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Operations planning involves long, intermediate, and short-range planning. Materials requirement planning (MRP) is a short-range planning process that determines component requirements to support the master production schedule. MRP was introduced in the 1970s and is a computerized system that controls inventory, plans production, and provides management information. It determines material, part, and component requirements and scheduling to produce a product based on a bill of materials and master production schedule. MRP provides advantages like reduced inventory, improved customer service and productivity.
Operations planning involves long, intermediate, and short-range planning. Materials requirement planning (MRP) is a short-range planning process that determines component requirements to support the master production schedule. MRP was introduced in the 1970s and is a computerized system that controls inventory, plans production, and provides management information. It determines material, part, and component requirements and scheduling to produce a product based on a bill of materials and master production schedule. MRP provides advantages like reduced inventory, improved customer service and productivity.
Operations planning involves long, intermediate, and short-range planning. Materials requirement planning (MRP) is a short-range planning process that determines component requirements to support the master production schedule. MRP was introduced in the 1970s and is a computerized system that controls inventory, plans production, and provides management information. It determines material, part, and component requirements and scheduling to produce a product based on a bill of materials and master production schedule. MRP provides advantages like reduced inventory, improved customer service and productivity.
System Operations Planning Operations planning is usually hierarchical & can be divided into three broad planning categories
Long-range- Aggregate Production Plan (APP) involves the construction of facilities & major equipment purchases
Intermediate - Shows the quantity & timing of end items (i.e., master production schedule- MPS)
Short-range - detailed planning process for components & parts to support the master production schedule (i.e., materials requirement planning- MRP)
Operations Planning (Cont.) Computer based push resource systems: Closed-loop MRP - incorporates the aggregate production plan, the master production schedule material requirements plan, & capacity requirements plan.
Manufacturing resource planning (MRP-II) incorporates the business & sales plans with the closed- loop MRP system (allows what-if).
Enterprise requirements planning (ERP) is an extension of MRP-II (integrates with units/partners)
Distribution requirement planning (DRP) describes the time-phased net requirements from warehouses & distribution centers customer demand minus any on hand in-transit inventories. Contributors to MRP Material Requirements Planning was introduced in the 1970s. Much of the credit goes to three individuals by the names of Joseph Orlicky, George Plossl, and Oliver Wight. The American Production and Inventory Control Society (APICS), which was endorsed by Orlicky, Plossl, and Wight, was also credited with the introduction of MRP.
What is MRP? Computerized Inventory Control Production Planning System Management Information System Manufacturing Control System MRP is a system that controls inventory levels, plans production, helps supply management with important information, and helps with the manufacturing control system with respect to the production of assembled parts.
Material Requirements Planning Defined Materials requirements planning (MRP) is a means for determining the number of parts, components, and materials needed to produce a product MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced Dependent demand drives MRP MRP is a software system When to use MRP Job Shop Production Complex Products Assemble-to-Order Environments Discrete and Dependent Demand Items Advantages of MRP Forward looking when planning (visibility) Useful simulator Provides valid, credible priorities priorities reflect actual needs, not implied needs. Provides managers with control over the execution system Forms basis for building credible, valid formal system
Advantages contd Better response to customer orders Faster response to market changes Improved utilization of facilities and labour Reduced inventory levels
What can MRP do? Reduce Inventory Levels Reduce Component Shortages Improve Shipping Performance Improve Customer Service Improve Productivity Simplified and Accurate Scheduling Reduce Purchasing Cost Improve Production Schedules Reduce Manufacturing Cost Reduce Lead Times Less Scrap and Rework Higher Production Quality What can MRP do? Improve Communication Improve Plant Efficiency Reduce Freight Cost Reduction in Excess Inventory
