Basics of Supply Chain Management : BSCM

Basics of Supply Chain Management : BSCM

Chapter 4. Material Requirements Planning (MRP)

Main Issues :

· Understand the nature of demand and Characteristics of material requirements planning(MRP).

· Describe Inputs to the MPR process : MPS, Inventory Record and Bill of Material.

· Understanding MRP Process and its Output.

· Understand Lead time Offsetting, MRP Exploding, and Netting.

· Manage the MPR : Keep the plan current, Bottom-up Replanning, Reducing System Nervousness.

1. Material Requirements Plan.

□ Nature of Demand.

- Independent demand.

· It is not related to the demand for any other product.

· It must be forecast.

- Dependent demand.

· It should be calculated based on the bill of materials and the independent

demand forecast.

· MRP is a system to calculate requirements for dependent demand items.

Figure 1. Product Tree

						Table											Independent Demand (Forecast)
Legs (4)			Ends (2)				Sides (2)				Top (1)			Others (1)			Dependent Demand (Calculated)

Ch.4 Material Requirement Planning.

□ Manufacturing Requirement Plan.

- A set of techniques that uses bill of material data, inventory data, and the master

production schedule to calculate requirements to materials.

- It makes recommendations to release requirements orders for material.

- Further, because it is time-phased, it makes recommendation to reschedule open

orders when due dates are not in phase.

- Time-phased MRP determines :

1. The quantity of all components and materials required to fabricate those items.

2. The date that the components and materials are required.

- Time-phased MRP is accomplished by :

1. Exploding the bill of material.

2. Netting. (or adjusting for inventory quantities on hand or on order).

3. Lead time offsetting.

□ Linkages with Other Manufacturing Planning and Control Functions.

- The MPR is driven by the MPS ; It is concerned with the components needed to

make the end item.

- The MRP in turn drives, or is input to, production activity control (PAC) and purchasing.

Figure 2. Lingkages among MRP and other Planning Systems.

INPUT				OUTPUT
- Business Plan. - Financial Plan. - Market Plan. - Critical Resource.		Production Plan (PP)		- Production (aggregate) Plan. · By Month or Quarter. · By Product Group · Inventory/Backlog Level
- Production Plan. - Forecast & Order. - Status of Inventory. - Bottleneck Center.		Master Production Schedule. (MPS)		- Detailed Plan for End item. · By Week. · By End item in a Product Group.
- MPS. - Bill of Materials. - Status of Inventory. - Capacity of All.		Material Requirement Plan (MRP)		- Time-phased Production & Purchase Orders. · For Components. · For Raw Materials.
Purchasing				Production Activity Control

2. Inputs to the MRP Process.

□ Master Production Schedule.

- The anticipated build schedule for those items assigned to the master scheduler.

- It is a statement of which end items are to be produced, the quantity of each, and the

date they are to be completed.

- Master Production Schedule.

· The result of the master scheduling process.

· The master schedule is presentation of demand, forecast, backlog, the MPS, the

projected on-hand inventory, and the available-to-promise quantity.

Lot Size : 50 On Hand : 50 Lead Time : 2 Periods.	Demand Time Fence : 3 Planning Time Fence : 8

Figure 3. The Master Schedule Format.

Item : 78100 Description : Commercial Generator Unit.	Week (Period)
	1	2	3	4	5	6	7	8	9
Forecast	20	22	21	25	24	23	21	21	25
Orders	19	17	15	11	9	5	2	1	0
Projected Available Balance 50	31	14	49	24	0	27	6	35	10
Available-to-Promise	14		15			43		49
MPS			50			50		50

□ Inventory Record.

- When a calculation is made to find out how many are needed, the quantities available

must be considered.

- There are two kinds of information needed.

1. Planning factors.

· Order quantity, Lead times, Safety stock, Scrap.

· This information does not change often.

· It is needed to plan what quantities to order and when to order for timely

deliveries.

2. The status of each item.

· How much available, How much is allocated, How much is available for

future demand.

· This type of information is dynamic and changes with every transaction that

take place.

-  These data are maintained in an Inventory Record file (IRF), also called a part master

file, or item master file.

3. Bills of Materials.

□ Description.

- The bill of material shows all the parts required to make ONE of the item.

- Each part or item has only one part number.

