Resource Requirements Planning:

1
Chapter 15

• Resource Requirements Planning
• MRP and CRP

2
Overview

• Resource Requirements Planning
• Material Requirements Planning (MRP)
• Capacity Requirements Planning (CRP)
• Wrap-Up What World-Class Companies Do

3
Resource Requirements Planning
Aggregate Planning
Chapter 13
Master Production Scheduling (MPS)
Resource Requirements Planning
Material Requirements Planning (MRP)
Chapter 15
Capacity Requirements Planning (CRP)
4

• Material Requirements Planning (MRP)

5
Materials Requirements Planning (MRP)

• Computer based system
• Explodes Master Schedule (MPS) into required
  amounts of raw materials and subassemblies to
  support MPS
• Nets against current orders and inventories to
  develop production and purchased material
  ordering schedules

6
Objectives of MRP

• Improve customer service
• Reduce inventory investment
• Improve plant operating efficiency

7
Elements of MRP
Inputs
Outputs
Inventory Transaction Data
Service-Parts Orders and Forecasts
Order Changes Order
Inventory Status File
Planned Order Schedule
MRP System
Master Production Schedule
Planning Report
Performance
Exception Reports
Bill of Materials File
8
MRP Computer Program

• Begins with number of end items needed
• Add 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

9
Outputs of MRP

• Planned order schedule - quantity of material to
  be ordered in each time period
• Changes to planned orders - modifications to
  previous planned orders
• Secondary outputs
• Exception reports
• Performance reports
• Planning reports

10
Example MRP Schedule

• LocoMopeds is a manufacturer of off-road
  mopeds. The following product structure diagram
  represents the bill of materials for its
  dual-carburetor Model 442 moped.

MOPED
Level 0
ENGINE ASSEMBLY
GAS TANK
WHEEL ASSEMBLY (2)
FRAME
Level 1
MOTOR
CARBURETOR (2)
HUB ASSEMBLY
TIRE
Level 2
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Example MRP Schedule

• Bill of Material
• Parent Component Level Compon.
• Code Code Code Description Reqd
• 442 0 442 Moped
• 442 EA 1 Engine Assem. 1
• GT 1 Gas Tank 1
• WA 1 Wheel Assem. 2
• F 1 Frame 1
• EA M 2 Motor 1
• C 2 Carburetor 2
• WA HA 2 Hub Assem. 1
• T 2 Tire 1

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Example MRP Schedule

• Inventory Status Report

Item Code On- Hand Safety Stock Lot Size Lead Time Sched. Receipts Qnty. Week Sched. Receipts Qnty. Week
442 500 200 LFL 1 -- --
EA 300 100 500 1 1000 10
GT 600 200 LFL 2 900 10
WA 500 400 500 1 2000 10
F 600 0 2000 3 2000 10
M 250 0 LFL 1 -- --
C 150 100 2500 2 -- --
HA 100 0 LFL 1 2400 11
T 500 500 1000 3 3000,2000 11,12
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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
• Determine the MRP schedule required to support
  the master production schedule for the Model 442
  moped in weeks 10-16.

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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
  end of week 9
• There are no Scheduled Receipts for mopeds
• A lot-for-lot rule is used for ordering mopeds
• Safety stock of 200 mopeds is desired
• Lead time for mopeds is one week

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Example MRP Schedule

• MRP Schedule for 442 Mopeds . . . Initially

16
Example MRP Schedule

• MRP Schedule for 442 Mopeds . . . Completed

17
Example MRP Schedule

• MRP Schedule for Gas Tanks for Weeks 10 - 16,
  considering that
• Gross Requirements come from moped
  Planned-Order-Releases
• There is an On-Hand balance of 600 gas tanks at
  the 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
• Safety 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

19
Example MRP Schedule

• MRP Schedule for Gas Tanks . . . Completed

20
Example MRP Schedule

• MRP Schedule for Frames for Weeks 10 - 16,
  considering that
• Gross Requirements come from moped
  Planned-Order-Releases
• There is an On-Hand balance of 600 frames at the
  end 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

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Example MRP Schedule

• MRP Schedule for Frames . . . Initially

22
Example MRP Schedule

• MRP Schedule for Frames . . . Completed

23
Example MRP Schedule

• MRP Schedule for Engine Assemblies for Weeks 10 -
  16, considering that
• Gross Requirements come from moped
  Planned-Order-Releases
• There is an On-Hand balance of 300 engine
  assemblies 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

25
Example MRP Schedule

• MRP Schedule for Engine Assemblies . . . Completed

26
Example MRP Schedule

• MRP Schedule for Motors for Weeks 10 - 16,
  considering that
• Gross Requirements come from engine assembly
  Planned-Order-Releases
• There is an On-Hand balance of 250 motors at the
  end of week 9
• There are no Scheduled Receipts for motors
• A lot-for-lot rule is used for ordering motors
• No Safety Stock of motors is desired
• Lead time for motors is 1 week

