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Capacity planning in closed loop mrp

24/11/2021 Client: muhammad11 Deadline: 2 Day

Operations Management: Sustainability and Supply Chain Management

Third Canadian Edition

Chapter 14

Material Requirements Planning (MRP) and ERP

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Outline (1 of 2)

Global Company Profile: Wheeled Coach

Dependent Demand

Dependent Inventory Model Requirements

MRP Structure

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Outline (2 of 2)

MRP Management

Lot-Sizing Techniques

Extensions of MRP

MRP In Services

Enterprise Resource Planning (ERP)

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Learning Objectives (1 of 2)

When you complete this chapter you should be able to:

Develop a product structure

Build a gross requirements plan

Build a net requirements plan

Determine lot sizes for lot-for-lot, EOQ, and POQ

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Learning Objectives (2 of 2)

When you complete this chapter you should be able to:

Describe MRP II

Describe closed-loop MRP

Describe ERP

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Wheeled Coach (1 of 2)

Largest manufacturer of ambulances in the world

International competitor

12 major ambulance designs

18,000 different inventory items

6,000 manufactured parts

12,000 purchased parts

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Because Wheeled Coach deals with so many parts for its custom-made assembled ambulances, an excellent MRP system is crucial for getting the right parts at the right place at the right time.

Wheeled Coach (2 of 2)

Four Key Tasks

Material plan must meet both the requirements of the master schedule and the capabilities of the production facility

Plan must be executed as designed

Minimize inventory investment

Maintain excellent record integrity

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Dependent Demand (1 of 4)

For any product for which a schedule can be established, dependent demand techniques should be used

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While Chapter 12 introduced techniques for independent demand, Chapter 14 illustrates how to handle dependent demand, which occurs when the demand for one item is dependent on the demand for another. In short, for all components that a firm produces to go into a final product, material requirements planning (MRP) determines when to begin producing them and in what quantities. Taking lead times into consideration, components are scheduled far enough in advance to ensure that the final product can be completed when scheduled. Slide 9 identifies four benefits of MRP.

Dependent Demand (2 of 4)

Benefits of MRP

Better response to customer orders

Faster response to market changes

Improved utilization of facilities and labour

Reduced inventory levels

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Dependent Demand (3 of 4)

The demand for one item is related to the demand for another item

Given a quantity for the end item, the demand for all parts and components can be calculated

In general, used whenever a schedule can be established for an item

MRP is the common technique

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Dependent Demand (4 of 4)

Effective use of dependent demand inventory models requires the following

Master production schedule

Specifications or bill of material

Inventory availability

Purchase orders outstanding

Lead times

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Operations managers must have knowledge about each of the items identified in this slide in order to implement MRP.

Master Production Schedule (MPS) (1 of 2)

Specifies what is to be made and when

Must be in accordance with the aggregate production plan

Inputs from financial plans, customer demand, engineering, supplier performance

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

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The master production schedule (MPS) stems from the aggregate plan (Chapter 13). The MPS specifies exactly how many final products will be made and when. This schedule applies to the independent demand items. Based on the MPS, MRP schedules all of the dependent demand items.

Master Production Schedule (MPS) (2 of 2)

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

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The Planning Process

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These slides (Figure 14.1) show where the MPS and MRP fit within the overall planning process. Feedback loops are included in case any of the plans is deemed infeasible.

Aggregate Production Plan

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This slide (Figure 14.2) nicely illustrates how an aggregate production plan based on quantity of product families per month is disaggregated into an MPS showing weekly production of specific products. This slide is arguably the most useful visual tool in the presentation slides to help students understand the relationship between Chapters 13 and 14.

Master Production Schedule (MPS) (1 of 3)

Can be expressed in any of the following terms:

A customer order in a job shop (make-to-order) company

Modules in a repetitive (assemble-to-order or forecast) company

An end item in a continuous (stock-to-forecast) company

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This slide emphasize that the MPS applies to end products no matter what process strategy is being used.