Reduce Overtime Improve Supply Schedules Improve Calculation of Material Requirements Improve Competitive Position Limitations of MRP only looks at materials, ignores capacity, shop floor conditions requires user discipline requires accurate information/data requires valid MPS not appropriate for all areas high volume production projects Change master production schedule? Execute material plans Execute capacity plans Detail capacity plan Material requirements plan Master production schedule Aggregate production plan Change requirements? Change capacity? Realistic No Yes Change production plan? Is capacity plan being met? Is execution meeting the plan? Three Basic Steps of MRP Identifying Requirements Running MRP Creating the Suggestions Firming the Suggestions Step 1: Identifying the Requirements Quantity on Hand Quantity on Open Purchase Order Quantity in/or Planned for Manufacturing Quantity Committed to Existing Orders Quantity Forecasted Step 1: Important Information MRP is.. Company Sensitive Location Sensitive Date Sensitive Step 2: Running MRP Creating the Suggestions Critical Items Expedite Items Delay Items Step 3: Firming the Suggestions Manufacturing Orders Purchasing Orders Various Reports Overview of the MRP System Product Structure File Master Production Schedule Inventory Master File Material Requirements Planning Manufacturing Orders Purchase Orders Various Reports MRP Structure Figure 14.5 Output Reports MRP by period report MRP by date report Planned order report Purchase advice Exception reports
Order early or late or not needed
Order quantity too small or too large Data Files Purchasing data BOM Lead times (Item master file) Inventory data Master production schedule Material requirement planning programs (computer and software) MRP Inputs MRP Processing MRP Outputs Master schedule Bill of materials
Inventory records
MRP computer programs Changes Order releases Planned-order schedules Exception reports Planning reports Performance- control reports Inventory transaction Primary reports Secondary reports 22 Major Inputs to MRP Process: 1. Bill of Material Product structure file Determines which component items need to be scheduled Product Structure Record Clipboard Level 0 Level 1 Level 2 Sprin g (1) Bottom Clip (1) Top Clip (1) Piv ot (1) Rivet s (2) Clip Assembly (1) Pressboa rd (1) Types of BOM A primary bill is a list of components you most frequently use to build a product. An alternate bill is another list of components for the same basic assembly. The primary bill is the default for rolling up costs, defining a job, and calculating cumulative item lead times. You must define a primary bill before you define an alternate. A primary bill can have many alternate bills. Standard : A standard bill of material is the most common type of bill and lists the mandatory components, the required quantity of each component, and information to control work in process, material planning, and other Manufacturing functions. Model : A model bill of material defines the list of options and option classes you can choose in Order Management to order a configuration.
An indented Bill of Materials shows all the sub-levels and is components for the Assembly. Each standard component on a bill can have multiple reference designators and substitute components. When you create a bill, it exists only in the current organization. To use a bill in another organization, you must either copy it or reference it as a common. Planning : A planning bill of material is a bill of material structure that includes a percentage distribution for its components. The percentages associated with the components on a planning bill of material do not need to add to 100%. MRP uses component planning percentage in forecast explosions through planning, model, and option class bills of material. A modular bill of material is the term for a buildable item that can be produced and stocked as a subassembly. It is also a standard item with no options within the module. Many end items that are large & expensive are better scheduled and controlled as modules. It is particularly advantageous to schedule subassembly modules when the same subassemblies appear in different end items. Advantages of Modular BOM Using a modular bill of materials simplifies the scheduling and control. It makes easier to forecast the use of different modules. If the same item is used in a number of products, then the total inventory investment can be minimized. Level0 (FinishedGood) Level1 Level2 Level3 Level4 Level5 Level6 Transmission Suspension & Brake Chassis Engine Assembly Body & Accessories Exhaust & Fuel System Piston Assembly Cylinder head Crankshaft Camshaft Piston Sub- Assemblies (4) Connecting Rods (4) All Terrain Vehicle (ATV) Piston 6 Steel Bar () 24 Solid Steel Bar Engine Block Seals & Gaskets Piston Rings (3) 12 Steel Bar () 24 Solid Steel Bar denotes additionalmaterialsnotshown Level0 (FinishedGood) Level1 Level2 Level3 Level4 Level5 Level6 Transmission Suspension & Brake Chassis Engine Assembly Body & Accessories Exhaust & Fuel System Piston Assembly Cylinder head Crankshaft Camshaft