(2) material requirement planning (mrp)

8/6/2019 (2) Material Requirement Planning (Mrp)

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MRP Material requirements planning (MRP):

Computer-based information systemthattranslatesmasterschedulerequirements

forend items intotime-phasedrequirements forsubassemblies,components,andrawmaterials.


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Independent and Dependent DemandIndependent Demand

A

B(4) C(2)

D(2) E(1) D(3) F(2)

Dependent Demand

Independent demand is uncertain.

Dependent demand is certain.


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DependentDemand Dependent demand:Demand for itemsthat

aresubassembliesorcomponentpartsto

beused in production of finished goods.

Oncethe independentdemand is known,

thedependentdemandcan bedetermined.


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Objectivesof MRP Improvecustomerservice

Reduce inventory investment

Improveplantoperating efficiency

Reduction in production anddeliverylead

times


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Material Requirements Planning

System Threemajorcomponentsof MRP system:

Master Production Schedule (MPS)

Billsof Materials (BOM)

Inventory Status File


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Firm orders

from known

customers

Forecasts

of demand

from random

customers

Aggregate

product

plan

Bill of

material

file

Engineering

design

changes

Inventory

record file

Inventory

transactions

Master production

Schedule (MPS)

Material

planning

(MRP

computer

program)

Order Release

Requirements

Order Rescheduling

Planned Orders

(future)


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Master Production Schedule (MPS) Basedon amasterproduction schedule,a

materialrequirementsplanning system:

Createsschedules identifying thespecific

partsandmaterialsrequiredtoproduceend items

Determinesexactunit numbers needed

Determinesthedateswhen orders forthosematerialsshouldbereleased,basedon leadtimes


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Billsof Materials (BOM) Itprovidescompleteproductdescription.

Materials

Parts

Components

Production sequence

Subassemblies

Fractionaloptions

Providesproductstructure (tree)

Visualdepiction oftherequirements in abillof

materials,whereallcomponentsarelistedbylevels.


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Inventory Status File Containsan extensiveamountof

information on every itemthat isproduced,ordered,or inventoried in thesystemlike

Identification number

Quantityon hand

Safetystock level

Quantitydisbursed

Procurementleadtimeofevery item


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MRP MatrixGross Requirement

Derived from planned order releases of the parent

Actual / estimated demand, in case of final product

Schedule Receipts Items on order

Scheduled to arrive in the future time period

Projectedon hand

Current inventory, or anticipated inventory at the end ofperiod

Projected on-handInventory at endof period t

Inventory on-hand at endof period t- 1= + -

Grossrequirementsin period t

Scheduled /plannedreceipts in

period t


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MRP MatrixNetrequirements

Actual quantity to produce based on projected on handand on-order quantity

PlannedOrder Receipts

Quantity, when orders need to be received

Consider lotsizing rule:

PlannedOrder Release

When order need to be placed to receive on time

Consider lead time


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Lot-Sizing in MRP Lot-size isthequantityordered/produced

atonetime

Largelotsarepreferredbecause:

Changeoverscostlessandcapacity greater

Annualcostofpurchaseordersless

Pricebreaksandtransportation breakscan beutilized

Smalllotsarepreferredbecause: Lower inventorycarrying cost

Reducedrisk ofobsolescence

Shortercycletimetoproducecustomerorder


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EXAMPLE 1


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MRP Example

A(2) B(1)

D(5)C(2)

X

C(3)

Item On-Hand Lead Time (Days)

X 50 2

A 75 3

B 25 1

C 10 2D 20 2

Requirements include 95 units (80 firm orders and 15 forecast) of X

on 10th day.


