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Resource Requirements Planning: MRP and CRP

Independent vs. Dependent Demand


Independent Demand Items
A

Dependent Demand Items


C(2)

B(4)

D(2)

E(1)

D(3)

F(2)

Resource Requirements Planning


Aggregate Planning Master Production Scheduling (MPS) Resource Requirements Planning Material Requirements Planning (MRP) Capacity Requirements Planning (CRP)
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Production Planning Hierarchy


Firm orders from known customers Aggregate Product Plan Forecast of demand from random customers

Engineering design changes

Master Production Schedule (MPS) Material Requirements Planning (MRP)

Inventory transactions

Bill of Materials (BOM) file

Inventory records file

Reports

Materials Requirements Planning (MRP)

Material Requirements Planning




How much of an item is needed? When is an item needed to complete  a specified number of units...  in a specified period of time? Dependent demand drives MRP

Objectives of MRP
  

Improve customer service Reduce inventory investment Improve plant operating efficiency

MRP Computer Program


  

 

Begins with number of end items needed Aditional service parts not included in MPS Explode MPS into gross requirements by consulting bill of materials file Modify gross requirements to get net requirements: Net Requirements = Gross Requirements + Allocated Inventory + Safety Stock - Inventory On Hand Offset orders to allow for lead time
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Bill of Materials (BOM) File


A Complete Product Description

Inventory Records File




Each inventory item carried as a separate file  Contains inventory positions of each item  Shows status according to time buckets

Pegging  Identify each parent item that created demand

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MRP Terminology


Planned order schedule - quantity of material to be ordered in each time period Changes to planned orders - modifications to previous planned orders

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MRP Terminology
Gross Requirements


These requirements are typically forecast for independent demand items

OnOn-hand inventory


The inventory physically present in the facility

Allocated inventory


The inventory physically present in the facility but allocated to a particular work order or purchase order

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More MRP Terminology




Net requirements


A quantity of an item that must be purchased or manufactured in order to be able to fully deliver independent demand requirements in a timely fashion Presence of positive net requirements signals that an order must be planned to be received in a given period Net requirement quantities are subject to adjustments due to lot sizes considerations. This may lead to some orders being received early (inventory is held) or late (order backlog)
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More MRP Terminology




Planned order receipts




Quantities that must be planned to be received in some future periods in order to meet the requirements

Planned order released




Quantities that must be planned to be released in some future periods in order to meet the requirements
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More MRP Terminology




Scheduled receipts


Quantities that will be received in some future periods as their corresponding orders have been released in the past


Planned order receipts become scheduled receipts at the time when they are released to the shop or to suppliers

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Example: MRP Schedule


LocoMopeds is a manufacturer of off-road offmopeds. The following product structure diagram represents the bill of materials for its dual-carburetor dualModel 442 moped.
Level 0
ENGINE ASSEMBLY GAS TANK MOPED

Level 1

WHEEL ASSEMBLY (2)

FRAME

Level 2

MOTOR

CARBURETOR (2)

HUB ASSEMBLY

TIRE

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Example: MRP Schedule




Bill of Material
Parent Code 442 Component Code 442 EA GT WA F M C HA T Level Code 0 1 1 1 1 2 2 2 2 Description #442 Moped Engine Assem. Gas Tank Wheel Assem. Frame Motor Carburetor Hub Assem. Tire 1 1 2 1 1 2 1 1
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Compon. Reqd

EA WA

Example: MRP Schedule




Inventory Status Report


Item Code 442 EA GT WA F M C HA T OnOnHand 500 300 600 500 600 250 150 100 500 Safety Stock 200 100 200 400 0 0 100 0 500 Lot Size LFL 500 LFL 500 2000 LFL 2000+ LFL 1000 Lead Time 1 1 2 1 3 1 2 1 3 Sched. Receipts Qnty. Week -1000 900 2000 2000 --2400
3000,2000

-10 10 10 10 --11 11,12 18

Example: MRP Schedule


The company is currently planning production for weeks 10 through 16. Based on existing orders and demand forecasts, the master production schedule is as follows: Master Production Schedule: #442 Moped
WEEK QUANTITY

10 0

11 1300

12 0

13 1300

14 800

15 1200

16 1400

Determine the MRP schedule required to support the master production schedule for the Model 442 moped in weeks 10-16. 1019

