Category Archives: Inventory Systems for Dependent Demand

Materials Requirements Planning (MRP) Systems

Materials Requirements Planning (MRP) Systems

Using an MPS that is derived from an aggregate plan. a materials requirements planning (MRP) system then creates the requirements and schedules for identifying the  parts. components, and materials that are necessary to produce the end products  have been ordered. Included here are the exact numbers of each item that is needed and the dates when orders for these items should be released and be received or completed within the production cycle. Today's MRP systems use a computer program to carry out these operations. Most firms have used computerized inventory systems for  but the independent of the scheduling system: MRP now link-, these two elements together

Materials requirements planning is not new in concept. Logic dictates that the Romans probably used it in their construction projects. the Venetians in their shipbuilding, and the Chinese in building the Great Wall. Building contractors always have been forced into planning for material to be delivered when needed and not before. because of space limitations. What is new is the larger scale and the more rapid changes that can be made through  the use of computers. Now firms that produce many products involving thousands of parts and materials can take advantage of MRP.

Purposes, Objectives, and Philosophy of MRP

The main purposes of an MRP system are to control inventory levels. assign operating  priorities to items. and 'plan capacity to load the production system. These may be briefly expanded as follows:

Inventory
Order the right part.
Order the right quantity.
Order .at the right time

Priorities
Order with the right due date.
Keep the due date valid

Capacity
Plan for a complete load.
Plan an accurate load.
Plan for an adequate time to view future load.

The theme of MRP is "getting the right materials to the right place at the right time.  The objectives of inventory management under an MRP system are to improve customer service, minimize inventory investment. and maximize production operating efficiency.

The philosophy of materials requirements planning is that material hould be expedited (hurried) when their lack would delay the overall production schedule and expedited (delayed) when the schedule falls behind and postpones their need. Traditionally, and perhaps still typically, when an order is behind schedule, significant effort is spent trying to get it back on schedule. However, the opposite is not always true; when an order, for whatever reason, has its completion date delayed, the appropriate adjustments are not made in the schedule. This results in a one-sided effort-late orders are expedited, but early orders are not de-expedited or delayed. Aside from perhaps using scarce capacity, it is preferable not to have raw materials and work in process before they are actually needed, because  inventories tie up capital, clutter up stockrooms, delay the introduction of design changes, and prevent the cancellation or delay of existing orders.

Master Production Schedule

Master Production Schedule

The aggregate production plan, as presented in Chapter 15, specifies product groups. It does not specify exact items. The next level down in the planning process after the development of the aggregate plan is the master production schedule. The master production schedule (MPS) is the time-phased plan specifying how many and when the firm plans to build each specific end item. For example. the aggregate plan for a furniture company may specify the total volume of mattresses it plans to produce over the next month or next quarter. The MPS then goes to the next step down in the process and identifies the specific models and sizes of  the mattresses. All the mattresses sold by the company would be pecified by the MPS. The  PS also states period by period (which is usually weekly) how many and when each of these mattress types is n  eded.Still further down the disaggregation process i the MRP program. which calculates the requirements and schedules for all of the raw materials, parts. and supplies needed to make each of the different mattresses that are identified in the MPS.

Time Fences

The question of flexibility within an MPS depends on several factors. including production  lead time, the commitment of parts and components to a specific end item. the relationship Second-tier

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between the customer and supplier. the amount of excess capacity, and the reluctance or willingness of management to make changes. Exhibit 17.4 shows an example of a master production schedule time fence. Management defines time fences as periods of time, with each period having some specified level of opportunity for the customer to make changes. (The customer may be the firm's own marketing department, which may be considering product promotions, broadening variety, etc.) Note in the exhibit that for the next eight weeks the MPS for this particular firm is frozen. Each firm has its own time fences and operating rules. Under these rules. fro-en could be defined as anything from absolutely no changes in one firm to only the most minor of changes in another. Moderately firm may allow changes in specific products within a  product group. so long as parts are available. Flexible may allow almost any variations in products, with the provision that capacity remains about the same and that there are no long lead-time items involved.  The purpose of time fences is to maintain a reasonably controlled flow through the production system. Unless some operating rules are established and adhered to. the system could be chaotic and filled with overdue orders and constant expediting. With the trend towards reducing lead times and increasing product choices. companies are continuously trying to reduce the time period within  which the MPS is frozen without wreaking havoc on the factory floor. This allows firms to react more quickly to changes in customer demand. To accomplish this, the overall quantity of products within a product group or family is typically frozen while the mix of products. within the group or family. in terms of specific models. remains flexible up until the last minute,