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A(2)

X

Day: 1 2 3 4 5 6 7 8 9 10

X Gro requ remen 95

LT=2 Schedu ed rece p

roj. avail. balance 50 50 50 50 50 50 50 50 50 50

On- Ne requiremen 45

hand lanned order receip 45

50 Plannerorder release 45

A Gr oss requiremen s 90

LT=3 Scheduled receip s

Proj. avail.balance 75 75 75 75 75 75 75 75

On- Ne requiremen s 15

hand Plannedorder receip 15


B Gross requiremen s 45LT=1 Scheduled receip s





C Gross requiremen s 45 40


Proj. avail.balance 10 10 10 10 10

On- Ne requiremen s 35 40hand Plannedorder receip 35 40

10 Plannerorder release 35 40

D Gross requiremen s 100


Proj. avail.balance 20 20 20 20 20 20 20




It takes

2 As for

each X


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Day: 1 2 3 4 5 6 7 8 9 10

X Gross requiremen s 95


Proj. avail.balance 50 50 50 50 50 50 50 50 50 50


























B(1)A(2)

X

It takes

1 B for

each X


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A(2) B(1)

X

C(3)

Day: 1 2 3 4 5 6 7 8 9 10





























It takes 3

Cs foreach A


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A(2) B(1)

C(2)

X

C(3)

Day: 1 2 3 4 5 6 7 8 9 10





























It takes 2

Cs for

each B


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A(2) B(1)

D(5)C(2)

X

C(3)

Day: 1 2 3 4 5 6 7 8 9 10





























It takes 5

Ds for each

B


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EXAMPLE 2


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Product Structure forClipboard

Product Structure RecordProduct Structure Record

ClipboardLevelLevel 00

Level 1Level 1

Level 2Level 2Spring (1)

BottomClip (1)

TopClip (1)

Pivot(1)

Rivets (2)

ClipAssembly

(1)

Pressboard (1)

Top lip ( ) ottom lip ( )

i ot ( ) pri ( )

Ri t (2)

Fi i lipboar r boar ( )

Clipboar


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EXAMPLE 3


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Product Structure for Bicycle

Bi l ( )/N

andl Bar ( )

/N

Frame A ( )

/N 2

eel (2)

/N 3

Frame ( )

/N 4

Bi le( )/N

andleBar ( )

/N

Frame A ( )

/N 2

eel (2)

/N 3

Frame ( )

/N 4


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EXAMPLE 4


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Material Requirements Planning To produce an end item A component B/unit of end item is

needed.

It takes two weeks to produce a batch of component B. Stock in hand 170 units

50 uniteswillbecompletedatthebeginning ofweek 2

Average Weekly Demand 100 units

Set-up Cost $90

Inventory Holding Cost 20%/unit/week


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Material Requirements PlanningWeek

1 2 3 4 5 6 7 8 9 10 11 12

GrossRequirement

150 50 70 100 0 150 200 100 0 80 20 160

On-handinventory

170 20 20

Scheduledreceipts

50

Netrequirements

50 100 0 150 200 100 0 80 20 160

Plannedproduction


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LOT-FOR-LOT MethodWeek

1 2 3 4 5 6 7 8 9 10 11 12

GrossRequirement

150 50 70 100 0 150 200 100 0 80 20 160

On-handinventory

170 20 20 0 0 0 0 0 0 0 0 0 0

Scheduledreceipts

50 50 100 150 200 100 80 20 160

Netrequirements

50 100 0 150 200 100 0 80 20 160

Plannedproduction

50 100 0 150 200 100 0 80 20 160 0 0


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LOT-FOR-LOT Method Set-up cost

= 8 set-ups * $90 perset-up

= $720

Holding cost= 20 units in week 1 * 0.2 + 20 units in week 2 * 0.2

= $8

Total cost for the 12-week period= $720 + $8

= $728


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Economic Order Quantity (EOQ) Average Weekly Demand (R) 100 units

Set-up Cost (cp) $90

Inventory Holding Cost (ch) 20%/unit/week

EOQ = 2Rcp = 20*100*90

ch 0.2

= 300 units


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Economic Order Quantity (EOQ)Week

