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)
3

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
8

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

10

MRP Terminology


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

11

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

12

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)
13

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
14

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

15

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

16

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
17

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
     

20

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

21

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

22

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

24

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

25

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
     

26

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

27

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

28

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

30

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

31

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
     

32

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

33

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

34

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
     

35

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

36

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

37

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
     

38

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

39

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

40

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
     

41

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

42

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

43

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
     

44

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

45

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

46

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
  

47

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
  

48

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
     

49

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
  

50

LotLot-Sizing Methods in MRP

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

51

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
     

52

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.
53

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.
54

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

55

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

56

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.

58

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


59

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


60

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
61

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
62

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

63

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
64

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

65

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
  

66

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
  

67

MRP II System
MRP II System

68

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
   

69

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

70

Capacity Requirements Planning (CRP)

71

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

72

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!

73