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MRP Chapter and ERP
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MRP
Material requirements planning (MRP): Computerbased information system (i.e. glorified database) for ordering and scheduling of dependent demand inventories
It is a production planning process that starts from the demand for finished products and plans the production step by step of subassemblies and parts.
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Independent and Dependent Demand
Independent demand: Demand for final products. Dependent demand: Demand fort items that are subassemblies or component parts to be used in production of finished goods.
Independent Demand A Dependent Demand B(4) C(2)
D(2)
E(1)
D(3)
F(2)
Independent demand is uncertain. Dependent demand is certain.
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Is Dependant Demand lumpier?
The book claims that "the independent demand is continuous while the dependent demand is lumpy". I do not believe in this statement.
Indep. Demand Dep. Demand
Stable demand
"Lumpy" demand
Amount on hand
Safety stock Time
Amount on hand
Time
Time
Time
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The dependent demand is not necessarily any lumpier than the independent demand
Example: Say shoe demand rate is 80 pairs per week at a retailer. The demand rate for shoe sole is 80 for left and 80 for the right pair. The demand rate for shoe laces is 160 per week. Example continued: What is the demand rate for the shoe lace supplier? Still 160 per week. But if the orders for the laces are placed once a week, lace demand is lumpy.
Lumpy dependent demand Order once in a week Order twice
Smooth dependent demand Order 4 times
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MRP Inputs
MRP Processing
MRP Outputs Changes
Master schedule Primary reports Bill of materials MRP computer programs
Order releases Planned-order schedules
Exception reports
Secondary reports
Planning reports Performancecontrol reports
Inventory records
Inventory transaction
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MRP Inputs: 1. MPS
Master Production Schedule: MPS
Time-phased plan specifying timing and quantity of production for each end item. MPS comes from sales and marketing MPS covers about 1-3 months into the future Must cover cumulative lead time
Cumulative lead time: The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly. From Now until Cumulative lead time plans are generally frozen Sometimes MPS is capacity filtered; MPS is curtailed after taking the available capacity into account.
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MRP inputs: 2. BOM Bill of materials (BOM): A listing of all of the
raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.
Product structure tree: Visual depiction of
the requirements in a bill of materials, where all components are listed by levels.
Most often people do not use the term product structure tree. Instead use BOM to mean the product structure tree.
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Product Structure Tree
Level 0 1 Leg Assembly
Chair Back Assembly
Seat
2 Legs (4)
Cross Bar(2)
Side Cross Back Rails (2) bar Supports (3)
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Explosion Example
How many leg assemblies are needed for 1 chair? How many Cross bars are needed for 5 chairs? Computing how many parts are required per a final product is called BOM explosion. MRP answers these questions by taking production lead times into account: Not only it tells how many, but also when.
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Bill of Materials Example 1
How many more of each component is needed to make 15 Xs if there are 5 of each already in stock?
X B(2) D(3) E(4 ) E E(2) C F(2)
X:10, B:15, C:5, D:40, E: 180, F:5
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Bill of Materials Example 2
How many more of each component is needed to make 15 Xs if there are 8 of each already in stock?
X B(2) D(3) E(4 ) E E(2) C F(2)
X:7, B:6, C:0, D:10, E: 38, F:0
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Lead Times
Assembly
Subassembly
Fabrication
Procurement
1
2
3
4
5
6
7
8
9
10
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Assembly Time Chart
Procurement of raw material D Fabrication of part E Subassembly A Procurement of raw material F Procurement of part C Procurement of part H Procurement of raw material I Fabrication of part G Final assembly and inspection
Subassembly B
1
2
3
4
5
6
7
8
9
10
11
Days
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MRP input: 3. Inventory levels Beginning inventory on hand Scheduled receipts
Pipeline inventory not received yet but it is in the process of coming to the inventory. We know when this will be available for use.