Example: MRP Schedule




MRP Schedule for #442 Mopeds for Weeks 10 - 16, considering that: Gross Requirements come from the moped MPS There is an On-Hand balance of 500 mopeds at the Onend of week 9 There are no Scheduled Receipts for mopeds A lot-for-lot rule is used for ordering mopeds lot-forSafety stock of 200 mopeds is desired Lead time for mopeds is one week
     

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Example: MRP Schedule




MRP Schedule for #442 Mopeds . . . Initially


LT: 1 SS: 200
WEEK

ITEM: 442 MOPED LOT SIZE: LFL GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE

10 0

11 1300

12 0

13

14

15

16

1300 800 1200 1400

(ON(ON-HAND = 500)

NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

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Example: MRP Schedule




MRP Schedule for #442 Mopeds . . . Completed


ITEM: 442 MOPED LOT SIZE: LFL LT: 1 SS: 200
WEEK

10 0

11 1300

12 0

13

14

15

16

GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE

1300 800 1200 1400

(ON(ON-HAND = 500) 300 300 1000 1000 1000

NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

1300 800 1200 1400 1300 800 1200 1400 1300 800 1200 1400

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Example: MRP Schedule




MRP Schedule for Gas Tanks for Weeks 10 - 16, considering that: Gross Requirements come from moped PlannedPlannedOrderOrder-Releases There is an On-Hand balance of 600 gas tanks at Onthe end of week 9 There is a Scheduled Receipt for 900 tanks in week 10 A lot-for-lot rule is used for ordering gas tanks lot-forSafety stock of 200 gas tanks is desired Lead time for gas tanks is two weeks
     

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Example: MRP Schedule




MRP Schedule for Gas Tanks . . . Initially


ITEM: GAS TANK LOT SIZE: LFL LT: 2 SS: 200
WEEK

10 1000 900

11 0

12

13

14

15

16 0

GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 600) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

1300 800 1200 1400

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Example: MRP Schedule




MRP Schedule for Gas Tanks . . . Completed


ITEM: GAS TANK LOT SIZE: LFL GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE
NET REQUIREMENTS

LT: 2 SS: 200

WEEK

10 1000 900

11 0

12

13

14

15

16 0

1300 800 1200 1400

(ON-HAND = 600) 1300 300 300 (ON-

1000 800 1200 1400 1000 800 1200 1400 1000 800 1200 1400

PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

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Example: MRP Schedule




MRP Schedule for Frames for Weeks 10 - 16, considering that: Gross Requirements come from moped PlannedPlannedOrderOrder-Releases There is an On-Hand balance of 600 frames at the Onend of week 9 There is a Scheduled Receipt for 2000 frames in week 10 The firm uses a Lot Size (multiple) of 2000 for ordering frames No safety stock of frames is desired Lead time for frames is 3 weeks
     

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Example: MRP Schedule




MRP Schedule for Frames . . . Initially


ITEM: FRAME LOT SIZE: 2000 GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES 600 LT: 3 SS: 0
WEEK

10 1000 2000

11 0

12

13

14

15

16 0

1300 800 1200 1400

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Example: MRP Schedule




MRP Schedule for Frames . . . Completed


ITEM: FRAME LOT SIZE: 2000 GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE LT: 3 SS: 0
WEEK

10 1000 2000

11 0

12

13

14

15

16 0

1300 800 1200 1400

(ON(ON-HAND = 600) 1600 1600 1600 300 1500 300 900 0 0 0 500 2000 2000 2000 0 1100 2000 0

NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

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Example: MRP Schedule




MRP Schedule for Engine Assemblies for Weeks 10 16, considering that: Gross Requirements come from moped PlannedPlannedOrderOrder-Releases There is an On-Hand balance of 300 engine Onassemblies at the end of week 9 There is a Scheduled Receipt for 1000 engine assemblies in week 10 The firm uses a Lot Size (multiple) of 500 for ordering engine assemblies Safety Stock of 100 engine assemblies is desired Lead time for engine assemblies is 1 week
     

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Example: MRP Schedule




MRP Schedule for Engine Assemblies . . . Initially


ITEM: ENGINE ASSEM. LT: 1 LOT SIZE: 500 SS: 100
WEEK

10 1000 1000

11 0

12

13

14

15

16 0

GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 300) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

1300 800 1200 1400

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Example: MRP Schedule




MRP Schedule for Engine Assemblies . . . Completed


ITEM: ENGINE ASSEM. LT: 1 LOT SIZE: 500 SS: 100
WEEK

10 1000 1000

11 0

12

13

14

15

16 0

GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 300) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

