizing technique produces or acquires exactly the amount of product that is needed each time period with none carried over into future periods.

False

The lot-for-lot (L4L) lot-sizing technique minimizes carrying cost by taking into account setup costs and capacity limitations.

False

When implemented correctly, MRP links all areas of the business.

False

Industry Applications and Expected Benefits of MRP Industry Type: Process Examples:? Expected Benefits:?

Includes industries such as foundries, rubber and plastics, specialty paper, chemicals, paint, drug, good processors. Expected Benefits=Medium

Demand not related to other items or the final end-product

Independent Demand

Uncertain

Independent Demand

Industry Applications and Expected Benefits of MRP Industry Type: Engineer-to-order Examples:? Expected Benefits:?

Items are fabricated or assembled completely to customer specifications. Examples: turbine, generators, heavy machine tools Expected Benefits=High

Industry Applications and Expected Benefits of MRP Industry Type: Make-to-stock Examples:? Expected Benefits:?

Items are manufactured by machine rather than assembled from parts. These are standard stock items carried in anticipation of customer demand. Examples: piston rings, electrical switches Expected Benefits= Medium

Industry Applications and Expected Benefits of MRP Industry Type: Make-to-order Examples:? Expected Benefits:?

Items are manufactured by machine to customer order. These are generally industrial orders. Examples: bearings, gears, fasteners. Expected Benefits=Low

___ has been installed almost universally in manufacturing firms -even small ones

MRP

Improvements in the MRP System

The original (basic) MRP planned only materials. -Revising the schedule because of capacity considerations was done external to the MRP software program. ↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓ Included Capacity Requirements Planning (CRP). ↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓ Included feedback of information - Closed-Loop MRP ↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓↓ Manufacturing Resource Planning (MRP II)

A master production schedule is an input to a material requirements planning (MRP) system.

True

A modular bill of materials is the term for an item that can be produced and stocked as a subassembly.

True

An input to the material requirements planning (MRP) system is an inventory records file.

True

Computing the quantity of each component that goes into a finished product can be done by expanding (or exploding) each item in a product structure file and summing at all levels.

True

MRP is a logical, easily understandable approach to the problem of determining the number of parts, components, and materials needed to produce each end item.

True

MRP is most valuable where a number of products are made in batches using the same productive equipment.

True

MRP stands for Material Requirements Planning

True

Manufacturing firms maintain bill of materials (BOM) files, which are simply a sequencing of everything that goes into a final product.

True

Net change MRP reflects the exact status of each item managed by the system in "real time."

True

The deeper one looks into the product creation sequence, the more the requirements of dependent demand items tend to become "lumpy."

True

The economic order quantity (EOQ) lot-sizing technique uses the "square root formula" to balance setup cost and carrying cost.

True

The least total cost method (LTC) lot-sizing technique calculates the order quantity by comparing the carrying cost and the setup (or ordering) costs for various lot sizes and then selects the lot in which these are most nearly equal.

True

Gross requirements

the total anticipated production, use, or withdrawals during each time period. • For end items (independent demand items), this quantity is obtained from the master production schedule. • For components (dependent demand items), it is derived from the "planned order releases" of their immediate parents.

Three inputs/sources to MPS:

• Aggregate production plan --• disaggregating the "aggregate plan" • Firm orders from customers --• promised orders from known customers • Forecasts of demand from random customers --• Independent-demand orders

Economic Order Quantity (EOQ)

• Calculate reorder quantity based on EOQ • 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=√((2DS)/H)

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 • Will look at four 1. Lot-for-lot (L4L) 2. Economic order quantity (EOQ) 3. Least total cost (LTC) 4. Least unit cost (LUC)

To ensure good master scheduling, the master scheduler (the human being) must

• Include all demands • Never lose sight of the aggregate plan • Be involved with customer order promising • Be visible to all levels of management • Objectively trade off manufacturing, marketing, and engineering conflicts • Identify and communicate all problems

Inventory Records File

• MRP program accesses the status segment of the record for each item by time period (time buckets): • Gross requirements • Scheduled receipts • Amount on hand • Lead time • Lot size policy • And more ...

