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What is MRP?

Computerized Inventory Control


Production Planning System Management Information System Manufacturing Control System

When to use MRP


Job Shop Production
Complex Products Assemble-to-Order Environments Discrete and Dependent Demand Items

What can MRP do?


Reduce Inventory Levels Reduce Component Shortages Improve Shipping Performance Improve Customer Service Improve Productivity Simplified and Accurate Scheduling

Reduce Purchasing Cost Improve Production Schedules Reduce Manufacturing Cost Reduce Lead Times Less Scrap and Rework Higher Production Quality

What can MRP do?


Improve Communication Improve Plant Efficiency Reduce Freight Cost Reduction in Excess Inventory Reduce Overtime Improve Supply Schedules Improve Calculation of Material Requirements Improve Competitive Position

Three Basic Steps of MRP


Identifying Requirements Running MRP Creating the Suggestions Firming the Suggestions

Quantity on Hand Quantity on Open Purchase Order Quantity in/or Planned for Manufacturing Quantity Committed to Existing Orders Quantity Forecasted

Step 1: Identifying the Requirements

End item

Raw material Component

LT

R LT Time

R LTTime

R LT Time

Order point system with dependent demand


MRP 8

Step 2: Running MRP Creating the Suggestions


Critical Items Expedite Items Delay Items

Step 3: Firming the Suggestions


Manufacturing Orders Purchasing Orders Various Reports

Overview of the MRP System


Product Structure File Master Production Schedule Inventory Master File

Material Requirements Planning

Manufacturing Orders

Purchase Orders

Various Reports

MRP Inputs
Product Structure File Master Production Schedule Inventory Master File

Product Structure File


The Product Structure File describes each parentcomponent relationship, using the following information:
Part number for the parent item Part number for the component Quantity of the component used in the parent item

Bill of Materials

Master Production Schedule


Schedule of Finished Products Represents Production, not Demand Combination of Customer Orders and Demand Forecasts What Needs to be Produced

Inventory Master File


On-Hand Quantities On-Order Quantities Lot Sizes Safety Stock Lead Time Past-Usage Figures

MRP Outputs
Manufacturing Orders Purchasing Orders Various Reports

MRP Process
Schedules the Production of all items using an MRP Matrix
MRP Matrix
Item: Lot Size: Low-Level Code: Lead Time:

PD 1

2 3 4 5

Gross Requirements
Scheduled Receipts

Projected on Hand
Net Requirements

Planned Order Receipts


Planned Order Releases

Terms Defined
Item name or number for the item being scheduled Low-Level Code the lowest level of the item on the product structure file Lot Size order multiples of quantity Lead Time the time from when an order is placed to when it is received PD Past Due Time Bucket, orders behind schedule

Terms Defined
Gross Requirements demand for an item by time period Scheduled Receipts material already ordered Projected on Hand expected ending inventory Net Requirements number of items to be provided and when Planned Order Receipts net requirements adjusted for lot size Planned Order Releases planned order receipts offset for lead times

Lot sizing techniques used in MRP systems


Lot-for-lot (L4L) most used

Economic order quantity (EOQ)


Period order quantity (POQ)

MRP

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Lot-for-lot (L4L) example


Period Net rqmts. Planned order (Assume LT) 1 35 35 2 10 10 3 4 40 40 5 6 20 20 7 5 5 8 9 Total 150 150

10 30 10 30

The L4L technique: Minimizes carrying costs Is certainly the best method for - highly discontinuous demand - expensive purchased items MRP1.xls
MRP 22

EOQ example
Setup cost, S = $100 Unit price, C = $50 Holding costs, HR = .24 per annum HP = .02 per period Annual demand, D = 200 Q = (2DS / CHR)1/2 = 58
Period Net rqmts. Planned orders Remnants 1 35 58 23 13 13 2 10 3 4 40 58 31 31 11 6 5 6 20 7 5 8 10 58 54 24 24 9 30 10

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Period order quantity example


Technique: 1. Compute EOQ to determine number of orders per year
2. Divide number of periods in one year by number of orders to get ordering interval EOQ = 58 Number of periods in one year = 12 D = 200 200 / 58 = 3.4 (orders per year) 12 / 3.4 = 3.5 (ordering interval) Period Net rqmts. Planned orders 1 35 85 2 10 3 4 40 5 6 20 35 7 5 8 9 30 Total 150

10 30

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Example of the MRP Process


Item: A Lot Size: 25 Low-Level Code: 1 Lead Time: 1

PD

1 10

Gross Requirements Scheduled Receipts Projected on Hand

15 25 25 30 25

20

Net Requirements
Planned Order Receipts Planned Order Releases

Example of the MRP Process


Item: A Low-Level Code: 1 Lot Size: 25 min Lead Time: 1

PD

1 10

Gross Requirements Scheduled Receipts Projected on Hand

15 25 25 30 25

20

10

20 20 20 15

Net Requirements
Planned Order Receipts Planned Order Releases

10

25 25 25 25 25 25 30 25

Case Study

Hubbell Lighting Case


Manufactures Industrial Lighting Products Good-Quality Products Poor at Meeting Due Dates Work is Specialized for Each Customer Job Shop Environment Complex Products

Hubbell Lighting Case


Before MRP Implementation
Less than 75% of orders completed on time

After MRP Implementation


97% of orders completed on time 2% of orders completed with 1 to 2 days after due date

References
Russell, Roberta S., and Bernard W. Taylor III. Operations Management. 3rd Edition: Prentice Hall, 2000 Grubbstrom, Robert W. Material Requirements Planning and Manufacturing Resource Planning. 03/12/2002. http://www.itbp.com/opsmanagement/iebm/material_requirements.htm. Vormittag Associates, Inc. System 2000 MRP. 03/12/2002. http://www.vaihome.com/s2000mrp.htm. Inventory Solutions. What is MRP?. 03/12/2002. http://www.inventorysolutions.org/def_mrp.htm.

Summary of MRP
MRP is
Computerized Inventory Control Production Planning System Schedules Component Items as Needed which will Track Inventory and

Help in many other aspects of business

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