IM 322Inventory Management

Chapter 9: Material Requirement Planning

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Textbook: Donald Waters, Inventory Control and Management, 2nd

ed

Chapter Outline

Master SchedulingThe use of MRP (Material Requirement Planning)Extension of the basic ERP methodIntroduction to ERP

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Resource Planning for Manufacturing

Resource Planning for Manufacturing

Adapted from: Roberta Russell & Bernard W. Taylor, II, Operations ManagementI3

Determine • when specific products will be made• when specific customer orders will be filled,• and what products / capabilities are still available to meet new demand

Determine • when specific products will be made• when specific customer orders will be filled,• and what products / capabilities are still available to meet new demand

Calculate timing and quantities of material orders needed to support the master schedule

Calculate timing and quantities of material orders needed to support the master schedule

Material Requirement Planning (MRP)

Computerized inventory control & production planning systemSchedules component items when they are needed - no earlier and no later

Key Outputs of MRP

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When to use MRP

Dependent and discrete itemsComplex productsJob shop productionAssemble-to-order environments

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Rivets (2)Finished clipboard Pressboard (1)

Clipboard

Dependent / Independent Demand?

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Demand Characteristics

11 22 33 44 55WeekWeek

400 400 –

300 300 –

200 200 –

100 100 –No.

of t

able

sN

o. o

f tab

les

Continuous demandContinuous demand

M T W M T W ThTh F M T W F M T W ThTh FF

400 400 –

300 300 –

200 200 –

100 100 –No.

of t

able

sN

o. o

f tab

les

Discrete demandDiscrete demand

Independent demandIndependent demand

100 tables100 tables

Dependent demandDependent demand

100 x 1 = 100 x 1 = 100 tabletops100 tabletops

100 x 4 = 400 table legs100 x 4 = 400 table legs

Demand Characteristics for Finished Products and Their Components

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MRP Input & Output

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Major Inputs to MRP Process:1. Bill of Material

Product structure fileDetermines which component items need to be scheduled

Product Structure RecordProduct Structure Record

ClipboardLevel 0Level 0

Level 1Level 1

Level 2Level 2Spring (1)

Bottom Clip (1)

Top Clip (1)

Pivot (1)

Rivets (2)

Clip Assembly

(1)

Pressboard (1)

Top clip (1) Bottom clip (1)

Pivot (1) Spring (1)

Rivets (2)Finished clipboard Pressboard (1)

Clipboard

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Major Inputs to MRP Process:2. Master Production Schedule (MPS)

Drives MRP process with a schedule of finished productsQuantities represent production not demandQuantities may consist of a combination of customer orders & demand forecastsQuantities represent what needs to be produced, not what can be producedExample

PERIODMPS ITEM 1 2 3 4 5

Clipboard 85 95 120 100 100Lapdesk 0 50 0 50 0Lapboard 75 120 47 20 17Pencil Case 125 125 125 125 125

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Major Inputs to MRP Process:2. Master Production Schedule (MPS)

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MPS example

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2,000 BackpackMonthWeek 37 38 39 40 41 42 43 44

Forecasted demand 1,500 1,500 1,500 1,400 1,400 1,250 1,250 1,250

Booked demand 1,422 1,505 1,471 1,260 980 853 534 209

Projected ending inventory

Master Production Schedule 4,500 4,000 3,700

Available-to-promise (ATP)

On-hand inventory at end of week 36:

September Octobrt

Major Inputs to MRP Process:3. Inventory Record

Inventory fileContains an extensive amount of information on every item that is produced, ordered, or inventoried in the systemIncludes on-hand quantities, lot sizes, safety stock, lead time, and etc.

DESCRIPTION INVENTORY POLICY

Item Pressboard Lead time 1Item no. 734 Annual demand 5000Item type Purch Holding cost 1Product/sales class Comp Ordering/setup cost 50Value class B Safety stock 0Buyer/planner RSR Reorder point 39Vendor/drawing 07142 EOQ 316Phantom code N Minimum order qty 100Unit price/cost 1.25 Maximum order qty 500Pegging Y Multiple order qtyLLC 1 Policy code 3

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MRP Processes4 Basic steps

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Lot Sizing Rules / Batching Order

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Lot Sizing Rule / Batching Order Comparison

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MRP Matrix

Gross RequirementDerived from planned order releases of the parentActual / estimated demand, in case of final product

Schedule ReceiptsItems on orderScheduled to arrive in the future time period

Projected on handCurrent inventory, or anticipated inventory at the end of period

Projected on-handInventory at end of period t

Inventory on-hand at end of period t - 1= +

Scheduled / planned receipts in period t -

Gross requirements in period t

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MRP Matrix

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Net requirementsActual quantity to produce based on projected on hand and on-order quantity

Planned Order ReceiptsQuantity, when orders need to be received

Consider lot sizing rule: Planned Order Release

When order need to be placed to receive on time

Consider lead time

ITEM: CLIPBOARD LLC: 0 PERIOD

LOT SIZE: L4L LT: 1 1 2 3 4 5Gross Requirements 85 95 120 100 100Scheduled Receipts 175Projected on Hand 25Net RequirementsPlanned Order ReceiptsPlanned Order Releases

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Example MRP MatrixExample MRP Matrix

MRP Matrices

MRP Example 2

A(2) B(1)

D(5)C(2)

X

C(3)

Item On-Hand Lead Time (Weeks)X 50 2A 75 3B 25 1C 10 2D 20 2

Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

Requirements include 95 units (80 firm orders and 15 forecast) of X in week 10

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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 10X Gross requirements 95

LT=2 Scheduled receipts Proj. avail. balance 50 50 50 50 50 50 50 50 50 50

On- Net requirements 45hand Planned order receipt 4550 Planner order release 45A Gross requirements 90

LT=3 Scheduled receipts Proj. avail. balance 75 75 75 75 75 75 75 75

On- Net requirements 15 hand Planned order receipt 15 75 Planner order release 15 B Gross requirements 45

LT=1 Scheduled receipts Proj. avail. balance 25 25 25 25 25 25 25 25

On- Net requirements 20 hand Planned order receipt 20 25 Planner order release 20 C Gross requirements 45 40

LT=2 Scheduled receipts Proj. avail. balance 10 10 10 10 10

On- Net requirements 35 40 hand Planned order receipt 35 40 10 Planner order release 35 40 D Gross requirements 100

LT=2 Scheduled receipts Proj. avail. balance 20 20 20 20 20 20 20

On- Net requirements 80 hand Planned order receipt 80 20 Planner order release 80 21

Testing Lot Sizing Rules

Testing Lot Sizing Rules

1 2 3 4 5 6 7 8

Gross Requirements 160 160 160 160 160 100 160 100

Scheduled Receipts 130 160 160

Projected on Hand 60

Net Requirements

Planned Order Receipts

Planned Order Releases

Given that • lead time = 3 periods, • safety stock = 20 units • Inventory carrying cost = $5 / unit-period• Reordering cost = $150 order

Determine the most appropriate lot sizing rule

(a) Lot-for-Lot(b) FOQ = 50 units(c) POQ = 3 periods(d) Use EOQ(e) Use POQ = Q / average d

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Benefits of MRPMRP can generate many different kinds of report,

including:Timetable of operationsTimetable of ordersChanges in previous ordersPerformance reportsPlanning reportsRecords of inventory transactions

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