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Example MRP Schedule

• MRP Schedule for Motors . . . Initially

28
Example MRP Schedule

• MRP Schedule for Motors . . . Completed

29
Example MRP Schedule

• MRP Schedule for Carburetors for Weeks 10 - 16,
  considering that
• Gross Requirements come from engine assembly
  Planned-Order-Releases (times 2)
• There is an On-Hand balance of 150 carburetors at
  the end of week 9
• There are no Scheduled Receipts for carburetors
• A Lot Size of 2500 is used for ordering
  carburetors
• Safety Stock of 100 carburetors is desired
• Lead time for carburetors is 2 weeks

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Example MRP Schedule

• MRP Schedule for Carburetors . . . Initially

31
Example MRP Schedule

• MRP Schedule for Carburetors . . . Completed

32
Example MRP Schedule

• MRP Schedule for Wheel Assemblies for Weeks 10 -
  16, considering that
• Gross Requirements come from moped
  Planned-Order-Releases (times 2)
• There is an On-Hand balance of 500 wheel
  assemblies 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

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Example MRP Schedule

• MRP Schedule for Wheel Assemblies . . . Initially

34
Example MRP Schedule

• MRP Schedule for Wheel Assemblies . . . Completed

35
Example MRP Schedule

• MRP Schedule for Hub Assemblies for Weeks 10 -
  16, considering that
• Gross Requirements come from wheel assembly
  Planned-Order-Releases
• There is an On-Hand balance of 100 hub assemblies
  at 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
• No Safety Stock of hub assemblies is desired
• Lead time for hub assemblies is 1 week

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Example MRP Schedule

• MRP Schedule for Hub Assemblies . . . Initially

37
Example MRP Schedule

• MRP Schedule for Hub Assemblies . . . Completed

38
Example MRP Schedule

• MRP Schedule for Tires for Weeks 10 - 16,
  considering that
• Gross Requirements come from wheel assembly
  Planned-Order-Releases
• There is an On-Hand balance of 500 tires at the
  end 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

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Example MRP Schedule

• MRP Schedule for Tires . . . Initially

40
Example MRP Schedule

• MRP Schedule for Tires . . . Completed

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Lot-Sizing in MRP

• Lot-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

42
Lot-Sizing Methods

• Typical MRP methods
• accommodates lumpy demand
• Lot-for-Lot (LFL)
• Period Order Quantity (POQ)
• Comments on Economic Order Quantity (EOQ)
• does not consider quantity discounts
• does not always provide the most economical
  approach with lumpy demand

43
Example Lot-Sizing Decision

• The net requirements for a material from an MRP
  schedule are
• 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 least carrying and changeover costs for the
  8-week schedule.

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Example Lot-Sizing Decision

• Lot-for-Lot Method
• Carrying Cost 0(.40) 0
• Changeover Cost 6(400) 2,400
• Total 2,400

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Example Lot-Sizing Decision

• 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

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Example Lot-Sizing Decision

• Economic Order Quantity (EOQ) Method
• Carrying Cost 4855(.40) 1,942
• Changeover Cost 6(400) 2,400
• Total 4,342

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Example Lot-Sizing Decision

• Period Order Quantity (POQ) Method
• POQ ( Weeks/year)/( Orders/year)
• 50/(D/EOQ)
• 50/(40,000/1,265)
• 1.58 or 2 weeks

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Example Lot-Sizing Decision

• Period Order Quantity (POQ) Method
• Carrying Cost 2900(.40) 1,160
• Changeover Cost 4(400) 1,600
• Total 2,760

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Example Lot-Sizing Decision

• Summary
• Carrying Chg.Ovr. Total
• Method Cost Cost Cost
• LFL 0 2,400 2,400
• EOQ 1,942 2,400 4,342
• POQ 1,160 1,600 2,760

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Issues in MRP

• Lot-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

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Issues in MRP

• Safety Stock
• Use depends on uncertainty of demand..... more
  uncertain the greater the need for safety stock
• Assemble-to-Order Firms
• MPS and MRP treated separately from Final
  Assembly Schedule(FAS)
• FAS is prepared 1-2 weeks ahead
• Use Modular Bill of Material
• For each option with a demand forecast

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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
  system
• Financial management
• Shop floor control
• Operations management
• Simulation capability

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Evaluation of MRP

• Most beneficial to process-focused systems that
  have long 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

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Capacity Requirements Planning (CRP)
55
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

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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!

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HW Chapter 15

• HW 7 and 16 on page 612 and 617.

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End of Chapter 15