Chapter 12 - Managing Production

Special Considerations in MRP

1. For an MRP system to work properly, it must have accurate information. 2. MRP systems must also accommodate uncertainty about a host of factors, including the possibility of variable lead times, shipment quantities and quality levels, and even changes to the quantities in the master production schedule. In general, firms deal with this uncertainty by lengthening the planning lead times or by holding additional units as safety stock. Of course, such buffers increase the amount of inventory in the system. As a result, many firms make a conscious effort to eliminate uncertainty. They do so by choosing suppliers and processes that offer reliable lead times and high quality levels and by keeping the quantities on the master production schedule firm. Reducing uncertainty requires a high degree of organizational discipline, but the rewards can be great. 3. A final consideration in implementing an MRP system is a phenomenon called MRP nervousness.

The Advantages of MRP

1. MRP is directly tied to the master production schedule and indicates the exact timing and quantity of orders for all components. By eliminating a lot of the guesswork associated with the management of dependent demand inventory, MRP simultaneously lowers inventory levels and helps firms meet their master schedule commitments. 2. MRP allows managers to trace every order for lower-level items through all the levels of the BOM, up to the master production schedule. This logical linkage between higher and lower levels in the BOM is sometimes called the parent/child relationship. If for some reason the supply of a lower-level item is interrupted, a manager can quickly check the BOM to see the impact of the shortage on production. 3. MRP tells a firm and its suppliers precisely what needs to be made when. This information can be invaluable in scheduling work or shipments, or even in planning budgets and cash flows. In fact, MRP logic is often called the "engine" of planning and control systems. MRP plays a big part in many enterprise resource planning (ERP) systems, described in the supplement.

master production schedule (MPS)

Another line on the master schedule record, called the master production schedule (MPS), shows how many products will be finished and available for sale at the beginning of each week.

Which of the following statements is​ best? A. Projected ending inventory is always less than or equal to available to promise inventory. B. Booked orders are always greater than or equal to forecasted demand. C. Forecasted demand is always greater than or equal to booked orders. D. Available to promise inventory is always less than or equal to projected ending inventory.

Available to promise inventory is always less than or equal to projected ending inventory.

Master Schedule Record

Because firms tailor the master schedule record to their manufacturing environment and the characteristics of their product, generalizing about its precise form is difficult. Nevertheless, most master schedule records track several key pieces of information: Forecasted demand Booked orders Projected inventory levels Production quantities Units still available to meet customer needs (available to promise)

MRP nervousness

Because higher-level items drive the requirements for lower-level items in an MRP system, any change, even a small one, in the requirements for upper-level items can have drastic effects on items listed further down the bill of material.

distribution requirements planning (DRP)

DRP helps to synchronize supply chain partners at the master schedule level is a time-phased planning approach similar to MRP that uses planned orders at the point of demand (customer, warehouse, etc.) to determine forecasted demand at the source level (often a plant). DRP is one of many ways in which supply chain partners can synchronize their planning efforts at the master schedule level. These forecasted demand numbers then become input to the master scheduling process.

_______________ is a​ time-phased planning approach similar to MRP that uses planned orders at the point of demand​ (customer, warehouse,​ etc.) to determine forecasted demand at the source level​ (often a​ plant).

Distribution requirements planning

Monitoring and Tracking Technologies

Radio-frequency identification (RFID), bar coding, and online order tracking systems have been developed to trace the movement and location of materials in the supply chain and report on the progress of specific jobs. Such systems depend on computer hardware and software that can interpret the information gathered by the system. Herman Miller, a designer and manufacturer of high-end office furniture, incorporates PAC and vendor order management tools. Besides helping the company to control its operations and supply chain activities, these systems also alert managers to potential problems. For example, computer displays located throughout Herman Miller's plant provide users with real-time information about the status of manufacturing jobs and required materials. If a shortage of materials threatens to delay a job, the system flags the problem and indicates which jobs will be affected. Managers at Herman Miller or at supply chain partners' facilities can then take corrective action.

planning lead time

The product structure tree also shows the planning lead time for each component. The planning lead time is the time from when a component or material is ordered until it arrives and is ready to use. For instance, the finished chair has a planning lead time of one week, the amount of time workers need to assemble a typical batch of chairs using the level 1 items. Seats have a planning lead time of two weeks, which may reflect the time an outside supplier takes to fill an order for seats.

Distribution requirements planning is a supply chain approach to material requirements planning.