The flexibility within a MPS depends on several factors:

• Production lead time • Commitment of parts and components to a specific end item • Relationship between the customer and vendor • Amount of excess capacity • Reluctance or willingness of management to make changes

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

MPS Time Fences

• The flexibility within a MPS depends on several factors: --• Production lead time --• Commitment of parts and components to a specific end item --• Relationship between the customer and vendor --• Amount of excess capacity --• Reluctance or willingness of management to make changes • Management defines time fences as periods of time having some specified level of opportunity for the customer to make changes. • The purpose of time fences is to maintain a reasonably controlled flow through the production system.

Derived demand items for component parts, subassemblies, raw materials, etc.

Dependent Demand

Which of the following files allows us to retrace a material requirement upward in the product structure through each level, identifying each parent item that created the demand? A. Planning bill of materials file B. Modular bill of materials file C. Super bill of materials file D. Exception report file E. Peg record file

E- Peg record file

Which of the following is an input to the master production schedule? A. Prototype products from product development B. Aggregate component schedule C. Peg reports D. Exception reports E. Forecasts of random demand from customers

E- forecasts of random demand from customers

Which of the following is a dynamic lot-sizing technique that calculates the order quantity by comparing the carrying cost and the setup (or ordering) costs for various lot sizes and then selects the lot size in which these are most nearly equal? A. Kanban B. Just-in-time system C. MRP D. Least unit cost E. Least total cost

E- least total cost

In a typical inventory status record, which of the following would you not expect to see? A. Scrap allowance B. Order quantity C. Gross requirements D. Planned-order releases E. Lost items

E- lost items

Which of the following is an input to the master production schedule? A. Bill of materials (BOM) file B. Inventory records file C. Exception reports D. Planned-order schedules E. None of these

E- none of these

"Projected available balance" is a term referring to unsold finished goods inventory.

False

A modular bill of materials includes items with fractional options.

False

An input to the material requirements planning (MRP) system is an exception report.

False

An output of MRP is a bill of materials (BOM) file.

False

In a net change MRP program, a change in one item will result in a completely new inventory plan and schedule for every item in the master production schedule.

False

In a net change MRP system, requirements and schedules are considered rigid and never updated.

False

Low-level coding in MRP indicates the exact status of each item managed by the system in "real time."

False

MRP is least valuable in industries where a number of products are made in batches using the same productive equipment.

False

The MRP program performs its analysis from the bottom up of the product structure trees, imploding requirements level by level.

False

The economic order quantity (EOQ) lot-sizing technique uses the "square root formula" to balance setup cost, carrying cost, and cost of stockouts.

False

The least unit cost method (LUC) lot-sizing technique calculates the order quantity by comparing the carrying cost and the setup (or ordering) costs for various lot sizes and then selects the lot in which these are most nearly equal.

False

The least unit cost method of lot-sizing adds ordering, stockout, and inventory carrying costs 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.

False

The time-phased plan specifying how many and when the firm plans to build each end item is called the materials requirements plan (MRP.)

False

Which of the following is the planned-order release using an MRP program if the gross requirement is 670 and the inventory on hand is 600? A. 670 B. 600 C. 530 D. 70 E. None of these

D- 70

One of the main purposes of an MRP system is which of the following? A. Track inventory levels. B. Create productive capacity. C. Decrease layers of management. D. Develop schedules specifying when each component should be ordered or produced. E. Upgrade manufacturing's professionalism.

D- develop schedules specifying when each component should be ordered or produced

Which of the following is 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? A. Economic order quantity B. Lot-for-lot C. Least total cost D. Least unit cost E. Inventory item averaging

D- least unit cost

Which of the following is considered a primary report in an MRP system? A. Planning reports B. Performance reports C. Exception reports D. Planned order schedules E. Cycle counting reports

D- planned order schedules