Master Production Schedule (MPS) (2 of 3)

Figure 14.3

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Master Production Schedule (MPS) (3 of 3)

Table 14.1 Master Production Schedule for Crabmeat Quiche and Spinach Quiche at Nancy’s Specialty Foods

Gross Requirements for Crabmeat Quiche
Day 6 7 8 9 10 11 12 13 14 and so on Blank
Amount 50 Blank 100 47 60 Blank 110 75 Blank Blank Blank
Gross Requirements for Spinach Quiche
Day 7 8 9 10 11 12 13 14 15 16 and so on
Amount 100 200 150 Blank Blank 60 75 Blank 100 Blank Blank
Copyright © 2020 Pearson Canada Inc.

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Bills of Material

List of components, ingredients, and materials needed to make product

Provides product structure

Items above given level are called parents

Items below given level are called children

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A bill of material (BOM) breaks a product down into all of its subassemblies and components and identifies how many units of each component go into each parent component/subassembly, all the way up to making one unit of the final product. Note that certain components may appear in more than one place in the BOM, e.g., one-inch fasteners might be used in both an inner casing and an outer casing. (A good test question that catches a lot of students off-guard provides a BOM and asks for the total units of a certain subassembly needed to produce one unit of final product, where the subassembly appears in two places in the BOM.) A BOM is probably best explained visually by going quickly to the one shown in Slide 19 (from Example 1). Slide 20 computes the number of each part needed to make one unit of final product. Students need to be aware that the numbers on the BOM refer to the amount required for the immediate parent, not the final product, so the amount needed for the final product has a multiplicative relationship.

LO 1: Develop a product structure.

BOM Example (1 of 2)

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LO 1: Develop a product structure.

BOM Example (2 of 2)

Part B: 2 x number of As = (2)(50) = 100
Part C: 3 x number of As = (3)(50) = 150
Part D: 2 x number of Bs + 2 x number of Fs = (2)(100) + (2)(300) = 800
Part E: 2 x number of Bs + 2 x number of Cs = (2)(100) + (2)(150) = 500
Part F: 2 x number of Cs = (2)(150) = 300
Part G: 1 x number of Fs = (1)(300) = 300
Copyright © 2020 Pearson Canada Inc.

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Bills of Material (1 of 3)

Modular Bills

Modules are not final products but components that can be assembled into multiple end items

Can significantly simplify planning and scheduling

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When firms practice modular production (see Chapter 5), or postponement, they produce major subassemblies or modules to stock but make final products to order. This allows for hundreds or even tens of thousands of different final product configurations based on combinations of perhaps 10–50 modules. When production is organized this way, modular bills are used for each module, and no bills of material for final products are needed.

Bills of Material (2 of 3)

Planning Bills

Also called “pseudo” or super bills

Created to assign an artificial parent to the BOM

Used to group subassemblies to reduce the number of items planned and scheduled

Used to create standard “kits” for production

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These slides describe two other special kinds of bills of material, planning bills (or kits) and phantom bills. Low-level coding is necessary when identical items exist at various levels in the BOM (for example, item D in Slide 19).

Bills of Material (3 of 3)

Phantom Bills

Describe subassemblies that exist only temporarily

Are part of another assembly and never go into inventory

Low-Level Coding

Item is coded at the lowest level at which it occurs

BOMs are processed one level at a time

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Accurate Records

Accurate inventory records are absolutely required for MRP (or any dependent demand system) to operate correctly

Generally MRP systems require more than 99% accuracy

Outstanding purchase orders must accurately reflect quantities and scheduled receipts

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Lead Times

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

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Time-Phased Product Structure

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Structure of the MRP System

Figure 14.5

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Determining Gross Requirements (1 of 3)

Starts with a production schedule for the end item – 50 units of Item A in week 8

Using the lead time for the item, determine the week in which the order should be released – a 1 week lead time means the order for 50 units should be released in week 7

This step is often called “lead time offset” or “time phasing”

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These slides discuss the development of the gross material requirements plan (from Example 2, a continuation of Example 1), which is a schedule showing the total demand for an item each time period (which is based on the order release of the parent), as well as the order release of the item (i.e., when production must begin or the item must be ordered). Note that demand for an item with multiple parents is combined into a single gross material requirements plan for that item.

LO 2: Build a gross requirements plan.