· A specific number is unique to one part and is not assigned to any other part.

· If a particular number appears on two different bills of material, the part so

identified is the same.

- A part is defined by its form, fit, or function.

· If any of these change, then it is not the same part and it must have a different

part number.

Figure 4. Simplified bill of materials

Description : TABLE Part Number : 100
Part Number	Description	Quantity Required	Unit of Measure
203	Wooden legs	4	EA
411	Wooden ends	2	EA
622	Wooden sides	2	EA
023	Table top	1	EA
722	Hardware	1	Kit

□ Bills of Material Structure

1. Product tree.

· Figure 5 shows a product tree for the BOM shown in Figure 4.

· The product tree is a convenient way to think about bills of material, but it is

seldom used except for teaching and testing.

· Parent-component relationship.

: The product and the bill of material shown in Figure 5 are called single-level : structures.

: An assembly is considered a parent, and the items that comprise it are

: called its component items.

Figure 5. Product Tree : Parent & Component

3. Multilevel bill.

Figure 6. Multilevel Bill

· Multilevel bills are formed as

logical groupings of parts into

subassemblies based on the

way the product is assembled.

· It is the responsibility of

manufacturing engineering to

decide how the product is to

be made : the operations to

be performed, their sequence,

and their grouping.

· One convention used with              multilevel bills of material is              that the last items on the tree are all purchased items.

· Each level in the bill of material is assigned a number starting from the top and

working down. The top level, or end product level, is level zero, and its components

are at level one.

4. Indented bill.

· This bill uses indentations as a way of identifying parents from components.

· The components of the parent table are listed flush left and their components are indented.

· The components of the base are indented immediately below their parent.

· The components are linked to their parents by indenting them as subentries and by

listing them immediately below the parent.

Figure 7. Indented Bill of Material

Manufacturing Bill of Material Table P/N 100
Part Number	Description	Quantity Required
200	Base	1
203	Legs	4
220	Leg Bolts	4
300	Frame	1
622	Sides	2
411	Ends	2
533	Leg Supports	4
066	Glue
023	Top	1
030	Boards	3
066	Glue

5. Planning bill.

· Planning bills are an artificial grouping of components for planning purpose.

· They are used to simplify forecasting, master production scheduling, and material

Figure 8. Planning bill.

requirements planning.

· From Figure 8, we

know that the 27 bills

can be simplified by

showing the percentage

split for each type of

component on one bill.

· The percentage usage

of component is

obtained from a forecast

or past usage.

□ Uses for Bills of Materials

- Product definition.

· The bills specifies the components needed to make the product.

- Engineering change control.

· Product design engineers sometimes change the design of a product that the

component used.

· These changes must be recorded and controlled. The bill provides the methods

for doing so.

- Service parts.

· Replacement parts needed to repair a broken component are determined from

the bill of materials.

- Planning.

· Bills of material define what materials have to be scheduled to make the end product.

· They define what components have to be purchased or made to satisfy the MPS.

- Order entry.

· When a product has a very large number of options (e.g., cars), the order-entry

system very often configures the endproduct bill of materials.

· The bill can also be used to price the product.

- Manufacturing.

· The bill provides a list of the parts needed to make or assemble a product.

- Costing.

· The bill provides not only a method of determining direct materials but also a

structure for recording direct labor and distributing overhead.

4. Material Requirements Planning Process.

□ Bill of Material and MRP Grid.

Figure 9. Basic MRP record

· Order Quantity · On-hand Balance · Safety Stock · Allocated Qty · Lead-Time · Low Level Code		: 50 units : 10 : 0 : 0 : 1 weeks : 0
			Periods
			1	2	3	4	5
A	Gross Requirements		25	0	15	20	30
	Scheduled Receipts		50
	Projected Available 10
	Net Requirements
	Planned Order Receipt
	Planned Order Release

Figure 10. BOM with lead time and Quantity Requirement.

							A			LT : 1 week
		LT : 1 week Qty : 2 units			B				C		LT : 1 week Qty : 2 units
LT : 1 week Qty : 3 units			C				D		LT : 1 week Qty : 1 unit

- The current time is the beginning of the first period.

- Time Bucket.

· A number of days of data summarized into a columnar display.

· A weekly time bucket would contain all of the relevant data for an entire week.

· Weekly time buckets are considered to be the largest possible to permit effective MRP.