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MPR Processing
Gross requirements
Total expected demand
Scheduled receipts
Open orders scheduled to arrive
Planned on hand
Expected inventory on hand at the beginning of each time period
Net requirements
Actual amount needed in each time period
Planned-order receipts
Quantity expected to received at the beginning of the period Offset by lead time
Planned-order releases
Planned amount to order in each time period
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MRP Processing
Gross requirements: (Forecasted)Demand period by period Net requirements(t) =Gross requirements(t)-Projected inventory(t-1) -Scheduled receipt(t) If Net requirement(t) > 0 set Planned order receipts(t)>=Net requirement(t) Planned-order receipts is the production planned Projected inventory(t) =Projected inventory(t-1)+Scheduled receipt(t) +Planned order receipts(t)-Gross requirements(t) Planned order release(t-LT)=Planned-order receipts(t)
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MRP example with LT=2 and 1 level
Periods Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 2 7
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0
1 6 2 6 0
2 11 3 0 2 2
3 7 0 0 7 7
Inputs
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Outputs
Figure 13-8
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Other Considerations
Safety Stock
Not much for items with dependent demand
Lot sizing
Lot-for-lot ordering Economic order quantity Fixed-period ordering Part-period model
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MRP example with Lot size=5, LT=2 and 1 level
Periods Gross requirements Scheduled receipts Projected on hand Net requirements Planned order receipts Planned order releases 5 10
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0
1 6 2 6
2 11 3 3 5 5
3 9 0 4 10 10
Inputs
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Outputs
Figure 13-9
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MRP updates Regenerative MRP
Do the planning from scratch Time between regenerations is long Ok for stable environments
Net Change MRP
Update the plan according to changes
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MRP Outputs
Planned orders - schedule indicating the amount and timing of future orders. Order releases - Authorization for the execution of planned orders. Changes - revisions of due dates or order quantities, or cancellations of orders. Performance-control reports Planning reports Exception reports
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Capacity Planning Capacity requirements planning: The process
of determining short-range capacity requirements.
Load reports: Department or work center reports
that compare known and expected future capacity requirements with projected capacity availability.
Time fences: Series of time intervals during which
order changes are allowed or restricted.
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MRP Planning
Develop a tentative master production schedule Use MRP to simulate material requirements Convert material requirements to resource requirements Is shop capacity adequate? Yes Firm up a portion of the MPS Revise tentative master production schedule
Can capacity be changed to meet requirements
No
No
Yes Change capacity
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MRP in Services Food catering service
End items are the catered food Dependent demands are ingredients for each recipe, i.e. bill of materials
Taco Bell menu items
Hotel renovation
Activities and materials "exploded" into component parts
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Benefits of MRP
Low levels of in-process inventories Ability to track material requirements Ability to evaluate capacity requirements Means of allocating production time
Eventually it is a database with limited decision making capability
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Requirements of MRP
Computer and necessary software Accurate and up-to-date inputs:
Master schedules Bills of materials Inventory records
Integrity of data
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MRP II Expanded MRP with and emphasis placed on integration
Financial planning Marketing Engineering Purchasing Manufacturing
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MRP II
Market Demand
Master production schedule
Finance Marketing
Manufacturing
Production plan
MRP
Rough-cut capacity planning
Capacity planning
Adjust production plan Yes Problems? No
Requirements schedules
No
Problems?