1300 800 1200 1400

200 200 200 400 100 400 1100 400 1100 1000 1500 500 1500 1000 1500 500 1500 1000

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Example: MRP Schedule




MRP Schedule for Motors for Weeks 10 - 16, considering that: Gross Requirements come from engine assembly Planned-OrderPlanned-Order-Releases There is an On-Hand balance of 250 motors at the Onend of week 9 There are no Scheduled Receipts for motors A lot-for-lot rule is used for ordering motors lot-forNo Safety Stock of motors is desired Lead time for motors is 1 week
     

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Example: MRP Schedule




MRP Schedule for Motors . . . Initially


ITEM: MOTOR LOT SIZE: LFL GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 250) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES LT: 1 SS: 0
WEEK

10

11

12

13

14

15

16

1500 500 1500 1000

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Example: MRP Schedule




MRP Schedule for Motors . . . Completed


ITEM: MOTOR LOT SIZE: LFL GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 250) 250 250 0 0 0 0 0 NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES 1250 500 1500 1000 1250 500 1500 1000 1250 500 1500 1000 LT: 1 SS: 0
WEEK

10

11

12

13

14

15

16

1500 500 1500 1000

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Example: MRP Schedule




MRP Schedule for Carburetors for Weeks 10 - 16, considering that: Gross Requirements come from engine assembly Planned-OrderPlanned-Order-Releases (times 2) There is an On-Hand balance of 150 carburetors at Onthe end of week 9 There are no Scheduled Receipts for carburetors A Lot Size of 200+ is used for ordering carburetors Safety Stock of 100 carburetors is desired Lead time for carburetors is 2 weeks
     

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Example: MRP Schedule




MRP Schedule for Carburetors . . . Initially


ITEM: CARBURETOR LOT SIZE: 2000+ GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 150) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES LT: 2 SS: 100
WEEK

10

11

12

13

14

15

16

3000 1000 3000 2000

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Example: MRP Schedule




MRP Schedule for Carburetors . . . Completed


ITEM: CARBURETOR LOT SIZE: 2500+ GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 150) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES LT: 2 SS: 100
WEEK

10

11

12

13

14

15

16

3000 1000 3000 2000 3000 50 3050 50 1550 1050 1550 1550 950 1450 950 2500 2500 2500 2500 2500 2500

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Example: MRP Schedule




MRP Schedule for Wheel Assemblies for Weeks 10 16, considering that: Gross Requirements come from moped PlannedPlannedOrderOrder-Releases (times 2) There is an On-Hand balance of 500 wheel Onassemblies at the end of week 9 There is a Scheduled Receipt for 2000 wheel assemblies in week 10 A Lot Size (multiple) of 500 is used for ordering wheel assemblies Safety Stock of 400 wheel assemblies is desired Lead time for wheel assemblies is 1 week
     

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Example: MRP Schedule




MRP Schedule for Wheel Assemblies . . . Initially


ITEM: WHEEL ASSEM. LT: 1 LOT SIZE: 500 SS: 400
WEEK

10 2000 2000

11 0

12

13

14

15

16 0

GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

2600 1600 2400 2800

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Example: MRP Schedule




MRP Schedule for Wheel Assemblies . . . Completed


ITEM: WHEEL ASSEM. LT: 1 LOT SIZE: 500 SS: 400
WEEK

10 2000 2000

11 0

12

13

14

15

16 0

GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

2600 1600 2400 2800 0 400 0

2100 100 100

200

2500 1600 2000 2800 2500 2000 2000 3000 2500 2000 2000 3000

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Example: MRP Schedule




MRP Schedule for Hub Assemblies for Weeks 10 - 16, considering that: Gross Requirements come from wheel assembly Planned-OrderPlanned-Order-Releases There is an On-Hand balance of 100 hub assemblies Onat the end of week 9 There is a Scheduled Receipt of 2400 hub assemblies in week 11 A lot-for-lot rule is used for ordering hub assemblies lot-forNo Safety Stock of hub assemblies is desired Lead time for hub assemblies is 1 week
     

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Example: MRP Schedule




MRP Schedule for Hub Assemblies . . . Initially


ITEM: HUB ASSEM. LOT SIZE: LFL LT: 1 SS: 0
WEEK

10 0

11

12

13

14

15 0

16 0

GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 100) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

