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4. Material Requirements Planning

Chapter 4  Material Requirements Planning Introduction ·          Material requirements planning (MRP) establishes a schedule (priority pla... thumbnail 1 summary

Chapter 4 

Material Requirements Planning

·         Material requirements planning (MRP) establishes a schedule (priority plan) showing the components required at each level of the assembly and, based on lead times, calculates the time when these components will be needed.
·         The two types of demand are independent and dependent.  Independent demand is not related to the demand for any other product.  Master production schedule items are independent demand items.  Since independent demand is not related to the demand for any other assembly or product, it must be forecast.  Dependent demand is directly related to the demand for higher level assemblies or products and can be calculated.  MRP is designed to do this calculation.
·         An item can have both dependent and independent demand.  A service or replacement part may have both.
·         Dependency can be both horizontal and vertical as illustrated in figure 4.1, Product Tree.  Planners are concerned with horizontal dependency when a part is delayed or there is a shortage and other parts will have to be rescheduled.
·         Material requirements planning has two major objectives: determine requirements and keep priorities current.  The material requirements plan’s objective is to determine components are needed to meet the master production schedule and, based on lead-time, to calculate the periods when the components must be available.  It must determine what to order, how much to order, when to order, and when to schedule delivery.  The demand for, and supply of, components change daily.  It must be able to add and delete, expedite, delay, and change orders
·         The master production schedule drives the material requirements plan.  The MRP is a priority plan for the components needed to make the products in the MPS.  The plan is valid only if capacity is available when needed to make the components, and the plan must be checked against available capacity.  Material requirements planning drives, or is input to, production activity control (PAC) and purchasing.  MRP plans the release and receipt dates for orders.  PAC and purchasing must plan and control the performance of the orders to meet the due dates.
·         The three inputs to the MRP system are the master production schedule, the inventory records and the bills of material.  There are two kinds of inventory records needed.  The first is called planning factors and includes information such as order quantities, lead times, safety stock, and scrap which do not change frequently.  The second kind of information necessary is on the status of each item: how much is available, how much is allocated, and how much is available for future demand.  These are maintained in an inventory record file or item master file.
Bills of Material
·         The bill of material is a listing of all the subassemblies, intermediates, parts and raw materials that go into making the parent assembly showing the quantities of each required to make an assembly.  It does not show the steps or process used to make the parent or the components (routing).  The bill of material shows all the parts required to make one of the items.  Each part or item has only one part number and the part number is unique to that part.  A part is defined by its form, fit or function.
·         Product Tree – see figure 4.4
·         Single and Multilevel bills – see figures 4.4 & 4.5.  One convention used with multilevel bills of material is that the last items on the tree are all purchased items.  Each level in the bill of material is assigned a number starting with zero at the top and working down.
·         An assembly is considered a parent, and the items that comprise it are called its components.
·         A multiple bill is used when companies usually make more than one product, and the same components are often used in several products.
·         A single-level bill of material contains only the parent and its immediate components.  The computer stores information describing the product structure as a single-level bill.  A series of single-level bills is needed to completely define a product.  These can be chained together to form a multilevel, or indented, bill.  There are several advantages to using single-level bills including the following: duplication of records is avoided, the number of records and, in computer systems, the file size is reduced by avoiding duplication or records, and maintaining bills of material is simplified.
·         In an indented bill of material, the components of the parent table are listed flush left and their components are indented (see figure 4.8).
·         Summarized parts list is a BOM listing all the parts needed to make one complete assembly (see figure 4.3).
·         Planning bills are an artificial grouping of components for planning purposes.  They are used to simplify forecasting, master production scheduling, and material requirements planning.  They do not represent buildable products but an average product (see figure 4.9).
·         A listing of all the parents in which a component is used is called a where-used report.  Where-used reports give the parents for a component whereas the bill gives the components for a parent.  A pegging report is similar to a where-used report.  The pegging report shows only those parents for whom there is an existing requirement.
·         The bill of material is one of the most widely used documents in a manufacturing company.  Some of those uses are: product definition, engineering change control, service parts, planning, order entry, manufacturing and costing.  Maintaining bills of material and their accuracy is extremely important.
Material Requirements Planning Process
·         Lead-time is the span of time needed to perform a process.  In manufacturing it includes time for order preparation, queuing, processing, moving, receiving, and inspecting.
·         Exploding is the process of multiplying the requirements by the usage quantity and recording the appropriate requirements throughout the product tree.
·         Offsetting is the process of placing the exploded requirements in their proper periods based on lead-time.
·         Planned order is a suggested order quantity, release date, and due date created by the planning system’s logic when it encounters net requirements in processing MRP.
·         Planned order receipt is the quantity planned to be received at a future date as a result of a planned order release.  Planned order receipts differ from scheduled receipts in that they have not been released.
·         Planned order release is derived from planned order receipts by taking the planned receipt quantity and offsetting by the appropriate lead-time.
·         Net requirements = gross requirements – available inventory
·         The planned order release of the parent becomes the gross requirement of the component.
·         Planned order releases are just planned; they have not been released.  It is the responsibility of the planner to release planned orders.  Releasing an order means that authorization is given to purchasing to buy the necessary material or to manufacturing to make the component.  When the authorization to purchase or manufacture is released, the planned order receipt is canceled, and a scheduled receipt is created in its placeScheduled receipts are orders placed on manufacturing or on a vendor and represent a commitment to make or buy.  When a manufacturing order is released the computer will allocate the required quantities of a parent’s components to that order.  This does not mean the components are withdrawn from inventory but that the projected available quantity is reduced.  The allocated quantity of components is still in inventory but they are not available for other orders.
·         Scheduled receipts on the MRP record are open orders on factory or a vendor and are the responsibility of purchasing and or production activity control.  When the goods are received into inventory and available for use, the order is closed out, and the scheduled receipt disappears to become part of the on-hand inventory.
·         The calculation for net requirements can now be modified to include scheduled receipts.     Net requirements = gross requirements – scheduled receipts – available inventory