Determining Gross Requirements (2 of 3)

From the BOM, every Item A requires 2 Item Bs – 100 Item Bs are required in week 7 to satisfy the order release for Item A

The lead time for the Item B is 2 weeks – release an order for 100 units of Item B in week 5

The timing and quantity for component requirements are determined by the order release of the parent(s)

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Determining Gross Requirements (3 of 3)

The process continues through the entire BOM one level at a time – often called “explosion”

By processing the BOM by level, items with multiple parents are only processed once, saving time and resources and reducing confusion

Low-level coding ensures that each item appears at only one level in the BOM

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Table 14.3 Gross Material Requirements Plan for 50 Awesome Speaker Kits (As)

Blank Blank Blank Blank Blank Blank Week Blank Blank Blank Blank
Blank Blank 1 2 3 4 5 6 7 8 Lead Time
A. Required date Blank Blank Blank Blank Blank Blank Blank 50 Blank
Blank Order release date Blank Blank Blank Blank Blank Blank 50 Blank 1 week
B. Required date Blank Blank Blank Blank Blank Blank 100 Blank Blank
Blank Order release date Blank Blank Blank Blank 100 Blank Blank Blank 2 weeks
C. Required date Blank Blank Blank Blank Blank Blank 150 Blank Blank
Blank Order release date Blank Blank Blank Blank Blank 150 Blank Blank 1 week
E. Required date Blank Blank Blank Blank 200 300 Blank Blank Blank
Blank Order release date Blank Blank 200 300 Blank Blank Blank Blank 2 weeks
F. Required date Blank Blank Blank Blank Blank 300 Blank Blank Blank
Blank Order release date Blank Blank 300 Blank Blank Blank Blank Blank 3 weeks
D. Required date Blank Blank 600 Blank 200 Blank Blank Blank Blank
Blank Order release date Blank 600 Blank 200 Blank Blank Blank Blank 1 week
G. Required date Blank Blank 300 Blank Blank Blank Blank Blank Blank
Blank Order release date 300 Blank Blank Blank Blank Blank Blank Blank 2 weeks
Gross Requirements Plan

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Net Requirements Plan (1 of 2)

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These slides (Example 3, a continuation of Example 2) discuss the net material requirements plan, which adjusts the gross material requirements plan to account for on-hand inventory (and allocations and scheduled receipts—see Slide 35). Slides 30–31 provide the actual plan for each item, while Slides 32–34 describe the calculations for items A and B. The superscripts indicate the source (parent) of the demand. The planned order release indicates when to start producing or ordering the part, time-phased from the planned order receipt to account for the lead time.

LO 3: Build a net requirements plan.

Net Requirements Plan (2 of 2)

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Determining Net Requirements (1 of 3)

Starts with a production schedule for the end item – 50 units of Item A in week 8

Because there are 10 Item As on hand, only 40 are actually required – (net requirement) = (gross requirement – on- hand inventory)

The planned order receipt for Item A in week 8 is 40 units – 40 = 50 – 10

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Determining Net Requirements (2 of 3)

Following the lead time offset procedure, the planned order release for Item A is now 40 units in week 7

The gross requirement for Item B is now 80 units in week 7

There are 15 units of Item B on hand, so the net requirement is 65 units in week 7

A planned order receipt of 65 units in week 7 generates a planned order release of 65 units in week 5

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Determining Net Requirements (3 of 3)

A planned order receipt of 65 units in week 7 generates a planned order release of 65 units in week 5

The on-hand inventory record for Item B is updated to reflect the use of the 15 items in inventory and shows no on-hand inventory in week 8

This is referred to as the Gross-to-Net calculation and is the third basic function of the MRP process

14 - ‹#›

Gross Requirements Schedule

Figure 14.6

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MRP gross requirements can combine multiple products, spare parts, and items sold directly into a single gross material requirements plan. This slide (Figure 14.6) provides an example.

Net Requirements Plan

The logic of net requirements

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Most inventory systems also note the number of units in inventory that have been assigned to specific future production but not yet used or issued from the stockroom. Such items are often referred to as allocated items. Allocated items increase requirements and may then be included in an MRP planning sheet. This slide presents the formula for net requirements.

Safety Stock

BOMs, inventory records, purchase and production quantities may not be perfect

Consideration of safety stock may be prudent

Should be minimized and ultimately eliminated

Typically built into projected on-hand inventory

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As with independent demand (Chapter 12), safety stock may be necessary in dependent demand systems to account for uncertainty.

MRP and JIT

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

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