1 2 3 4 5 6 7 8 9 10 11 12

GrossRequirement

150 50 70 100 0 150 200 100 0 80 20 160

On-handinventory

170 20 20 250 150 150 0 100 0 0 220 200 40

Scheduledreceipts

50 300 300 300

Netrequirements

50 100 0 150 200 100 0 80 20 160

Plannedproduction

300 0 0 0 300 0 0 300 0 0 0 0


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Economic Order Quantity (EOQ)

Set-up cost= 3 * $90

= $270

Holding cost= 1150 * $0.2

= $230

Total incremental cost= $270 + $230

= $500


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EXAMPLE 5


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(C) Gear (1)(B) Gear Box (1)(A) Transmission(1) (D) Forging Blank (5)

Product structure for making a truck


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(X) Truck (1)

(A)

Transmission (1)

(B) Gear

Box (1) (C) Gear (1)

(D) Forging

Blank (5)

Item On-Hand Lead Time

(Weeks)

Truck 10 1

Transmission 20 2Gear Box 24 1

Gear 18 1

Forging Blank 40 2

Suppose we are to produce 40 trucks. What are the net requirements for each

component?


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Gross Requirements

Scheduled Receipts

Projected on Hand

Net Requirement

Planned Order Receipts

Planned Order Releases

Gross Requirements

Scheduled Receipts

Projected on Hand

Net Requirement



WEEK 2 3 4 5 6 7 81

ItemLowLead

TimeWeeks

On

hand

Level

CodeIdentif.

10 10 10 10 10 1010 10 10

101 0 T 50

40

40

40

2 20 1 A

20 20 20 20 20 202020

20

20

40

20


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Gross Requirements

Scheduled Receipts

Projected on Hand

Net Requirement



Gross Requirements

Scheduled Receipts

Projected on Hand

Net Requirement



WEEK 2 3 4 5 6 7 81

ItemLowLead

TimeWeeks

On

hand

Level

Code Identif.

21 24 B

242424242424

16

16

16

40

1 18 3 C

18181818 18

22

40

22

22


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Gross Requirements

Scheduled Receipts

Projected on Hand

Net Requirement



WEEK 2 3 4 5 6 7 81

ItemLowLead

TimeWeeks

On

hand

Level

Code Identif.

440 D2

40404016040

160

160

200


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EOQ example

Setup cost, S = $100

Unit price, C = $50

Holding costs, HR= .24 per annum

HP = .02 per period

Annual demand, D = 200

Q = (2DS / CHR)1/2 = 58

Period 1 2 3 4 5 6 7 8 9 10

Net rqmts. 35 10 40 20 5 10 30

Planned orders 58 58 58


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MRP Example:-


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MRP Example:-


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Speaker Kits,Inc.,packages


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Level Product structure for Awesome(A)

A0

1

2

3

B(2) Std. 12 Speaker Kit C(3) Std. 12Speaker kit

w/ amp-booster

E(2)

D(2)

E(2) F(2) Std. 12 Speaker

booster assembly

G(1) D(2)

12 Speaker 12 Speaker

Packing box and

installation kit of

wire, bolts and

screws Amp-booster


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2 weeks to

produce

2 weeks

2 weeks

3 weeks

2 weeks

1 week

1 week

1 week

1 week

Start production of DMust have D and E

completed her so

production can begin

on B

1 4 5 6 72 3 8

Time in weeks

G

A

D

E

C

B

F

D

E


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Item Inventory on handA 10B 15

C 20D 10E 10

F 5G 0


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Gross Requirement 80Scheduled Receips

Projected on Hand 15 15 15 15 15 15 15 15

Net Requirement 65

Planned Order Receipts 65

Planned Order Releases 65

2 15 1 B

Gross Requirement 50

Scheduled ReceipsProjected on Hand 10 10 10 10 10 10 10 10 10

Net Requirement 40



1 10 0 A

LeadTime

(weeks)