·         The MRP priority plan must be checked against available capacity.  At the MRP planning level, the process is called capacity requirements planning (CRP).  If the capacity is available, the plan can proceed.  If not, either capacity has to be made available or the priority plans changed.
·         A component may reside on more than one level in a bill of material.  If this is the case, it is necessary to make sure that all gross requirements for that component have been recorded before netting takes place.  The process of collecting the gross requirements and netting can be simplified by using low-level codes.  The low-level code is the lowest level on which a part resides in all bills of material.  Low-level codes are determined by starting at the lowest level of a bill of material and, working up, recording the level against the part.  The low-level codes are used to determine when a part is eligible for netting and exploding.  In this way, each part is netted and exploded only once.  The same procedure used for a single bill of material can be used when multiple products are being manufactured.  All bills must be netted and exploded level by level as was done for a single bill.
·         Scrap is usually stated as a scrap allowance

MRP Exploding, netting and offsetting
The following information comes from Basics of Supply Chain Management by Larry Frendenall of Clemson University. It helps to begin with the BOM to ungerstand the connection it has with MRP planning “ A bill of materials…… (BOM) highest item is the end item that is scheduled by the MPS. This end item is always placed at the top of the BOM in what is designated as level 0 . The BOM is basically the list of ingredients to manufacture the end item. It is read in descending order beginning with level 0. To make 1 A , we need 2 B’s and 1 C ( notice the numbers given in the brackets next to the letter inside the circle ) . As we read down the BOM we often use the terminology of parent – child. In the BOM an item which is composed of one or more components is referred to as the parent of those components. The components are , of course , referred to as the children. In this BOM both B and C are children are children of the A. B is itself a parent of D and E who are its children. To make 1 B , we need to have 1 D and 2 Es. Finally , to make each E we need to have 3 Fs. C, D and F do not have any children in this BOM , because they are purchased outside of the firm. That does not mean that they are simple parts. For example , C could be a master cylinder for a brake assembly that we purchase from someone else.”
            MRP Logic
            MRP planning starts with the end item as given in the MPS, and determines when that item must be started to be completed on time. That date is then used to as the order due date for the next level in the BOM. The logic works backwards until it reaches the end of the BOM. This is illustrated with a Gantt chart in Figure 2.
The Gantt chart shows that before one step in the process can begin, other steps need to be done completely. For example , before A can begin , both B and C have to be completed and waiting in the shop. The Gantt chart also shows that for A to be completed on time, F has to be in stock and ready now, because there is no time left in the schedule for delays.
The construction of the materials requirements plan is illustrated in Figure 3 for end item A. Note the 100 of item A are required in period 5 and there is none on hand right now and none is scheduled to be received , so the Projected On Hand in period 1 is 0. Since there is no Gross Requirements for A until period 5 , the Projected On Hand stays at 0 until then , when it becomes a negative 100 or (100). To have enough A in period 5 , we need to have a Planned Order Receipt for A in period 5 . Since item A has a 1 week lead time this means that we need to have a Planned Order Release in period 4. So, we schedule 100 to be released in period 4.