2500 2000 2000 3000 2400

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Example: MRP Schedule




MRP Schedule for Hub Assemblies . . . Completed


ITEM: HUB ASSEM. LOT SIZE: LFL LT: 1 SS: 0
WEEK

10 0

11

12

13

14

15 0

16 0

GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 100) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

2500 2000 2000 3000 2400 0 0 0

100 2500

2000 2000 3000 2000 2000 3000 2000 2000 3000

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Example: MRP Schedule




MRP Schedule for Tires for Weeks 10 - 16, considering that: Gross Requirements come from wheel assembly Planned-OrderPlanned-Order-Releases There is an On-Hand balance of 500 tires at the Onend of week 9 There are Scheduled Receipts for 3000 and 2000 tires weeks 11 and 12, respectively A Lot Size (multiple) of 1000 is used for ordering tires Safety Stock of 500 tires is desired Lead time for tires is 3 weeks
     

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Example: MRP Schedule




MRP Schedule for Tires . . . Initially


ITEM: TIRE LOT SIZE: 1000 LT: 3 SS: 500
WEEK

10 0

11

12

13

14

15 0

16 0

GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES

2500 2000 2000 3000 3000 2000

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Example: MRP Schedule




MRP Schedule for Tires . . . Completed


ITEM: TIRE LOT SIZE: 1000 LT: 3 SS: 500
WEEK

10 0

11

12

13

14

15 0

16 0

GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON(ON-HAND = 500)

2500 2000 2000 3000 3000 2000 3000 2500 500

500 500 500

NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES 2000 3000

1500 2500 2000 3000

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Issues in MRP


LotLot-Sizing Useful at lower levels but may drive excess inventory when applied at higher levels Net Change versus Regenerative MRP Net change may generate too many action notices Regenerative more costly to run but appears to be easier to manage . . . more
  

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Issues in MRP


Safety Stock Use depends on uncertainty of demand..... more uncertain the greater the need for safety stock Assemble-toAssemble-to-Order Firms MPS and MRP treated separately from Final Assembly Schedule(FAS) Use Modular Bill of Material
  

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LotLot-Sizing in MRP
 

LotLot-size is the quantity ordered/produced at one time Large lots are preferred because: Changeovers cost less and capacity greater Annual cost of purchase orders less Price breaks and transportation breaks can be utilized Small lots are preferred because: Lower inventory carrying cost Reduced risk of obsolescence Shorter cycle time to produce customer order
     

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LotLot-Sizing Methods in MRP




 

Economic Order Quantity (EOQ) does not consider quantity discounts does not always provide the most economical approach with lumpy demands Lot-forLot-for-Lot (LFL) accommodates lumpy demand Period Order Quantity (POQ) Many others
  

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LotLot-Sizing Methods in MRP

The best lot-sizing method, lotresulting in least cost, depends on cost and demand patterns

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LotLot-Sizing in MRP
 

LotLot-size is the quantity ordered/produced at one time Large lots are preferred because: Changeovers cost less and capacity greater Annual cost of purchase orders less Price breaks and transportation breaks can be utilized Small lots are preferred because: Lower inventory carrying cost Reduced risk of obsolescence Shorter cycle time to produce customer order
     

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LotLot-Sizing Methods


Economic Order Quantity (EOQ) does not consider quantity discounts does not always provide the most economical approach with lumpy demand Lot-forLot-for-Lot (LFL) accommodates lumpy demand Period Order Quantity (POQ)
  

The best method, resulting in least cost, depends on cost and demand patterns.
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Example: Lot-Sizing Decision LotThe net requirements for a material from an MRP WEEK schedule are:
1 NET REQUIREMENTS 1000 2 0 3 4 5 6 7 0 8 800 1300 800 1200 1300

It costs $400 to change over the machines for this material in the affected work center. It costs $0.40 per unit when one unit of this material must be carried in inventory from one week to the next. Identify the lot-sizing method that results in the lotleast carrying and changeover costs for the 8-week 8schedule.
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Example: Lot-Sizing Decision Lot

Lot-forLot-for-Lot Method
WEEK

1 NET REQUIREMENTS BEGINNING INVENTORY PRODUCTION LOTS ENDING INVENTORY 1000 0 1000 0

2 0 0 0 0

7 0 0 0 0

8 800 0 800 0

1300 800 1200 1300 0 0 0 0

1300 800 1200 1300 0 0 0 0

Carrying Cost = 0($.40) = $0 Changeover Cost = 6($400) = $2,400 Total = $2,400


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Evaluation of MRP


 

Most beneficial to process-focused systems that have processlong processing times and complex multistage production steps Lead times must be reliable Must freeze MPS for some time before actual production... certain demand Difficult to implement

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Closed Loop MRP


Production Planning Master Production Scheduling Material Requirements Planning Capacity Requirements Planning No Feedback Realistic? Yes Execute: Capacity Plans Material Plans 57 Feedback

Closed Loop MRP


Materials Management at Washburn Guitar, Inc.