Yes
Adjust master schedule
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ERP
Enterprise resource planning (ERP):
An expanded effort to integrate standardized record keeping that will permit information sharing throughout the organization
Strategic considerations
High initial cost High cost to maintain Future upgrades Training
See ERP courses in the course catalog
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Summary
MRP:
Dependent vs Independent demand Inputs (BOM), Processing, Outputs Benefits and requirements
Capacity planning MRP-II and ERP
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Practice Questions
1. The master production schedule states which end items are to be produced both when and how many. Answer: True Page: 577 2.Load reports show capacity requirements for departments or work centers which may be more or less than the capacity available in that work center. Answer: True Page: 593 3.MRP II permits the simultaneous planning of production, marketing, and financial resources to support a production plan. Answer: True Page: 592
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Practice Questions
1. The output of MRP is: A) gross requirements B) net requirements C) a schedule of requirements for all parts and end items D) inventory reorder E) points economic order quantities and reorder points Answer: C Page: 577
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Practice Questions
2. The MRP input listing the assemblies, subassemblies, parts, and raw materials needed to produce one unit of finished product is the: A) master production schedule B) bill-of-materials C) inventory-records D) assembly-time chart E) net-requirements chart Answer: B Page: 578
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Practice Questions
3. Which one of the following most closely describes net material requirements? A) gross requirements - amount on-hand scheduled receipts B) gross requirements - planned receipts C) gross requirements - order releases + amount on-hand D) gross requirements - planned order releases E) gross requirements - amount on-hand + planned order releases Answer: A Page: 581
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Practice Questions
4.In MRP, "scheduled receipts" are: A) identical to "planned-order receipts" B) identical to "planned-order releases" C) open orders (that is, ordered before the first time bucket, but not delivered yet) D) "net requirements" E) available to promise inventory Answer: C Page: 582
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Practice Questions
5. Which is true of a net-change system? A) It is a batch-type system which is updated periodically. B) It is usually run at the beginning of each month. C) The basic production plan is modified to reflect changes as they occur. D) It is used to authorize the execution of planned orders. E) It indicates the amount and timing of future changes. Answer: C Page: 588
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Chapter 14
Just-In-Time Systems
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JIT/Lean Production Just-in-time: Repetitive production system in
which processing and movement of materials and goods occur just as they are needed, usually in small batches
JIT is characteristic of lean production systems JIT operates with very little "fat"
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JIT Goals Eliminate disruptions Make system flexible by reduce setup and lead times Eliminate waste, especially excess inventory
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Sources of Waste Overproduction Waiting time Unnecessary transportation Processing waste Inefficient work methods Product defects
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Big vs. Little JIT Big JIT broad focus
Vendor relations Human relations Technology management Materials and inventory management
Little JIT narrow focus
Scheduling materials Scheduling services of production
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JIT Building Blocks
1. Product design 2. Process design 3. Personnel/organizational elements 4. Manufacturing planning and control
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1. Product Design
Standard parts Modular design Highly capable production systems
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2. Process Design
Small lot sizes Setup time reduction Manufacturing cells Limited work in process Quality improvement Production flexibility Little inventory storage
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Benefits of Small Lot Sizes
Reduces inventory Less rework Less storage space Problems are more apparent Increases product flexibility Easier to balance operations
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Production Flexibility Reduce downtime by reducing changeover time Use preventive maintenance to reduce breakdowns Cross-train workers to help clear bottlenecks Reserve capacity for important customers
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3. Personnel/Organizational Elements
Workers as assets Cross-trained workers Continuous improvement Cost accounting Leadership/project management
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4. Manufacturing Planning and Control Level loading Pull systems Visual systems Close vendor relationships Reduced transaction processing Preventive maintenance
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Pull/Push Systems Pull system: System for moving work where a workstation pulls output from the preceding station as needed. (e.g. Kanban) Push system: System for moving work where output is pushed to the next station as it is completed
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Kanban Production Control System
Kanban: Card or other device that communicates demand for work or materials from the preceding station Kanban is the Japanese word meaning "signal" or "visible record" Paperless production control system Authority to pull, or produce comes from a downstream process.
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Traditional Supplier Network
Buyer
Supplier Supplier Supplier Supplier Supplier
Supplier
Suppiler
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Tiered Supplier Network
Buyer
First Tier Supplier Second Tier Supplier
Supplier
Supplier
Supplier
Third Tier SupplierSupplier
Supplier
Supplier
Supplier
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Summary JIT Goals and Building Blocks
Ultimate A Goal balanced rapid flow Supporting Goals Reduce setup and lead times Eliminate waste Eliminate disruptions Make the system flexible Minimize inventories
Product Design
Process Design
Personnel Elements
Manufacturing Planning
Building Blocks
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Converting to a JIT System
Get top management commitment Decide which parts need most effort Obtain support of workers Start by trying to reduce setup times Gradually convert operations Convert suppliers to JIT Prepare for obstacles
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Obstacles to Conversion
Management may not be committed Workers/management may not be cooperative Suppliers may resist
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JIT in Service
The basic goal of the demand flow technology in the service organization is to provide optimum response to the customer with the highest quality service and lowest possible cost.