 As shown in Figure 4 , this MRP explosion continues down through the BOM until it releases and quantity needed for each item in the BOM are calculated. It is very important to note that the MRP explosion is hierarchical. This means that everything on level 1 is calculated before anything is calculated for level 2. etc. So , in Figure 4 the gross requirements for B and C are calculated before the requirements for lower level items such as D. Since 2 Bs are needed for each A , there is a gross requirement for 200 B in period 4. Following the logic described for A , this results in a gross requirement for 200 B in period 3. In a similar manner we calculate the gross requirement for C in period 4 , which is 100 , since we only need 1 C for each A. The gross requirement for D is based on the planned order release of its parent B. So , the gross requirement for D in period 3 is 200. Since there are 100 D in stock , the planned order release for D is just 100 in period 2 . In a similar manner we calculate the gross requirements for item E , based on the planned order releases of its parent B. E had a scheduled receipt of 100 in period 2 , which was subtracted from the gross requirements of 200 in period 3. This combined with the planned receipt of 100 in period 3 combined to give a planned on-hand of 0 items of E in inventory in period 3. As shown in the BOM , E is the parent of F, so  E’s planned order release becomes the gross requirements of F. F has a gross requirement of 300 in period 2 , since 3 F are required for every E. Since 200 F are on hand and 100 more will be received in period 2 , there is no net requirement for F in period 2.  

Using the Material Requirements Plan
·         The basic responsibilities of a planner are to: (1) Launch (release) orders to purchasing or manufacturing. (2) Reschedule due dates of open (existing) orders as required. (3) Reconcile errors and try to find their cause. (4) Solve critical material shortages by expediting or replanning. (5) Coordinate with other planners, master production schedulers, production activity control, and purchasing to resolve problems.
·         The material planner works with three types of orders: planned, released, and firm.
·         Planned orders are automatically scheduled and controlled by the computer.  As gross requirements, projected available inventory, and scheduled receipts change, the computer recalculates the timing and quantities of planned order releases.  The MRP program recommends to the planner the release of an order when the order enters the action bucket but does not release the order.
·         Releasing, or launching, a planned order is the responsibility of the planner.  When released, the order becomes an open order to the factory or to purchasing and appears on the MRP record as a scheduled receipt.  It is then under the control of the planner, who may expedite, delay, or even cancel the order.
·         The computer-based MRP system automatically recalculates planned orders as the gross requirements change.  At times, the planner may prefer to hold a planned order firm against changes in quantity and timer despite what the computer calculates.  This might be necessary because of future availability or material or capacity or special demands on the system.  The planner can tell the computer that the order is not to be changed unless the planner advises the computer to do so.  The order is “firmed” or frozen against the logic of the computer.  One method of reducing system nervousness is firm planned orders.
·         MRP does print action or exception messages suggesting that the planner should act and what kind of action might be appropriate.  Transaction messages mean that the MRP software must be told of all actions taken that will influence the MRP records, such as receiving orders, releasing orders, etc.
·         Planners receive feedback from many sources and must evaluate this feedback and take corrective action if necessary.
·         Priority refers to maintaining the correct due dates by constantly evaluating the true due-date need for released orders and, if necessary, expediting or de-expediting.