· The immediate or most current period is the Action Bucket.

- Planning Horizon.

· The amount of time a plan extends into the future.

· For a master schedule, this is normally set to cover a minimum of cumulative

lead time plus time for lot sizing low-level components and for capacity changes

of primary work centers or of key suppliers.

- Order Quantity (Lot size).

· The amount of a particular item that is ordered from the start or a supplier or

issued as a standard quantity to the production process.

- On-hand Balance : The quantity shown in the inventory records as being physically in stock.

- Safety Stock.

· In general, a quantity of stock planned to be inventory to protect against

fluctuations in demand or supply.

· In MPS, the additional inventory and capacity planned as protection against

forecast errors and short-term changes in the backlog. Overplanning can be

used to create safety stock.

· In MRP, safety stock is planned at the lower level component because it is

used as service parts as well as dependent demands.

- Allocated Stock.

· The classification of quantities of items that have been assigned to specific

orders but have not yet been released from the stockroom to production.

· It is an "uncashed" stock room requisition.

- Lead Time.

· A span of time required to perform a process (a series of operations).

· Manufacturing Lead Time : Queue + Setup + Run + Wait + Move time.

· Purchasing Lead Time : Order Preparation + Release Time + Supplier Lead time

+ Transportation + Receiving + Inspection + Put-away time.

- Level Code.

· Every part or assembly in a product structure is assigned a level code signifying

the relative level in which that part or assembly is used within the product structure.

· Often the end items are assigned level 0 with the components and

subassemblies going into it assigned to level 1 and so on.

· The MRP explosion process starts from level 0 and proceeds downward one

level at a time.

- Lower Level Code (Explosion level).

· A number that identified the lowest level in any bill of material at which a

particular component appears.

· Net requirements for a given component are not calculated until all the gross

requirements have been calculated down to that level.

· Low-level codes are normally calculated and maintained automatically by the

computer software.

Figure 11. Low-Level Code

					A							Level 0
			B									Level 1
	C				D			C				Level 2

□ Material Requirement Planning.

· Order Quantity · On-hand Balance · Safety Stock · Allocated Qty · Lead-Time · Low Level Code		: 50 units : 10 : 0 : 0 : 1 weeks : 0
			Periods
			1	2	3	4	5
A	Gross Requirements		25	0	15	20	30
	Scheduled Receipts		50
	Projected Available 10		35	35	20	0	20
	Net Requirements						30
	Planned Order Receipt						50
	Planned Order Release					50

Figure 12. MRP Explosion

· Order Quantity · On-hand Balance · Safety Stock · Allocated Qty · Lead-Time · Low Level Code		: 50 units : 50 : 10 : 0 : 1 weeks : 1
B	Gross Requirements		0	0	0	100	0
	Scheduled Receipts
	Projected Available 50		50	50	50	50	50
	Net Requirements					60
	Planned Order Receipt					100
	Planned Order Release				100

- Gross Requirement.

· The total of independent and dependent demand for a component before the

netting of on-hand inventory and schedule receipt.

· In level 0, gross requirement is determined by MPS, but in other levels, it is

determined by multiplying the needed unit by the upper level planned order

release thoughtout BOM structure.

- Scheduled Receipts (Open order).

· A released manufacturing order or purchase order.

· Unfilled customer order.

- Net Requirement.

· The net requirement for a part or an assembly are derived as a result of

applying gross requirements and allocations against inventory on hand, scheduled

receipts, and safety stock.

· Net requirements, lot-sized and off-set for lead time, become planned orders.

· Netting - The process of calculating net requirements.

- Lead time offsetting (Offsetting).

· This is the process of placing the exploded requirements in their proper periods

based on lead time.

- Planned order receipt.

· The quantity planned to be received at a future date as a result of a planned

order release.

· Planned order receipts differ from scheduled receipts in that they have not been

released.

- Planned order releases.

· A row on a MRP table that is derived from planned order receipts by taking the

planned receipt quantity and offsetting to the left by the appropriate lead time.

□ Releasing Planned Orders.

- Some considerations for released orders.

· Planned order release are just planned.

· It is the responsibility of the material planner to release planned orders, not the computer.

· Orders for material should not be released until the planned order release date

arrives. Thus, an order is not normally released until the planned order is in the

current week.