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Manufacturing Resource Planning (MRP II)


Goal: Plan and monitor all resources of a manufacturing firm (closed loop): Manufacturing Marketing Finance Engineering Shop-floor control Shop Simulation capability of the manufacturing system


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Enterprise Resource Planning (ERP)


ERP systems available today integrate manufacturing with other functional areas in an organization  ERP systems make it easier for management to obtain local information about performance of specific processes, bottlenecks resources, and products (or product groups), etc.  Class I ERP software packages (for large companies) include BAAN, SAP, and Oracle


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Example: Lot-Sizing Decision Lot

Economic Order Quantity (EOQ) Method S = $400.00 D = [(Net Req. for 8 wks)/8 weeks)](50 weeks/year) = (6400/8)(50) = 40,000 C = ($0.40 per week)(50 weeks/year) = $20.00

EOQ =

2DS = C

2(40,000)(400) = 20

265
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Example: Lot-Sizing Decision Lot

Economic Order Quantity (EOQ) Method


WEEK

1 NET REQUIREMENTS BEGINNING INVENTORY PRODUCTION LOTS ENDING INVENTORY 1000 0 1265

2 0

7 0

8 800

1300 800 1200 1300

265 265 230 695 760 725 725 0 1265 1265 1265 1265 0 1265

265 265 230 695 760 725 725 1190

Carrying Cost = 4855($.40) = $1,942 Changeover Cost = 6($400) = $2,400 Total = $4,342
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Example: Lot-Sizing Decision Lot

Period Order Quantity (POQ) Method POQ = (# Weeks/year)/(# Orders/year) = 50/(D/EOQ) = 50/(40,000/1,265) = 1.58 or 2 weeks

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Example: Lot-Sizing Decision Lot

Period Order Quantity (POQ) Method


WEEK

1 NET REQUIREMENTS BEGINNING INVENTORY PRODUCTION LOTS ENDING INVENTORY 1000 0 1000 0

2 0 0 0 0

7 0 0 800 800

8 800 800 0 0

1300 800 1200 1300 0 2100 800 800 0 0 0 2500 1300 1300 0 0

Carrying Cost = 2900($.40) = $1,160 Changeover Cost = 4($400) = $1,600 Total = $2,760
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Example: Lot-Sizing Decision Lot

Summary Method LFL EOQ POQ Carrying Cost 0 1,942 1,160 Chg.Ovr. Cost 2,400 2,400 1,600 Total Cost 2,400 4,342 2,760

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Issues in MRP


LotLot-Sizing Useful at lower levels but may drive excess inventory when applied at higher levels Net Change versus Regenerative MRP Net change may generate too many action notices Regenerative more costly to run but appears to be easier to manage . . . more
  

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Issues in MRP


Safety Stock Use depends on uncertainty of demand..... more uncertain the greater the need for safety stock Assemble-toAssemble-to-Order Firms MPS and MRP treated separately from Final Assembly Schedule(FAS) Use Modular Bill of Material
  

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MRP II System
MRP II System

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MRP I to MRP II


MRP I simply exploded demand (MPS) into required materials MRP II became Manufacturing Resource Planning which provides a closed-loop business management closedsystem Financial management Shop floor control Operations management Simulation capability
   

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Evaluation of MRP


 

Most beneficial to process-focused systems that have processlong processing times and complex multistage production steps Lead times must be reliable Must freeze MPS for some time before actual production... certain demand Difficult to implement

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Capacity Requirements Planning (CRP)

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Capacity Requirements Planning (CRP)


   

Tests MPS for feasibility Utilizes routings to determine labor/machine loads If schedule feasible, recommends freezing If schedule overloads resources, points out processes that are overscheduled

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Load Schedules


Compares actual labor and machine hours against available hours Offsets schedules between successive stages of production by lead times Provides feasible MPS and economically loaded work centers Promotes system operating efficiency ... lowers costs!

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