On

Hand

Low-Level

Code

ItemIdenti-

fication Week 1 2 3 4 5 6 7 8

A

Net Material Requirement Plan for Product A


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Scheduled Receips

Projected on Hand 20 20 20 20 20 20 20 20

Net Requirement 100Planned Order Receipts 100


1 20 1 C A

Gross Requirement 130 200

Scheduled Receips

Projected on Hand 10 10 10 10 10 10

Net Requirement 120 200

Planned Order Receipts 120 200

Planned Order Releases 120 200

2 10 2 E B

Lead

Time

(weeks)

On

Han

d

Low-

Level

Code

Item

Identi-

fication Week 1 2 3 4 5 6 7 8


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Scheduled Receips

Projected on Hand 0

Net Requirement 195



2 0 3 G F

Lead

Time

(weeks)

On

Han

d

Leve

l

Cod

Identi-

ficatio

n Week 1 2 3 4 5 6 7 8

Gross Requirement 390 130

Scheduled Receips

Projected on Hand 10 10 10 10

Net Requirement 380 130

Planned Order Receipts 380 130

Planned Order Releases 380 130

1 10 3 D BF


Sc heduled Receips

Projected on Hand 5 5 5 5 5 5 5

Net Requirement 195



3 5 2 F C


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Exampleof MRP LogicandProduct Structure Tree

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

Product Structure Tree for Assembly ALead Times

A 1 day

B 2 days

C 1 day

D 3 days

E 4 days

F 1 day

Demand

Day 10 50 A

Day 8 20 B (Spares)

Day 6 15D (Spares)

Given theproduct structure tree for and the lead time and

demand information below, provide a materials requirements

plan that defines the number of units of each component and

when they will be needed.

Thi i h t t t d l th fi l t i l50


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Day: 1 2 3 4 5 6 7 8 9 10

A Required 50

LT=1 Order Placement 50

B Required 20 200

LT=2 Order Placement 20 200

C Required 100


D Required 55 400 300

LT=3 Order Placement 55 400 300

E Required 20 200


F Required 200


B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

40 + 15 spares

Part D: Day 6

This is what we want to develop, the final materials

requirements plan. Lets see how we got to this

The McGraw-Hill Companies, Inc., 2001

50


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LT = 1 day

Day: 1 2 3 4 5 6 7 8 9 10

A Required 50

Order Placement 50

First, the number of units of A are scheduled

backwards to allow for their lead time So, in the

materials requirement plan below, we have toplace an order for50 units of A on the 9th day to

receive them in the 10th day

Next we need to start scheduling the components that make up


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Next, we need to start scheduling the components that make up .

Day : 1 2 3 4 5 6 7 8 1

ir 5

r r lac e m e n t 5

e q u i re d 2 2

rd e r lac e m e n t 2 2

LT = 2

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A 4x50=200

In the case of component B we need Bs for each .

Since we need 50 s, that means 00 Bs.

nd again, we back the schedule up for the necessary days of lead time.

Next we need to start scheduling the components that make up


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Next, we need to start scheduling the components that make up .

Day : 1 2 3 4 5 6 7 8 1

e q u i re d 5

rd e r lac e m e n t 5

e q u i re d 2 2

rd e r lac e m e n t 2 2

SparesLT = 2

B(4)

E(1)D(2)

C(2)

F(2)D(3)

A 4x50=200

In the case of component B we need Bs for each .

Since we need 50 s, that means 00 Bs.

nd again, we back the schedule up for the necessary days of lead time.

Finally repeating the process for all components we have54


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Day: 1 2 3 4 5 6 7 8 9 10

A Required 50

LT=1 Order Placement 50B Required 20 200


C Required 100


D Required 55 400 300

LT=3 Order Placement 55 400 300

E Required 20 200LT=4 Order Placement 20 200

F Required 200


B(4)

E(1)D(2)

C(2)

F(2)D(3)

A

40 + 15 spares

Part D: Day 6

Finally, repeating the process for all components, we have

the final materials requirements plan:

The McGraw-Hill Companies, Inc., 2001

2x50=100LT = 1


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THANKS

(2) material requirement planning (mrp)

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