Piston Sub- Assemblies (4) Connecting Rods (4) All Terrain Vehicle (ATV) Piston 6 Steel Bar () 24 Solid Steel Bar Engine Block Seals & Gaskets Piston Rings (3) 12 Steel Bar () 24 Solid Steel Bar Level0 (FinishedGood) Level1 Level2 Level3 Level4 Level5 Level6 Transmission Suspension & Brake Chassis Engine Assembly Body & Accessories Exhaust & Fuel System Piston Assembly Cylinder head Crankshaft Camshaft Piston Sub- Assemblies (4) Connecting Rods (4) All Terrain Vehicle (ATV) Piston 6 Steel Bar () 24 Solid Steel Bar Engine Block Seals & Gaskets Piston Rings (3) 12 Steel Bar () 24 Solid Steel Bar Level0 (FinishedGood) Level1 Level2 Level3 Level4 Level5 Level6 Transmission Suspension & Brake Chassis Engine Assembly Body & Accessories Exhaust & Fuel System Piston Assembly Cylinder head Crankshaft Camshaft Piston Sub- Assemblies (4) Connecting Rods (4) All Terrain Vehicle (ATV) Piston 6 Steel Bar () 24 Solid Steel Bar Engine Block Seals & Gaskets Piston Rings (3) 12 Steel Bar () 24 Solid Steel Bar Level0 (FinishedGood) Level1 Level2 Level3 Level4 Level5 Level6 Level0 (FinishedGood) Level1 Level2 Level3 Level4 Level5 Level6 Transmission Suspension & Brake Chassis Engine Assembly Body & Accessories Exhaust & Fuel System Piston Assembly Cylinder head Crankshaft Camshaft Piston Sub- Assemblies (4) Connecting Rods (4) All Terrain Vehicle (ATV) Piston 6 Steel Bar () 24 Solid Steel Bar Engine Block Seals & Gaskets Piston Rings (3) 12 Steel Bar () 24 Solid Steel Bar Transmission Transmission Suspension & Brake Suspension & Brake Chassis Chassis Engine Assembly Engine Assembly Body & Accessories Body & Accessories Exhaust & Fuel System Exhaust & Fuel System Piston Assembly Piston Assembly Cylinder head Cylinder head Crankshaft Crankshaft Camshaft Camshaft Piston Sub- Assemblies (4) Piston Sub- Assemblies (4) Connecting Rods (4) Connecting Rods (4) All Terrain Vehicle (ATV) All Terrain Vehicle (ATV) Piston Piston 6 Steel Bar () 6 Steel Bar () 24 Solid Steel Bar 24 Solid Steel Bar Engine Block Engine Block Seals & Gaskets Seals & Gaskets Piston Rings (3) Piston Rings (3) 12 Steel Bar () 12 Steel Bar () 24 Solid Steel Bar 24 Solid Steel Bar denotes additionalmaterialsnotshown denotes additionalmaterialsnotshown Major Inputs to MRP Process: 2. Master Production Schedule (MPS) Drives MRP process with a schedule of finished products Quantities represent production not demand Quantities may consist of a combination of customer orders & demand forecasts Quantities represent what needs to be produced, not what can be produced Example
PERIOD MPS ITEM 1 2 3 4 5
Clipboard 85 95 120 100 100 Lapdesk 0 50 0 50 0 Lapboard 75 120 47 20 17 Pencil Case 125 125 125 125 125 Master Production Scheduling Master Production Schedule (MPS) - A disaggregation of the APP. Lists the exact end items to be produced for specific periods.
Planning horizon is shorter than APP, but longer than the lead time to produce the item.
The MPS - used for computing the requirements of all time-phased end items.
System nervousness - small changes in the upper- level-production plan cause major changes in the lower-level production plans. - Firms use a time fence to deal with nervousness
Master Production Schedule (MPS) Specifies what is to be made and when Must be in accordance with the aggregate production plan Aggregate production plan sets the overall level of output in broad terms As the process moves from planning to execution, each step must be tested for feasibility The MPS is the result of the production planning process Master Production Schedule (MPS) MPS is established in terms of specific products Schedule must be followed for a reasonable length of time The MPS is quite often fixed or frozen in the near term part of the plan The MPS is a rolling schedule The MPS is a statement of what is to be produced, not a forecast of demand Master Production Schedule (MPS) A customer order in a job shop (make-to- order) company Modules in a repetitive (assemble-to-stock) company An end item in a continuous (make-to-stock) company Can be expressed in any of the following terms:
Task performed by a master production scheduler Construct and update the MPS Involves processing MPS transactions, maintaining MPS records and reports, having a periodic review and update cycle (rolling through time), processing and responding to exception conditions, and measuring MPS effectiveness on a routine basis
Contd.. On a day-to-day basis, marketing and production are coordinated through the MPS in terms of Order Promising Order promising is the activity by which customer order requests receive shipment dates
An effective MPS provides