· Before a manufacturing order is released, component availability must be checked.

· When the authorization to purchase or manufacture is released, the planned

order receipt is canceled, and a scheduled receipt is created in its place.

· When a manufacturing order is released, the computer will allocate the required

quantities of a parent's components to that order. This does not mean the

components are withdrawn from inventory but that the projected available quantity

is reduced.

□ Where-Used and Pegging Data.

- Where-used report.

· The where-used report gives the parents for a component whereas the bill gives

the components for a parent.

· A listing of all the parents in which a component is used is called a where-used report.

· This has several uses, such as in implementing an engineering change, or when

materials are scarce, or in costing a product.

Figure 13. Where-Used Report

		C
A					B				Parent items.

- Pegging report.

· A pegging report is similar to a where-used report.

· The pegging report shows only those parents for which there is an existing

requirement whereas the where-used report shows all parents for a component.

· The pegging report shows the parents creating the demand for the components,

the quantity needed, and when they are needed.

· Pegging keeps track of the origin of the demand.

Pegged Requirements

Item Number	PERIOD
	1	2	3	4	5
C	0	0	300	100	0

Source of Requirements

Figure 14. Pegged Requirements.

Item Number	PERIOD
	1	2	3	4	5
A	0	0	0	100	0
B	0	0	300	0	0

5. Using the MRP.

□ The Basic Responsibilities of a Planner.

- The MRP planners are responsible for making detailed decisions that keep the flow of

material moving into, through, and out of the factory.

- In many companies where there are thousands of parts to manage, planners are

usually organized into logical groupings based on the similarity of parts or supply.

- The Basic Responsibilities.

1. Launch (release) orders to purchasing or manufacturing.

2. Reschedule due dates of open (existing) orders as required.

3. Reconcile errors and try to find their cause.

4. Solve critical material shortages by expediting or replanning.

5. Coordinate with other planners, master production schedulers, production activity

control, and purchasing to resolve problems.

□ Planned, Released, Firm planned Orders.

- Planned Orders.

· Planned orders are automatically scheduled and controlled by the computer.

· The MRP program recommends to the planner the release of order when the

order enters the action buckets but does not release the order.

- Firm Planned Orders.

· The computer-based MRP system automatically recalculates planned orders as

the gross requirements change.

· At times, the planner may prefer to hold a planned order firm against changes

in quantity and time despite what the computer calculates.

· This might be necessary because of future availability of material or capacity or

special demands on the system.

· The planner can tell the computer that the order is not to be changed unless

the planner advises the computer to do so.

- Released Orders.

· Releasing, or launching, a planned order is the responsibility of the planner.

· When released, the order becomes an open order to the factory or to

purchasing, and appears on the MRP record as a scheduled receipt.

· It is then under the control of the planner, who may expedite, delay, or even

cancel the order.

- Exception Messages.

· A good MRP system generates exception messages to advise the planner when

some event needs attentions.

· Some examples of situations that will generate exception messages.

1. Components for which planned order are in the action buckets and which

should be considered for release.

2. Open orders for which the timing or quantity of scheduled receipts does not

satisfy the plan.

3. Situations in which the standard lead times will result in late delivery of

a zero-level part.

- Transaction Messages.

· The planner must tell the MRP software of all actions taken that will influence

the MRP records.

· When the planner release an order, or a scheduled receipt is received, or when

any change to the data occurs, the MRP program must be told.

· If the right components are to be in the right place at the right time, the planner

must manage the process.

□ Managing the Material Requirements Plan

- Sources of Feedback

· Supplier's action through purchasing.

· Changes to open orders in factory.

· Management action such as changing th MPS.

- Three important factors in managing the MRP.

1. Priority.

2. Bottom-up replanning.

3. Reducing System nervousness.

- Priority

· Priority refers to maintaining the correct due dates by constantly evaluating the

true due-date need for released orders and, if necessary, expediting or

de-expediting.

· Example : The order quantity is 300 units and the lead time is three weeks.

Week	1	2	3	4	5
Gross Requirements	100	50	100	150	200
Scheduled Receipts			300
Projected Available 150	50	0	200	50	150
Net Requirements					150
Planned Order Receipt					300
Planned Order Release		300

What will happen if the gross requirements in week 2 are changed from

50 units to 150 ?