Inventory Systems for Dependent Demand

Inventory Systems for Dependent Demand 

Merck Fross Canada & Co., a division of Merck and Company, produces a wide variety of high-quality pharmaceutical products. Shortly after implementing an RP II software system, management recognized he need to focus on coming
a Class A manufacturing company inorder to across e using excellence. Accomplish this, managers began in 19~8 to work closely ., h he a e Wight Company, anMRP consul .')g firm. a result of this effort ,Merck Frosst Canada & Co. zas able to achieveClass A excellence very qUIckly and With very. impressive results, some of hIGhincfuded
• On-time del" very increased over a three-year period from75 percent to 98 percent.
• Supplier delivery performance increased from 75 percent a 85 percent .
• Manufacturing cycle time was dramatically reduced.
• Inventories were reduced roman average  of 5.3 months to 3.9 man hrs.
Source: Provided courtesy of the Oliver Wigh Companies, New London, H.

When we are dealing with end products, such as automobiles, refrigerators, and personal computers, the inventory
models presented in the previous chapter are often applicable  This IS especially true when the demand for these types  of products are considered to be in$Pendent.and relativelyConstant throughout the year. However, there is another  category of products: the subassemblies and components that go into these end products. For this group of products,  he demand is not independent, but rather, it is dependent on the demand for the end products in which they are used. For example, the demand for automobile tires is dependent on the demand for cars. Similarly, the demand for keyboards is dependent on the demand for personal computers. In. both cases, once the demand for the end product has been established, be it cars or happens the demand for the components used in these products can be determined easily. To address the inventory issues that are associated with these types of products, a concept known as materials  requirements planning (MRP) is used.MRP was originally designed as a stand-alone system that operated almost exclusively within the manufacturing or operations function of a company. Today, an MRPsystem is often integrated into an enterprise resource planning (ERP) system, which is typically organization-wide. In essence, as shown in the comparison between Exhibits  17.1 and 17.2, what MRP initially did for manufacturing,in, terms of integrating all of the various operational elements, ERP is no doing across all of the functions within an organization. Over the years, the role of MRP has changed significantly. initially, MRP was used primarily for shop-floor control within the company. Today, many of the leading-edge manufacturing firms, however, use JIT for shop-floor control and utilize MRP to determine the subassembly and component requirements that are supplied by vendors, as shown in Exhibit 17.3. With continuous emphasis on  reducing both inventories and lead times, the need for accurate information, in terms of the quantities of individual items required and their respective due dates, is mora important today than ever before. And this type of information is readily provided with MRP.

MRP systems. in part or in whole. are used in manufacturing firms both large and small. The reason is that MRP provides a logical and readily understandable approach to the problem of determining the number of parts. components. and raw materials needed to produce each end item. \IRP also provides the time schedule specifying when each of these materials. parts. and components should be ordered or produced.  he original MRP planned only materials. However. as computer power and speed increased over the past 20 or so year, and applications expanded. so did the breadth of MRP. Soon it considered resources as well as materials: now MRP also stands for manufacturing resource planning (MRP II). which will be discussed later in this chapter.

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Inventory Systems for Dependent Demand

Inventory Systems for Dependent Demand

Chapter Objectives

• Explain the changing role of materials requirements planning (MRP) within a manufacturing organization.
• Discuss the role of MRP within an enterprise resource planning(ERP) system.
• Introduce the fundamental concepts and calculations that drive MRP system.
• Define the various elements that makeup an MRP system.
• Demonstrate how MRP-related systems are applied in service operations.
• Recognize that MRP and JIT can be used together within an organization