Basis for making customer delivery promises Utilising plant capacity effectively Attaining the firms strategic objectives as reflected in the production plan and Resolving trade-off between manufacturing and marketing Since MPS is the basis for manufacturing budgets, the financial budgets should be integrated with production planning/MPS activities When MPS is extended over a time horizon, is a better basis for capital budgeting Based on the production output specified in the MPS the day-to-day cash flow can be forecasted The MPS should be realizable and not overstated When scheduled production exceeds capacity, usually some or all of the following occur: Invalid priority Poor customer service (missed deliveries) Excess in-process inventories High expediting costs Lack of accountability 41 Major Inputs to MRP Process: 3. Inventory Record _________________________________________________ Contains an extensive amount of information on every item that is produced, ordered, or inventoried in the system _________________________________________________ DESCRIPTION INVENTORY POLICY Item Pressboard Lead time 1 Item no. 734 Annual demand 5000 Item type Purch Holding cost 1 Product/sales class Comp Ordering/setup cost 50 Value class B Safety stock 0 Buyer/planner RSR Reorder point 39 Vendor/drawing 07142 EOQ 316 Phantom code N Minimum order qty 100 Unit price/cost 1.25 Maximum order qty 500 Pegging Y Multiple order qty LLC 1 Policy code 3 Major Inputs to MRP Process: 4. Purchase Record When purchase orders are executed, records of those orders and their scheduled delivery dates must be available to production personnel. The time required to acquire an item is the lead time Lead time of a manufactured item consists of move, setup, assembly or run times. Lead time of a purchased item includes the time between order release and its retreival.
Major Inputs to MRP Process: 5. Lead Times Capacity Requirements Planning Wait a second - just because MRP says produce X, are we able to produce X? Need to evaluate the capacity to see if it can meet plan Need all of MRP information plus: 1. How much capacity a process requires to make 1 unit of a product 2. When does the process need the hours (time) of capacity Reports Master Schedule Indented Bill of Materials BOM - Item Requirements Scheduled Receipts Planned Orders MRP Works Best When... End Products are Standardized Batch Production End product is moderately complex The end product is assembled from a set of components and raw materials Lot size : You can define your requirements (to be produced or Procured) in terms of Weekly, Monthly, LOT-SIZE- Key that determines which lot size procedure, the system uses with in material planning to calculate the quantity to be procured or produced Lot Sizing Choices in MRP
Lot sizing: Determining the lot size (order quantity or production quantity) of an item Static lot sizing rule: A decision rule that orders the same quantity each time an order is placed. Tend to generate higher average on-hand inventory because they create inventory remnants. Can provide extra safety stock.
Dynamic lot sizing rule A decision rule that changes the order quantity with each order, typically so that each order is just large enough to prevent shortages over a specified time period. Tend to cause instability by tying lot-size to gross requirements. Lower-level components may not be able to respond sufficiently fast to changes in requirements
Abbrev iation Policy Definition LFL Lot for lot Deliver in each period the amount required FOP Fixed order period When a delivery is required deliver the amount required for the next m periods, where m is a parameter of the policy. FOQ Fixed order quantity When a delivery is required deliver the amount Q, where Q is a parameter of the policy. If the current requirement exceeds Q deliver the amount of the current requirement. WW Wagner- Whiten Determine the optimum production schedule that minimizes the sum of the setup plus inventory costs for the time horizon. Lot Sizing
Manufacturing Resources Planning (MRP II) Moving to MRP II Materials are only one of the resources; organisations have to schedule others resources such as people, equipment, facilities, finances, transportation. The natural extension of MRP led to Manufacturing Resources Planning (MRP II).
Manufacturing Resources Planning (MRP II) Manufacturing Resources Planning (MRP II) While MRP or MRP I address the issues of inbound logistics flow of the inventory; MRP II adds finance, marketing and somewhat integrated logistics; Increase customer satisfaction, improve delivery, better response, reduce inventory levels and costs and allow more flexibility.
Manufacturing Resources Planning (MRP II) Manufacturing Resources Planning (MRP II) MRP II provides an integrated system for synchronizing all related functions within an organisation in the aspects of manufacturing. It links up all the schedules for all related functions and resources back to the master schedule.
Manufacturing Resources Planning (MRP II) MRP II linking up logistics activities Linking up all activities to master schedule could give a very efficient logistics; During the moving up from MRP to MRP II, many companies see the difficulties. Many companies prefer to implement a partial systems where the MRP approach is still used to plan logistics activities; The partial system is retitled as distribution resource planning (DRP) or logistics resource planning (LRP).
