ANKIT SEMWAL 125 NIKUNJ SHARMA 143 AMLAN MUKHERJEE 195

Inventory

Process Stage Raw Mat'l WIP Fin. Goods

Number & Value A Items B Items C Items

Demand Type

Other

Independent Dependent

Mainten. Repair Operating

Two Forms of Demand

Dependent
Demand for items used to produce final products

Independent
Demand for items used by external customers

Tires stored at a Goodyear plant are an example of a dependent demand item

Cars, appliances, computers, and houses are examples of independent demand inventory

Item Demand Source Material Type Method of Estimating Demand Planning Method

Materials With Materials With Independent Demand Dependent Demand Company Customers Finished Goods Forecast & Booked Customer Orders EOQ & ROP Parent Items WIP & Raw Materials Calculated

MRP

 MRP is a dynamic system

Facilitates replanning when changes occur

System nervousness can result from too many changes Time fences put limits on replanning Pegging links each item to its parent allowing effective analysis of changes

Mfg. computer information system Determines quantity & timing of dependent demand items

Computer system Mainly discrete products Accurate bill-of-material Accurate inventory status
99% inventory accuracy

Stable lead times

Increased customer satisfaction due to meeting delivery schedules

Faster response to market changes

Improved labor & equipment utilization

Better inventory planning & scheduling

Reduced inventory levels without reduced customer service

MRP systems are designed to calculate material requirements from dependent demand items. MRP systems use backward scheduling to determine activity start dates. Independent demand is the demand for finished products, whereas dependent demand is demand that is derived from finished products, MRP system use dependent demand. The objectives of MRP are to determine the quantity and timing of material requirements and to keep schedule priorities updated and valid. MPR determines what to order, how much to order, when to place the order, and when to schedule the arrival.

Forecast & Firm Orders

Aggregate

Production
Planning

Resource Availability

Material Requirements Planning

Master Production Scheduling No, modify CRP, MRP, or MPS

Capacity
Requirements Planning Realistic?

Shop
Floor

Yes

Schedules

MRP needs three inputs: the authorized MPS, the BOM file, and the inventory records file. The MPS is the planned build schedule, the BOM files shows the materials needed to build an item, and the inventory records file shows the inventory on hand.

Once the MPS has been input, MRP checks the inventory records to determine if enough end-item inventory is available. If sufficient end-item inventory is not on hand, MPR checks the end-items BOM file to determine what materials are needed and in what quantities.
Action notices show when to release planned orders, reschedule orders, or adjust due dates. They allow the planner to use the MRP output information effectively

What to make What items make up the product Material Requirements Planning Sys. How long to make items What items to make & when What is on order & when What is in stock

What to make What items make up the product Material Requirements Planning Sys. How long to make items Planned Order & Other Reports What is on order & when What is in stock

Bill of Materials

Master Production Schedule Material Requirements Planning Sys. Planned Order & Other Reports

Inventory Status

Item Master

Purchasing Data

Bill of Materials

Master Production Schedule Material Requirements Planning Sys. Planned Order & Other Reports

Inventory Status

Item Master

Purchasing Data

List of components & quantities needed to make product Provides product structure (tree)

Parents: Items above given level Children: Items below given level Lowest level in structure item occurs Top level is 0; next level is 1 etc.

Shows low-level coding

Bicycle(1) P/N 1000 Handle Bars (1) P/N 1001 Frame Assy (1) P/N 1002 Frame (1) P/N 1004

Wheels (2) P/N 1003

Bill of Material P/N: 1000 Name: Bicycle P/N Desc Qty 1001 Handle Bars 1 1002 Frame Assy 1 1003 Wheels 2 1004 Frame 1

Units Level Each 1 Each 1 Each 2 Each 2

Records status of each item by time period

(time bucket) with respect to gross requirements, schedule receipts, expected amount on hand, lot-size policy, lead time, supplier, etc.

 The time required to purchase, produce, or assemble an item

For production the sum of the order, wait, move, setup, store, and run times For purchased items the time between the recognition of a need and the availability of the item for production

Wait Time Input

Move Time

Queue Time

Setup Time

Run Time Output

1
Gross Requirements Scheduled Receipts Available Net Requirements Planned Order Receipts Planned Order Releases

2 20

3 30

4 25

5 15 8 7 7

2 5
20

25

23

33

33

Lead time = 3; lot policy = lot-for-lot (LFL); on-hand = 20 units; safety stock = 0 units.

