Managing
Content
Managing Material With Dependent Demand
ANKIT SEMWAL 125 NIKUNJ SHARMA 143 AMLAN MUKHERJEE 195
Distinguish dependent from independent demand inventory Define material requirements planning State the benefits of MRP Identify the requirements of MRP Explain the inputs & outputs of MRP Compute order releases
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
Dependent
Independent
Demand for items used to produce final products Tires stored at a Goodyear plant are an example of a dependent demand item Demand for items used by external customers 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
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 25
23
33
33
7
Computer system Mainly discrete products Accurate bill-of-material Accurate inventory status Stable lead times
99% inventory accuracy
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? Yes
Shop Floor 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-item’s 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
List of components & quantities needed to make product Provides product structure (tree)
◦ ◦
Shows low-level coding
◦ ◦
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.
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
© 1995 Corel Corp.
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
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
Bill of Materials
Master Production Schedule Material Requirements Planning Sys. Planned Order & Other Reports
Inventory Status
Item Master
Purchasing Data
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
7
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 = Prior period's on-hand + Scheduled receipts Net requirement = Gross requirement - Available
On-hand is inventory physically present Allocated is inventory reserved for special orders
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
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.
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 Net requirements Planned order receipts Planned order releases 30 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 40
0 40 40
0 0
0 10 10
0 40 40 30
0 30 30
0 0
0 30 30
0 55 55
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 Net requirements Planned order receipts Planned order releases 30 35 35 0 0 30 30 40 0 40 40 10 0 0 0 10 10 40 0 40 40 30 1 2 3 4 5 6
7
8 0
9 30
10 55
30
0 30 30
0 0
0 30 30
0 55 55
30
55
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
1 Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 73 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
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 Net requirements Planned order receipts Planned order releases 73 35 35 0 0 30 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
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
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
An extension of the MRP system to tie in customers and suppliers
1. Allows automation and integration of many business processes 2. Shares common data bases and business practices 3. Produces information in real time
Coordinates business from supplier evaluation to customer invoicing
ERP modules include
Basic MRP Finance Human resources Supply chain management (SCM) Customer relationship management (CRM)
ERP can be highly customized to meet specific business requirements Enterprise application integration software (EAI) allows ERP systems to be integrated with
Warehouse management Logistics Electronic catalogs Quality management
ERP systems have the potential to
Reduce transaction costs Increase the speed and accuracy of information
Facilitates a strategic emphasis on JIT systems and integration
1. Provides integration of the supply chain, production, and administration 2. Creates commonality of databases 3. Can incorporate improved best processes 4. Increases communication and collaboration between business units and sites 5. Has an off-the-shelf software database 6. May provide a strategic advantage
1. Is very expensive to purchase and even more so to customize 2. Implementation may require major changes in the company and its processes 3. Is so complex that many companies cannot adjust to it 4. Involves an ongoing, possibly never completed, process for implementation 5. Expertise is limited with ongoing staffing problems
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
ANKIT SEMWAL 125 NIKUNJ SHARMA 143 AMLAN MUKHERJEE 195
Distinguish dependent from independent demand inventory Define material requirements planning State the benefits of MRP Identify the requirements of MRP Explain the inputs & outputs of MRP Compute order releases
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
Dependent
Independent
Demand for items used to produce final products Tires stored at a Goodyear plant are an example of a dependent demand item Demand for items used by external customers 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
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 25
23
33
33
7
Computer system Mainly discrete products Accurate bill-of-material Accurate inventory status Stable lead times
99% inventory accuracy
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? Yes
Shop Floor 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-item’s 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
List of components & quantities needed to make product Provides product structure (tree)
◦ ◦
Shows low-level coding
◦ ◦
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.
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
© 1995 Corel Corp.
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
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
Bill of Materials
Master Production Schedule Material Requirements Planning Sys. Planned Order & Other Reports
Inventory Status
Item Master
Purchasing Data
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
7
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 = Prior period's on-hand + Scheduled receipts Net requirement = Gross requirement - Available
On-hand is inventory physically present Allocated is inventory reserved for special orders
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
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.
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 Net requirements Planned order receipts Planned order releases 30 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 40
0 40 40
0 0
0 10 10
0 40 40 30
0 30 30
0 0
0 30 30
0 55 55
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 Net requirements Planned order receipts Planned order releases 30 35 35 0 0 30 30 40 0 40 40 10 0 0 0 10 10 40 0 40 40 30 1 2 3 4 5 6
7
8 0
9 30
10 55
30
0 30 30
0 0
0 30 30
0 55 55
30
55
Holding cost = $1/week; Setup cost = $100; Lead time = 1 week
1 Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 73 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
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 Net requirements Planned order receipts Planned order releases 73 35 35 0 0 30 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
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
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
An extension of the MRP system to tie in customers and suppliers
1. Allows automation and integration of many business processes 2. Shares common data bases and business practices 3. Produces information in real time
Coordinates business from supplier evaluation to customer invoicing
ERP modules include
Basic MRP Finance Human resources Supply chain management (SCM) Customer relationship management (CRM)
ERP can be highly customized to meet specific business requirements Enterprise application integration software (EAI) allows ERP systems to be integrated with
Warehouse management Logistics Electronic catalogs Quality management
ERP systems have the potential to
Reduce transaction costs Increase the speed and accuracy of information
Facilitates a strategic emphasis on JIT systems and integration
1. Provides integration of the supply chain, production, and administration 2. Creates commonality of databases 3. Can incorporate improved best processes 4. Increases communication and collaboration between business units and sites 5. Has an off-the-shelf software database 6. May provide a strategic advantage
1. Is very expensive to purchase and even more so to customize 2. Implementation may require major changes in the company and its processes 3. Is so complex that many companies cannot adjust to it 4. Involves an ongoing, possibly never completed, process for implementation 5. Expertise is limited with ongoing staffing problems
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