True

Planning and control

a set of tactical and execution-level business processes that include master scheduling, material requirements planning, and some form of production activity control and vendor order management. Planning and control begins where sales and operations planning (S&OP) ends, as Figure 12.1 shows (pg.365). The first step in planning and control is master scheduling, in which the overall resource levels established by S&OP begin to be fleshed out with specifics. The master schedule states exactly when and in what quantities specific products will be made. It also links production with specific customer orders, allowing the firm to tell the customer exactly when an order will be filled. Finally, master scheduling informs the operations manager what inventory or resources are still available to meet new demand. As we shall see, the concept of available to promise is an important function of master scheduling.

In the context of master​ scheduling, confirmed customer demand for product is defined as

booked orders

With production activity control (PAC) and vendor order management systems, the emphasis shifts from planning to

execution. Besides their many other capabilities, these systems can: Route and prioritize jobs going through the supply chain Coordinate the flow of goods and materials between a facility and other supply chain partners Provide supply chain partners with performance data on operations and supply chain activities

Job sequencing rules

have been used for decades to determine the order in which jobs should be processed when resources are limited and multiple jobs are waiting to be done

product structure tree

in Figure 12.13 (pg. 374) shows how the components in the BOM are put together to make the chair. The chair is assembled using a leg assembly, a back assembly, and a seat; the leg and back assemblies, in turn, are assembled from individual components such as legs, back slats, and crossbars. In MRP jargon, the complete chair is a level 0 item; the leg assembly, back assembly, and seat are level 1 items; and the remaining components are level 2 items. In practice, product assemblies can be dozens of levels deep.

Available to promise (ATP)

indicates the number of units that are available for sale each week, given those that have already been promised to customers.

bill of material (BOM)

is "a listing of all the subassemblies, intermediates, parts, and raw materials that go into a parent assembly, showing the quantity of each required to make an assembly."

MRP can be performed based on three​ concepts; which one of the following is NOT​ necessary? A. job sequencing rules B. the bill of material C. backward scheduling D. explosion of the bill of material

job sequencing rules

Distribution requirements planning helps to synchronize supply chain partners at the

master schedule level

A detailed planning process that tracks production output and matches this output to actual customer orders is

master scheduling

booked orders

represent confirmed demand for products

Master Scheduling

states exactly when and in what quantities specific products will be made. It also links production with specific customer orders, allowing the firm to tell the customer exactly when an order will be filled. Finally, master scheduling informs the operations manager what inventory or resources are still available to meet new demand. As we shall see, the concept of available to promise is an important function of master scheduling. Master scheduling is a detailed planning process that tracks production output and matches this output to actual customer orders. We have already said that master scheduling picks up where S&OP leaves off. Figure 12.2 (pg. 366) gives an example of this linkage. The top of the figure shows four months of a sales and operations plan for a fictional manufacturer of lawn equipment. Note that management has established overall targets for demand, production, and ending inventory. These targets will guide the firm's tactical decisions, including planned workforce levels, storage space requirements, and cash flow needs. The bottom half of the figure shows the monthly master schedules for the three products the company produces. For every week in March, it shows what the expected demand is, how many of each product will be produced, and what the projected ending inventory is.

Material Requirements Planning (MRP)

takes planning one step further by translating the master production schedule into planned orders for the actual parts and components needed to produce the master schedule items. The logic of the MRP approach to inventory management is completely different from the independent inventory approaches. This is because MRP is used to manage dependent demand inventory, or inventory items whose demand levels are tied directly to the production of another item. Unlike independent demand items, there is no mystery about how many dependent demand items a firm will need and when. MRP takes advantage of this fact to manage inventory quite differently—and more efficiently—than an EOQ-based system. MRP is based on three related concepts: The bill of material (BOM) Backward scheduling Explosion of the bill of material

planning horizon

the amount of time the master schedule record or MRP record extends into the future. In general, the longer the production and supplier lead times, the longer the planning horizon must be. Products with very short lead times may have planning horizons that are just a few weeks long, but more complex products may need horizons of several months or more.

forecasted demand

the company's best estimate of the demand in any period

backward scheduling (exploding the BOM)

the process of working backward from the master production schedule for a level 0 item to determine the quantity and timing of orders for the various subassemblies and components. Exploding the BOM is the underlying logic used by MRP (material requirements planning).

Material requirements planning (MRP)

translates the master schedule for final products into detailed material requirements. For example, if the master schedule indicates that 500 chairs will be finished and ready to sell in week 5, MRP determines when the individual pieces—seats, legs, back spindles, and so on—need to be made or purchased.

rough-cut capacity planning

using the master production schedule to monitor key resource requirements