Eliminate disruptions Make system flexible Reduce setup and lead times Eliminate waste Minimize WIP Simplify the process
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JIT Purchasing New challenges
Meeting manufacturing requirements Changing from traditional thinking and practices frequent on-time delivery of small quantities Long term relationships with suppliers as partners
How about Exchange purchasing: Auctions?
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JIT II JIT II: the practice of allowing vendors to manage some aspects of buying their products or services for the buyer
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Benefits of JIT Systems
Reduced inventory levels High quality Flexibility Reduced lead times Increased productivity
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Benefits of JIT Systems (cont'd)
Increased equipment utilization Reduced scrap and rework Reduced space requirements Pressure for good vendor relationships Reduced need for indirect labor
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Elements of JIT
Smooth flow of work (the ultimate goal) Elimination of waste Continuous improvement Eliminating anything that does not add value Simple systems that are easy to manage Use of product layouts to minimize moving materials and parts Quality at the source
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Elements of JIT (cont'd) Poka-yoke fail safe tools and methods Preventative maintenance Good housekeeping Set-up time reduction
Cross-trained employees A pull system
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Case Study based on a trip on Nov 19, 02
NUMMI
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History/Products
Late 70's oil crisis GM closes Fremont, CA plant firing 6000 in 1982 Toyota approaches GM to set up Toyota production system at a GM plant, United Auto Workers accepts the deal GM and Toyota put together $400M in 1984. GM owns the infrastructure, Toyota is the tenant. Nummi = New United Motor Manufacturing, Inc is born in 1984 as the unique example of a Toyota GM joint venture Products: Toyota Corolla, Tacoma Trucks, Pontiac Vibe (Toyota bottom, GM top) and Toyota Voltz (Toyota bottom, GM top, sold in Japan) , GM Prism until 13/12/01
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Workers
Nummi has about 4500 unionized workers Workers are under two types: Production, high school graduates Maintenance Workers work in teams of 4-6 Workers in a team rotate the tasks every 1-3 hours Team leader is responsible for the rotation. Team leader withdraws parts from the inventory (every 12 hours) and provides the tools as necessary Workers make $17 per hour
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Capacity
Nummi has a cycle time of 60 seconds for Corolla, 1 body 82 seconds for Tacoma, 3 bodies (only cabin is produced at Nummi, the bottom and the back are bought from suppliers) Nummi works in two shifts I: 6:00-14:30, II: 16:30-1:00 Each shift has 1 hour lunch/dinner break Starting the first shift at 6:00 workers avoid heavy morning traffic Two hours between shifts I and II is to allow for overtime after the first shift when necessary
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Work Flow
Stamping: Forming metal (side, back, front) panels with presses Body & Weld: Putting panels together Paint: Paint inspection is the current bottleneck Primer body paint applied by robots (chemically hazardous task) Door jambs painted manually Plastics: Making bumpers, inside panels Assembly: Putting in tires, engine, seats, bumpers, harnessing. Cars , trucks on 2 km , 0.8 km conveyors Cars contain Building manifest = BOM = Ingredients list at every step of these operations
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Just in time
Kaizen: continuous improvement Kanban: replenishment every 1-2 hours Jidoka: Assure 100% quality. Otherwise pull the Andon chord
1000 times per shift 9% of line stops are longer than 30 seconds Line stops longer than an hour once every month
Muda: Waste to be eliminated Genchi Genbutsu: Go to the source to learn and to solve the problems This Japanese terminology is all over the boards in the plant
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Creative Tool / Work Place Design
Die change at the stamping in 3 hours Tilted storage bins for ease of access Collapsing storage boxes when empty
To reduce the empty box storage requirements in trucks returning to suppliers, say in Indiana These boxes save about $10M annually The worker who suggested the boxes earned several thousand points. 1 point = $1.
More info www.nummi.com
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