Manufacturing Resources Planning (MRP II) The emergence: MRP MRP II ERP The emergence of the MRP (material requirements planning) to MRP II (manufacturing resources planning) and the next move of the MRP evolution would possibly embracing the processing, manufacturing and distribution. The ERP/MRP Integration The ERP/MRP integration This integration it embodied naturally made it attractive to other functional components of the business finance, human resources and project management. MRP II was found to be a more and more misleading term as it covered more and more extensive domains and it was therefore better renamed ERP. Enterprise Resource Planning (ERP) ERP is the backbone of e-business Market leaders turbocharged their business to run a breakneck speed on a transactional backbone called Enterprise Resource Planning (ERP). ERP works like an information lubricant, facilitating the exchange data among corporate division through the unification of key processes. The first step in back-office transforming. Enterprise Resource Planning (ERP) Elements of ERP EPR is not a single system but a framework of administrative applications (accounting and finance, human resources), manufacturing applications (production scheduling, planning), sales distribution (order entry) and integrated logistics. ERP unites core business processes from order processing, production and delivery. Distribution Resource Planning (DRP) Distribution Resource Planning (DRP) acts as a buffer or automatic synchronous control by adjusting the order patterns if inventory needs vary, respond more readily to system-wide inventory needs and better deal with product availability and timeliness. DRP II further enhance the system by planning for the entire storage and movement of inventory by combining MRP II and DRP and you may call this DRP II. 61 Distribution Resource Planning (DRP) The relationship between MRP II and DRP Market 1 Customer Focus Market 2 Customer Focus Market 3 Customer Focus Market 4 Customer Focus DRP Master production schedule MRPI I ERP Distribution channels are formed to solve three critical distribution problems functional performance reduced complexity specialization. Contd The central focus of distribution is to increase the efficiency of time, place, and delivery utility When demand and product availability are immediate, the producer can perform the exchange and delivery functions itself As the number of producers grows and the geographical dispersion of the customer base expands, the need for both internal and external intermediaries who can facilitate the flow of products, services, and information via a distribution process increases. Contd The need for more detailed distribution planning led to the emergence of distribution requirements planning (DRP) during the 1970s. DRP is a widely used and potentially powerful technique for helping outbound logistics systems manage and minimize inbound inventories Contd This concept extended the time-phase order point found in material requirements planning (MRP) logic to the management of channel inventory By the 1980s DRP had become a standard approach for planning and controlling distribution logistics activities and had evolved into distribution resource planning. Contd The concept now embraces all business functions in the supply channel, not just inventory and logistics DRP is usually used with an MRP system, although most DRP models are more comprehensive than stand-alone MRP models and can schedule transportation Contd The underlying rationale for DRP is to more accurately fore-cast demand and then use that information to develop delivery schedules This way, distribution firms can minimize inbound inventory by using MRP in conjunction with other schedules. Contd One of the key elements of DRP is the DRP table, which includes the following elements Forecast demand for each stock-keeping unit (SKU) Current inventory level of the SKU Target safety stock Recommended replenishment quantity Replenishment lead time
Contd The concept of DRP very closely mimics the logic of MRP With MRP Gross requirements consist of actual customer orders, forecasted demand, or some combination of both scheduled receipts are the goods the distributor expects to receive from orders that already have been released while goods that already are received and entered into inventory constitute the on-hand inventory balance Subtracting scheduled receipts and on-hand inventory from gross requirements yields net requirements Contd Based upon the distributor's lot-sizing policy and receiving behavior, planned order receipts are generated Firms may order only what they need for the next planning period or for a designated time period Known as economic order quantity (EOQ), this involves a lot size based on a costing model DRP I the application of MRP principles to the distribution environment, integrating the special needs of distribution*it+ is a dynamic model that looks at a time-phased plan of events that affect inventory. DRP II Distribution resource planning extends DRP I to include the planning of key resources in a distribution system-warehouse space, manpower levels, transport capacity (e.g., trucks, railcars) and financial flows. Uses the needs of distribution to drive the master schedule, controlling the bill of materials, and materials requirements planning. Distribution Resource Planning DRP requires: Gross requirements, which are the same as expected demand or sales forecasts Minimum levels of inventory to meet customer service levels Accurate lead times Definition of the distribution structure Management of the inbound flow involves these elements: Material planning and control Purchasing Receiving Physical management of materials via warehousing and storage Materials handling
Management of the outbound flow involves these elements:
Order processing Warehousing and storage Finished goods management Material handling and packaging Shipping Transportation