Week	1	2	3	4	5
Gross Requirements	100	150	100	150	200
Scheduled Receipts		300
Projected Available 150	50	200	100	250	50
Net Requirements				50
Planned Order Receipt				300
Planned Order Release	300

What can the planner do ?

1. To expedite the scheduled receipt of 300 units from week 3 to week 2.

2. Or, the extra 100 units wanted in week 2 must be rescheduled into week 3.

3. There is now a planned order release in week 1, and this order

should be released.

- Bottom-up replanning.

· Action to correct for changed conditions should occur as low in the production

structure as possible.

- Reducing system nervousness.

· Sometimes requirements change rapidly and by small amounts, causing the

material requirements plan to change back and forth.

· The planner must judge whether the changes are important enough to react to

and whether an order should be released.

· One method of reducing system nervousness is firm planned order.

- Example :

· The MRP record for part 2876 at Monday morning.

Order quantity = 30 units

Lead time = 2 weeks

Week	1	2	3	4	5	6
Gross Requirements	35	10	15	30	15	20
Scheduled Receipts	30
Projected Available 20	15	5	20	20	5	15
Net Requirements			10	10		15
Planned Order Receipt			30	30		30
Planned Order Release	30	30		30

· The following transactions take place :

1. Only 25 units of the scheduled receipt are received into inventory.

2. The gross requirement for week 3 is changed to 10.

3. The gross requirement for week 4 is increase to 50.

4. The requirement for week 7 is 15.

5. An inventory count reveals there are ten more in inventory than the record shows.

6. The 35 gross requirement for week 1 is issued from inventory.

7. The planned order release for 30 in week 1 is released and becomes a

scheduled receipt in week 3.

· The result :

Order quantity = 30 units

Lead time = 2 weeks

Week	2	3	4	5	6	7
Gross Requirements	10	10	50	15	20	15
Scheduled Receipts		30
Projected Available 20	10	30	10	25	5	20
Net Requirements			20	5		10
Planned Order Receipt			30	30		30
Planned Order Release	30	30		30

1. The opening on-hand balance for week 2 is 20.

2. The planned order release originally set in week 4 has shifted to week 3.

3. Another planned order has been created for release in week 5.

4. The scheduled receipt in week 3 will not be need until week 4. Therefore, it

should be rescheduled to week 4.

5. The planned order in week 2 should be released and become a scheduled

receipt in week 4.

■ Performance Check

1. In the diagram below, which is the independent demand item ?

A. X         B. 1          C. 2          D. 3

2. Which of the following is an objective of material requirement planning ?

A. Keep the factory busy.                B. Keep priorities current.

C. Determine the forecast.                D. Minimize inventory investment.

3. What is the name of the set of priority planning techniques for planning component items below the end-item level ?

A. Master scheduling.                    B. Material requirements planning.

C. Capacity planning.                    D. Production control.

4. Which of the following is a major input to an MRP system ?

A. The production plan.                        B. The capacity plan.

C. Shop floor activity planning and control.       D. The master production schedule.

5. What is the name of the document that shows the component parts and the number of parts needed to make one of an assembly or subassembly ?

A. A route sheet.                  B. A material requirement plan.

C. A bill of material.               D. A material requisition.

6. Which of the following statements is true ?

A. The same part number can be used to identify similar product.

B. A part has one, and only one, part number.

C. The same part on different bills of material will have a different number.

D. An item can be either a parent or a component, but not both.

7. Which of the following statements is more accurate ?

A. Item A is the parent of item B.              B. Item C is the parent of item A.

C. Item A is a parent of item D.               D. Items D and E are components of A.

8. What is the term for the ability to relate the demand for an item shown on an MRP record back to the parent causing the demand.

A. Where-used.       B. Relating.        C. Pegging.        D. Item planning.

9. The lead time for each item is one week. If an order for 50 of A is to be delivered in week 5, in what week will there be a planned order release for items B ?

A. 5       B. 4        C. 3         D. 2

10. Which statement is correct ?

A. Planned order receipts show when the order is needed.

B. When an order is released, it becomes a planned order.

C. Scheduled receipts show when goods were put into inventory.

D. Gross requirements come from the planned order receipts of the parent.

Solutions :

1  2  3  4  5  6  7  8  9  10

A B B D C B A C C A