Available = On-hand - Safety stock - Allocated

On-hand is inventory physically present Allocated is inventory reserved for special orders

On-hand = Prior period's on-hand + Scheduled receipts Net requirement = Gross requirement - Available

Lot: Batch of material that moves & gets processed together

Reduces setup & handling time & cost

Techniques

Lot-for-lot (LFL) Economic order quantity (EOQ) Part period balancing Wagner-Whit in algorithm

 Lot-for-lot techniques order just what is required for production based on net requirements
May not always be feasible If setup costs are high, lot-for-lot can be expensive

Economic order quantity (EOQ)

EOQ expects a known constant demand and MRP systems often deal with unknown and variable demand

1 Gross requirements Scheduled receipts Projected on hand 35 35 0 35

2 30

3 40

4 0

5 10

6 40

7 30

8 0

9 30

10 55

0 30 30

0 40 40

0 0

0 10 10

0 40 40 30

0 30 30

0 0

0 30 30

0 55 55

Net requirements
Planned order receipts Planned order releases

30

40

10

40

30

55

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week

No on-hand inventory is carried through the system Total holding cost = $0 There are seven setups for this item in this plan Grosssetup cost = 7 x $100 = $700 Total 35 30 40 0 10 40
requirements Scheduled receipts Projected on hand 35 35 0 0 30 30 30 40 0 40 40 10 0 0 0 10 10 40 0 40 40 30 0 30 30 30 0 0 0 30 30 55 0 55 55 1 2 3 4 5 6 7 30 8 0 9 30 10 55

Net requirements
Planned order receipts Planned order releases

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week

1 Gross requirements Scheduled receipts Projected on hand 35 35 0 35

2 30

3 40

4 0

5 10

6 40

7 30

8 0

9 30

10 55

0 30 73

43 0

3 0

3 7 73

66 0

26 4 73

69 0

69 0

39 16 73

Net requirements
Planned order receipts Planned order releases

73

73

73

73

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week Average weekly gross requirements = 27; EOQ = 73 units

Annual demand = 1,404 Total cost = setup cost + holding cost Total cost = (1,404/73) x $100 + (73/2) x ($1 6 x 52 7 weeks) 1 2 3 4 5 8 9 Total cost = $3,798 Gross Cost for 10 weeks = $3,798 x (10 weeks/52 weeks) = $730 35 30 40 0 10 40 30 0 30
requirements Scheduled receipts Projected on hand 35 35 0 0 30 73 73 73 0 0 0 0 0 7 73 73 0 0 0 4 73 73 0 0 0 0

10 55

0 16 73

Net requirements
Planned order receipts Planned order releases

Holding cost = $1/week; Setup cost = $100; Lead time = 1 week Average weekly gross requirements = 27; EOQ = 73 units

 In theory, lot sizes should be recomputed whenever there is a lot size or order quantity change

In practice, this results in system nervousness and instability

Lot-for-lot should be used when low-cost JIT can be achieved

 Lot sizes can be modified to allow for scrap, process constraints, and purchase lots Use lot-sizing with care as it can cause considerable distortion of requirements at lower levels of the BOM When setup costs are significant and demand is reasonably smooth, PPB, Wagner-Whit in, or EOQ should give reasonable results

Different lot size rules are used with MRP systems to generate different order quantities and order frequencies. The lot-for-lot (L$L) rule always minimizes the inventory investment but maximized ordering costs. Planned orders generated by mrp, plus any open shop orders, are inputs to capacity requirements planning (crp). CRP checks to see if available capacity is sufficient to complete the orders scheduled in a particular work center during a specific time period. Crp calculates the workloads at critical work centers by using the planned orders generated by the mrp system. These planned orders are multiplied by the standard times to calculate individual work center loads.

 Closed-Loop MRP
MRP system provides input to the capacity plan, MPS, and production planning process

Capacity Planning
MRP system generates a load report which details capacity requirements This is used to drive the capacity planning process

Changes pass back through the MRP system for rescheduling

System nervousness

Time fences: Portion of master schedule not scheduled Pegging: Tracing to parent in BOM

Integration with Just-in-Time (JIT)

Reduce time buckets to daily or hourly Use planned receipts to sequence orders Use kanban cards to move material Use back flushing to reduce inventory

 MRP is a planning system that does not do detailed scheduling

MRP requires fixed lead times which might actually vary with batch size JIT excels at rapidly moving small batches of material through the system

Distinguished dependent from independent demand inventory Defined material requirements planning Stated the benefits of MRP Identified the requirements of MRP Explained the inputs & outputs of MRP Computed order releases